Chapter 1: What are the fundamentals of Bitcoin's current market situation?
The fiat system steals time, which it's a terrible thing to have to just suddenly break the promise that they made to these people. It just goes parabolic in terms of the interest expense. And then you're in this situation where... I mean, massive currency debasement will probably happen at that point.
97% of institutional capital, almost $100 trillion, have investment mandates for equity and bonds, right? And that's trapped capital. We love Bitcoin and we want to drive its adoption because we think it's the most important technology of the 21st century. These positive developments keep coming every single week. And so you have this divergence of like...
improving fundamentals and depressed price and typically that's a good opportunity right it's like zoom out the cliche and think long term because bitcoin's value proposition has never been stronger i think those price predictions that you hear that we're all wrong are eventually going to be right but it's just the time horizon and that's the hardest part to predict Sam Callahan. Hey.
How you doing, man? Great. It's been a little while since you've been on the show. Yeah, thanks for having me. Things have changed for you? Yes. Go on, tell everyone about your treasury company.
Chapter 2: How does Bitcoin decouple from global liquidity conditions?
I'm the Director of Strategy and Research at Orange BTC. We're the largest Bitcoin treasury company in Latin America. We have 3,720 Bitcoin. We went public about eight weeks ago on the B3 Stock Exchange in Sao Paulo. Our mission is to accelerate Bitcoin adoption in Latin America and Brazil.
uh in a place and region that needs bitcoin the most right they have so much currency to basement and instability there um they also have like high rates of digital asset adoption broadly but still um there's a lot of work that needs to be done in terms of education in terms of building out infrastructure, Bitcoin financial services, Bitcoin products.
We think Orange could be a leader in this and be like the Bitcoin hub, both improving Bitcoin access for pools of capital that can't buy spot Bitcoin, as well as, like I said, building out Bitcoin financial services and products over time and being kind of that hub
educational powerhouse uh for bitcoin because you know it's kind of amazing it's like two to three years behind in terms of like the bitcoin understanding there and even just writing like a bitcoin 101 report that we just put out in portuguese you know maybe some of the content is familiar to us audiences but we released it and it's it was wildly popular because like wow i never i never thought about say like
creases total addressable market chart that everyone knows like we put that in portuguese and they're like oh i never thought of it like that so it just shows like how they're a little bit behind but that presents a lot of opportunity for a company like orange oh there's massive opportunities there like especially the amount of stablecoin usage there like educating people about bitcoin why that's important i think it's very cool um
Congratulations. Thanks. I'm going to give you some shit about treasury companies. I'm going to ask you some of the hard questions because I'm still on the fence a little bit. But can we start with some macro stuff? Because you do a lot of macro analysis. You do reports with Lynn. What are the things that you're keeping an eye on most closely at the moment?
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Chapter 3: What structural risks does the global financial system face?
Well, Lynn and I wrote that piece on Bitcoin's correlation with global liquidity. And so I always keep an eye on global liquidity conditions. And I think there was that chart going around that looks at global M2 and Bitcoin. And
there's a lot of disappointment because global m2 is going up and bitcoin's price has decoupled from it yeah and there was like this is broken this relationship's broken it wasn't um it wasn't correct but in the report if you read it at the there's an entire section that we wrote about how bitcoin decouples from global liquidity conditions at times and i think we're in one of those moments uh right now so why do you think it would be decoupling now
Well, in the report, we talk about how a couple of things when there's internal market dynamics like within Bitcoin itself, it can like override what's going on with liquidity. And that like so, for instance, like the FTX collapse that was unique to Bitcoin didn't matter what was going on with the Fed or the money printing.
There was a lot of chaos going on in the Bitcoin market itself, and it got wrapped up in all that chaos. And so the Bitcoin price suffered despite liquidity conditions being high.
either unchanged or actually improving so that was one example or like a good example would be the launch of the ecfs you know that added a lot of demand even though uh interest rates were going up you know decoupled to the upside yeah exactly so like that's like unique factors that can some like idiosyncratic events that can lead to the decoupling but then there's also like supply side dynamics so think about liquidity as like a demand side dynamic
Well, supply side dynamics can also override the liquidity conditions. And when I say supply side, typically that means like when you talk about the long term holders, you know, we probably talked about that in a show with other guests of how they've been like taking some profits. which is normal behavior in a bull market.
But when you see a lot of that, sometimes those dynamics can override the liquidity conditions too. And so I think lately that's exactly what we've been seeing. And so I don't think the relationship is broken. I think we're just in this like temporary period where these other dynamics are at play, but they're temporary. And eventually liquidity takes the wheel again.
And right now what we're seeing is liquidity conditions in terms of 85% of global central banks are cutting rates already. Fed's obviously cutting rates. You're seeing some of these moves by the treasury, indicating that there's some tightness in liquidity conditions, which means they're returning to, say, like they're stopping QT.
