Lyn Alden: Nothing Stops This Train | ETHSofia

[Music] hey Lyn can you hear us hear me uh now we can yeah thanks for being here today so just before we start uh short introduction of Lynn as most of you know her but just in case Lenn is a well-known microeconomist uh in the crypto sphere she is also part of IG death capital and uh on The Advisory Board of swan she has also a very good newsletter um that uh is coming out bi-weekly and of course her book broken money which uh we have translated in Bulgarian is coming out on the 15th of December the latest uh so yeah once again thanks for being here today and our first question for you is um nothing Stop The Strain this is uh something that you're posting on on X quite a lot uh and overall just it's in your newsletters quite a lot could you explain in layman terms what you mean by the I don't know therm or just general phrase that you're using on X sure so that's a that's a reference to um Breaking Bad um uh that Nothing Stops his train and what I mean by it is that large uh fiscal deficits in the United States are going to continue for quite a while um they're above average and there's very little probability of them being uh meaningfully reduced uh anytime the near in the near future and this has a variety of macroeconomic and investing implications um you know a lot of investors are very focused on the credit cycle or monetary policy that that's really been the guiding force for for developed markets over the past four decades um but ever since about 2019 and then especially starting in 2020 with Co we' been in this this higher nominal and percentage of GDP fiscal deficit um framework um which has been surprising to a lot of investors because there a lot of their tools or a lot of the things that they historically learned to focus on are actually kind of taking a backseat to the sheer amount of fiscal stimulus and PR stimulus that that's H the economy on a on a quarterly basis um and the the relevant thing for um crypto assets is that basically you know that the denominator um is kind of in a sustained debasement mode um which you know to some extent it always has been you know fiat currency is always weakening um but basically when you're running the these high of structural deficits that background level of debasement um is faster uh and so my my general argument like the the key thing that I've um been focusing on in my investing is that we're in a hotter nominal GDP and a hotter like nominal asset price environment than we would otherwise expect if we were running you know 3% of GDP deficits rather than six or 7% GDP deficits and I think that investors of all types whether it's trafi uh or in this space um should be mindful of that fiscal impact in the economy because it's actually a lot more powerful than some of the monetary policy impacts that we historically see thanks for that Lyn uh and the second one is with regards to your answer just following up on it uh how would Bitcoin and the overall crypto sector likely perform in a fiscally dominated world as you said uh right now and in one of your newsletters uh a while back you said that uh the last cycle was in the midst of everything up cycle I mean the last crypto cycle was in the midst of everything up cycle post the high CO covid stimulus and now we're in a different world with higher rates and gradually increasing liquidity instead instead of having a uh large jumps in liquidity uh how do you see this cycle play out from a liquidity point of view uh Bitcoin versus L1 such as ethereum uh and salana versus other altcoins how can you imagine it yeah good question so if if you back up for a second the reason that us deficits matter even globally is just is partially because of how big of an an economy the United States is so when we look around the world for different types of stimulus the United States China um and then a handful of others you know um um you know the ECB or Japan these tend to be globally impactful when they make pretty big changes and so the US deficits the the the Nothing Stops this train meme is not just um a US phenomenon it has Global implications um historically if the US runs big fiscal deficits but has tight monetary policy like we saw for example in 2022 and 2023 um that tends to be ironically a strong dollar environment which can impact a lot of emerging markets and slow them down they have Dollar dominant debt on the other hand if you're running pretty hot fiscal but then you're also supporting it with monetary um we like dness that tends to be very stimulative across the board that's what we saw in 2020 and 2021 um and so to get to your question you know 2020 and 2021 were kind of like everything up like almost every every asset is up um whether it's um high quality stocks whether it's um like for example Arc Type stocks like unprofitable but but Innovative companies they were they were soaring um uh Bitcoin all coins across the board everything's basically up in 20202 21 um and what I think what I think characterizes this current and next cycle is a differentiation in quality so for example we've seen a rebounding in a lot of um high quality equities but we've not really seen a rebounding in unprofitable equities there's not a lot of investor appetite it for companies that are not making money um in an environment where yields you know on on a lot of traditional assets are like four or five percent um there there's actually a cost of capital and so there's there's more of an investor preference toward things that are quality um and so um I I think what you want to be focused on is in the in the in the broad crypto space is things that are actually quality um you know in this cycle there there has been like a meme cycle but that's mostly that's not really new retail coming in that that's like existing kind of PVP um entities playing around um and I think that you know this cycle is going to be probably more dominated by larger pools of capital so institutions coming in uh and then to the extent that we get retail back into the space probably after fresh new all-time highs um you're not I don't think you're going to see the indiscriminate buying across the board and I think there's going to be an emphasis on quality um so the things I tend to focus on are Bitcoin and then stable coins which are obviously not really