James Lavish warns of a $1 trillion bond crisis and sees Bitcoin as pristine collateral ready to absorb institutional capital amid fiat instability.
In this episode, James Lavish warns of a looming financial crisis driven by a $1 trillion leveraged “basis trade” in U.S. Treasuries—an outsized repeat of the 1998 LTCM collapse—that could trigger cascading margin calls and force unprecedented Federal Reserve intervention. He outlines a dangerously over-leveraged, opaque system increasingly reliant on unstable bond markets, where “risk-free” Treasuries are anything but. Amid this instability, Lavish frames Bitcoin as a neutral, decentralized hedge—like gold on rocket fuel—poised to benefit from monetary distortion and regulatory shifts such as the repeal of SAB 121. With Bitcoin decoupling from traditional markets and banks opening up to custody, he predicts institutional and even nation-state capital will soon flood into Bitcoin, positioning it as pristine collateral in a collapsing fiat regime.
This episode is a macro warning and a bullish Bitcoin thesis in one: James Lavish outlines how excessive leverage and opaque basis trades threaten to trigger a global liquidity crisis, while Bitcoin emerges as the ultimate hedge. No longer fringe, Bitcoin is increasingly viewed as a reserve asset and pristine collateral in a crumbling fiat system. With regulatory tides shifting, institutional and possibly nation-state adoption accelerating, and the window of information asymmetry still open, Lavish argues the decoupling is underway—and those who understand Bitcoin now are ahead of the repricing curve.
0:00 - Intro
0:40 - Educating financial literacy
7:09 - Bond Yields
10:58 - Fold & Bitkey
12:34 - Bitcoin decoupling and tariffs
16:28 - Diving into the basis trade
29:19 - Unchained
29:47 - Flights to safety - Gold & bitcoin
40:00 - SAB 122
44:18 - Strategy
49:08 - Hashprice
57:24 - Plugs
(00:00) In 1998, long-term capital management was doing something along the lines of the basis trade that we talk about today. They levered their book up. It was 100x or more. These positions blew out huge. Goldman Sachs was on the hook for a lot of the stuff. And if Goldman Sachs goes under, they're going to take down the whole street with them.
(00:16) Now, you fast forward to today. What happens if we start tripping margin calls on treasuries? You have a catastrophic sell-off. Yields going up, stocks going down, Bitcoin going up, divergence. What do you think this does for Bitcoin if we truly do decouple? It's gold on rocket fuel.
(00:34) The total market value could double. Sitting down with James Lavish, the number one trending trader in Substack's finance section right now. How's it feel, sir? I gota I got to admit it. It It feels fulfilling. It's satisfying. Yeah, I put a lot of work I've put a lot of work into that newsletter. Well, it's really good.
(00:58) I've been a a paid subscriber for I think a couple of months now, not too long, but you wrote an article on the Treasury basis trade and when I hit the you must pay to read the rest of this, I was like, you know what, I'm going to actually pay because I want to understand better. Awesome. Awesome. What do you think is driving people towards the informationist right now? Um well, you know, it's funny because this morning, uh Scott Bassant was, uh he was quoted as saying that we need to make people in America financially literate. We're not
(01:31) financially literate. We're not taught these things. You know, Marty, we're not taught them in grade school, not in high school, not in college. Even a lot of these concepts are not taught when you go get an MBA, even a finance MBA, not not marketing, you know. Um and uh there's a need for just education, general big macro picture education, how all these things work, the Fed, the Treasury, bonds, bond yields, you know, um and then of course, uh the new asset classes of Bitcoin, um and you know, how it all kind of works together. But the
(02:06) real need is for it to be simple. And so, um, I started the newsletter a little over, I guess it's almost 3 years ago because, um, I'm on, it's got to be over three years now because I'm on I'm an issue over 162, 163 and so once a week you get there. So um but I started it because I noticed that there's just everybody talks in acronyms and high real real like high concept um confusing topics and I just constantly had people ask me what does this mean? What does this mean? What does this mean? So I just decided to start the newsletter
(02:43) that simplified it for him. And so the newsletter is supposed to be educational really big concepts and the stuff that's really important about these, you know, it's not it's not the it's not the simple stuff, but it's simplified. Um, you know, so that was the point and it and it's been very wellreceived.
(03:02) People really like it. So, and correct me if I'm wrong, but if I recall correctly, one of the things that led to newsletter, you did a long thread on Twitter. It was Twitter at the time on treasury auctions and how they worked. Was that was that the inspiration for the newsletter? That was kind of one of them, you know.
(03:22) Uh quite honestly, what had what had really happened is I was toying around the idea of doing something crypto, something um something financial. And Sahil Bloom of all people put out this request. And he said, "Hey, if there's anybody out there who wants to team up and do a financial newsletter, there's a great need for some a simplified financial newsletter.
(03:42) " And so I reached out to him. He didn't respond. I only had like 10,000 followers at the time, so I wasn't a big enough account to, you know, to be a teammate of his, I guess. So, um, and about, you know, two or three weeks later, I said, you know what, I'll do it. I'm I'm I can write. I've written for I'm, you know, I've written many letters over the years for our fund, and I simplify stuff, and I'm pretty good at simplifying topics for people.
(04:08) I remember, you know, I I I like to I like to make people smarter, you know, like there it's really fun to explain to somebody when they say, "Well, what how did you start on Wall Street?" I tell them I tell them about arbitrage and they're like, "What is that?" And then at the end of the, you know, four or five minutes, they're like, "God, I think I could actually I understand it.