The Treasury's talking about issuing on the short end or the Fed starting to buy T-bills. They also tweaked the bank capital reserve requirements, which is to create more demand for Treasuries because they know they got to... do these trillion dollar deficits still, right?
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Chapter 4: Why are Social Security and Medicare insolvency concerns significant?
But that doesn't mean not a lot of people are going. It's just it's more institutional, which is more money. Honestly, there's going to be more demand flowing from those institutions than the retail investors. And so it's just kind of different. It's like a different cohort coming in. But I think eventually the retail will get back in. And then maybe it's a different entry point.
So obviously the ETFs kind of changed the game. And so BlackRock's ETF, most profitable now and almost $100 billion in AUM, probably a little bit lower now, but... They might be going there, right? Instead of going into spot Bitcoin, they might be going through their financial advisors who are getting into iBit for them. So I think it's just like a different market than it was in 2021 or 2027.
But I think, you know, when Bitcoin starts running, number go up, I think they're going to come back. I totally agree because I think one of the weirdest dynamics is over the last year, I think Bitcoin has not been volatile enough for people. Yeah.
Chapter 5: How does demographic change impact entitlement programs?
And I think that's why you've seen loads of people go to treasury companies and like AI stocks. As soon as Bitcoin starts running, that might completely change. Yeah. And the volatility, if you look at like 90 day rolling volatilities, it was like historic lows for Bitcoin. Yeah.
know it's partly probably because of uh like i said the changing investor base of more institutional investors coming in and they kind of behave differently than retail is one thing but also they use like hedging strategies so they can like sell covered calls which kind of dampens the volatility um with those different hedging strategies and so those those option markets are more liquid than they were before there's just more options uh for them to do those and so i think those dynamics are at play here but
I don't think Bitcoin's volatility is like gone. I think when you have a fixed supply asset like this, it's never existed before, ever. And so I think the next wave of demand, I do think you're just going to see volatility start to creep back up a little bit.
I mean, maybe there's this secular trend of going down, which is going to continue, but I do think we're going to kind of see some more volatility. That's what we've seen, right? Over the last month, volatility came back. Maybe not the direction that everybody wanted. Yeah, that's true. Definitely came back. So I think that's going to happen again. Yeah, I hope so.
And this year, I feel like no one predicted what the price was going to do this year. I don't know anyone that said. So from the day I started the podcast, it was a year, three days ago. The price was lower after a year. And I don't think there was any Bitcoiner that would have called that.
no no i mean myself included i mean because because of these fundamentals um i thought it was going to be be higher than it is right now but at the same time it's it's almost impossible to to predict bitcoin's price i think that's the lesson here yeah it's like nobody actually knows in the short term where bitcoin's going but
It's like zoom out the cliche and think long term because Bitcoin's value proposition has never been stronger given the macro environment that we're in. So over longer periods of time, I think those price predictions that you hear that we're all wrong are eventually going to be right. Right. It's just the time horizon, and that's the hardest part to predict.
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Chapter 6: What role do Bitcoin treasury companies play in the market?
you know when lynn and i at the end of that report we had a very balanced take we were like this isn't going to be dramatic this this decade you know everything's going to run hot so inflation is going to run hot gdp is going to run hot deficits will continue to be very large because they're structural when you say structural i'm talking about this entitlement programs basically and so it's going to continue but we said um the end of the decade and when i was writing that
What I had in mind was that there's projections from the CBO that Social Security and Medicare are going to go insolvent by 2032, which means for the first time, they're going to bring in not enough money to service all of the beneficiaries. And so that's a huge problem that's coming down the horizon. And so, yes, it's not going to be dramatic at the end of this decade, but when that happens,
things can get really dicey in terms of how we manage that problem. And it's coming, it's seven years away and nobody's really come up with like real solutions to how to address this. And you think about, I think about the fourth turning a lot because they say that the climax is going to happen in 2030 to 2032.
And so I don't think it's a coincidence that we're going to come into this period around that time, right when the social security and Medicare go insolvent. And so we can get into like what that means. Yeah. I mean, and that's the longest timeframe. Like there's,
a reality where that happens earlier than 2032 but what does that exactly mean like is this actually maybe a better question is is this happening because of aging demographics yes yeah so it's a mix of it's basically we have the workers that are funding uh these these entitlement programs and so we have a shrinking workforce and that's because of falling fertility rates and all these different Dynamics um as well as an aging population
And so next year, we're gonna reach what they call peak 65, which is when you become eligible for social security and Medicare in the United States. And we have over 4.1 million Americans that are gonna become eligible next year. It's gonna be the largest retirement wave in US history.
And so the costs are gonna really increase over the next four years as all these baby boomers finally become eligible for these programs. And at the same time, these projections, they don't take into account any war, any financial crisis that would blow out the deficits even more. Then at the same time, the projections, they don't take into account rising healthcare costs due to inflation.