investable but you know you can look at the the rails that they run on and that kind of thing and you know real world assets things that are actually solving problems um and expanding markets uh is how I tend to to view the the space primarily I think there's there's more of an emphasis on not just speculation in this cycle but on what is what is actually solving on the ground problems for people people in various countries so the bigger the problem the better the payoff if I may just jump in here so are you saying that you don't expect L that we have like the similar type of rallies that we saw like in the last two cycles uh of various out coins and that the growth from your perspective would be mostly focused on bitcoin let's say and stable coins as a just a size I think it depends on whether or not there's a new tech narrative so e each of those Cycles one was a liquidity cycle so i' I've done research showing that the whole Space is pretty correlated with measures of global liquidity um so what they tend to have in common like the the the 2017 cycle even even earlier Cycles but let's say the last two cycles 2017 and 2021 they were positive liquidity Cycles but then also there was there were Tech narratives in the space um so whether it's icos defi nfts each one had these kind of like leading narratives um that event kind of saturated itself it kind of hit a peak period of speculation um and then eventually kind of subsided and was no longer like the main character narrative um uh so I think whether or not we get a broader rally in the space will partially depend on whether there's a narrative that's similar in scale to those um and at the current time I don't really see a narrative like that other than maybe real world assets but that is that it's kind of inherently less speculative in a way obviously people can speculate on which rails will win markets like that um and people can place their bets accordingly and even I mean stable coins are a type of real world asset essentially it's it's kind of the original real world asset it's taking a dollar and putting it on the blockchain um and so I I tend to be focused on those utility questions um and so you know probably the people here would be better than me at speculating on the next um say non-bitcoin narrative in the broader space um but the thing I would bring from a macro perspective is to say that the monetary and fiscal environment is probably less supportive of speculation in this upcoming cycle and that it's more differentiating between um what is actually solving a problem versus what is not thanks uh we said that this cycle is uh influenced by larger pools of capital uh relative to previous cycle because hence uh are ETFs a net positive or a net negative for BTC and eth and is there a difference between them uh as in what they mean for the market and what's black Rock's impact on the market overall so I you the the a lot of people ask if if it's good or bad I I step back and say first of all it's inevitable any any asset that get sufficiently large and liquid is going to have ETFs for it um that's basically the Fiat systems API for plugging into it that that's that's just how they that's how they plug in um and so if any asset can't handle ETFs being made for it like if that's a problem then that asset was never really um useful to begin with uh that's like a a fairly low hurdle rate that an asset has to step over um to be globally relevant um so you know on average I view it as a net positive because it it basically just means that there there were large pools of capital that wanted to be in but didn't have uh a regulatory or functional way to get into the space earlier um and so you had to use inefficient proxies like um you know grayscale where in addition to um being uh prone to the the price of the asset you were also focused on is it is the premium going to turn into a discount or how deep can the discount get can the discount ever be resolved with like redemptions of any sort um and that of that of course blew a lot of people up in the past cycle when people were leveraged based on that that issue um so you you could argue that if if if spot ETFs came um the last cycle could have been less damaging for for people in the space um and then there are pools of capital that like for example they can't even buy like um a Bitcoin ETF they can only buy like there there are large pools of capital that can only buy stocks like companies or could only buy bonds right now the main entity filling that role is micro strategy so if you're if you're a stock and if you run a stock fund and you have to bullish on on either Bitcoin or the space um one of the only Avenues they can express that view is either the miners or or micro strategy currently there's not that many ways for them to express bullishness on the rest of the space there not really like that companies that are that are heavily engaged maybe coinbase um is probably the best way they could express that um and then uh same for bonds so micro strategies for example uh issuing bonds convertible bonds so if you happen to be a bond investor that happens to like the space um that's one of the Avenues that they can express it and the high premium to naav shows that there's a lot of buildup demand among institutions um for these types of products um and so when when we come back to the spot ETFs basically there's just there's penup demand for these assets and now that's being met um and you know there's a centralizing force to some extent but a lot of it is just rotation so we've seen for example um gbtc had over 600,000 coins um that a lot of that drained into the other ETFs there's now more coins in total in the ETFs than there were in grayscale but not by a not by a huge amount it only went up by a few hundred, coins and the price increase associated with that was pretty large and so to the extent that you'd get another few hundred th000 coins into these uh entities it probably would come with pretty big price increases and therefore or it'd be harder for them to kind of capture a very big percentage of the the market so I'm not that concerned about it even though it's something I'm monitoring um as for how it impacts different assets uh you know I have a little bit more concerns around how large um Holdings of an asset will impact proof of stake networks