(04:28) I get it." And that's fun. I like that. So um it empowers people because then they can turn around and use the not arbitrage but they can use these concept in in managing their own portfolio their own wealth and understanding what's happening around them and that's really the most important part and it's what you and I get to every single day which is why is Bitcoin so important today why is it so important for everybody to understand this this new asset class and um and that really I I like to lead people along the path and have them make
(05:00) their own determination that yeah, it's a no-brainer. Of course, this this is what I need because of the evidence that's out there. So, well, on that note, I think for me personally, actually sent it a tweet out a few hours ago before hopping in the studio that it has never been clear to me that the world needs a neutral reserve asset for the digital age than it is today.
(05:24) If you hold Bitcoin, tying in everything here. Yeah. Uh you are basically arbitrageing the information asymmetry that exists because I I saw that tweet actually. I saw that. That's a great and that's a great quote actually. I love that. So actually I want I want you to actually read the tweet because there's actually is a it's a great tweet and uh and I uh and it resonates because it's exactly what we're talking about.
(05:48) There's an asymmetry. There's an there's an arbitrage of of understanding, right? Yeah, it's uh and again I think that's something me personally many people in Bitcoin they're they understand this but most they don't understand that most of the world doesn't and I think to what you're just saying too I think while why the informationist is so important right now I got a paid subscriber been a big fan following your your threads but you wrote about something that I really don't understand which was this basis trade and I paid to
(06:22) understand. You write about it very clearly and I understood it way better after reading it. But I think as you mentioned Scott out there, we need better information. I think people are looking out the world, looking at what Trump's doing with tariffs, looking at equities markets right now, looking at bond yields and saying something's wrong here.
(06:42) Uh what is it? What where is the signal? And I I personally think Bitcoin's the signal, but there is this information asymmetry that people don't realize. And I think what excites us is people who are in Bitcoin for for many reasons. One of which is if that information arbitrage sort of that gap closes that means that Bitcoin is going to go up significantly.
(07:01) And so I think it's trying to tie all those things together to yeah basically highlight to people there are some alarm bells over here. You should be worried about it. Here's why Bitcoin is the solution. Yeah. I mean today uh Bitcoin diver you know the divergence from Bitcoin and and uh risk on assets like the NASDAQ and and uh regular stocks at the same time that bonds bond yields are going down you know uh uh actually I'm sorry that bond yields are going up so bonds are going down so you would think that the flight of safety would be to
(07:34) bonds and for people who are new to this whole game when you buy bonds you know you're buying them at um above or below par, right? And if you buy it below par, that means you're buying it at a discount, which means that the interest rate you're effectively paid because you're paying you're getting paid coupons on these things.
(07:53) Those coupons are set. So if you paid less for the bond, then that coupon becomes just a larger percentage. And so um that's why yields go up when bonds go down. And that's kind of the that's the way the it works, right? So, but you would think stocks going down. Well, then um bond yields would probably be going down too because bonds would going up because that money would be flowing into safety assets like the risk-free asset which is the US Treasury. Not really risk- free.
(08:22) We know that. We talk about that all the time. But that's the quote in on Wall Street. Risk-ree is a US Treasury. It's not. It's not risk- free. We learned that the hard way during the pandemic when we way over printed money, not we, the central bank, the Fed, way over printed money, uh caused massive inflation from the expansion of the money supply, massive asset inflation, massive inflation um across financial assets.
(08:51) And because we're so financialized as um as um a nation, everything went up in price along with supply. uh issues and and supply chain issues and bottlenecks and all that, but that was kind of a goat that should have gone through the BOA and gotten out the other side. It never did. And we had these like this this crazy inflation for years and years because of the expansion of the money supply.
(09:14) Let's just call it what it is. So you saw bond yields they they um what happened was bond yields spiked because fed funds went up and bond yields went up in order to compensate investors for that high inflation. So if you're a bond trader, you're not going to buy a 10-year Treasury at 2% if inflation's at 5%. You want to be compensated for that.
(09:42) And so when that interest rate goes up, the bond price goes down and all these banks, all these community banks that were holding these treasuries got absolutely annihilated. And that's ultimately what caused the collapse of Silicon Valley, Silicon Valley Bank two years ago. And that's that's kind of uh if people remember back, well that's not risk- free to me.
(10:06) That sounds that sounds risky to me. It's risk-free in the sense that yeah, if you hold it to to maturity, it's a it's a nonzero probability that that the US will default hard default on that, but it's about as close to zero as you can think of because the US Treasury has the ability to team up with the Fed and print money to buy its own bonds.
(10:32) So, of course, they're not going to default. they're just gonna just print money and make sure that these things are always trading. And so, you know, that's uh it's called the soft default. And that soft default is inflation through expansion of the money supply, which is debasing the US currency every single day in order to keep this whole debt charade going.
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(12:35) And I think that's the question in my mind right now. I've uh jumped the gun quite a few times over the last 10 years trying to trying to say something like this. But this and it's one day of price action. But uh yields going up, stocks going down, Bitcoin going up, divergence. People have been throwing the decoupling meme out there, not quite confident enough to do it.
(13:01) But I think for the longest time, like you said, treasuries have been that flight to safety. You know that the Fed is going to monetize the debt if the government needs them to? It's happened historically. Many people rightly or wrongly assume that it'll continue to happen. But I think is there something special about the environment we find ourselves in today, particularly with Trump uh posturing as he is towards Jerome Pal that is beginning to stoke uncertainty in bond uh bond investors and the Fed's willingness ability uh to
(13:36) do that moving forward. And that's why we're seeing this dislocation of markets that one day could be anomalous, but if it continues, yeah, is that what that's signaling? Well, there's there could be cross signals here. There bunch of signals, right? So, you let's just let's back it up and talk about like big picture what's been happening.
