Trump, Tariffs & The Dollar’s Fate: Lyn Alden’s Macro Predictions for 2025

The 2024 U. S. election has reshaped the macro landscape, and few understand its implications better than Lyn Alden. She joins Bankless to discuss the impact of Trump’s policies on the dollar, Bitcoin, and global markets. From fiscal dominance and trade wars to the possibility of a new Plaza Accord and the role of Bitcoin in sovereign reserves, this episode covers the key macro trends that will shape 2025 and beyond. Will Trump’s economic agenda lead to a weaker dollar and lower interest rates? What does it mean for Bitcoin and risk assets? Tune in to find out. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙 FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | BUG BOUNTY PROGRAM https://bankless.cc/Uniswap-Bug-Bounty ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🌐 CELO | BUILD TOGETHER AND PROSPER https://bankless.cc/Celo 🏦ONDO | INSTITUTIONAL GRADE FINANCE https://bankless.cc/Ondo ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/base:0x4be6cd4d402fed49eb2de95fbc8e737e8ffd3e7f/30?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 0:00 Intro 4:03 Trump’s Policies 15:52 Dollar Strength 24:11 Plaza Accord 2.0 29:59 Inflation 33:25 Tariffs 37:50 Interest Rates 47:32 Monetary Policy 56:06 Impact on Stocks & Crypto 59:33 Bitcoin as a Reserve Asset 1:06:32 Energy Policy 1:07:58 Closing Thoughts ------ RESOURCES Lyn Alden https://x.com/LynAldenContact Lyn Alden Newsletter https://www.lynalden.com/ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  And so I think that the challenging thing is that here in 2025, because we're on a potential trend change, it's potentially more volatile year for a lot of risk assets. Now, this administration is viewed as favorable toward Bitcoin and crypto. So it's probably regulation surprises are to the upside there. Some of the tariff things, while that can impact liquidity, that's more likely to impact profit margins of companies. So being in assets like gold or Bitcoin can be perceived as protecting investors from any sort of uncertainties there. And they're more kind of putting themselves in the whim of liquidity. So the short answer is I consider the next two years probably be moderately good for liquidity,

• 0:41Speaker 00

  but more bumps than we've had probably since the regional bank crisis of early 2023. So we have more twists and turns ahead, but probably still reasonable for liquidity.

• 0:54David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today on Bankless, we zoom out and check in on macro. We have Lynn Alden on the podcast today, who guides us through the climate of capital markets as it stands today. We have a new president in office and he's got a new agenda. He's got new interests and priorities as it relates to fiscal policy and global markets. Donald Trump's wants and desires will ultimately flow back and impact the health of your portfolio. So we take some time today to understand what Trump wants and what he's willing to do to get it, and what it means for both equities and crypto. But also, it's not just Trump's show. There's still inflation out there. The Federal Reserve is still doing quantitative tightening and the dollar is still strong.

• 1:39David Hoffman?

  How do all of these things relate to the United States government's fiscal policies? And how does it relate to all the risk assets that we all hold so dear? What's it going to do to our meme coins? It's always a pleasure to have Lynn on the show. I always feel personally like I just get a ton of clarity about everything that's happening outside of our crypto bubble. And this episode is no exception. So I hope you enjoy. So we're going to get into the conversation with Lynn Alden. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Are you ready to swap smarter? Uniswap apps are simple, secure and seamless. Tools that crypto users trust. The Uniswap protocol has processed more than $2.5 trillion in all-time swap volume, proving it's the go-to liquidity hub for swaps. With support for growing numbers of chains, including Ethereum, mainnet, base, Arbitrum,

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• 3:46David Hoffman?

  Bankless Nation, happy to once again introduce Lynn Alden of Lynn Alden Investment Strategy. She's probably one of our, but our go-to resource for navigating macro markets, specifically as they relate to risk assets, Bitcoin and also crypto broadly. Lynn, welcome back to Bankless.

• 4:01Speaker 00

  Happy to be back. Thanks for having me.

• 4:03David Hoffman?

