Compiled by Waiwai Y.

Guest:

Jeff Park, Bitwise Head of Alpha Strategies

Host:

Archie

Podcast Source:

Archie Podcast

Original Title:

Why Bitcoin Wins in Chaos: Bitwise’s Jeff Park Explains | Jeff Park | E005 Y25

Air Date: May 15, 2025

Highlights

In this episode of the podcast, the host will discuss with Jeff Park how the U.S. Government buying bitcoin will change the world, why macro is bringing institutions to Bitcoin, and the implications of tariffs on the global market.

- By 2025, Bitcoin will become a core asset in macroeconomic narratives. Regardless of how the macro environment evolves, Bitcoin will ultimately be the winner.

- Bitcoin serves as an exit from the system of financial oppression. Instead of stealing wealth from the future through debt, one should invest in oneself and prepare for the world ahead.

- In the future, Bitcoin may no longer fully follow the "four-year cycle" driven by halving events. If it still exhibits cyclicality, it will be more influenced by macroeconomic factors. However, it is more likely that Bitcoin's trend will be determined by realized profits, unrealized profits and losses, and the pace of market adoption.

- In the coming months, Trump may drive intervention by creating chaos. In such an environment, the stock market may continue to fluctuate or even decline. When risk assets are broadly sold off, Bitcoin typically underperforms.

- The primary goal of Trump's tariff policies is to lower U.S. financing costs, as this is not only the engine of U.S. economic growth but also the foundation of dollar hegemony and global economic growth.

- Many things we take for granted in the financial system can actually be redesigned. Cryptocurrencies, particularly stablecoins, may provide an entirely new solution in this regard.

- Tether has, to some extent, replaced the U.S. government, enjoying a unique "monetization privilege."

- Volatility is harmful because it raises the cost of capital. Once capital costs rise, investors need to sell assets to meet banks' collateral requirements, triggering a cascade of sell-offs. This is why financial stability is crucial.

- I am unsure whether the next generation will live better than ours. Will today's children have better lives and prospects? I do not have that confidence. In fact, some long-term opinion polls show that people's confidence in having a better future than their parents is at a historic low.

- For ordinary investors, they should benefit as much as possible before nations take action. Therefore, I hope more people globally, as individuals, accumulate Bitcoin. If you truly believe Bitcoin is an egalitarian product, then individualism should take precedence over sovereign states.

- In the past few years, the greatest "deal" reached among global societies is that we exchanged "unequal prosperity" for "unhappy peace."

- Financial oppression allows us to maintain peace by stealing wealth from the future through debt. Since the future is intangible, this endless cycle of debt is essentially intergenerational theft. If resources cannot be taken from neighbors, they are taken from the future—this is the price of peace.

- Monitoring cross-border capital flows faces multiple challenges, primarily due to a lack of transparency and complex financial structures. First, cross-border flows are often difficult to monitor as their mechanisms are not always reported. Second, the use of leverage in financial systems is another hard-to-grasp factor. Additionally, global arbitrage trading relies heavily on leverage, and the dynamic accumulation of such leverage increases the fragility of the financial system.

- The dual role of the U.S. dollar as both the national currency of the U.S. and the global reserve currency creates the Triffin Dilemma: on one hand, the U.S. needs to manage its domestic economy through monetary policy; on the other hand, the dollar's status as a global reserve currency is influenced by international capital flows, complicating supply and demand dynamics.

- In the U.S., you almost never hear patriotism being part of investment conversations. Investors focus more on commercial returns rather than how investments serve national interests.

- Encouraging more countries to join could lead to an international agreement similar to the Bretton Woods system. Such an agreement could redefine global security mechanisms and help the U.S. manage debt costs by introducing new capital partners, which is the ultimate goal for the U.S.

- The U.S. cannot establish a strategic Bitcoin reserve alone, as international alliances are interdependent. To create a true strategic reserve, the U.S. would need to coordinate with its allies.

- Blockchain can provide immutable records of actions and ensure data ownership. The first integration point between cryptocurrency and AI is likely to appear in the field of data ownership.

Jeff Park’s role at Bitwise and building the Alpha franchise

Archie:

Jeff, as the head of alpha strategies at Bitwise. Can you tell us a little bit about yourself and what you do there, what that means?

Jeff Park:

Yeah, absolutely. So I was brought on board to Bitwise about three and a half years ago and my mandate was essentially to build out the Alpha franchise to complement the existing suite of our amazing products that are geared towards in helping investors find access points to crypto.

Here's a remarkable thing. Bitwei's been around for now over 7 years, and the unique challenge in this space can also be the privilege in which that there are not many asset managers that can actually survive through the peaks and troughs of what a cyclical industry crypto can be. And that volatility makes it challenging, but at times, also a unique opportunity. And so my mandate really is to help broaden the investment arena for crypto, curious crypto professionals and really find Alpha, you know, which one thing to invest in Bitcoin and long only and have a view on what that means as an alternative asset in your portfolio. That is in itself alpha in my opinion. But one level deeper, layer, 2 layer, threes of the crypto arena will also show you there's a ton of exciting things that can be happening, creating different kinds of inefficiencies, arbitrage, structural dislocations that could be just as worthwhile from a higher risk adjust return. And that's my mandate here to help it wise investors access.

Jeff’s highest conviction macro trade & Different role of Bitcoin

Archie:

Can you just briefly explain your most, your highest conviction macro trade? Because I think it's a really good place for us to start the conversation, given what's happening in the world and what is unfolded in the last two weeks with tariffs with respect to United States and China, the market reaction and your trade is essentially a view on that.

Jeff Park:

Yeah, absolutely. I think this reality is that the privilege I get to experience when I talk to investors across the board is that bitcoin, in a way, is a little bit of a mirror as to what it represents based on your own perspective as to what captivated you to begin your encrypted journey in itself. A lot of investors and you see a broad tri pronged sketch of the kinds of personas that you see in space.

One part of it is financial services professionals who think about Bitcoin and crypto as asset allocation with a macro bent and what represents an uncorrelated asset, especially as a store value.

But then you also see a host of investors coming from the technology angle, where they're really interested in the network effect and the scaling that's possible in payment processing and relatively like growth oriented initiatives that's distinct from like a store value construct. And then you'll see people who come from like a like a trade angle where they think about as like a currency. And it's actually just like frictionless borderless payment mechanism schemes and it's not store value. It's not even actually like a technology play. It just is like a way to have capital flows done in a seamless way.

And based on the macro environment, my belief is that Bitcoin can over index one version of the story and under index another story, depending on what is thematically the momentum capturing narrative at its time. And I felt very strongly post the election of 2024 that Bitcoin would enter an arena where no doubt, the macro commentary would be the leading lens in which investors would access this particular asset class in 2025. I think there's a reason for that.

The reality is there's a lot of global macro uncertainty, and it always was the case, even with Trump being reelected as to the mandates and initiatives he would be allowed to run with, that would put global macro really at the forefront. So we're essentially seeing is that play out. You see that actually in a way where bitcoin is really the dominant asset that people are trading for risk explore pressure and all coins have generally suffered in weakness relative to bitcoin dominance. You also see Bitcoin's volatility adapting to a world where volatility is increasing and other non crypto related asset class, for example, you might have seen very recently the SMB realized volatility exceeded bitcoins realize volatility. Now that is a unique phenomenon to observe in a time where the world is essentially fairly chaotic. You have to appreciate what the 2025 story for Bitcoin. And to put the one pager in a scenario, pithy one liner, the conclusion ultimately is that Bitcoin wins in all circumstances, no matter what the macro is.

And there's two ways these macro stories can play out. One is a very inflationary world and one is actually a deflationary world. We can go into what constitutes those outcomes, but the reality is both of them are actually a great environment for Bitcoin because Bitcoin is essentially the unifying asset that can represent a store of value that is relevant to an inflationary America or a deflationary global world as well.

I think the pace of adoption could look different amongst different segmentations based on these scenarios. So the base case that most investors, I think, are looking at the market today is that Trump will generally not put tariffs as a permanent fixture of the next, you know, 20,30+ years of American continual globalization efforts and trade liberalization. I think that's kind of the base foundational view. The market still is hoping for and is expecting, and that's why you kind of see the market moving up when Trump's scales down a little bit on the tariff rhetoric. And then likewise, you see the market going back down when Trump doubles down on protectionism and the barriers are going up again.

Market reactions to Trump’s tariff policies

Jeff Park:

So I think the mode right now is still very much with hope that Trump will actually unwind some of the initial thrust he put into the protectionist era energy. And in that world, it's business as usual, right? What I mean by business as usual, we're gonna continue that fiscal dominance. We're gonna continue to have monetary debasement, and there's going to be the hidden cost of taxing through inflation. And those things are still very much the way the world operated post 1971. It will continue to be great for Bitcoin. Great for, in that case, Americans to continue to own Bitcoin as a way to outperform dollar debasement as would be the rest of the world.

But in this scenario, the US still emerges relatively strong, right? The US still gets to exhibit dollar and financial agility that they can exact upon our allies and our enemies. And the US remains kind of a superior force in global monetary frameworks. The other version, which is the one that the market is very scared about, is the one that Trump continues to push at times, creating stability in the military in the market, which is essentially unwinding the global trade world post 1971 that the US has essentially benefited from as well as its allies and in that world, actually, there are a lot of ripple effects. But I think the biggest ripple effect in that world will probably be felt by foreigners because there's a lot of alliances the US has across the world where those investors are benefiting from the ability to invest in US assets, right?

So take for example, Japan, now our largest financial ally. They own more Treasuries than China at this point and continues to fund a lot of the cheap cost of capital for US consumers today, and they're happy to do that at some level because they also own US equities and US real estate and other US centric assets. But in this world where the trade deficit is being unwound and therefore, the capital account surplus the United States has is also being unwound, we're talking about flows of funds where our net creditors are willing to reallocate away from US assets into something else. So that's actually a point where countries like Japan or South Korea or even the EU would imagine investing in Bitcoin as an offset to that account surplus from the United States. And that is actually also really good for Bitcoin. But it's just a different dynamic as to who the net investor becomes in that deflationary world versus the inflationary world or business is continuing as usual.

Explanation of money velocity and global carry trade

Archie:

When we talk about capital flows on that scale, on the global scale, the numbers can be quite astronomical in what is the scale of that potential unwind and how much of that could bitcoin realistically absorb or attract in that unwind scenario?