(13:54) Well, Trump has threatened uh to enact these uh to enforce these tariffs on on all these countries and uh big tariffs. And so um that has caused quite a bit of angst for a number of reasons. There's angst with uh people who import materials and goods to sell here in the United States. So you you getting some misinformation of the actual demand the underlying demand of the economy because uh you've got manufacturers and uh suppliers who are who are importing goods in order to uh to get ahead of that that tariff. Um the underlying
(14:33) economy has not been doing that great. there's a lot of uh negative um indicators out there and so we're just we're just watching these things and seeing if they continue to to kind of snowball especially things like the unemployment rate now that you've got government jobs coming out and and all of that.
(14:54) But so you've got the economy is is clearly softening. You've got crosscurrent of of information of what's the actual what are the actual trade numbers? what are the actual um you know purchasing and and index and the PPI and all that like what is what's PM uh PMI all like what what are all these telling us and then at the same time you've got um you've got investors who are worried that the earnings of companies are going to get negatively impacted at the same time you've got bond investors worried that well if we're going to you know hammer China with these huge tariffs,
(15:35) they're going to turn around and um they're going to shore up their own currency and they're going to they're going to turn around and the way they do that is by selling treasuries they have. So if they sell US treasuries, what does that make the treasury do? It it goes down in price and yields go up.
(15:55) Something we may be seeing here, right? And so, or it could be traders getting ahead of that, worried about that scenario where China starts selling bonds and not just China, other countries too, selling US treasuries in order to get dollars to sell those dollars and buy their own currencies. Those are all those are possibilities. You're seeing the dollar go down um in value against other currencies across the board here.
(16:21) or the DXY is down and that suggests some of this is happening or just the confidence in the US dollar the US Treasury is is waning that's all happening and then you layer on top of it Marty that basis trade I was talking about and that's kind of like the powder keg that is behind the scenes that the very very intelligent investors know about they understand it and they're they're watching carefully they're watching credit spreads they're watching the spread spreads of the of the bonds to the futures, the bond futures, and they're they're gauging whether or not
(16:54) this trade has the uh is is going down the path of blowing up in in uh in hedge funds faces. And there's a reason that this matters and we have a history of this, right? So, you are younger than me. uh you you likely weren't paying much attention to this um back in 1998, but I was a uh I was a trader at a hedge fund and we were doing all kinds of arbitrage strategies, convertible arbitrage, merger arbitrage, risk arbitrage, pairs trading between different companies.
(17:28) We had books and books and books, you know, uh billions of dollars to work in these arbitrage trades. And uh there's this there's a uh hedge fund large hedge fund called long-term capital management. People have heard me talk about this before. And in 1998, long-term capital management was doing very similar things that we were doing plus other things which included something along the lines of the basis trade that we talk about today where they're arbiting bonds that are similar and they're just pulling out a few basis points from these trades.
(18:00) But in order to make it really profitable, they had to leverage it up. And so they levered their book up like about we we we estimate it was 100 x or more 100 times leverage or more. So they had a billion dollars of capital, but they had over a hundred billion dollars of trades in swaps that we that we estimate.
(18:22) So now go back to 1998 when all this this is going on. And these I mean these are geniuses that that uh came up with the black shores model by the way uh the pricing model for derivatives for for uh for options you know but they weren't very good portfolio managers took on way too much risk and so um the problem with this is it became binary and what I mean by that is that once the once the Russian ruble was devalued and these and these bond spreads kind of blew out just kind of overnight um all these trades
(18:56) be they they went against long-term capital management so quickly and so largely that the entire street uh heard about it and started unwinding all their similar trades that they had on that were similar to these um you know these arbitrage trades that they had on. Even stuff that had nothing to do with the basis trade had nothing to do with currencies.
(19:20) It was just like merger arbitrage. So, we had a a billion dollars of merger arbitrage um positions and they blew out like these positions blew out huge. Like when you have a spread in a in a merger arbitrage trade, it stays very tight from the time it's announced all the way to the close. It just gets that spread gets smaller and smaller and smaller and smaller until it closes and then it goes away.
(19:44) You deliver one security to another. you you take that arbitrage and walk away because it doesn't matter what the market's doing. Only thing that matters is whether or not that merger closes. Well, all those trades were blowing out not because of anything that was going on with with the companies and whether or not they were going to all merge or not.
(20:03) It had to do with liquidity and everybody knew that long-term capital management was unwinding these massive trades. They're like, "Oh, get out of the way. I'm going to let this thing go. Let them unwind their trades at a loss and then we'll come in and scoop them up." Which is exactly what we did. We came in and scooped them up. We made these huge spreads that we should not never have been able to make.
(20:21) We had an extremely good year in the merger arbitrage book because long-term capital management blew up. But going back to the basis trade, what happened was these guys had those interest arbit interest rate arbitrage trades on and they started going against them and in a big way. And their counterparty risk in this whole trade was their their main uh their their main prime broker, which is your main broker for a hedge fund.
(20:49) Goldman Sachs was on the hook for a lot of this stuff. And so um so it it it spread around the street that this that they were going to blow up, that Goldman Sachs is going to go under. And if Goldman Sachs goes under, they're going to take down the whole street with them because the counterparty risk just would just then it would it would it's called contagion where it goes from one bank to another bank to another bank and all of a sudden you have all these banks that just fail.
(21:16) And so the the Fed the New York Fed was in panic. They orchestrated a bailout for for Goldman Sachs overnight. So that sets the stage for where we are today. It's been done before. The Fed helped orchestrate the trade. They didn't they didn't print any money. They didn't do anything, but they helped orchestrate it, right? They led that bailout basically by strongarmming other banks into helping Goldman.