versus proof of work networks um but that still remains to be seen um and then it's also possible that because the current regulatory environment doesn't allow staking yields in the ETFs um that could slow down the attractiveness of those products compared to if if we get products where the the stake and yield can be part of the the total return uh environment yeah we'll see I guess it will develop over time uh but uh coming to the us as it's an impactful country on our lives uh whether we like it or not uh all over the world especially in finance uh what will uh a trump or a Harris win when mean and isn't it better for Bitcoin to have an adversarial overall government in the longer run instead of having a um a f a crypto-friendly one uh just generally because of the nature of Bitcoin and why is it created so I I think it depends I mean um you don't want adversaries for the sake of adversaries but you you probably you know you want your your your system to be battle tested so I think it's good to have allies like the fact that you know El Salvador uh made Bitcoin legal tender I think is is a good thing it's not like you know it's a smaller country but it's it's useful to have little safe havens around the world that are supportive even if you have you know maybe some larger entities um push back on it I think unfortunately whether you get a Harris win or a trump win I don't really see the US um privacy uh situation improving anytime soon so the the US um Financial establishment has a has a very anti-privacy framework um and so whether it's tornado cash whether it's um Samurai Whirlpool um whether it's mixers in general now I mean they the fact that they're even like that they've kind of established their precedent of going after non-custodial privacy Solutions is super concerning and I don't really see that likely changing in the next four years um you know maybe around the margins it could determine how aggressive they are um but this this has been ongoing through multiple administrations uh and a lot of it is is not really direct policies of of the president it's just kind of like this part of the machine uh is against it um and I think that for better or worse I would I would consider it worse I think these anti-privacy policies regulations prosecutions are going to continue so you're going to have an adversarial environment on on that side um and therefore there's there's still an ongoing need for any sort of Cipher Punk development um across the board I think the the main area where a trump vers Harris election matters for this space is mostly in the crypto Securities like mostly in the SEC type of stuff like what is what is allowed to exist um without being heavily fined or gone after in some significant way like what what can you tokenize um what can you sell to the public I think that that's probably where this election has the the biggest impact for the IND hisory whereas like the the deeper stuff like the Privacy um some of the the core reasons to it exist I I think are still going to be pushed back on probably yeah and Lyn speaking about the Privacy um I'm curious to follow up like since you obviously uh one of your major uh Endeavors is the EOD that Capital Venture Capital fund since you see this is a very big issue regardless of what the outcome will be of the election do you yourself as a as an investor um and as an investing group look into such privacy focused Solutions Solutions have you maybe invested in such or are you looking for such ideas in general so we have um basically the challenging thing with privacy like in in this whole Space the more Cipher punk you get generally the less investable it is um and the less Cipher punk you get the more investable it is so if you have a big kyc exchange that's a very investable thing um whereas like peer-to-peer trading or privacy Tech tends to be a smaller market and a riskier market from a regulatory uh perspective um we have invested in for example CH and eash companies so that's basically taking a 40y old um privacy um Tech and then putting it on top of of say Bitcoin or stable coins um that kind of thing um so that that's an area we've been interested in um and you know some of our companies just by by their nature um some of them are privacy focused other ones are not um I think one of the best ways to fund privacy is actually grants rather than investing so in addition to investing in the space in for profit companies that are you know Venture Venture companies you know I donate to like the human rights foundation and other entities that are trying to support um whether it's research whether it's development whether it's education um supporting kind of privacy Tech or just just just you know anything kind of touching Bitcoin stable coins um that whole Space um because some of that doesn't flourish in a for-profit um company and some of them are Nims like some some of the developers are NIMS in in the Privacy space for their own protection um and you know to the extent like I can meet some of them in person uh and still not know their names um and so you they build reputations that become fundable uh with grants um and less so for wanting to be associated with a uh for-profit company um so there are I would say there you know kind of answering your question I would say there are privacy Tech uh things that are investable um but probably the broader space is is more grantable which is to say that a lot of privacy Tech is is probably a little bit below the surface for what is super um financeable from a for-profit perspective and that and that grants kind of fill that Gap because you know it's basically saying that like um it's something that you want to exist even though it either doesn't make money or or is probably best incentivized by not making money um or it's not at a scale or regulatory Clarity that it could make money but that you think it's good for the ecosystem for it to exist and uh then in terms of the more investable stuff I'm curious like also because in this conference uh we have a lot of Builders right uh who are looking to solve actual problems maybe uh if you can like on top of your head maybe one or two kind of big problems that that you as as yourself and as an investor group are looking maybe for potential Solutions uh and so potential companies that are addressing