Jeff Park:

Yeah, it's a giant number because it's not just the actual not notional amount of the securities in existence, but it's the velocity of that turnover, too. So we usually think of GDP and these things like static numbers representing like a particular size of a pie at a time. But this is kind of like your typical, what's the. Balance sheet versus income sheet difference, and how people analyze what's happening at the underlying level and the money velocity is equally important. And what you've seen over the past few years is that the amount of velocity itself is increasing by the rate of refinancing.

So one of the programs in which Janet Yellen succeeded in was to change the issuance calendar in which the US currently is being funded by shorter term t bills and notes than long dated bonds. It's actually closer to like a third of our financing program that is happening on shorter dated notes that needs to be rolled. So now we're talking about rolling shorter data nodes over multiple periods of time, where if you historically had a 10-year node or 30-year note, you know, you wouldn't have to touch that. Those are locked in fixed cost of capital and that velocity is increasing.

In that same lens, it's not enough to think about Japan having an X amount of treasuries as a notional amount. It's also how often they leverage that in the way that they're funding the global carry system. And no one really knows how large the global carry trade is cuz it's actually.

Challenges in monitoring cross-border financial flows

Archie:

How is it that nobody knows and can track the size of that? Because to me, it is someone who's not a financial market participant like you are. I don't understand how that's possible that nobody knows.

Jeff Park:

I think there are several layers of uncertainties and lack of clarity in ways that we don't have perfect monitoring.

One is cross border flows in general can be challenging to monitor because the mechanisms in which can happen are not always reported. So for example, you know that the way China operates and how they even hold their Treasuries is not actually consolidated. No one actually knows exactly where the bonds are that the Chinese governments hold into which entities to which there can be different exemptions are reporting based on jurisdictions. So that's a structural thing and that's a jurisdictional thing.

The second thing I would mention is that leverage in the system is always hard to know. And it's not that different in crypto as well, where you see sometimes people are doing what is now called recursive looping, and you can basically bar an asset and deposit and then keep doing that trade, and it becomes basically like a fractional reserve banking system on its own. And that recursive leverage type of dynamic is hard to monitor because that notional itself is a fleeting number, and it's not like a number that is widely tracked.

So when you think about what the global carry trade ultimately is, it's an arbitrage that is happening from a cost of financing perspective. And because we're talking about relatively low interest rates, both in Japan and usual historically in the US to make this trade worthwhile, you need a lot of leverage because we're essentially assuming these rate volatility is gonna stay low. And because it's low enough, people are willing to take, you know, smaller haircuts and therefore give you more leverage. And that's how leverage builds up.

And of course, what happens, happening is usually that those numbers were, in fact, not that stable and the leverage you built based on those assumptions, we're entirely wrong. And that's when you have crisis. That's when you have basis spreads blown out and a lot of the global carry tree is essentially, we're done with a lot of leverage. It's done with leverage because people think the dollar stable, the end is stable, the relationship has been known for decades now into how they react. And it's a kind of financial repression that has ultimately created that environment. So it's hard to know because reporting is leverage in itself, and you don't always know which pools of capital are taking that leverage either. That's why there's growing calls from the Fed as well and trying to demand higher transparency of reporting from hedge fund entities that tend to be exempt from the kinds of public reporting frequencies and granularities that are required of otherwise things like 40F funds, for example. And the constant tension that we're seeing about needing to know more about this, you know, pool of liquidity is essentially trying to understand the fragility of carrying trade better, and it's a work in progress.

Trump’s influence on the 10-year treasury rates

Archie:

So we seem to have a, have had a situation almost like a tinder box, which was ready to light up. And we have Trump come again. He's got particular objectives in mind. One of them that he stated is that he wants 10 years to go down, but I don't think that's happened in response to his tariffs. At least a few charts that I saw floating around seemed that the market reacted in the opposite way in which he had anticipated.

What, why do you think that's happened? What are the implications of that? And what else can Trump do to get what he wants? Because I recall that you posted that if Trump wants a 10 year to go down, he will do everything possible to make it go down.

Jeff Park:

Here's the trick. Most of the financial equations have a self balancing effect. Most of the things we do in the capital markets is zero sum, and there are ways that cannot be zero sum. And that is if you can find some arbitrage conditions around leverage or volatility or duration, those are usually the parameters that people are solving for to create outcomes that look like they're not zero sums. But ultimately, I have to view that most things are zero sum.

And the particular thing with the tenure rate and the dollar strength is that they're related in a world where we don't introduce biases. The general mathematical relationship is that if the interest rate goes up of like a domestic country, the currency of that domestic country also has to weaken. And that's because that's the arbitrage free condition of FX parity. Like if I'm earning a higher, you'll. In the United States, and I can otherwise then take that yield and go elsewhere offshore and invest for the same return.

The currency pair matters. And if the rates in the US are really high, it means you have to offset that by having a weaker dollar, all things considered, in a ranged condition of no arbitrage. So the idea of having lower tenure rates and a lower dollar is very challenging, that's the most important thing for us to acknowledge. That is not a normal condition. Usually, they have to move in offsetting directions. And so the question is, what do you prioritize? Do we want a lower dollar as the thing to solve for, which will likely then result in higher rates? Or do we want lower rates, which probably means there's higher dollars. And this relationship is actually one which has conditions for zero bound.

And this is the problem. You can't really have both unless you try to do something really clever. And what we're seeing is actually that the market has decided at some level that we're going to prioritize dollar weakening in the ways that we are observing what foreign actors are doing, and there is a revolt on the back end of the 10 years and the 30 years that is being driven entirely independent of US monetary policy decisions because the great myth about the shape of the curve is that the Fed can actually only influence the shorten of the curve. When they set their benchmark policies, they're talking about the shorten the curve in which they control the cost of financing into the banking liquidity system.

The long end of the curve, those are buyers and sellers of long dated bonds. And as we know, that tends to be foreign investors right now that are holding the bags for the United States for the most part, and they can actually exert some pressure there. And it's related to credit worthiness ultimately, as to what's the cost of capital to think of us as a risk free sovereign, which is kind of the default Assumption that most of modern finance is built on. That the us treasury benchmark curve is the risk free sovereign of the world and everything is benched off of it. Well, people are reimagining. That may not be the case. And if that's not the case, then you have to basically ask for premium, and that is what's happening on the long end of the curve.

And this is not surprising to me because the relationship between the trade deficit and the capital account surplus is a very well-known tradeoff. Like when the United States decides to run a trade deficit, it means that they're essentially letting dollars also flow to foreigners in ways that dollars have to come back to invest in US assets somewhere. And so that results in a capital account surplus, which is partially the reason why we have very financialized and high performing capital markets.

If you unwind the trade deficit. There isn't a lot of leverage otherwise than to imagine the same outcome for your capital account side of the balance sheet, which would that mean you're selling US Treasuries, US stocks.

Stablecoins solving the Triffin dilemma & Eurodollars

Archie:

I just wanna give some context to the discussion regarding transactions is that ostensibly the whole premise behind these tariffs is that the world is ripping off the United States because United States has trade deficits with many countries. But you've just outlined a point that actually that was necessary in order for United States dollar to be the global reserve currency. And so if you want one, it's necessary that you have trade deficits in order to be able to supply the world with the global reserve currency. You can't have one without the other. At least that's being the conventional wisdom. Is it possible for them to have one without the other?

There's the other thing, the other concept that I sort of found a bit head scratchy when I first heard about it, and I'm revealing my ignorance here. Is that the euro dollar system, is that actually. There are US dollars created in the European banking system, and the Fed has almost nothing to do with that. There are other ways for the US dollar to be created for the global economy, other than continuing to maintain a trade deficit. But is it actually possible to eliminate trade deficits and still have global reserves?

Jeff Park:

There's a lot of stuff we take for granted in the ways that we have a financial system that works the way it has been cuz that's always the way we've known the world to exist. So there are elements to this that can be fundamentally and radically changed in my opinion. And crypto can play a big role into this. And I think stable things in particular can play an amazing role into this.

So take for instance why does it mean when you run a trade deficit that by definition you have a capital account surplus? It's very simple. If I'm running a trade deficit, it means I am basically importing more than I'm exporting, right? That's ultimately what that means. If I am importing more, that means that the foreigners are essentially selling more into the United States where they're earning dollars. And those dollars have to go somewhere. And they have a surplus of these dollars because I am importing more than I am actually exporting.

There's just more dollars of orders than they have that needs to be invested, and this is the crux of the issue. The dollar doesn't always represent the correct pricing for what the domestic monetary policies are being set for because it is serving as the reserve currency as well. This is called a Triffin Dilemma, which is that ultimately you can't run domestic. Basic policy soundly, if the currency is also being used by foreign investors managing their own capital flows because that creates their own supply and demand dynamics and they're intertwined. It's almost like you have to imagine a world where there's like an onshore dollar for American needs and like an offshore dollar for foreigners to do whatever they need to do with it.

This is actually not unrelated to why China has a 2 FX regime. You may know that they have CNY, which is their domestic renminbi. But they have a CNH, which is their dollars that are outside the yuans that are being used by offshore investors in Hong Kong. They're both the same Chinese renminbi, but they're two different currencies. And there's a relationship between these two currencies, which is that people expect there to be a tightness in how they trade. But one is floating. CNH is floating because it's part of the global capital markets. CNY is onshore, its capital accounts are close to domestic only. And the arbitrage between those two currencies, you know, happen with specific financial players that are regulated by the Chinese market regulators.

This is actually the way to imagine how you might solve a trip and dilemma type of dynamic, right? But this is now looking more like China, unless like United States, but this is why China has a dual currency system because the mandates can differ based on foreigners and domestic needs. And so for the United States leader of the front.

So for the United States, I think this is a very tricky position where they have to imagine a more creative way to think about how the dollars can be used that can fulfill the goals of their domain citizens as well as foreign investors. And that's why I think a stable coin has a unique lens for which there can be participation.

Because people want US Treasuries because it's safe, but wanting US Treasuries does maybe not necessarily mean that they want US dollars. And there is a difference here. To buy US Treasuries, you must own the dollars to buy the Treasuries. But imagine a world where actually you don't need dollars physically to buy us credit risk and you can remove the dollar out of the equation entirely from a trade flow perspective. Because then that would allow the possibility for the dollar to also not artificially be higher by the demand of foreign investors who just simply need dollars to buy treasuries when all they want is actually they just wanna buy treasuries.