(21:39) Well, now you fast forward to today and you've got reportedly $1 trillion, a trillion dollars of these basis trades on 10 times the size of the long-term capital management uh books. But the difference is it's spread across all these hedge funds. It's not just one hedge fund and it's spread across all these banks. It's not just one bank.
(22:04) And a lot of these positions are they're leveraged 20, 50, 100 times the one in order to make that one or two basis points into something that's actually attractive, right? The few basis points, whatever it may be. Um, and they're doing with very little capital. And so here's the significant part about it, Marty, is that we're watching all this and I don't know if these trades are being unwound, but I can tell you that there are hedge funds that are anticipating problems of other hedge funds with them. And so they're getting
(22:34) out of some of these trades and that's why you're seeing some of these some of the movement in the yields, I believe. And so um but what's happening is and what's so important about this is that this is to get an idea of how um impactful and how explosive this trade is. They had the the Brookings Institution for those of you who don't know what that is.
(23:02) It's a think tank out of DC. Um and it's basically a tacet research arm of the Fed. I mean it doesn't that's that's a very strong statement but what I mean by that is that there are a lot of former Fed officials that work at Brookings Institution and they they research and float ideas and policy there to kind of see how they're received you know and what people think about it what the Fed thinks about it and so they for instance they did and I' I've said this before um the SAM rule the Claudia S worked at Brookings Institution she was a she
(23:38) who's a lower Fed official. She worked at Brookkins Institution. She came up with the something called the SOM rule, which is that unemployment rate rule that if you to keep the numbers very simple for everybody, um basically if if the unemployment rate goes up by more than a half a percent from the bottom in a cycle, that means we we're in a recession.
(23:58) We've gotten very close to that. But they that's a rule that the that the Fed looks at now. That's something they they use as a gauge to say, "Okay, we're in a recession. and we've got to lower rates. You know, they haven't seen it yet. It's very close, but you know, that came out of the Brookings Institution. So, no. Now, go flash forward to today.
(24:19) You've got this basis trade and the Brookings Institution put out a paper, a research paper, and they said that this trade is so big and so it is it is so dangerous that the Fed has to come up with some way to ensure that we have liquidity in our bond market. if this thing blows up because what happens if if a trillion dollars of bonds come to the market from this basis trade? Well, it doesn't stop there.
(24:49) You know, it causes margin calls on everybody that is close to a margin call, which will cause margin calls on more people. So, more investors. So, if you remember back to um the UK guilt crisis a couple years ago, what happened there was something somewhat similar where pension funds in the UK were they were leveraging up their their bond portfolio in order to get better returns because the yields on bonds were so low because all these central banks were running very low interest rates for so long for over for over a decade that you were, you know, you couldn't 2% was not
(25:28) getting you what you needed for your your uh liabilities in the future for these pension funds because they know what their obligations are and they they weren't keeping up with those obligations. So, what did they do? They leveraged those trades up. What happened? Well, you had a finance minister come in and announce all these tax cuts in the UK without a way to pay for them.
(25:51) And the bond market said, "Oh my god, that means they're just going to print money. These bonds are worthless. we need they're they're going to you know we need a higher interest rate to be compensated for that for that um higher interest that higher higher uh inflation rate so I get a real rate of return so we need to step back and let these bonds go to a price that actually makes sense and what happened was the pension funds blew up because they had all these levered trades on right so then the bank of England comes in because the pension funds basically just
(26:22) they called up the bank of England they said we're going we're like all going to fail this afternoon unless you bail us out. And so what did they do? They swept in. They came in. They printed money. They bought bonds. They bought the UK guilt and they saved the market. Well, why is all this matter? Well, it matters because what happened was one pension fund started selling, then another one had to sell, then another one had to sell because it kept going to prices that was they were tripping these margin calls for everybody. even in these
(26:52) treasuries, you know, the UK guilts. This is crazy, right? Well, the same thing can happen here. And that's what the that's what the Brookings Institution and the Fed is concerned about. Oh my god, what happens if we start tripping margin calls on treasuries? The pristine asset of the world.
(27:13) The this is this is literally the the base asset of the world. It's the benchmark treasury, the benchmark bond of the entire world, the 10-year Treasury. Well, what happens if that starts selling off rapidly, violently? Well, then you're going to get you're going to start tripping these margin calls and it's going to it's going to snowball and then you get a you get first you get um disorderly bond markets, then you get disruption, then you have a catastrophic sell-off and they can't have that happen.
(27:41) We can't have that happen because we got $36.5 trillion of of treasuries that uh that are out there um that is on our debt and we are running multiple like multi- trillion dollar deficits regardless of what Doge is doing there. We're running deficits that that we have to keep borrowing. We cannot we the bond market must go on.
(28:03) The US Treasury market must be liquid. It must be stable. And if it becomes unstable because of something like this, then it's a big problem. So, here's the punch line. The Brookings Institution came out with a solution. Well, we've got it. We've got the solution. What we're going to do is instead of printing money this time, the Fed will just take the whole trade off of the hedge funds books.
(28:24) They'll take the long side and the short side. That way, the Fed is hedged. They don't have any risk. And we save the hedge funds. You know, hallelujah, the bond market's liquid. Everybody, just go home. Thank you for playing. and we'll just keep going on our merry way. Absolutely utterly maniacal. Like literally out of it's insane the thought of the Fed becoming a hedge fund.