these issues can you share some of do you have such in mind sure so one of one of the themes I look at is not Reinventing the wheel but applying the wheel to more locations so if if we know that certain companies are successful in big large Market markets you know the United States um parts of Europe uh and elsewhere then the question is well can you can you apply that similar Concept in India can you apply that similar Concept in Brazil can you apply that similar Concept in in you know countries across the world uh any sufficiently large Market um to make sure you know one is that more people have access to it and then two because it's you know potentially an untapped opportunity that is that is proven in in another market so even basic things like exchanges or Brokers are are still investable um because it's it's taking a proven model and just kind of making sure that there's other markets that have access to high quality versions of those um and that are that are specialized to that market um and so that that's one of our areas uh and then two is any sort of like infrastructure um that makes interacting with the assets easier um you know anything that makes you know touching Bitcoin or stable coins or you know things like that easier um I'm also bullish on on anything that can bring real world assets to more people um and so I think I think those are the themes that I would I would be kind of focused on is um and of course there's a you know there's like a a different series of s-curves that happen here where you know right now the medium of exchange use outside of stable coins is still fairly small stable coins have captured a lot of that market because if you're if you're exchanging things rapidly you don't really want volatility you don't really want um capital gains taxes and so stable coins have been really powerful for that use case store value's been been pretty heavily in the in the Bitcoin side like long-term store of value and then the question is what other you know what other is is capturable um and so you know that that's kind of how I I approach it all right thanks for that cool and uh so I have this one like or like actually two more questions but one is going to be little more focused here on our environment here in in Bulgaria so in our PR conversation I mentioned to you that uh we currently as a country um are have our own currency which is packed to the euro right and we have this large uh discussion ongoing public discussion that's been going for the last two three well maybe even more years as to whether we should join the Euro Zone actually or we should just keep it as it it has been you know just having our local currency being act to the euro um so it would be very valuable for us to hear your kind of thoughts on the Euro Zone in particular uh if you feel like sharing in our situation if you are aware but on the Euro Zone in general what's your outlook um from from the perspective obviously with all all all your macroeconomic uh experience and and and and thought leadership so I I've been fairly critical of the Euro Zone um basically the idea of a monetary Union without a fiscal Union um is a challenging concept um you know if if you look at how US states work most of the debt is on the federal level and like the Retirement Systems and all that that's where a lot of the debt is all the entitlement stuff a lot of that's on the federal level um not the state level there's some on the state level but when you look at say State debt to GDP like State debt relative to State GDP that tends to be quite low um most of that's elevated to the fiscal like the national level whereas in Europe the fact that you have all these you know you can kind of classify that the different countries as like being really large states uh in this kind of broader Union um for for financial purposes and the debt is all on their local level it's all on the it's all on the country level even though they don't control their own currency um and that that just greatly complicates managing that whole Arrangement so for example you you have you know Italy and Germany have very different requirements for um ECB support for example um and then in practice we've not really seen like not joining the Euro Zone holds countries back I mean like the the the catchup that Poland has done relative to you know the languishing of a number of Euro Zone countries like Italy and others uh economy-wise um shows that um you know I generally I generally view retaining their own policies as as probably being the Baseline I I think there there has to be a pretty strong argument for why a country would want to give up that capacity and join this this broader Union and give up the agency that they have from their own currency um you know pegging is obviously uh you know a solution uh that that can make things simpler but they still retain their own kind of ultimate um you know their ultimate agency so I I I'm generally if any country that I I was involved with I I would personally not really want it to join the Euro Zone uh and I make a similar argument when people say that it's going to be like a shared bricks currency um you know the different bricks countries they have less in common with each other than even the Eurozone countries um a lot of bricks countries don't even particularly like each other uh you know from a from a political standpoint and yet they're they they have kind of a practical uh joining uh because of a lot of shared interests um and you know I generally view that that that they're going to evolve with more and more bilateral trade agre agreements maybe even potential shared Reserve assets on kind of The Sovereign level that they can trade around but not not an actual shared currency um because I think that the Euro Zone has showed that that's that's not really been a strong path okay uh and as a last question before we open this to the to the audience maybe if if they have some questions to ask but um so obviously the reason the the major the initial reason for us having this conversation is the translation of your book in Bulgarian um last year about a year ago uh cadin reached out to me um because I've been translating a few other books about Bitcoin in Bulgaria and he said like we really have to translate this uh this book and make it available in our country um and