And this is kind of the thing that stablecoins, I think, could ultimately solve for. It'll be entirely revolutionary and radical and different than what people generally imagine, like, how do you buy a bond without the underlying currency? But if you can solve that problem, I think there's a lot of things the US can benefit from. Okay.

This goes back to the euro dollar thing. Is the euro dollar essentially representations of the Treasuries? And I would say it's yes and it's no, because these are not official issuances by the US government. So they're not backed by the sovereignty of the US government at all.

Archie:

But with stable coins now being mandated to invest in US Treasuries. That's, I guess that's quite a significant distinction between euro dollars, which are not and US got a stable coins like tether and USA and circle, which soon will be if they haven't already. I don't know when that legislation will come into action, but. Well, they have, at least we know that Tether has been investing a very large amount of their funds into US Treasuries, so backing the tether with US Treasuries. But soon it will be mandated to do so. I don't know the exact number, but a high percentage.

If then US dollar stable coins grow in adoption across the world, doesn't that exacerbate the truth and dilemma?

Jeff Park:

The stable coin legislations that are unfolding today, I think is a great start, but it hasn't, in my opinion, yet fundamentally address any of the bottlenecks and problems in the ways that we're improving the financial system. I think there's visions of stable coins not looking like the way the legislation exists today that really then become game changing endeavors. But the current format is no different than a money market fund type of entity, which is actually what stable coins today principally be discussed represents even without the yield bearing component. So actually, in my opinion, stable coins in the current draft of non yield bearing dollar stable coins is the worst of both worlds.

For the holder, especially US holders. Like why would you hold a non yield bearing money market fund? It makes your sense. Now you can imagine foreigners might be happy to do that because like I said, there's a value in like the sovereignty of the risk free rate that they can access that you can't. And if you're living in Argentina, for example, and that's about valuable to you. What I'm trying to imply here is that there's a way to bring price discrimination of US Treasuries that hasn't been done before, which is that the privilege of having US assets as a foreigner might be worth a haircut, and there may be a scheme you can apply just for foreign investors that you don't. Apply to domestic investors because domestic investors, again, they're part of the system. We're part of this country. We're part of actually the growth economy agenda that is eh aligned. It's foreign investors where there's a slightly different alignment. So the thing with tether is right now, it's working because there's a lot of offshore investors who are just happy to have dollars, but they're, as they're saying also like, I don't need a yield for it because I'm happy to have my dollars. So what does that mean? It means actually the tether and not the United States is enjoying what is historically called absorbance and privilege, which is the ability to monetize people's desire for a reserve currency at a subsidization that no one else ever can. And what's happening, really, is that tether is capturing all of that gain at the cost, frankly, of the United States at some level.

Now this makes it sound like tether is a negative or a bad actor, but actually that's not my point. My point is there's a strong demand for offshore dollars and tether has found the opportunity to capitalize upon it. And the US will recognize it and they'll want a similar conduit. But the thing that I think everyone will come to appreciate in the near future is that by definition, it cannot be an American entity that doesn't. Because the whole point of why people want to invest in offshore entities is precisely the same reason the United States doesn't want them to hold it, which is they don't want to be surveilled. And have AML KYC issues or debanking issues or credit freezes in a way that puts their entire asset base at risk, right? Kind of like what happened to Russia after the Ukraine invasion. They don't want stable coins that can be turned off the next day.

Tether’s role in capturing offshore dollar demand

Jeff Park:

We're gonna see how this unfolds because right now I do think there is a little bit of a grayness as to the profit motivation that is a private entity versus what otherwise I think could be generally perceived as a public good and a public service.

But the point of it, I might trim it, is that people compare circle and tether as if they're competitive dynamics, but they're different. Actually, they can coexist because circle is not trying to do things in the way that tether is trying to do things. And they serve different needs. And that's the beauty of the euro dollar, too, right?

Part of why the euro-dollar worked was because at the time, after World War 2, a bunch of countries wanted to park their money with the US, but they grew slightly skeptical of the possibility of doing it, and they just preferred Europe as a destination they felt would be more neutral. So they actually looked at countries like France and Switzerland and of course, the UK all of them had euro dollar markets and it turned out the UK won that. But actually, it's a fascinating study of history to see what exactly unfolded there, why Switzerland didn't win the US dollar market and all those dynamics. But the point is, it cannot be the United States. It must be offshore, away from building credible neutrality.

Archie:

But there's still a flow on benefit to the United States in generating demand for US Treasuries, and that should somewhat, depending on what the demand is like, put some pressure on rates to go down correctly, whatever the, yeah, whatever the difference would be if they hadn't been buying that. So that will be an interesting dynamic to see to what extent that scales up with, I guess, the permission of the United States once they put that legislation into place.

Jeff Park:

There's three kinds of stable coins as a bucket that is being discussed.

One is the non yield bearing stable coins for domestic purposes. I really see that more as a payment processing. Like we're talking about how do I get paid from bank of America and transfer it to Paypal and not use Zelle. And then it becomes like a B to B merchant problem where like, hey, I'm Shopify or stripe and I'm collecting these payments and how do I make it seamless for the end consumer where the stable coins are better proxies for like immediate liquidity than the way like banking system is built today. But it's all closed. This is closed dollar for dollar transactions. There's no concept of yield. I don't think most people are interested in non yield bearing stable coins in the crypto world today. When crypto people talk about stable coins are talking about yield at some level and it's not a fintech angle and the yield story has not played out yet. The stable coin legislation so far has made it fairly clear that the scope is for non yield bearing stable coins. And so this is a fintech version.

There will be a yield bearing stable coin, but then securities law gets pretty involved because right now, anything that has yield components are securities by nature. The stable coin that is non yield bearing may be exempt from it. But the moment is our touching yield, it becomes more likely a securities and then we open a very big box of the regulatory apparatus into who can touch it and who cannot touch it.

And that is then again different from the third bucket, which is the offshore stable coin. For the benefit of foreign investors who may want to hold US Treasuries and US cash, and that is different than servicing US interest. That's kind of, I see like a big picture of like where stable coins will go from level 1 to level 2, ultimately to level 3.

Emergence of bond vigilantes and patriotism in markets

Archie:

You've mentioned earlier Janet Yellen's refinancing with a shorter date debt, which then adds to the volatility of the overall markets as well. What are the chances that they will get what they want?

Because I see the market, and I know you mentioned in one of your recent posts about vigilantes as such. And you know, that's quite an emotive term often associated with the actions of Soros in the 80s when he famously broke the bank of England.

And people have kind of been lamenting that we don't have this market correcting mechanism anymore, but do you see what's happening in the market now with respect to rates on the tenure as a kind of reemergence of vigilantism? Or is it just, you know, I mean, essentially they're just investors who are taking the opposite view to disagreeing with the official government narrative. Do you see that as a growing trend? And like which sectors of the market are leading that?

Jeff Park:

Yeah, it's such a fascinating question because vigilantes by definition has been used to talk about American investors in the past. Like, hey, American investors are revolting because they disagree with Fed policy and they're gonna give them a hard time. So it would be like Stanley Drack and Millers or Soros, as you said, as Americans trying to exert pressure on American policy.

You know, but you can imagine at some level that could today, right now in this political climate be construed as unpatriotic? Because this is actually then the antithesis of when war bonds used to be a mechanism to find, finance US military expansion, when, you know, used to have these war bonds concepts , like everyone needs to go buy war bonds. And I know the rates are not as good, but you're doing it for the country because the country is fighting for you and this is your way of putting some skin in the game financially, helping finance the war, right?

Archie:

Because the government couldn't simply print money back then when it was on a gold stack. It's part of that.

Jeff Park:

But what I'm trying to hint here is that buying Treasuries at the core and selling Treasuries is a political endeavor at some level. And it's a question of patriotism, too. And the worry that I have today for bond vigilantes is if they come out very strong, the political mood is so sensitive towards whether you're on the mega agenda or not the mega agenda as to America First, that they can be construed as an American. It's actually a little bit of a dangerous time sentimentally to express anything that might increase the cost of US financing in general, in my opinion. And I think the world is kind of going in that direction where the emergence of bond vigilantes would be suppressed because it would be construed as like an unpatriotic thing and nobody wants to live in America and be called a trader.

Archie:

Can I compare another situation and perhaps you can comment on why that's different this time? Is that quite a lot of people in the markets, guys like Acmen, made a lot of money shorting American industry in covid, right? And, you know, I think a lot of citizens thought that was unpatriotic, but there was no institutional backlash. Why do you think perhaps, and I'm guessing you're kind of alluding perhaps to some kind of a punitive attitude taken by the administration towards people.

Why do you think there was no reaction to that, but you suspect there could be a perception of unpatriotic behavior by market participants? Well.

Jeff Park:

First, I would say I think there has been some reaction to it. It's not widely known that Bill Acme in general does not show companies that he only, does not only invest in. So I do think that's different there, though it's also for Americans to violate.

He used to short on activist campaigns, you may remember, Shorten Herbal Life. There's a whole history of Bill Akman shorten. But I would say today, Bill Akman does not do a lot of shorting, which I'm trying to convey the sense that the mood has changed in the elite circle of how to demonstrate at some level what patriotism can mean. And shorting has become a little bit of a challenge dialogue.

But I would also argue, and I think many would agree, shorting is very much a feature of a well function in capital markets when things are not priced correctly. One of the great innovations that the American market has permitted to prosper is the ability to have shorts come, help price discovery, cuz sorting is actually effective and ensuring that the market is functioning at the right price.

You see other countries at times of financial distress saying shorting becomes illegal. You know, in the US, too, at one point, shorting financials became illegal in the crisis. And there are mechanisms that people put in place. But these things feel un American, uncapitalistic. But these things tend to happen exactly when you need to save the government or save the market or save the country, right? Then, there's a correlation here. Find the system.

By regulation. And this is kind of the great myth of American capitalism. America generally looks like a capitalist country, but there are lots of things that happen behind the scenes when national security prioritization takes control, in which then some things will look very un American and uncapitalistic.