(28:48) It's just it's it's it's nuts. But that's a paper they put out for everybody to read and they've floated this as an idea for policy. And if you have if you have any question about how dangerous this trade is, that should tell you everything you you want to know and need to know. Yeah. So is that a roundabout way for them to introduce yield curve control without calling it? I mean that's what this it's that's a direct like well we're just going to come in and just take this so stabilize the yields exactly where they are. Exactly. Our good friends Parker
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(29:37) Why everything else will be built on Bitcoin. Understand why Bitcoin works and why nothing else does. Watch the premiere at unchained.com/tc. That's unchained.com/tc. And so this was happening I think April 9th. It's April 21st today. So or 12 days ago. It was Tuesday night and people it was right after it was a week after liberation day and everybody like at market close yields were going up and people were like oh China's dumping they're pissed at us for tariffs but as the night got longer and we got later into the day and towards the uh towards
(30:11) the 10th and the 30 year and the 10 year were screaming people were like it doesn't seem like this would be China dumping this is not how they would sell they were doing it and Zero Hedge wrote their piece that night too where they highlighted two years ago uh Citadel 72, Millennium, all these multistrat hedge funds that were doing this basis trade. Yeah.
(30:32) At the time, two years ago were 20x leverage and you just play that forward to today and you now people are saying 100x leverage. Now I guess the question is like is there any feasible way to unwind that trade outside of overt intervention from the Fed? Not rapidly, not quickly, you know. I mean, I would it would it would it would be uh it could be catastrophic to the market.
(30:56) Yeah. So, you've got it I would imagine some of these um some of them are unwinding some of it, but I'd also imagine, Marty, that you've got hedge funds who are stepping into it, you know, like they're looking for opportunity. If they see an opportunity they think that they can stomach, they're they're going to step into it.
(31:14) So, it might just be moving from book to book. We don't know. It's hard to tell. And so much of it is on swap. You just it's hard to tell. Yeah. And that's I mean considering the the nature of how large this trade is and how entangled it was and the knock on effects it could have on broader markets.
(31:34) It doesn't mean like cuz that's another sort of narrative that's been floated out there and seems to be confirmed by the administration is that you have the uh our economy isn't let them eat flat screens. Scott Bent and Trump saying uh what's good for the Mag 7 isn't necessarily good for MAGA Americans and like is there a sense within the administration that they they don't care about these hedge funds blowing up on this trade? Yeah.
(32:04) But here's here's the thing though. Um, we're so financialized, like I was saying, as as a country, as an economy, if the stock market blows up, I mean, really blows up, we we are headed for a deep recession. And the only way we can pull out of that is by printing more money. So, what happens to bond yields? you know, bond yields will go up in that scenario because they're bonds are going to the bond traders, the vigilantes are going to want to be compensated for the clear and obvious inflation that's going to come from another expansion of the money supply.
(32:41) And so, um, that that's the issue here. So, do bond yields go down to 2% because we just grind into a slowly grind into a uh a recession here or do they spike up to 5 6% because we have blown up the economy and the Fed's turning around and printing money to oblivion to save it. It's a good question and that's why you're seeing a lot of uncertainty in the market.
(33:11) People don't know where we are on that on on that spectrum and and some of it has to do with, you know, headlines and a tweet, you know, from Trump. I mean, he could just tweet something that just spooks the market to the point where, you know, you have the NASDAQ sell off 3 or 4%. Oh, well, look at that. It's down 2 and a half% today.
(33:31) You know, it was down over 3% earlier, I believe. But, um, here's the telling thing. The telling thing is that bonds are not acting like they should as a flight to safety. That's number one. And number two, gold is absolutely ripping higher, rocketing higher because it is a flight to safety and and investors are looking for a place to put money to to just protect it.
(34:03) And gold has been a a strong store of value for centuries. Um, and now we get to the question about Bitcoin and Bitcoin diverging today is very interesting. It's interesting because is it following gold? Is it finally are people just realizing like you said that arbitrage is that closing that understanding arbitrage? Is it just because the dollar is so weak which means that the dollar Bitcoin price goes up? That's that's part of it.
(34:31) Um, you know, we were talking this morning on on a different show on the Macro uh Monday show and Dave Weisberg brought up a great point that over the weekend Charles Schwab talked about having a platform um to trade crypto. And you know, I've been talking about this for a number of months now that SAB 121, the repeal, the full repeal of that through issuing SAB 122.
(34:56) For those who don't do not know what I'm talking about, this is where the Fed a couple years ago did an endzone run around legislation and they they put out this bulletin that basically said that banks had to hold Bitcoin as a li had to hold Bitcoin in crypto as a liability on their balance sheet even if it was just on the customer's in the customer's account.
(35:21) So it basically uh prevented banks from dealing at all in crypto and and it was this was kind of an aspect of choke point 2.0 where they just didn't want the banks to be involved. And you know uh you can kind of speculate who would be driving that. Um but in in uh uh up in DC it's clear that Elizabeth Warren and her anti-crypto army were very big part of all this.
(35:51) Um because when the Fed did that and then um a number of months later, almost a year later I think uh Congress met and both um Congress and the Senate passed legislation to repeal SAB 121, which is that bulletin and uh and then it got to Biden's desk and and he vetoed the repeal. And that was clearly clearly he was pushed and and um and advised by that psycho, the the psychopath from from Massachusetts, Elizabeth Warren, who has absolutely she has done nothing good for this country.
(36:31) Clearly, just a lot of talk and a lot of, you know, money going into her pockets. Insane. I don't know how Massachusetts keeps voting for that person. But in any case, he was advised by by her team and other teams to repeal it uh to veto that repeal. Finally, we get Trump come in. Trump comes into office. Gendler resigns.
(36:55) A new Bolton comes out, SAB 122, that repeals SAB 121 and says that banks can own and hold crypto for and Bitcoin for customers without having to put it as a liability on their balance sheet. And so now that's a very very very very big deal. It's a really big deal because you will have banks like Chase and City Group and Wells Fargo start dabbling into this space especially in Bitcoin and I expect other ones.