for our audience here I want to ask you why did you write this book since there's so many already other books right about about money about Bitcoin in general why did you feel the need to write this book and who is who is this book really for so I was resistant to writing a book for a long time because it's a very tedious process and generally low Roi compared to other things you can be doing um and so I didn't write a book until um like this specific book kind of came into my head that there were certain thesis I wanted to express in a long form complete package and it became distracting for me not to write the book so I kind of had to write the book um and it became like a passion project for that entire year um and so what what I kind of the niche that I generally found was that there are a lot of books on the space that are short or midlength and I I thought that there was space for a really comprehensive one uh one that kind of like started at like really early first principles like literally the book starts out with like hunter gatherers money um and works its way up to the modern era um in addition I generally found that in books on Finance in general there was um like when you look at any book on monetary history often it's about the history or the politics of money and there's not as big of a focus on how technology changes money so for example the introduction of the telegraph um was a massive GameChanger for for money how money works and yet you don't really see that discussed very often uh and of course the same thing with the internet now the things like that so how does how does improving technology impact either what we use as money or or who controls the money or how you know what what kind of um layers that we use to interact with that money um and so I wanted to explore how over literally centuries or in some cases even longer how how changing technology changes how we interact with money and so in that book um you know the digital assets don't even really come up until the final third um because the the first two-thirds are like let's establish a foundation of of what is money how is money evolved over time what is finance how is that evolved over time how is all of it shaped by technology and then uh then it gets into the modern era and says okay now what what can we imply from this going forward um as for a target audience it's it's basically anyone who's interested in the space um you know it's it's on the longer side of books um but it's very accessible and modular is how I approached it which is say that it's it's um long books can be kind of intimidating but if you make it so that they're readable page Turners um then the length doesn't in practice feel as long as it is um in addition I've generally found that it's um a lot of institutional type of investors like it um it's it's written in language that um that works for them uh and so there'll be fund managers that give the book to their you know other fund managers or or people in their organization um so whether it's professionals or whether it's a retail audience um uh that that's really kind of how the the book is Target anyone who who really wants a foundational understanding of money finance and then extending into digital assets absolutely thank you so much I think this is so so necessary as a base of knowledge that many people take for granted that they have and and that I I think it's not really the case so um sharing my appreciation for the work you have done and the work that we're bringing here to Bulgaria okay having said that um we're going to open it up in case people in the audience have uh any questions you can go to the mic uh that VL has I want to get you uh to ask you two macro questions uh with that amount of fiscal spending in the US do you think that uh getting a recession is really possible in the US and the second one is how probable do you think that we get a second wave of inflation thank you yeah good set of questions um I generally view that the large fiscal spending reduces the chance of a recession uh and then to the extent that we do get a recession it would probably look different than the average recession which is to say that it would probably be in some ways more like an Emerging Market recession um you know the the the general thing is that Emerging Market recessions tend to be more like currency crises rather than employ unemployment Cycles uh whereas in the US uh recession is generally characterized by an unemployment cycle um and I think this this kind of structurally running hot environment um probably softens recessions um but then makes them on average less disinflationary um so to your question on around if we get a second wave of inflation um I view it somewhat as one I think that the background inflationary Baseline is going to be higher than the 2010's decade um because of this fiscal support and then whether or not we get a true a true wave of inflation I think will parti should depend on two things one is energy right so the the the prior inflation wave was partially tied to Energy prices not entirely um but it's it's hard to get really high sustained inflation with energy um so as long as China domestic energy consumption is fairly modest which it is right now because they're you know they're they have a very strong export economy but they're they're they have a very pretty weak domestic e economy right now and as long as OPEC has significant spare capacity and there's no major war disruptions to energy flows that keeps that in check for at least a while um but whenever we do get energy you know shortages either either because demand picks up really quickly or because Supply is impaired that would be inflationary and then the other one is a credit cycle so if we get a you know right over the past few years both in the US and globally um credit has been pretty sluggish which is to say that because rates are pretty high and central banks are trying to be hawkish um they've slowed down the growth of private credit um and it's been somewhat softened by all of that fiscal um deficits uh but we're seeing kind of early signed that we that we're probably past the peak of of credit tightness and we could see another positive credit cycle which is that more more entities taking out private debt basically on top of this fiscal uh environment