Archie:

Okay, good. I'm I'm really looking forward to your opinions on that as well. That's okay. So what can I anticipate then? If Americans aren't short, then the rest of the world will end.

I guess a few days ago, there was a rumor that Mark Carney, who's the incumbent Prime Minister of Canada, former central bank of England and also bank of Canada, we'll see the century he was, wasn't he? Perhaps he may have coordinated an international effort amongst like minded countries to respond to Trump's tariffs with a gradual and persistent sale down of US Treasuries. What do you make of that?

Jeff Park:

Look, I mean, it's a function of their own countries needing to fund their currencies in the ways that needs Protection, right? Because if the US continues to depreciate the dollar, then that means by definition, other currencies are getting expensive, too. And if you're an export driven country, this is very bad for you. So you actually then need to be able to sell your own currency to weaken it, which means by definition, you have to buy dollars. And to do all those things, you need to actually start interacting with your holdings. This is essentially why China actually has to go out and start monetizing some of their treasuries.

Archie:

That sounds like a very pragmatic explanation, though, and I wonder if there was something a little bit more retaliatory.

Jeff Park:

Iit's also entirely defensible that you can do these things as a rational endeavor for defending your own domestic agenda. Sure. Which is why I think when, you know, people use the word like currency manipulator, it's a very ironic thing because essentially currency manipulation doesn't happen by itself. There's a pair and there's a pair that is being affected by it in a way the market is reacting to.

Archie:

I guess the reason why I brought that up other than it being a little salacious bit of room was if the American investors don't short the, that will open up a large opportunity for international investors. So if they don't do it ostensibly perhaps because of patriotic sentiment, that's going to leave perhaps a quite a juicy opportunity on the table for international investors. And I wonder how long they could resist, American investors resist the opportunity to short in defense of patriatic sentiment.

Jeff Park:

Yeah, we have to be careful on here. We have to be careful. Shorting is different than selling. And international investors can sell and that's enough to bring down the market. I don't think international investors have to mercenarily go short to US market. They literally can just decide we need to allocate capital away from US assets and sell what they already own, which is in itself a bigger pressure than what American short interests could have arise to. So that doesn't make that distinction a little more clear, and I think it's natural for US investors to be worried about it and also equally natural for foreign investors to imagine diversifying their assets away from the US if there's going to be a global kind of asset deflation that emerges out of this unlined.

Archie:

That's real. I mean, I'm quite surprised you raised that patriotism would be a factor in that investors would consider, American investors would consider. But that's really something interesting to keep in mind to see. Yeah, now that's kind of enforced culturally through messaging and signaling through the White House. I don't have my finger on the pulse like you do, but I haven't really seen too much of that above the line.

Jeff Park:

I think there's growing momentum here, to be honest, that people are trying to bring a sense of not national solidarity into the mainstream dialogue. I think, unfortunately, some of that energy has been done in a pretty harmful way as well in terms of trying to define what is the American identity. And people come with lots of opinions and what American identities may mean that people disagree with. But one book I read recently that really spoke to my heart was Alex Carp's book, The Technological Republic.

What the book essentially addresses is that a lot of the misgivings of American capitalism today comes down to a breakage of the relationship between the technology sector and the government, which is that most of like the amazing technological revolutions we've had historically were funded by the government. Things like space travel or atomic weapons. All these things were heavy research projects funded with public budget that eventually found commercial opportunities.

Internet, same thing. However, the culture has changed, which is that post the rise of the internet, driving a more commercial and consumer centric agenda, that there's a whole cohort of technology companies that don't actually respect that relationship with the government. And therefore, we have a lot of companies that are building great stuff, but they can also appear a little frivolous at times. Like Doordash is great. We all love it. But is that the most important thing, to have your meal delivered, you know, 10 minutes faster than having the ability to call somebody and having to, I mean, it is, there's great efficiency you can give, but it's a little bit consumer centric online. Dating, great stuff. Matchmaking, sure. A little consumer centric.

So the whole book is essentially talking about how to rebuild a culture of American patriotism. You almost need to go back to the roots of finding a bridge in the public private partnership, which is so absent in today's dialogue. It's absent in the Trump administration. It's absent really in the Biden administration as well. And no one really wants public private partnership. But the reality is only by having public private partnership in a genuine way that people can be convicted behind can you have the emergence of national pride and national solidarity. And this idea of like, greater good you're doing on behalf of the country? And this is a cultural rot, if you will, in most recent years that I think the United States is navigating very carefully, but one that is gonna take more emergence into the mainstream dialogue.

Archie:

That the government essentially funding technological in innovation has been something a guy like Tronsky's been writing and talking about for a long time. But from what I understand, it's essentially taking the risk where industry would not. And my understanding right now is that technology companies are awash with money like nothing we've ever seen before. And so as a result, they're taking, you know, they're spending a lot of that money on things that they called moonshots, essentially initiatives, innovation with no real obvious prospect for commercialization, but maybe something interesting will come out of that, kind of like their equivalent of, you know, sending a man to moon, for example. There were all sorts of technologies that came as a result of that endeavor that were not intended, but were transformational as well. The trouble is, we're hard pressed finding what those transformational innovations are from the commercial sector.

Jeff Park:

It's also that those transformational investments take a long period of time, and there's no quick return of capital. And the other problem is with the hyper financialization in general, with where the world is going, where venture capital is also becoming an institution as a class where it's demanding a certain return hurdle.

Everyone reacts to incentives, right? And so are you gonna take moonshot bets where it may payout over decades rather than a few years. And the challenge there really historically is that if there's no like public capital to participate side by side where you're getting some of that subsidization benefit, I think the risk reward doesn't make any sense. Like it would be better to invest in like a bumble and actually have it get acquired by somebody who's a bigger player, who's flushed with cash and that certainty of that outcome is a little bit more likely than investing in like the next big, you know, world changing transformative, whatever it may be, sell cellular engineering to, you know, the fastest planes on earth that are being pushed into new frontiers. There's no doubt commercial endeavors about it, but it's not receiving the same level of attention relative to some of the other things that may be a little bit too hyper consumerized.

Archie:

I agree. Right. And I guess to give the technology companies a little bit of credit, you know, maybe they are innovating some transformation on new technologies and techniques or whatever it is internally, but it's just exposed to so few, to potential entrepreneurs internally and also their internal approval mechanisms that are very limiting. Whereas when the United States government did it, it was up open to a much larger section of the economy and entrepreneurs in order to be able to find the commercial application. So maybe that is also a limiting factor. I guess the point that I wanted to make was that essentially, the government funding technological innovation for decades without any real commercialization opportunity from the outset requiring, you know, business case approvals. As such, they were more mission oriented. They were doing that to solve national problems. And as a result of the outcome that whatever the successes that may have arisen from those endeavors, then there was a sort of a national unity around that. They were not really undertaking, perhaps with the exception of the moon landing, there was a sort of national pride to that in competition with the USSR. But generally speaking, you know, the research that's funded by governments are not really with the intention of galvanizing national sentiment, rather to solve national problems.

Jeff Park:

And this is the greatest misunderstanding and a blind spot that the United States has against China, which is that China has excelled on the public private partnership. And if you imagine what it really means to have a big economy in the ways that really is producing things, you will have seen that China actually has invested in all the right things that prioritize national security, right? I think there are a lot of stats out there that show you China's much bigger than the US in production of really important things like cars, are three times bigger at manufacturing cars, they're like 20 times bigger with the cement industry. They're controlling the mineral refining processes. That is now a strategic issue for the United States. So they're actually investing in the things that drive national security as an equally important construct of the profit opportunity.

That's the sentiment I'm trying to allude to, which is you do not hear about the US talking about venture capital this way. You do not hear about US investors bringing patriotism as part of the dialogue of investing in certain subsectors for the greater good of like national security or patriotism.

It's actually, I think, somewhat unpopular. That may then now become popular. But the reality is China's been writing this for a long time. And you cannot underestimate how important that partnership can be, especially in terms of crisis.

Archie:

I guess a national principles is effectively let's leave it to the market. That market will sort it out. But you know, the market will sort out commercial successes. It can't prioritize what. But what, you know, the national objectives are. And I think to some, to that extent, I think the ruling class in, and complacent in that regard. And I guess we're living at a time when we have a counter example to show that up in quite a spectacular fashion. Yeah, of light.

Jeff Park:

I would go one step further. I would say not only can the capital markets not solve that problem, but they can exaggerate the problem. And that's actually one thing that Alex Carp also lose to, which is if you look at the biggest growth of the United States in the tech sector, a lot of these, the max seconds, if you will, come from the advertising business, right? Facebook, etc. Advertising. If you think philosophically about what it means to run a great advertising business, at a cultural level, it means you have to appeal to everybody, right?

That's how you cast the widest eyeballs. This also means at a cultural level, you cannot actually take any views on anything. Because the moment you take a view on something, you're gonna leaning some other sub population. So by definition, companies like Facebook, if they're trying to be maximum revenue generating companies, like you said, if the goal of capitalist interests, the downside there culturally you can imagine is that these companies then become baseless and they are literally just a platform of things where they take no views on anything. And that means they are no longer participating in the agenda of serving a cultural fabric or a country.

And so Alex talks about this a lot, like one of the reasons we've had these issues with volcansm and all these things is really because at some level, there's a whole generation of young people that are now becoming adults who have never been taught how to engage in those types of dialogues because the very notion of offending somebody was so detrimental to the societal standards of expectations. And that if you really ask why, that could be, it really emerges with the profit mode of the search ad business because you cannot have that viewpoint in which you have to be as clean as possible to have the widest maximum goal seeking endeavor of profit maximization.

Archie:

We saw that Elon Musk took over the Twitter now X platform. And then suddenly, well, it turned out to be quite a conspiracy of brands who were sort of jumping at shadows or perhaps had political motives. But essentially their concerns, we're real about brand safety. They've that they've long pushed brand safety as a censorship mechanism of content on every platform, not just Twitter. And I guess that sort of that touches on the blandness and the facelessness of what you're talking about.

I'm really glad that I know China constantly comes up in the context of being an enemy of the United States. And someone who's not an American, I don't. I'm not convinced they are an enemy. I think they definitely be a rival of the United States. You know, they, you can compete on size, on scale, by industry, for markets, for customers in, you know, in all sorts of things.