(37:29) I expect Ethereum and Salana and other ones but they're going to start dabbling in these and allowing customers to buy and hold them right there at the bank which is new. This is huge, you know, because you don't need a brokerage account. You, you know, you can do it right there. You can do it right to your bank there and they'll hold it for you.
(37:46) Like, this is going to be a big deal. And I think it's I I think it's under appreciated just how important it is that banks will now get into this game. And this is part of the first they they they fight you, right? And at the end, they join you. And here they are. they're they're right on the cusp of that and that's a that's a big deal.
(38:10) So, um that could be part of this too. But I think that so I think it's it's a combination of things, Marty. First of all, I think you know unless we get another uh meltdown of the market where everything correlates to one and that's just that that's just reality. It you know the only thing that may not go down in that case is gold. But I think that even gold would because when everything correlates to one, it means that you're getting margin calls everywhere and you sell what you can, not what you not what you want to, you know. Um, and so everything ends up
(38:42) going down because you have to meet you have to get cash to meet margin calls because everybody's levered. So in that case, Bitcoin will go down. But as we as it stands here today, it appears we've we've um hit a local bottom in Bitcoin down at the you know 7574 $75,000 range and uh and we've recovered from that and now we're bumping up against some serious resistance at the 88 $90,000 level and we've got to kind of break through that mentally and hold that for this to to for this to stand.
(39:16) But I think that Bitcoin's catching uh a wave like similar to gold where you've got investors who are putting money in both gold and Bitcoin. Um and uh and that the dollar being weaker is making Bitcoin stronger as well. And so it's a long way of saying that the decoupling I appreciate it. I like it. I want to see it continue.
(39:43) and we're gonna have to see, you know, weeks and months of this for it to really hold. Um, but it's that information understanding arbitrage you were talking about and that's really what's going to drive this long term. And uh, and that's going to make people understand that Bitcoin is something should be allocated separate to every other asset class out there.
(40:01) Not only that, but to your point of first they fight you or first they ignore you, then they laugh at you, then they fight you, then you win or they join you. like that. You wrote about it a couple months ago too or maybe last month, but like if now with SAB 122 with this administration and the regulatory overhang that existed under Biden, uh Gensler, Yellen is gone.
(40:30) like embracing Bitcoin as a collateral asset um in the private sector and in the public sector like everything you just described with the basis trade and the amount of debt that exists in the system and how everything's levered up. It's uh unnerving just to look at it and the gravity of it and think, "Oh my gosh, how do I how do I fix this?" Um you're going to have to print money.
(40:54) But at the same time, when you're doing that, it's like, all right, you begin to introduce the antidote to that. And I think like Bitcoin as collateral, whether it's via something like bit bonds um so that the treasury can roll over debt at lower rates to solve that interest expense problem and hopefully take care of the debt at some point in the future or the private sector where it's like your underlying collateral is either treasuries or assets that are suboptimal as collateral assets and using SAB 122 as a way to begin introducing Bitcoin as
(41:25) better collateral into the system. Right. And that's that's that's exactly right. So they'll come up with all these different um products that are just not available now. You know, lending products, uh collateralized products, exactly you're talking about, you know, put them in mortgages, put them um allow you to borrow against them to to have lines of credit, you know, like it's going to be it's going to be interesting.
(41:47) That's not going to happen today, but that's happening. It will happen. What do you think this does for Bitcoin? If we truly do decouple and you basically run with the fact that Bitcoin's more receptive, banks can use it seems to be decoupling now, but also taking the fact like how much money is probably going to need to be printed to solve this. Well, yeah. Yeah.
(42:10) And so when you take that into account, Marty, what what happens is the smart investors start reallocating money out of bonds and into Bitcoin. And that and then then that's it. That's like Bitcoin will gain so many assets like they it will be it it will be um the total market value could double you know very rapidly.
(42:40) Um and um now that's I I still believe that's a little bit ways off because of what you said in your tweet earlier, your post earlier, which is there's an understanding arbitrage, you know, there's an information arbitrage. People are not getting it yet. But when they do and it does decouple completely and it starts acting a lot more like gold does and uh but it's gold on rocket fuel because it's in its adoption phase and of course it's going to have its volatility because any any asset in adoption phase is going to have an
(43:15) volatility but volatility to the upside of course you and I have talked about this be both before is it it's a gift a volatility ility is actually attractive in a rising asset because it gives you the opportunity to to dollar cost average in or find spots that if you're if you're a savvy investor to find spots to add extra capital during those super volatile periods.
(43:41) So, um, yeah, I I believe that that's the key though when you start seeing investors allocate, reallocate out of bond portfolios or out of their bond allocation into Bitcoin. Man, that's it. That's going to be that that to me is where that's really the um that's the that's the pool that once Bitcoin starts drawing from it's a $330 trillion pool.
(44:13) Once Bitcoin starts drawing from that, lights out. Game over. Watch out. I would not be short this thing. Do you think uh strategy and how they've been tapping the convertible debt markets is a canary in the coal mine for that larger trend? Well, I mean they're it's a little bit different for them because what what are they doing? So what micro strategy now known as strategy what they've been doing and I've had long talks with uh their um their treasurer Shares about this they found a way to um capitalize on the underlying volatility of their
(44:50) stock that's tied to Bitcoin. Well how did they do that? Well, volatility is attractive in um Wall Street in some instances, and this is one of those instances where the volatility of the underlying stock allows um strategy to issue bonds that are convertible into common stock called convertible bonds that the investors, hedge funds love because this is a rising asset And Micro Strategies uh Bitcoin is a rising asset.