A lot of the projections have actually have been lower or lower than what's actually occurred because some of these changing rules around the health care system has actually increased the Medicare costs much, much more than they projected. And so each year they project the insolvency actually like a year earlier and a year earlier.
So like if we think that they're going to keep spending it actually more than they project, then this could be like 2030, which which is like five years away. And what I think about is Like for me, I think about the pandemics like five years away and how like it just feels, it kind of feels like it was yesterday. And so five years from now, it's going to come up fast.
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Chapter 7: How do institutional investors approach Bitcoin exposure?
Because that happened in the UK. Yeah, and that happened in France too. But that happened in France and there was riots on the street. I don't mean they riot over anything. Yeah, that's true. That's true. But I actually think about that a lot because...
It's like the fiat system steals time, which it's a terrible thing to have to just suddenly break the promise that they made to these people, and you're paying into it your whole life, then saying, actually, you got to do it two more years. That would take an act of Congress to do. They could do that. But the other thing they could do is try to print the difference, try to fill that hole.
That's where it gets worrisome because we're talking about to fill that hole,
would be about i ran the numbers you know anywhere from it's like another trillion or so on top of the fiscal deficit that they're already running crazy right could blow out the debt pretty large but very large and there's actually precedent for this so there's another smaller trust in the united states called the highway trust and it helps fund like um
you know transportation and highways and things like that infrastructure and it went insolvent in in 2022 and that's exactly what they did was they basically did what they call a general transfer where they just took the money from the tax receipts try to plug the hole for another five years and it just added to the debt
And so now that's gonna go unsolved in 2027, and they're gonna have to do the same thing. So kicking the can down the road. But that trust is only like 75 billion. Social Security is like 2.4 trillion. And so I'm worried because if they don't come up with any kind of real solutions going up to that, that they might turn to that like they did before with the Highway Trust.
And if they try to fill the difference, Deficits will blow out. And then even the CBO or the CFRB, which is another organization that follows us closely, they did a projection of what that would happen if they did try to fill it. And they're trying to warn them, don't do this with social security like you did with highway.
Because if you do that, and interest rates rise because there's worries about the debt blowing out when they do that, it just goes parabolic in terms of the interest expense. And then you're in this situation where I mean, massive currency debasement will probably happen at that point. And so it's all kind of coming to a head.
The train is... Nothing stops this train, but it's headed towards this... Cliff. It's a cliff. I wouldn't say cliff. It's just like... It's an obstacle like it's like right there and everyone knows it's coming, but it's a long term problem that they've kicked down the road over and over and over again.
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Chapter 8: What potential solutions exist for managing fiscal deficits?
So Dr. Judy Shelton, she's like an economist. She's a sound money advocate. She recently wrote a Wall Street Journal op-ed that talked about goldback bonds. And so it's basically...
you would attach gold to like a treasury bond to add some like inflation protection and then they would be probably really popular so the government will be able to issue those at a lower interest rate and maybe like a 10-year note so because you're sharing in the appreciation of the gold at the end of the Yeah, and you get gold at the end of the maturity.
And so you got that inflation protection. So you could issue those more cheaply. And so that would be a way for the government to kind of finance itself in a way that's less expensive for them. Now, the problem with that is that's been done before. And it was done during World War I. They were called liberty bonds. And...
there was a promise made in 20 years that they would pay out in gold and so they were extremely popular popular they raised a ton of money for the war effort uh americans were willing to give them the money because they had that inflation it could be redeemed in gold in 20 years and what happened though was fdr
know ban gold ownership in 1933 and then there was a massive devaluation the next year and then when these bondholders finally tried to redeem them they said well well it's illegal for you to own gold so you can have the cheap dollars instead and then one of those liberty bound holders said like wait like I just lost like 40%.
You just devalued the currency and then you're not gonna give me gold like you promised. This is like illegal. And so it took them to the Supreme Court and the court said that, yes, this was unconstitutional, but we're not gonna give you the award. But you get the dollars. And so... You know, it shows that there's two things wrong with the gold-backed bonds.
You have to trust that the government actually has the gold to pay out, and you have to trust that they're actually going to follow through on their promise. And so that brings me to a potential solution, which is like the Bitbonds. And like, we should be very open-minded to every single solution out there, because like I said, this is a big problem.
And so if people are like, well, Bitcoin solves this, like they should really keep an open mind because Bitbonds is like a Liberty Bond, but obviously a Bitcoin instead of the gold and Bitcoin has outperformed gold over that time. So it probably even better inflation over like a 10 year, 20 year timeline. But it's programmable money.
What you can do is you can put it in an address and you know that they have the Bitcoin and you don't have to trust that they have it in Fort Knox. You can trust they have the Bitcoin. Then you can actually do something like the mini scripts and have it programmed so that it sweeps the Bitcoin
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