But one of the things, one of the really interesting things that has become apparent to me is the contrast between the two nations, and none more ironically than the last two weeks, China be coming out as a strong advocate for free trade, free global trade. And then we're seeing all sorts of segments of the American institutional elites actually championing tariff protections. My head is spinning with the irony of this situation. And I'm just like, I'm looking it around and like, how's it, how is it that a country that's still called, you know, by many people communists is a greater champion of global free trade than the country which has modeled its entire self image on being a champion of capitalism and free trade. I mean, essentially the United States pushed globalism, right?

Jeff Park:

We have to be a little bit careful as well in what the vision of trade liberalization of the US is potentially promoting today, which is what is loosely, I call it conditional by lateralism. So I think what the US is trying to reconfigure is that the security blankets are very important and critical and there are some free floater attack dynamics that are happening that are adversarial to US interests and we need to sharpen the toolings around the exact conditions for which bilateralism exists.

So that is, I think, the crux of the dynamic the US is solving for, which is that if you have global trade in which everybody's part of it, then you can see how the situation gets a little bit muddy with a lot of prisoners, dilemma types of issues and different kinds of moral hazards, will, people will try to do different things for their own self interests. And we're probably at that point where it's breaking apart because it's actually been incubator for so long, where these things are not challenged anymore. And I think the US is not saying like we're going to be a protectionist country as in work closing up the walls. That would be bad for the US, too. I think what they're trying to imagine is actually trying to have bilateral negotiations and get more for what they feel like they haven't historically got enough.

And then I think it's not a question of black and white, it's actually a spectrum of like, where are we landing in the relative richness and cheapness of an outcome that historically was for good? I think that's the right lens, and so this comes back to, you know, what is Trump's ultimate motivation in causing tariffs and causing chaos? And I think in my mind, in my heart, I still believe his No. 1 goal is to cheapen the cost of financing, because that's up the, that's the engine of US growth. That's the engine of the dollar hegemony, that's the engine of global growth as a story via inflation, and that is a world that is best suited for us.

To continuous dominance. And to do that, you need rates lower. But to get rates lower, you actually do need other countries to step it up and actually participate in funding it. And here, we just saw China is no longer funding it. Japan has stepped up. Maybe it's time we need other countries to step up. And part of this dynamic that I think will emerge into some kind of a deliberate, you know, accord type of meeting, like a Breton Woods type of event that will be memorialized in history for the next decades. And on will be this event where the security apparatus is reimagined by having new buy ins from capital partners with commitments that can help the US manage its cost of debt. That is the goal in my opinion still.

And right now, all the volatility is trying to configure the path to bring everybody to the table, whether it's by causing chaos with the trading relationships, whether it's causing chaos in the US stock market to get the Fed to intervene. I mean, you also saw Scott Besson came out pretty recently and said yield curve control is on the table, which is a pretty profound thing for the US to say nearing the journey of Japan. And I've always said, actually, if you wanna know the future, just look at Japan's basically 30 years ahead. And if you just look at what Japan does, that's what the US will have to do, all the same things.

Archie:

I'm so glad to hear you say that because it's been something that I've been thinking for about five years. But you know, I don't have your financial markets experience, the background to back that up within anything more than just a hunch. But essentially, you know, my Long View is it what's happened in the United States over the last 20 or 30 years is it is essentially a war between the generations, basically to see off the baby boomers without.

They recognize quite early that the government was not going to be able to fund their retirement. And so one easy way of doing that was to juice up the home equity markets and the stock markets, and we're seeing that, and it's gonna be an unwind of that. I gradually, you're a transfer of wealth onto probably, it'll probably skip a generation for the most part, to be honest. Yeah, sorry to gen axes, but that's probably what's most likely to happen. And how do we get on to that? There's one of these moments I'm finding in every episode that we have to edit where I just lose my trains.

Jeff Park:

Okay. I actually shared a similar sentiment towards the end of last year where I think the greatest bargain that was made societally as a world over the past few years has been this idea between generations that we traded away uneven prosperity for unhappy peace. That's how I point it out. What I mean by the right.

What I mean is how lucky are we today that generally we don't have military conflicts as an average civilian and we get to live life very freely in all the ways that we have higher standards than the prior generation, right? We all really benefit from a higher foundation of basic necessities, right? Like, I mean, amazing to have like Netflix that everyone can watch content and generally kind of have these things that were unimaginable as a medium good for a prior generation.

Archie:

The piece is alright because there's another part of this. So I get what you're saying from a consumer, commercial, retail, technological point of view, the baseline is quite a lot higher, right? We have a fantastic foundation. But in terms of meeting our fundamental aspirations as human beings, you know, family, community, home ownership and a decent living, I think all of those have been eroded for at least 20 years, you know, I've been in the job market just over 20 years and I've been waiting for the housing market correct to a significant or meaningful amount, much like, you know, the cycles that I'd grown up sort of experiencing as a child and that I'd studied in university.

And we really haven't had the kinds of drawdowns that, for example, my parents did as an opportunity to buy. So I'd always sort of grown up thinking just save a bit of money and the correction will come and you'll get your opportunity. And it never really came. I've just been waiting and waiting and I could never put the pieces together until I found big point and I understood all about the money printing and, you know, liquidity holding up market prices and all the rest of that. So I guess you do have a point. We do, like, we have these devices and we're doing this across the world and that's fantastic. By the same token, like I live in London and the tube is shithouse. Meanwhile, I see the 97th largest city in China having an airport that's better than Heathrow.

So in one sense, I understand and I agree with what you're saying. In another, I think we, I'm not sure that the next generation is going to live better than the previous. I don't know that kids growing up today will have better lives and better prospects. I don't have that confidence. And we're starting to see sort of like decades long polling starting the trend much lower about the optimism people have for themselves to live better than their parents did. I think they're starting to hit like record lows in that regard. And I've, I am a little bit cynical about that actually. So in one sense, I do agree with you, but then I see like, okay, well, some of these other basic things that we all aspire to, you know, starting a family seems like it's harder than ever. And I know I hear people like Elon Musk say just do it. You know, people were poorer than you 100 years ago. And it's like, it's not the relevant point to be making people poorer or they had a lower technical, technological foundation to do that.

It's that relative to our circumstances now, people don't want to experience further impoverishment in order to be able to achieve those aspirations. The direction should be up. And better and more civilize, more relaxed, more prosperous, more affluent. And unfortunately, I think they're right to feel that way because we're not treading water anymore. We're not maintaining a level. I think that we're about, you know, we're starting to erode a lot of those foundations that make it possible for a lot of people to achieve their aspirations.

Jeff Park:

I agree. This is why I say unhappy peace. It's peace about what cost and the reason of this unhappiness emanates from exactly the conditions you describe. And if you think about what you're alluding to is essentially the victims of financial impression. And financial impression is ultimately why we have a peaceful period, because it's easy to steal money from the future because it's faceless. These children are not born yet and they will not have power for another 30 years to advocate for themselves anyway. And so this perpetual cycle of debt is actually stealing across generations. And if you can't steal from your neighbors, you might as well steal from the future. And this is the tradeoff of peace.

And I think this is the condition that is challenging to really discuss at some level because we're all benefiting greatly from the peaceful international relations you generally enjoy, but there's a cost to it. And this financial impression ultimately creates asset inflation. It creates all kinds of dynamics where people are not dying anymore cuz you're not going to war and they're actually therefore over investing in human capital. I think about how like, you know, for example, my parents, my mother in particular was one of six. And when you have six children growing up, part of the calculus there is not that you're investing all six to become the next princelings or the next best things of the Zuckerberg, right? You're just raising six kids cuz they're a capital and they can do things that can help you in the unit of the family structure.

People don't think like to say more, right? Each children is precious, where they're going to become the next Zuckerberg. So you over invest in that human capital. Well, why do we do it? Because it's peace. You know, they're gonna live long. They generally have great health. The standard of living has gotten higher. And it's fair. But in a world where there's war, where there's unexpected kind of deaths or unexpected life circumstances, you would not invest in human capital the same way. And this creates even more inequality generally as a civilization.

And this is something that bitcoin, I think, is right for the moment of now, which is that Bitcoin is one of the escape valves that I've preached as a way to opt out of the system of that financial repression where instead of stealing from the future, you're actually investing yourself for where the future world is going to be. And Bitcoin is like a unique conduit to hedge yourself away from that social barter that I just described and opt out of it.

Trump’s tariff strategy and global trade relationships

Archie:

I wonder whether or not Trump has eliminated some of his options and undermined the goodwill that he, the United States had previously enjoyed and perhaps is a little bit precarious right now. And so, you know, one of the things I, somebody mentioned was that this whole tariff drama is essentially a one way door that wants, once you walk the rest of the world through it, they no longer can walk back and see, you know, it's difficult to return to a relationship when you discover infidelity, right? And so this is kind of like that. It's a bit of a wake up call for the rest of the world that actually this administration is a little bit more transactional and doesn't really pay too much heat to decades-long partnerships.

Jeff Park:

I think some of the dynamics nonetheless is that people tend to have short term memories and it can be fixed if we are on the right course itself also.

These relationships that have not been set in opposite directions can be fixed, though people will now ascribe a higher probability of needing an outlet as a hedge, which is why I think it's good for bitcoin. Anytime you increase the probability of people needing to reserve room for tail risk scenarios, that's good for Bitcoin, but I think it can be amended. Ultimately, here's why.

The EU is also likely a motivated self interested actor in which they will do their own decisions based on what's good for them. And it may feel like actually if China is the bigger economy and therefore China is going to provide more opportunities in the US, you know, for example, like the Airbus versus Boeing dynamic, right, that's just unfolded with China canceling all the Boeing aircrafts. It might look like it's good for the EU and the EU then might actually get closer in bed with China.

But the other reality is, and you should read class of civilizations. By Huntington, there are very long term moving psychies as well as to defining these geopolitical relationships. It's not just driven by monetary value. There is a great importance of cultural alignment. And it would be a little bit surprising, in my opinion, if the EU thought they were closer cousins to China than to America, flat out. And you cannot underestimate that. You cannot underestimate ultimately when you look across somebody the table and you stare into them, the eyes, is this the person that I know? And I still think Europeans know Americans and Americans know Europeans much more likely than China will be able to convey the same sense of kinship. And it could change over time. But for now, you, I don't underestimate that discomfort and how important that also becomes in striking these alliances for the long term.