um and so I think that whether or not we get an inflation cycle will pars depend on China and US fiscal policies the credit cycle and energy so I think that my base case is is just stickier above Target inflation and I would call for a second wave of inflation only when I saw more tangible um likelihood of a credit cycle or energy shortages hello Lynn uh nice talking to you so my question is about uh payments adoption as a whole I would like to divide them into three categories so usdt adoption on turn for uh developing countries with high inflation uh the lightning Network on bitcoin for de more developed countries and the rest of the crypto space so in your opinion is the rest of the crypto space lacking in terms of payments adoption and uh how valuable is payments adoption in your opinion uh you in compared to uh the other problems that the crypto space is trying to solve like bringing the additional Finance on CH so I think that payments are important but still like a fairly small Market compared to the rest of the space outside of stable coins um I mean one of the earliest use cases for any of this was payments like when when Wikileaks um you know got got blocked out of PayPal PayPal and others uh kind of before Bitcoin even at a price uh it was one of the mechanisms for how people could still donate to it um and and keep it uh you know running um so that kind of permissionless payments um is a key feature of this space um uh even though it's not necessarily a huge Market uh in terms of what people are using for now in terms of store value or uh defi or stable coins um you know I think for for for a lot of people's use cases uh you know kind of short-term working capital and exchanging value um stable coins fill the fill the Gap uh for non sanction countries um and things like that um that probably persist for another several years I mean eventually you can get to a point where um you know even the dollar itself runs into runs into problems um but right now because there's so much Global you know dollar dominated debt demand for dollars um and you know fairly low volatility of the dollar um I generally see stable coins unless the US decides that they don't like the existence of stable coins which so far um they've been moderately supportive of them um I I generally expect the stable coin Market to keep kind of dominating that that market for a while um and the other ones are more about optionality so like the lighting network is still small but the fact that you know one of one of the use cases of Bitcoin is that you have your own Global capital and almost any urban center you go in the world world you can eventually find ways to uh exchange your Bitcoin for local value whether it's exchanging it for the local currency or exchanging it for goods and services directly um that's something you can do with the asset that you can't do with like an ETF or a share of the S&P 500 or something like that it's a bearer asset that the fact that you you can offload it in a in a variety of different markets uh for for direct or indirect purchasing is a is a key feature um and I expect that for for most Networks including Bitcoin um the the payments is probably going to be um you know kind of a friction filled market for a wild that's where a lot of the regulations are against that um that's where privacy is super useful like you want you don't want like if you if you withdraw an asset from coinbase you don't really want coinbase then watching everything you spend it on um you you generally want privacy um and so a lot of people when they think of privacy they think of privacy from the government but it also means privacy from other entities the corporations um spying on you um and because there's whether it's whether it's Europe whether it's the US um there's a lot of anti-privacy um uh frictions I think that that you know uh that's just the hard that's one of the hardest part of the markets to operate in compared to store value or or or financial systems that the actual payments thing is the most regulatory hurdle um and then outside of stable coins so far currently a smaller Market um so I think it's important like I think it's it's it's there's a there's a gap between how important it is for that space to continue to be developed and continue to um you know grow and be adopted versus where we are in the cycle and where the regulatory attacks are and the size of the market okay thanks uh next question there on the back yes uh Lynn thank you very much for your time and attention uh always instructive and informative uh so that's great you've talked about the US election I'd like to turn your attention to Rising tensions in the world particularly given your background in Egypt uh how do you view the situation in the Middle East uh Egypt borders Israel and Rising tensions there if you could put a macroeconomic lens on tensions Rising tensions good question and for for context for people that don't know I I live part of uh each year in Egypt uh it's kind of my second home um and so I you know it it gives me kind of an experience in that region um you know like the way the Egypt's approaching this is they're they're trying to like avoid direct conflict um you know the ironically one of the most impacted countries by all of this is Egypt because of the impact on the SE Canal the safety of the Red Sea and the the dollar flows that they get from that so ironically as as Israel and Palestine and Iran as as and and um you know houthi Rebels a and and Lebanon as they all go at it one of the one of the most impacted economically has been Egypt even though they're trying to stay out of it um and um you know I think that a lot like this is obviously very it's massively impactful for any people in the region that are directly affected I mean it's it's a human it's a it's a you know human rights crisis it's it's um you know there's just war is a horrible thing uh whether it's whether it's in Eastern Europe or whether it's in the Middle East the fact that these wars are going on are massive human conflicts to the extent that they're relevant for Global Investors or from a macroeconomic standpoint the key question to start with is you know what are the probabilities of impacting oil flows um whether it's Iran sanctions whether it's attacks uh between countries on energy infrastructure