(45:26) Micro Strategies stock is is directly correlated and tied to Bitcoin because it owns so much Bitcoin on its balance sheet. And so the volatility to the upside is attractive to convertible bond traders, the hedge funds, because they can buy these and have that optionality of converting these bonds into common equity later at a price that is highly uh profitable and it goes through the strike price and they get a whole bunch of extra money out of it basically.
(45:59) So that's one part that's attractive. The second part that's attractive is just the volatility intraday, dayto day, week to week because they can trade around these things. What do I mean by that? Well, they own the bond. It's convertible into into a certain amount of stock. I know you know this, you're a savvy investor for 1031, but for the listeners out there, um it's convertible into stock.
(46:26) And so what the what these convertible bond owners, the traders, the hedge funds will do is they'll do something that's called a delta hedge. The delta hedge is the delta is the optimal amount of stock to be short against the bond. So you're short the stock, you're hedgedish. So when the stock goes up, you can short more and when it comes in, you can cover and you can trade around that all the way through to expiration and make money on this volatility.
(46:58) And so it becomes it's the volatility is attractive. It becomes an asset to micro strategy to strategy. And so because of that, they're able to issue these bonds with zero coupon. So the bond traders now like, we don't care about the interest rate. We don't care about, you know, getting five, six, 7% interest on this. We want the big stuff.
(47:22) We want the big moves. We want to be able to delta hedge this thing. So give us a better strike price. Give us an attractive strike price instead of, you know, attractive yield. We'd rather have that. And so that's basically what they've been able to monetize that they've been able to monetize the underlying value of that volatility that's attached to their stock.
(47:44) And here's the best part about it is they do it every single time they do it. It becomes more closely tied to Bitcoin and that volatility creates more opportunity to do more. And so of course they continue to do it. And so that's that's what they're doing. It's so it's a little bit different. And I don't and I would say that rather canary in a coal mine more just a just the largest signpost out there that this is an asset you should have on your balance sheets because this is something that that is going to be extremely valuable for any company to
(48:26) have on their balance sheet in the future. As long as you think it's not going to collapse and go to zero, which every the funny thing about Bitcoin is that the more it goes up in price, the more stable it is, the the bigger the the network grows, the the you know, the higher the hash rate. I mean, the the hash rate is that's the canary in the coal mine.
(48:49) That's the what is going on with the hash rate is it is absolutely screaming to alltime highs. And I would love to hear your thoughts on this cuz I have thoughts, but it's almost mental where this has gone. It really is espec I mean especially considering I mean we we've had two very good years from a return perspective in 2023 and 2024.
(49:19) But hash price like the value uh in sats or dollar terms per hash he produces a minor is still at basement levels. I think it's at like 4 and a half cents a terraash per day right now, which is not a lot. It's historically it's been anywhere. I mean, I think the the mean of last cycle was around 10 11 cents and at the time it felt very low for people.
(49:38) So, we're 60% below that. And despite that hash rate screaming, I think it's a combination of things. Number one, the machine's getting extremely efficient. the amount of terraash you can produ produce per jewel of energy provided to the machine is going up significantly becoming more efficient.
(49:57) So the machines you can do more with less energy. Um so that that's definitely affecting uh hash rate I would imagine. But I have to think that there are nation states. I mean when you play into the game theory of Bitcoin you want to acquire it without signaling to the market. And I think it's very hard to keep rumors of OTC desk out of the broader market.
(50:24) So if you wanted to acquire Bitcoin without going through that mechanism of calling a desk and saying, "Hey, I'm from Y and I need X amount of Bitcoin." And then that broker goes and says, "Hey, guess who I just sold to?" You buy AS6 um in an obscure way. You plug them in and you you mine that way. And if you're a nation state, you're you plug them in in in nowhere Siberia that nobody can see what's going on. Yeah.
(50:52) and you start mining Bitcoin. That's right. And you do it at a at with very efficient machines at a very high hash rate and you don't care. You don't care what it's costing you cuz you're printing your money anyways. It doesn't matter. Yeah. So that's what I think. And we already have examples of this. I mean, nobody would know that Biton has been mining Bitcoin since 2020 if they didn't get caught up in the bankruptcy proceedings of Celsius and BlockFi. Like I Mhm.
(51:21) would not be surprised if those companies didn't go bankrupt or if the the drug holdings, the Bhutan sovereign wealth fund didn't have assets on those exchanges that they would still be under the radar today. Um but now they've sort of been forced into the public. And yeah, I mean that's an example.
(51:43) If if those bankruptcy proceedings didn't happen, like nobody would have known that the small nation, the kingdom of Bhutan has been acquiring Bitcoin since 2020. You have to imagine how So how many of those are out there? Exactly. Yeah. A lot more. So it's very interesting. And that's it, the game theory.
(52:02) And that goes back to Well, yeah. The the United States is signaling a very strong signal that they're going to be buying Bitcoin here at some point. And it's, you know, we've got people in the administration who understand it. I don't know how well Trump understands it. That's that's kind of beside the point, but Senator Lumis understands it.
(52:23) Besson understands it. Lutnik understands it. Like, these guys get it. They understand what this is and how important it can be. And so, we were talking about before with the Bitcoin Bitcoin bonds. Yeah, that could be a very important um way for us to monetize this new asset for the United States and stabilize a Treasury market that could get unruly here if we continue down this path of money printing to save the Treasury market over and over and over again.
(52:58) And so Treasury traders, investors are going to demand, they're going to need a higher return. pension funds can't meet their obligations unless they have a return that's matching inflation or better. So that's that becomes a big challenge for them. So the point is that other nations are they're not asleep at the switch here. They're watching this.