Archie:

Yeah, I just meant that whether or not the European Union would be willing to accept Trump's choice of options that he's presenting to them. It's US or China and Europe like to say, well, actually, we'll do it our way, not doorway, and we'll keep our options open, which is, I guess what you're suggesting as well.

Jeff Park:

Yeah, you know, are you militarizing? And I think in general, that's also maybe something the US would have wanted. And so we're just imagining like a world where it's not gonna be so, you know, emergent. The US is leading the entire security guarantee that there may be some necessity to have more security guarantees that are enacted by other players in the space as well, which is expensive.

Archie:

And that was one of the things that Trump has been commenting quite loudly about is that Europe is not paying its way into NATO. And if, you know, if, or your, the European NATO partners aren't paying enough of their share in America was effectively subsidizing NATO. So if they do remilitarize, it's essentially one objective that Trump was kind of looking to get them to do more of it will have achieved that anyway.

There's an interesting phenomenon that's popped up in the last 48 hours. I mean, so how much has happened in two weeks? We're essentially talking about the same things that have all happened in two weeks spans. But you know, I'm starting to see a lot of TikTok videos about manufacturers for luxury goods, European luxury goods in China, who saying I don't buy from them anymore. And I wonder, is this like, it's such a coordinated and concentrated burst of activity. I'm like, is it possible that this is some kind of state initiative to undermine European and global brands by encouraging international consumers to buy directly from them as a result of this whole tariff saga that's unfolded. Do you think that's possible?

Jeff Park:

You would know this better than I have not followed closely what is happening on TikTok. I immediately actually don't have a TikTok account and.

Archie:

It's actually all over social media. And I'm just stunned at how quickly it's gone viral and so well produced. These videos are so well produced. And now the sales pitch is pretty obvious, right? Hey, don't pay $3,000 for this. You can get the $30 of.

Jeff Park:

$300. But this is kind of the point that I'm landing, where the cultural gap of understanding behaviors is. I, I, if that's the case, miss misread, right? Like people buy luxury goods not because of the cost of the goods themselves, but because of the notion that it is something like luxurious for them and they feel good about it and they want others to feel good about it. And that whole ritual is why this whole industry succeeds. Of course, you can get knockoffs at all these things. And this is very Chinese actually in the way that they're imagining, hey, you can buy the same bag for less. And what they're culturally missing is no one's gonna buy it because the whole point is to overspend for the idea of feeling like you were elite and able to achieve luxury. That's a very human condition of American capitalism.

So that if this is a coordinated campaign, this speaks straight to my point that the cultural barrier is so high that they do not understand each other. I do not think those TikTok videos will influence Americans. So then go, oh, instead of buying the whatever bag from Italy, I'm not gonna buy the same design from China. It's not gonna happen.

And this kind of culture war, if it were to rise, you will see more people kind of gravitating towards defining like their cultural values or national identity, what they stand for. Do we like counterfeits? Do we like things that are free floating and actually refuted? So it's funny you mentioned that. I think also like living in Korea where you would get the sense for both American consumers and as well as China being one of the biggest export market for Korea and heavily politically influencing, you get to see those cultural battles up close. You know, I look at Korea, Taiwan to SM level as the really epicenter of where these cultural battles are happening. And I don't live anymore. I live in New York. But every time I go visit, it's really shocking to me how many, how much that culture war is happening in the Orient kind of versus the west, that Korea is an American ally, proudly living so, but also neighboring China, frankly, as a security threat and trade partner.

Thoughts on the Strategic Bitcoin Reserve (SBR)

Archie:

Let's talk about Bitcoin. Jeff, you made an interesting comment about the strategic Bitcoin reserve. That was kind of a little bit, I guess, guarded might be the right word or just a little bit cautious about the prospects of an SBR. I guess, a little bit less than some of the ballcards on the timeline like me who are perpetually sort of higher, faster, all that sort of stuff.

You're a little bit apprehensive about the prospect of an SBR. Can you explain to us what your reasoning is for that?

Jeff Park:

Sure, I think that the strategic reserve for. Bitcoin can be an incredible output at the right time. And my overarching conclusion is now is not the right time, and there's a few reasons for it. The first reason is that the US embracing Bitcoin at this moment in time would accelerate the decline of the dollar HMV. And I don't think the US is ready, frankly, to unfold that narrative just yet. They may come to that conclusion eventually where they need to reset the monetary order.

But now I don't think it's the time. And this ultimately goes to a Venn diagram that I showcased last year about what it takes to be a sovereign to buy bitcoin under balance sheet, what are the three conditions to imagine the next El Salvador to emerge? And I laid out three things. One is the country needs to be not a direct US ally. Because if you're a direct US ally, I think that, when you buy bitcoin, it would in a way offend US sensibilities at the highest level because you're essentially rejecting the dollar in Germany. And so countries like Japan, for example, countries like Korea, I don't think I can ever announce a US, sorry, a domestic sovereign reserve, because they need to coordinate that essentially at some level with America being at the center of that dialogue.

Archie:

So Russia, Iran, for example, China, some of these countries are under sort of financial sanctions, you know, American dominated system.

Jeff Park:

And then they're more likely to do it because again, yeah, to your point, they don't have that relationship with like the US bond market and they can take more risks. The other thing is that the country, I think has to be in a state of political popularity for crypto, which means the demographics has to skew young. So my problem in Japan is actually the demographics use a little old and it's not like a politically populist thing to embrace crypto, but the countries that will find it to be populism, where you'll have political candidates that are pro crypto presidents will emerge really from countries that have a lower demographics by age?

Archie:

Is that you think because of an affinity with crypto or because they've got a longer term time horizon?

Jeff Park:

I think it's just the most obvious trend that young people generally like being pro crypto and the older people do not. And so if you want to win elections, the crypto vote might count. And in that case, if it's in your favor, you're more likely to embrace crypto and promote it as like a store of value even for like your sovereign balance sheet.

Archie:

I guess on the retail side, you know, we saw initially the people who adopted Bitcoin were those who are sort of ideologically aligned with libertarian values, deeply technical people. And then it kind of spread out to its first main retail application with a place like Silk Road, for example. So still we're talking about the misfits and the outsiders, right? Cuz when you have a look at the sort of activities that were being under undertaken there, and I will constantly sort of meet people through Bitcoin who are like, yeah, I was just looking to score and after a few times I realized I had a little bit of this and it was going up in value. So I just kept it for all time. And after a while, they got into the ideological rabbit hole in the, and became committed bitcoin as well.

And I thought perhaps on the nation state level, there would kind of be a similar kind of trajectory where, you know, on the retail, you went retail sort of independent hedge fund kind of, you know, right now in this cycle, it's becoming more of a corporate institutional thing. So you can see how gradually over time, the scale of investor has increased. And I thought nation state would sort of follow that as well, where we had, you know, Bhutan, El Salvador, maybe next we would see a country like, you know, I don't know else even Argentina, that's a G20 country that's like, you know, it's really leapfrogging quite a few stages. If Argentina under Miley had done that. I know he's not really looking to do that, but, you know, there had to be some kind of middle ground transition, not just leapfrog everything straight to America. I did not expect that at all. And 18 months ago, even 12 months ago, it was really kind of fans a fanciful proposition. But now here we are and just sort of circumvented that entire process. And look, it looks like it's going to happen. It's probably going to happen at a scale much larger than any of us had anticipated also. So I'm like, okay, what are the consequences of that then? So America establishes a strategic bitcoin reserve.

You mentioned perhaps some of the sensitivities if an allied country had done it, what does that signal to the rest of the world?

Jeff Park:

Well, I think it signaled nothing because it's an executive order and an executive order is not the will of the people. And so I make a distinction here.

When we have a legislative strategic reserve being extremely distinct versus an executive order, the same way that the Biden administration came with executive orders on ESG related mandates that people did not take seriously because it was not the will of the country. Immediately, then being unwanted by the next administration is the kind of risks you run when you per pursue this path. So that's partially one thing.

The other thing is that the strategic reserve, in my opinion, the United States cannot be done by itself because the alliance is mutual. If you want to do the strategic reserve properly, you need buy in from your capital partners. You actually do need to give your allies a heads up that this is actually a mission that we're looking to fulfill, you might want to also be a part of the cohort in which we are enacting it together as a trade ally, because we know you depend on us for our US assets, and there has to be some kind of coordinated effort because if you don't do it this way, the you pending of a monetary order is like a big. Big deal. And you cannot do it by yourself. You have to have alliances. And if the US goes out and does bitcoin strategic reserve by itself without telling Japan that they're gonna do it.

The Japanese government, in my opinion, would be incredibly caught off guard. And they would literally be so offended that they're on the other side of funding their entire trade deficit, and they don't even get the idea that this new regime change is happening for them to participate alongside together. So in my view, if there is a real motivation for a true strategic reserve where they're accumulating bitcoin, you're going to see a lot more global, multilateral participations in conversations. It's not gonna be these one offs and these one offs are all at this point, I think, playing to some level of populism and election kind of capabilities for winning votes. And that's not enough. It actually has to get to a level where there's serious intent. And so that's why ultimately, I just think that the US has a lot to lose at its timing. And so the US is not likely to kind of permit this path forward. And the one thing, you know, I'll be corrected on if it happens is if we do get a legislative strategic reserve, then I would change my view and, you know, I would, of course, even more likely double down on being wrong. If the strategic reserve allows for the accumulation of Bitcoin, which frankly is the most challenging thing to convince people to buy into an asset right now in the priority cues or other things that us could be spending their, there's their capital accumulation on.

The Executive Strategic Reserve was literally, in my opinion, nothing. It was truly nothing because it didn't do anything. It just said you can't sell the current bitcoin that you already own.

Maybe people find comfort in that, but the reality is bitcoin is not moving on a lack of selling pressure. People want there to be buying pressure and they want global opt in, and this hasn't really paved the path for that to be the reality. And I actually think it's okay. Like the US doesn't need to do it right now. And in fact, I'll argue they shouldn't because when they do, it'll be so seismic the day the US decides to buy bitcoin on their balance sheet for real that you will know the world changed the next day when you woke up. It'll feel this way. It'll feel so large. And it's not what you felt in January.

