Chapter 1: Why is Bitcoin's volatility seen as a long-term advantage?
When you zoom out and you look at Bitcoin from any four year period, nothing has changed.
But deep down, like we all know the current system is not on a good path and we have to start like ripping the bandaid a little bit. I think all of that points towards a pretty positive, healthy mood for Bitcoin in the future. What's going on with Bitcoin, guys?
Chapter 2: How does the Fed's monetary policy impact Bitcoin and risk assets?
This is a lot of people in the room. I've been talking to people for the last couple of days. Everyone knows that Bitcoin long term is going to do well. But Bitcoin is not supposed to feel like this in the short term. So what's your guys take as to what's going on? Oh, come on. You two aren't going to fight. You've got an opinion.
Chapter 3: What role does digital credit play in the current financial landscape?
Let's go.
First off, I loved Jeff's recent article about Bitcoin row. And so that's why I was saying, well, you just wrote a great article on that. And I kind of think about the world the same way. And so first off, when you zoom out and you look at Bitcoin from any four-year period, nothing has changed. We are in the business of underwriting volatility.
Chapter 4: How can Bitcoin treasury strategies generate yield?
And so what I mean by that is, I don't know about you guys. I didn't predict that Bitcoin was going to be where it is today, but I did expect 50% drawdowns still as a regular occurrence in the forward-looking view of what we expected Bitcoin to do.
And in our company view, and this is just kind of coming from a pension background, is if I can underwrite time and direction, then I don't have to forecast an individual quarter, an individual year. And so my thing is, has the fundamentals changed? Is the U.S. still taking out debt at an unsustainable rate? I think the answer is yes.
I don't know if you have a view that the debt crisis will be solved in the near future. I think it's going to be worse. I think it's going to be worse. And so if that's the view, then really this drawdown is nothing to be
out of the ordinary and the fundamentals haven't changed and so we just write it out i think warsh had something to do with it which we can get into but i think nothing has changed and so we just write it out and question if the fundamentals have changed and i don't think they have what what do you think uh warsha's impact or having warsha as the uh fed chair next is that good or bad for bitcoin or agnostic
Yeah, so for sure what Warsh has shown is Bitcoin's correlation to risk assets in general are at an all-time high. Because I think what happened with the Warsh announcement wasn't necessarily a Bitcoin sell-off, but it was actually a risk sell-off.
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Chapter 5: What are the implications of Kevin Warsh's potential influence on the Fed?
And that correlation has increased pretty dramatically, I would say, since last summer and got accentuated even with the news flow today. So I think there's two versions of the story, right? Because on one hand, There is this hawkish version of balance reduction as a journey that we have not ventured into beyond what the sample reserve system could look like.
And there's a lot of uncertainty about this, which which is why I think you can see risk assets generally being sold off. And Bitcoin just is now correlated to that dynamic because it's owned by the same portfolio managers in a multi-asset framework where they're underwriting that to be a risk asset.
But the thing that I'm long term really bullish about Warsh is if he actually is able to be what I call like a very pragmatic economist to like rewriting the engines of what Fed independence should look like. There's a version where the whole monetary setup as we know it is finally going to evolve into something that is a little bit more anti-fragile.
And in that world, there's a restoration of what true store of value could look like as a reserve asset. So long-term, I do feel like it's a little bit painful always to kind of introduce volatility to change from an institution that we've gotten very comfortable with.
But deep down, like we all know the current system is not on a good path and we have to start like ripping the bandaid a little bit. But long-term, like his holy grail towards what he wants the Fed to be and what he thinks the role of like the interest rate should be is I think all of that points towards a pretty positive, healthy mood for Bitcoin in the future.
So I have a question for you guys because I follow you guys very closely. And I'm going to frame it with a viewpoint and then a question to see how hard you will push back on this viewpoint. Okay, so... My own personal journey as someone that was a portfolio manager, I managed a lot of treasuries, right?
So my journey to be why I was a Bitcoiner was those conversations with the Fed, feeling like I was being gaslit and seeing the printing of money. And Warsh had a similar viewpoint at that time that QE would be inflationary. and was very negative on QE, but now seems to be aligned with the viewpoint that the future is more deflationary from AI than inflationary.
And so my viewpoint on if I was the Fed share would be original QE, I would have been negative on it. That would cause inflation, and I think it did cause asset price inflation, not CPI inflation. But if I view the future risk as deflation, then my viewpoint might be different today than it was in the past on QE or the size of the balance sheet.
So do you think that there's a chance that in the Senate confirmation process when they're grilling them and asking them questions, like who's gonna be grilling them? It's the Senate and the House, the people that can't get their stuff together and wanna borrow money.
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Chapter 6: How does Bitcoin's correlation to traditional risk assets affect its future?
And to get credit ratings, you've got to be able to do things that hasn't been done before. And so there's things that just have to get solved. But yesterday I saw Ledin actually issued an ABS securitization for the first time that the S&P actually graded. And it was like a 200 million dollar program where the junior piece was graded B minus. Right.
The equity tranche of an ABS securitization was rated B minus. That's the same credit rating as MicroStrategy, which actually would have senior credit relative to all the other equity things they have in the past. All to say, I don't think the SAP knows what they're doing. I actually don't think people have an understanding of what the appropriate credit rating should be on these things.
And that's basically an opportunity for somebody who is smart and clever to think about what that appropriate risk-adjusted return is. And people are going to figure it out. And so I think it's a question of like just risk tranching and risk preferences.
And because we all know in the end, institutions, right, they're motivated by different things and principal investors like you and I that are here, they actually have, you know, a lot more guardrails as to how they're measured on their performance success. the volatility drawdowns and the current operating needs that they have to support.
And credit just fits a role that Bitcoin historically, because it is a non-cash flowing asset, could never tap into. And this digital credit finally opens a path, an aperture for that class of investors to come in, which I think is huge.
So maybe taking my old seat at CalPERS for a second and talk about kind of a few different ways to view digital credit. So one, digital credit's been around for just over a year now. For an institution, you need anything that you're going to invest in, unless you're just going to invest like a couple dollars just to watch it, to have a track record. track records are a minimum of three years.
And that three-year period is not typically, I'm going to cut you a multi-billion dollar check at year three in one day. It's that once you have a track record, we can start to assess what the risk and return opportunity of this asset is. And so I think sometimes people think, oh, when is CalPERS going to buy SEDA or Stretch? They might buy it tomorrow.
I mean, I have a lot of friends there, but I think the real conversation is they need to see a track record. And so what helps build a track record? There's nothing better to build a track record than a bear market, actually.
And if in a bear market where a lot of the people that are watching this from the outside are expecting the issuers of digital credit to have to sell Bitcoin to not be able to meet their interest payments, if they don't have to sell Bitcoin and they made interest payments, then you get a three-year track record. That's the best three-year track record that you possibly could have.
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