(53:24) There's a lot of confusion, a lot of noise about the um the tariffs and all that stuff, but they are listening to what the United States is doing. They're watching this. They're saying, "Man, if they corner this Bitcoin market," and it it really does continue to be nation state level resistant because of the amount of energy it would take to uh you know create a fork or whatever, then that they they have no choice.
(53:54) That's that's the game theory right there, but to just start doing anything they can to accumulate themselves now. And I believe that has begun. I don't know how in in you know how large hard like how widespread that is. We could just have a couple very large nation states doing it. And that's why hash rate is uh screaming higher, but it's not the public miners that are doing it.
(54:20) They're not out there pushing hash rate up like this. It just doesn't make sense. So it's ma mathematically and financially I think the share of unknown blocks mind like the quote unquote unknown pool just like pools that aren't publicly marketing themselves I think it hit 13% at one point last year um which wouldn't surprise me I could be wrong on that exact number but somewhere in a material amount of hash rate it was defined as unknown there you go on the network right now and and when it comes to like Bitcoin in the United States too
(54:54) that that has been a bit shocking to me is like this outward signaling considering the game through we just walked through. If you're going to acquire Bitcoin, the last thing you want to do is tell people you want to get it first and then and then tell people that that you got it, which is like it's like trading 101. Yeah.
(55:10) You know, you don't say, "Okay, we've enacted the Bitcoin strategic reserve. We're going to go buy a million Bitcoin." Like the Bitcoin would double like that. Makes no sense. And you have to think there's people within the administration that get this. And so that makes me wonder like do they actually have more Bitcoin than people think? Like David Sax. Yeah.
(55:31) Are they accumulating in a way? Yeah. David Sax is another one that understands it. Yeah. Um he follows all of us, right? So yeah. Um so that's interesting. And I do truly think like Bitcoin is if it's com if it's Bitcoin combination of Bitcoin and gold like I think the Treasury the Fed and we'll just focus on the Treasury is at a point where they need to think creatively boldly to reorient the the American economy and particularly debt markets and I think Bitcoin is one of the only ways to do that.
(56:07) It seems like Bent understand understood this well before he was even tapped for Treasury Secretary. I mean, I'm sure you've seen at the Manhattan Institute fireside conversation where he's like, there's going to be a grand economic reordering and I want to make sure I'm on the ship while it's happening because my whole career is built building up to this.
(56:25) And so, to your point about tariffs and everything, I think that's noise. I think there is some grander reordering or reorienting going on in the back end. I can't wait to see how it works out. Neither can I. I think Bitcoin's gonna going to benefit massively despite that's the beauty of Bitcoin whether or not they're successful.
(56:46) I think in both scenarios the government's very successful and this geopolitical uh global monetary system reordering successful or if it fails, I think we would hope for a success model because failure could lead to some chaotic situations. But in any either of those situations, Bitcoin succeeds cuz if you're going to have this reordering, it's like, "All right, we need to do do it around this reserve asset.
(57:10) " And if that fails, it's like nobody can trust anybody. And so everybody naturally is going to be like, "All right, let's go to the protocol that nobody has to trust, right?" Yep. That's the beauty of Bitcoin either way. Yeah. Well, James, where can um anybody listening to this find out more about the informationist and what you guys are up to at uh the Bitcoin opportunity fund? Yeah, I mean that's the whole point of what you just said is why we're so we're we're so optimistic and I know you guys are at 1031 also.
(57:40) We're we're super optimistic about about the environment and even if we have draw downs, it's just opportunity for us um to to find value in the market. So, we're a little bit different for for the listeners. Uh the Bitcoin opportunity fund is a little bit different than what you guys are doing.
(57:58) Um we are um a hedge fund. We do invest in both public and private companies, but we're, you know, we're we we focus on more mature companies. The core of our portfolio is on more mature companies. A lot of them are public companies. Um and uh or private companies that that are further down the road that are revenue generating rather than true, you know, venture capital.
(58:21) We do have some that we think are very attractive, but you know, our portfolio is definitely different than what you guys are doing. Uh, and it's uh and we just launched fund 2. Um, and we're we are now open for for investments as you guys I I think I think you guys are raising two, but different again. I think they're the kinds of things that you ought to have uh in your portfolio.
(58:43) you have to have your Bitcoin and you've got different ways to invest in the in the network, the protocol, the the you know um how this uh this growth engine, but um it's for accredited investors like yours is. It's it's so but if you're interested, you can go to bitcoin opportunity.fund and just fill in some information.
(59:07) We can talk to you um and we'd be happy to. And then uh the informationist is on Substack and there's a link to it right in my bio on Twitter on on X which is just James Lavish. That's me on X. There's a there's a lot of clones like we all have out there. So make sure it's the one with the blue check mark.
(59:27) But um yeah, I appreciate being on here. Uh it's uh it's good to talk to you finally for for a longer period of time than just passing at a conference. And so um and I appreciate I appreciate the kind words. It was a long time coming. I can't believe it took took this long, but I'm happy. And hopefully this is the first of many.
(59:44) James, you're crushing it. Thank you for coming and educating us about all this. And like I said, hopefully we can do this again at some point in the future. Absolutely, Marty. It's great to be here and I look forward to the next time. All right. Peace and love, freaks. Okay, freaks. Thank you for listening to the show.
(59:58) I hope you liked it. If you did like it, please make sure you subscribe, rate, review the show. It helps us out a lot. And also, if you like these conversations, I've come to realize that many people listen to the podcast. They don't know we have another sort of layer of this media company. We have the newsletter, the Bitcoin Brief.
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