Yeah, and beyond. And you'll know. And for retail investors, ultimately as civilians, they should benefit before the sovereign action as much as possible. So my hope is that more people will accumulate Bitcoin across the world at a sovereign level of the individual. And then they can all benefit once the sovereigns opt in because this cost basis matters too. Like at some point, you want the sovereign to step in last because if you truly believe Bitcoin is egalitarian good, that is individualism first before the sovereign.

We all need to participate in advance of it and it would be a shame, in my opinion, if Bitcoin goes to unreachable prices in 2025 where we still left 80% of the global population to not participate in this regime changing opportunity. So I take it as a relief that it wasn't really a big deal, but also one in which one day will be and we should all prepare for it, but it's gonna just take a lot longer than people think. It's just simply not enough to kind of be a crypto bro, to go to DC and lobby for this thing when you realize actually there's so many other areas that US government needs to spend on. That's actually part of why, like after that whole thing, cryptos never really found its issue back in the White House. This is the other thing that I kind of was acute on, which is whatever funding election campaign went into last year for Trump's election, it culminated with that Bill. And I thought, man, how short the industry came for funding so much of the goodwill in helping seat a president as the first crypto president and how little the industry ultimately got out of it.

Archie:

There was no guarantee that one Trump would have even won the election without the support of what was quite an effective pack, quite a large pack as well. And so essentially, even if that's all we got, that's still quite a significant win and also a change in the regulatory regime as well. So we've got the end of enforcement by prosecution or whatever it's called, you know, essentially a punitive regulatory regime Genesis gone.

We're getting more people who are receptive to the industry in general. So I think the tenor of the whole situation has changed, even though there's nothing significant and tangible as yet as flowed on from those decisions, I think, I still think the messaging has been good. The actions that have been taken so far, let's see what happens. I think they gave 90 days from Trump's order for some kind of. We're yet to see what the results of that are going to be, but I wanted to sort of counter your, I wouldn't even call it skepticism. I think you presented a very realistic summary of the situation.

Actually, I think it's quite realistic. But we're hearing really quite strong messaging like Trump's executive director of digital assets came out and said, we wanna buy as much as possible. I know David Sachs is incredibly bullish on, and he's, the cryptos are, I don't know what the difference between an executive director of digital assets is and a cryptos are, but they both seem incredibly bullish about their ambitions for the SBR. So I wonder what you, how, how do you receive their signaling and messaging? Some of it's quite, really quite explicitly bullish.

Jeff Park:

Yeah, I discount it all, but that's my view. Again, like I'm not saying I'm right. It's just that I operate from a mode in which I ask the most important question, which is what are the incentives and who is this good for and who is this bad for? And most of my life, decisions, trading decisions, judgment on probabilistic outcomes that can be unknowable, come from asking that exact question. What is the incentive for somebody to do anything? And why are they being asked and why am I being told?

And it's hard for me to imagine a scenario at this moment in time when it's good for the US to essentially start accumulating bitcoin. I think it's challenging. It's really empitting for this current moment from the sovereignty of the dollar in Germany for which they are most interested in protecting. Now if you marry Bitcoin with $1 somehow, and there's a staple coin path in which this could happen in my opinion as well, and there's actually thoughtful conversations about that. Then I'd be more inclined to think it's credible because we're now needing a rational solution for a rational outcome. But you know, those discussions haven't happened. And the things that I feel like constantly is in the air is a lot of these opiums, the without kind of the political reality for it to happen.

Here's the other problem. When you're a public official, then you advocate for Bitcoin. And I've seen this journey in my crypto professional career now for a long time. You're essentially in a position of what I call short to put because as a public official, you never get the actual benefit of getting it right from an economic perspective. You're not like you're making money as a public official in Bitcoin goes up at the same time you get all the downside when it goes down and you get all the risk, all the reputation, right risk. And so if you are a rational human being as a public official, where you cannot privatize your gains, but you have to socialize your losses entirely with the country as well as your own private loss or reputation. You cannot be the person who's gonna be scapegoated by making that decision.

Any of these people can say whatever they want, but you ask later, are you gonna sign your name right now to buy bitcoin at I don't know, whatever the price is at the time and it'll be HUNDRED k or whatever, are you gonna buy it? Then whoever actually ends up signing that Bill and takes the onus and the responsibility and liabilities with it would, in a sense, be like a hero because most public officials cannot rise to that standard. And so that's kind of what I'm waiting for. Like I, if there is someone who's willing to put their skin on the game as a public official to do that rather than just talking about it, then, you know, we can really drive it forward.

And again, this goes back to the legislative thing. Once you have the will of the people that you can credibly say this was an outcome that all had wanted, and I happen to be the agent in of action, then you get some cover. If you're just a random executive order individual doing things, you don't get that cover. You, you don't, and so then your reputation goes down with it. And in, most smart people will not step into that situation.

Bitcoin market outlook and the four-year cycle debate

Archie:

Now we can't talk about Bitcoin without, and I getting the head of alpha strategy. So without getting your thoughts on, you know, what's happening with the cycle, it seems that we're in a period of consolidation at the moment, similar to what we experienced for about seven or eight months last year as well.

So this whole period of not much really happening, just trading in a range and like what do you see for the rest of this year? And do you still think that we're writing cycles? Like do you think, did you ever subscribe to the 4-year cycle view? Or is it just following liquidity? How do you sort of view the movements of Bitcoin?

Jeff Park:

Yeah, I think the four year cycle historically was defensible and also uncorrelated to other things happening in the world that happen to sync in with four year cycles. So what happens in four year cycles where there's election every four years? You know, that's not related to bitcoin. It is just a cadence of like a societal kind of campaign of how we live our lives.

Then there's also general credit expansion and contraction that happens generally in four to seven year type cycles. But relatively, it's gotten shorter. And I would say nowadays, it's happening within four year cycle. And so that also coincides with the Federal Reserves policies as well. And of course, there's the idiosyncratic factor, which is the happening in itself.

But I think over time, what is emerging is that happening will generally. Matter less as there is more adoption at institutional levels, in which it becomes a global macro commodity asset. So my view is that we're probably not gonna follow a four year cycle pattern anymore, strictly driven by the happening. If it does follow a four year cycle, it'll be driven by macro forces, which could be the case, but more likely than not, if there were to be like a real input to the calculus, I think it's just gonna be realized profits and unrealized profits and losses in the calculus of adoption.

So, you know, let me just explain a little further. We know for a fact that the Bitcoin ETF was a big launch of new capital flowing in, right? And that was now, I guess, a year and a quarter ago, year and a half ago. And at the time, Bitcoin was trading around 50,000,60,000. At some point, these investors will have a concept of an IRR or how much money they made over a period of time, which either meets or doesn't meet the return holder.

I consider Bitcoin's return hurdle to be about 20 to 25% as kind of the way that institutional investors allocate capital to make it worth the risk premium. So if you bought it at 50 and it goes to 100 in a year, you did really well. If it stays at this range and maybe even goes down to like 75 by the end of the year. That means that in two years, you are up 50%, right? Which means you're just about that Mark now where if Bitcoin closes at 75 k, you're at the cusp of that return hurdle over two years, 25%. And that's a very reasonable time at that point for an investor to be like, okay, I'm way too close to the turn hurdle. I have to justify to why I made this trade and I'm gonna sell because I don't want to go down to 60 and not make my return hurdle. So what I'm trying to imply here is that some of the marginal buying and selling pressures are going to start emerging out of this calculation of return hurdles relative to the cost basis of the capital that flew in.

This is one of the reasons I look at the 75K number as like a very important benchmark for where Bitcoin needs to potentially consider where there could be a liquidity gap. Because we can go a little bit lower because we're not a full year yet. But here's the thing about IRR, right? It moves with time. So if we're talking about June, it can go to as low as 60 and then they might still sell it at 60. But the point is the longer you go out, the higher that floor becomes in which there can be a liquidity gap. And I think this is the most important metric to start considering. And to do that, you have to actually know what are people's cost basis into which they came in for the cycles and how can you anticipate their behavior? And.

Archie:

I wanted to get your view on, I guess, you have a view for the rest of this year on what perhaps Bitcoin might do because we have been consolidating for a while, and there is a view that sort of creeping into the commentary that maybe that's it because we're seeing stocks sort of turnover, we're seeing bitcoin turnover, particularly on some of the longer time frame indicators that are remarkably similar to what happened at the top of the last cycle.

So I'm interested in your point of view about where we are right now, and do you see that the market is actually turning bearish? And what do you think that means for the rest of the year?

Jeff Park:

Great question. Well, let's start with what we know for a fact, that the trade deficit and issues around the war that is being waged is causing chaos. And we know there's a winner and the winner is not bitcoin, is fold. So if you believe in this trend of long lasting chaos, then I think in general volatility is gonna be higher. And for now, the market has decided goal is the outlet for which they're gonna pick the store value construct. This is another reason, by the way, why the strategic reserve was too early for its time because the world has not bought to the construct of Bitcoin serving the asset way gold has.

So this is the first thing that needs to happen before even a sovereignty can step in, we need to see bitcoin outperform golden moments like this, like as a populist kind of moment versus an institutional setup.

My feeling in general is that if volatility goes up for other assets, it's a net negative for Bitcoin. And the reason is, if you ask yourself fundamentally, why does somebody pick gold instead of Bitcoin, usually what you find out is that people who choose Bitcoin tends to be attracted to it because of the volatility. So volatility actually is one of the defining features that is an asset to a bitcoin investor because they expect that volatility to potentially compound or maybe they're creating strategies around that volatility where they can extract more premium. But the reality is, hyper financialization has generally created a lot of different opportunities where volatility is an asset in itself. So if SMP volatility goes higher than bitcoins like it has recently, then it means that most people would actually then prefer to potentially trade SMB because they know what that is. They don't know what bitcoin is just yet. So on a net basis, it's bad for bitcoin. The volatility of other assets go up, and that is what I think will continue to happen for the first equal future.

I think it's not surprising that the move index continues to be elevated as does the fix. And we are seeing more volatility in the liquidity plumbing generally with the spreads, especially if you look at the software and fund spreads, these are showing signs of instability. Building up in those times, it is likely that a risk of sentiment will still hit Bitcoin a lot harder than other assets. So far, it looks like there are windows in which it can look decorrelated. But if you look out over a longer observation window, it's not really great when risk assets sell off of bitcoin in general.