um that kind of thing um that's that's a really big uh factor to Monitor and then two in general War is inflationary so um when we think of inflation the the Baseline is not zero it's negative right so I if you know if you have 7% currency growth and inflation is two or 3% what that means is you have like you know basically like four or more percent of annual productivity growth which is that uh you're getting better at making things and distributing things so for example we're better at making Electronics or clothes or um a bunch of things than we were 20 years ago uh and part of that is because of automation part of that is because of globalization uh and so things that that detract from that things that blow things up or make make Supply chains um you know people realize that maybe our supply chains are too spread out we we optimize efficiency over resiliency and so any shift back toward resiliency tends to be inflationary it it kind of means you're not optimizing if you had a perfectly peaceful world and every every country was happy with each other you could you could have this like really fragile supply chain that is hyper efficient but then the extent that you have the the the risk of countries cutting each other off or adding tariffs or doing outright War it means that you have to think about the resiliency of your supply chains at the cost of efficiency and then you get this higher kind of Baseline inflation or to put another way you get less disinflation even though we still have you know we have better automation but then we have you know kind of um more duplic ative Supply chains or more uh Supply chains that are closer to us that are maybe not optimizing for cheapness um I I think the the energy and Supply chains are where this Matters from a global um standpoint um and then the obviously the the regions themselves it's a human crisis thanks for that uh we have a few few more minutes and we're going to have three more question is that okay with you Lyn yes that's fine thank you I appreciate it so next question please heyen can you hear me yes I hear you um thanks for the presentation so I have a question for you I understand now that your take on inflation that can come from credit Cycles or also energy but I wanted to get get your take on this argument what if and I understand that fiscal policy for you is more it looks like more important now than monetary policy and I would say that even the federal government admits that sometimes so I would like to get your take on the argument that lowering rates is actually deflation deflationary and not inflationary if everything else the same yeah it's a good question um and this is this is a um concept I've I've explored to varing degrees including in the other direction are higher rates you know less disinflationary than we expect um and I I argue that in general when you have higher public debts um interest rates are less effective uh in both directions at dealing with inflation so if you go back to the 70s uh to use the us as an example most of the money creation was from Bank lending um and there were fiscal deficits but they were smaller and public debt of GDP was only 30% so if they if they raise rates it slows down Bank lending more than it blows out the deficit whereas if you fast forward to the modern uh period where the US is like over 20% Deb to GDP when they raise rates it does slow down Bank lending but then it it actually blows out the fiscal deficit by a bigger absolute dollar amount then it slows down Bank lending uh and it becomes somewhat less um disinflationary than than you'd expect from from high interest rates the same thing's true for Japan even more true because they're even deeper into fiscal dominance um Europe uh it depends on the on the country um uh and you know then there's the Euro Zone as a whole um but in general that that's that's probably more mixed in terms of of whether High rates are inflationary or disinflationary the complicated part is then we have to look at the global perspective so because a lot of countries in the world uh especially Emerging Markets have dollar denominated debt um the interest rate policy affects them and you know the majority of of global population lives in in what is classified as a developing countries um and that's where the marginal Global G DP growth comes from now um including some of the inflationary like effects so when a when a highly uh developed country has GDP growth it tends not to be very commodity intensive um whereas when a when a a country with lower per capita GDP has GDP growth that tends to be more directly um commodity bullish um because there's lower per capita use to begin with there's there's a much higher um floor of potential growth uh in in direct commodity usage um and so when you have a strong dollar whether it's because of um aggressive fiscal or tight monetary policy that tends to weigh down and hurt the liquidity of a of a number of different uh Emerging Markets so to the extent that rate cuts are inflationary or disinflationary I'm somewhat in the middle on that it depends on what else is going on but in general I think that mild rate cuts are probably inflationary in the sense that they relieve some of the debt burdens or they they ease some of the liquidity constraints of Emerging Markets um and allows them to kind of potentially have a a credit cycle um so I you know I think that indust rates are probably less impactful for inflation than a lot of people think because of how far we are into this debt cycle and instead it's questions like um what is what is the size of the fiscal deficit and then what is the rate of of credit growth which is only partially affected by that by the rates thanks a lot um there she wrote a very indepth newsletter about this I think uh 6 months ago uh so if you have time you can read it uh on her uh newsletter we have another question yeah hi ly uh thank you for uh taking our questions um taking into consideration the environment of Waring interest rates for example EB has just wed um for the second time this year its interest rates and um also the expectation for Ling interest rates in the US to the end of the year um uh also the factor that this is an election year so the next year will be post election year um taking all those considerations um in mind uh what is your expectation for the next year uh because uh when um there's a notion that after a tiing cycle when um interest rates start coming down that means that uh there's something broken in the economy and uh it needs a little push and stimulus uh and also the fact that it's a post election year what uh is your general outlook for the next year uh do you think it's like more bullish or bearish just your thoughts on that topic thank you I generally view it as as probably more bullish and I'm looking for Global Leadership rather than like us economic leadership so rather than kind of the US pulling pulling the world along I think that kind of like the 2001 to 2007 cycle um that was a that was a period where where where non- us entities were kind of uh ahead and pulling the us along um so I think that's a realistic possibility of the next few years which is that the US kind of softens or um doesn't particularly flourish per se um but that the you know the fact that a lot of countries have gotten through a tightening cycle uh and are now able to ease um can allow kind of like bricks Le growth or um just general Global Le growth uh compared to the US um that that that's kind of what I'm somewhat watching that's why I think that that China you know actions out of China are probably equally important as actions out of the US um key things to watch in the in the next year in the US are one is that some of the some of the tax cuts that Trump did in his term are set to expire um and while I don't really expect us policy makers to to directly kind of reduce the deficits much um these things that are automatically set to expire are kind of the one of the few ways where you could get actually a little bit of deficit reduction um and that partially depends on who wins and then how they manage it when they win um and so I think that that's probably one of the one of the you know kind of the Boolean outcomes to watch is what Happ happens with some of those um tax cuts because if you if you do get a little bit tighter fiscal policy in the US that that can have Global implications uh whether it's whether it's through the dollar or whether it's through US consumption from the rest of the world um and so I think that's a that's a key thing to watch but other other than kind of like that variable I tend to have a pro- liquidity view for um 2025 and I you know I think that a lot of that is basically that fiscal is still going to be a pretty big background force in the US and and some other countries and then we might have a a more positive credit cycle on top of that in contrast to the the last two plus years of a very sluggish credit cycle I appreciate and last question there from uh Bobby um my question is what's your opinion on the following discrepancy the S&P 500 and gold have been in a very significant uptrends this year while Bitcoin has been consolidating for the past 7 eight months I think it's because the ETF pulled forward demand I think basically um Bitcoin got overbought um in in March uh effectively uh and that that pulled forward demand people had very elevated expectations um you know if look at at like year-to-date returns bitcoin's been very strong even though all of that all of that growth happened between January and March uh and it's been consolidating since then um we generally see there's some selling pressure from from existing holders there's buying pressure uh from ETFs and entities like micro strategy um I I think we're we're slowly building out of this base uh is my expectation so if people ask me do I think it's more likely that that Bitcoin breaks out of this base or breaks down from this base I I think it's much more likely that we break out uh to upside from this base uh whether it's later this year uh depending on election outcomes or whether it's 2025 um I I tend to think that we're going to break out of this um but I think that you know right now it's it's it's a bullish asset it's just that some of that some of that like artificial demand was pulled forward and that's one of the biggest headwinds against it but I think that we've kind of gotten to the point where we work through that uh we kind of work through some of that um like uh accelerated expectations kind of renormalized uh and a key metric that I look at is um market value versus realized value um uh and that you can apply that to any asset uh if you have the data for it which is to say the market cap compared to what is effectively the onchain cost basis or the the the the aggregate dollar value of coins not based on the last time they moved um and generally whenever you get a a high market value compared to that cost basis you're more prone to Corrections um because some of that inflated value is not real yet it's not really been been actualized and traded around with high volumes at that price um and so even though Bitcoin is roughly priced how it was in 2021 um the bullish case is that the cost basis is now much higher U the B I would already kind of the floor of how people treat it is higher so back then the the you know even though the market cap got over a trillion in 2021 the onchain cost bases was something like 350 billion um whereas now at the current time we have a similar market value but the onchain cost bases is something approaching 650 billion um so you have that less of like inflated multiple of market value to um realized value and then even in this current period since March even in this consolidation the onchain cost bases increased from something like 520 billion to like you know 640 plus billion um and so I think the floor is kind of keeps elevating um is how I view it so the short answer is I think that that discrepancy is caused by ETFs pulling forward demand and that I think that we're we're kind of in a consolidation till we eventually break out thanks for that I have just last three things to say uh first I want to thank you uh joining us today and allowing us to translate your book I know I've been one of the most annoying people in your inbox for the last three months but I was persistent uh and uh thanks for uh George is also agreeing to do this and VL for organizing this uh whole event uh just a big round of applause for you and for George and everybody else thanks everyone yeah just last but not least buy ly's book that's it thank you guys [Applause] [Music] I'm