I think I have to imagine there's some room for that to happen in the next few months. Part of it is because I think two things. One, there is generally a lot of weakness to the US kind of outlook in general, pessimism about whether we're gonna be in a recession or not. And then two, I actually do think there is some will like the Trump administration to cause a stock market. And I think part of that will come from, again, needing to intervene in the bond market to imagine a way to bring the 10 year rates down because I still operate from the view that the most important thing Trump really cares about is his own bags. And his own bags is commercial real estate. And commercial real estate is suffering so badly that if you do not bring long term rates down, all the equities are gonna get bagled. And so you just know every night when Trump goes to sleep, the thing that he thinks about really preserving for his own self interests would be to bring rates lower. And one way to bring rates lower is actually to cause chaos and intervention as a necessity. So this is another reason I think equity markets can be volatile longer, that it could even go down and that's just not a good environment for bitcoin.

So for now, I tend to be a little bit bearish. I think it's going to be a little bit more volatile in ways that you've already seen. Bitcoin volatility has gone down as a result, right? Bitcoin volatility, especially the upside speculation, it's like the lowest skew has ever been for a while. I think bitcoin vall can't even stay above 60 anymore. Every time it goes above 60, there's someone selling that ball and it goes back down to 54,55. Those are low numbers for bitcoin involved and that's not good.

Bitcoin has this effect that I've also lived in the past, which I call a positive Vanna dynamic, which is that the price goes up with volatility because again, people really like bitcoin when it's volatile. That's when it shines. Gold is great when it goes up like this over a long period of time, which is what it's been doing. That's what gold investors want. Bitcoin investors do not like this.

Archie:

Gold has been in a bull market for just over two years. It's had a very strong run. And if you correlate that with bitcoins run, it has similar, enjoyed a similar price appreciation in terms of trajectory. Obviously, the quantum is much greater, but Bitcoin does it in spurts. It goes up for six weeks and then it kind of stays at that level. There's a little bit of volatility within that trading range for months, and then it does it again. And we've essentially had basically three steps up in price since the bottom of the last bear market, whereas gold has exhibited a much smoother, gradual and prolonged increasing price.

Yeah, so that's it. What you're saying absolutely holds true. You mentioned something before that I just wanted to pick you up on cuz you said chaos leads to lower rates. And I wanted to give you my interpretation of that is, did you mean as it kind of implies lower economic growth? So market, when the market's becoming more volatile in response to what Trump is doing, it's because they think the economy is effectively going to tank and then the Fed will have to step in with lower rates? Because typically, my understanding is that, you know, just thinking back over time, is that higher volatility leads to higher uncertainty, leads to higher cost of capital. So I just wanted to get you to just elaborate on that if I have misunderstood what you're saying.

Jeff Park:

The common belief is that the economy drives the markets, but there's a whole perspective in which it's the other way around. It's actually the market that drives the economy. And this trend has solidified to greater significance because so much of US wealth is actually deriving the confidence and their ability to spend. If you don't have asset inflation, it can actually play a reverse role in suppressing the economy because the wealth destruction itself creates a loss of confidence. So the traditional wisdom of the economy driving the markets versus the markets driving the economy is the important thing to get right. And this is a result, too, of the post away financial system where there's so much leverage in the ways that is created in the system where the volatility of the underlying collateral matters a great deal for the sustenance of the assets.

What I mean by this is the whole like banking system is created, it offer rebows and leverages that requires like a certain haircut to these collateral. And if the and if bonds start getting haircut pretty badly, then there's like a recursive wind down of leverage in the entire system, which ultimately attaches to equities. And so volatility, to your point, is bad, not because of uncertainty itself, but because it actually drives up the cost of capital by the banks forcing a higher haircut on your collateral. Once you get the higher haircut, you have to start selling to meet those collaterally collateralization ratios. And that creates a whole cascading flow of sales. And this is key. This is why financial stability is the most important thing, and it's related to also if equities market were to sell off. There would be some rebasing effect there on other levered products and it would be generally pretty bad for US consumerism.

And that's how you get the Fed to act. That's actually how you get the Fed to cut rates because the asset deflation is hurting consumption, and then you can bring in the Treasury as well to do some funky things where they run different kinds of esoteric programs that have different random letters attached to it, but they all do the same thing, which is injected into the system. And once you do those things, it's really great for an asset like bitcoin because this is actually the continuation of the debasement of the financial system as we know it. And that could be a catalyst.

So you know, my outlook so far is that we actually probably will benefit the most on Bitcoin if we have some of these kind of, let's make events that drive some acute outcomes and interventions. And you're also seeing that happen with China recently too, where they've been loosening the FX bandwidth to depreciate the renminbi, which is actually a kind of monetary loosening, but not the one that I think the US wants because that actually exports global deflation, which is a little bit contrary to what the US would rather achieve. It's better actually the US if China starts to spend its public budget towards like boosting, you know, domestic consumption in China, right? That's traditional money printing and that's actually better and inflationary, if you will, which is good for bitcoin. I think all those dynamics matter. Also, people talk about global L2, like M2 liquidity as a way to gauge whether Bitcoin is going to be correlated to a price front. Like the generic wisdom being if MQ liquidity goes up, bitcoin goes up with it on some lead live relationship. But the devil's in the details and the devil that I would highlight is that it matters how the global MQ liquidity goes up. There's many components that drive it, but one of that component is actually dollar weakening itself can drive global liquidity. However, I am not sure if that is the kind of L2 liquidity increase that right now at this moment is the thing that is helpful for Bitcoin because the way that the dollar is weakening is actually through this tariff war that is casting a more negative outlook in general.

Archie:

The reason behind the weakening is as important to where the bitcoin benefits from it. When I have a look at the DX, y, and I guess people might all sorts of commentary about its composition. There are moments or at least it signals the beginning and end of regimes that Bitcoin sometimes seem to be aligned with, but there's no real tight correlation. Like I couldn't say it was a tight correlation, but at times it does look like, okay, when there's a change in regime, bitcoin seems to also turn. So when I think the last cycle of the DXY when it bottomed out, Bitcoin topped or something like that last time, I'm trying to recall exactly what the turning point was, but the turning points seem to be similar and inversely related, but they don't necessarily move within a regime in lock step.

Jeff, I wanted to ask you about the coalescence of two industries that are really quite profound. Bitcoin is one, the other is AI. How do you see those two interacting? Do you see them interacting at all?

Jeff Park:

Bitcoin and AI? I haven't thought too much about. I've wondered about generally crypto in general with AI where there could be some use cases more specifically, you know, at a high level, the same thematic virtues of Bitcoin that applies to crypto, things like decentralization and censorship resistance and permission list networks have a place in a model that replaces AI, as you know, in the way that is currently being developed is operating in a rather murky area when it comes to the ability to privatize data. And there's going to be, I think, more IP related types of issues that emerge out of the way that these machines are being taught. And you can imagine at that point, crypto could play a role in providing better attribution qualities to permit the possibility of free floating data that is attached to the private individual or the private creator that is furnishing it. Because I think AI is immensely useful in the ways that it's become a hit, in the way people are using it. But there are damages along the way in which the profit centralization is probably not the correct model. And then there's gonna be pushback on it. And I think there is already pushback on it. And you can imagine crypto then would play a role in which it would try to democratize some of that.

Archie:

You mean profit centralization in the same way that, I guess, a lot of these technology platforms collapse the revenues of media companies. I kind of sense that battle is all already played out. Or do you mean something else?

Jeff Park:

Well, I mean something like when people were using ChatGPT recently to like, I don't know, generate images of like pictures using the Gibley art as a directive would infringe upon some of the ways that Gibley now is being involved, though they're not being compensated for having created some kind of culture movement. Right? This is a tough example because at some level, art in itself is hard to do. IP and trademark, like what's to say, like our, yeah, our great artist copy, but it's that energy.

Archie:

And so that's that's quite obviously a rip off of a particular style or a thematic. There was a call the other day by Jack Dorsey, founder of Twitter X and block, amongst many other companies, to essentially wipe out IP law. Now, there are some people who think that's a really freedom maximizing goal and some perhaps a little bit more cynically saying cuz Elon Musk also supported that call and he's obviously developing one of the most prominent AI platforms with X AI, which you know, these platforms, these machines, they feed on data. Some of that data is intellectual property. And so a lot of people commented that perhaps this is a cynical ploy to release these tech billionaires and tech platforms from the obligations to respect IP law because they suddenly needed as food for their AI munching machines.

How do you view that whole sort of interplay with IP law and how it clashes with, I guess, the propagation of AI platforms and the use of that is now really ubiquitous, isn't it?

Jeff Park:

Again, like you can almost reach the right conclusion by asking the incentive question as to why people are doing the things they're doing. And there, that's usually really good shortcut. And, but sympathetic to what they're preaching is the reality that already actually a lot of these IP, if you will, has been privatized. So I think there's different categories IPS that we should be careful on to where like there's of course true IP that can be like genuine scientific discoveries of things that take tremendous capital expenditure that you need to create a motivation for that investment and you have to protect it.There's frivolous kind of IP two, which is like, actually the US is known for the being the capital frivolous, like lawsuits and frivolous like patents. But the most extreme version of it is something like, you know, where Facebook already, I would argue, is leveraging off of a bunch of datasets for the consumer, is providing it without being compensated for it, right? That's the whole algorithm of social media and themselves. And so if you think about that kind of IP, you might be able to see and be sympathetic to Elon Musk's view, which is like, that is valuable stuff that is being kind of monetized by somebody in a way that the end investor is not getting credit for, and there may not be a way to actually ever create that attribution. So we might as well get rid of all of it. Like we might as well get rid of this idea altogether about data being like a private thing, data that is different from like IP from research. And I think that's some of the energy that I'm picking up on and people conflating the word IP when they really just mean as personal and privacy related data. Yeah, you know, the other thing that I would say is like, this is where I think crypto can be useful. Like crypto leaves footprints on the blockchain and there's great attributions that come from people's behaviors generally being remembered in an irrefutable and irrevocable way. That is yours. And if that's the case, then you can presumably have the ability to enforce it with the right social contracts. So there is a world where IP can be useful for those types of data attribution. And I think one of the first use cases you'll see, crypto and AI kind of finding a JV moment together is gonna come down to that data attribution.