  Lynn, the last time we had you on was about eight months ago, where we talked about fiscal dominance, which I think I'll just summarize as government fiscal policy, which is like, you know, spending, borrowing deficits, taking precedence over a central bank monetary policy, which is like interest rates, quantitative easing, quantitative tightening. Basically, move over Federal Reserve, Congress is in control of the money now. That was eight months ago, and there are some things that happened in the world that I want to get your analysis on today, Lynn, because we have a new macroeconomic variable introduced with the election of Donald Trump and Trumpian policies at the helm of the United States. Lynn, maybe to really just get this conversation started off here, the biggest variable,

• 4:44David Hoffman?

  the biggest macro factor out there, the thing, the one thing that's going to dictate the health of markets above most, or maybe even all other things. Is it, is it Donald Trump and his agenda as the President of the United States? Or am I like off base and it's actually something else?

• 5:00Speaker 00

  So I think you're on base. I think that that's kind of an extension of fiscal dominance, is to say that basically those that are running fiscal matter a big deal. In addition, they have a variety of other things, like tariffs, that while that is technically part of fiscal policy, it touches other parts of the economy as well. And so I still think it's the case that generally speaking, Fed-related stuff is not like the number one thing. It doesn't mean it's not a variable, but anything kind of monetary-related is a little bit in the backseat compared to fiscal. And another way of thinking about this is that we're at a potential pivot point, because we've had almost two years of fairly similar macro environment, which was Fed's tightening, they're draining liquidity, and the Treasury is putting liquidity

• 5:45Speaker 00

  back in. They're running very big deficits, but then they've also shortened the average duration of their debt. Or more specifically, it's correct to say that they've issued extra T-bills, which are their most cash-like debt instrument that they have, that has sucked extra money out of the reverse repo facility. It's kind of like taking excess QE from a couple of years ago and putting it back into the market while the Fed's doing quantitative tightening. As you've had this, that kind of offset, I would say that probably began, that dynamic began in like early 2023, and it's really been in place ever since. And this is, we're getting to the end of certain trend points, which is to say that there's not much money left in the reverse repo facility. So you might have more of a shakeup between the Treasury and the Fed.

• 6:28Speaker 00

  And in addition, we have the executive branch that is obviously newly elected and coming in hot with a bunch of policies that are quite different than the prior administration. So there's certainly a lot more balls up in the air here to juggle as you kind of see what's going to happen.

• 6:41David Hoffman?

  During our Monday meetings at Bankless, I do this thing called the weather and I talk about the weather as it relates to what people's appetite is for content, for news events, what we should cover as a media company. And really, ever since Donald Trump has gone elected, I've called this one thing that's always in the weather is Trump watch. Everyone's just watching what Donald Trump is doing. He's fun to watch, he's entertaining to watch. He's also doing a lot of things. As you highlighted, there's just a pivot from what the previous administration has been doing to what Donald Trump is doing. And I think that's not just true of the crypto industry, I think that's just true of the whole entire world. Like, this one guy is at the helm, bringing in very different policies.

• 7:24David Hoffman?

  And then you match that up with what we talked about last time, fiscal dominance. And again, all that fiscal dominance says is that the power of not the central bank, but the government is really steering the whole entire ship. So we have this like, very kind of chaotic strong man at the helm of the United States, matched with the fact that whoever is leading the United States really, really matters. So projecting forward to the rest of Donald Trump's presidency, do you think he is just going to be the deciding macro factor, as you can see today?

• 7:56Speaker 00

  I think it'll be a big one. I think the further we get in, maybe that effect diminishes. Generally speaking, the first 100 days of a presidency are a really big deal. In addition, the first two years before the midterms, they want to get any kind of disruptive stuff probably out of the way early on, or anything that they need their full majority to do. They probably want to get that passed. We don't know how, it's way too early to say what's going to happen with the midterms. So the dynamic could become different there. So certainly, in the first 100 days and then the first two years, it's interesting. In addition, what's different than his prior presidency is, so his last presidency, he came in, he probably didn't even expect to win back then. It was a surprise to a lot of people, potentially including himself, that he won.

• 8:37Speaker 00

  Has his team that's some of his own people, but also he had like a lot of, you say more establishment types in his administration. And then that administration was kind of characterized by chaos, which is a lot of people leaving, kind of going through like turning through a lot of these types of people where there wasn't a lot of alignment between them and Trump. And what's different this time is that they, they played to win, they won, they, they're, the team is kind of more aligned this time. Instead of having like kind of establishment and non-establishment, it's a lot more anti-establishment thinking. And they've clearly planned during the transition time so to hit the ground running early. So I wouldn't necessarily

• 9:16Speaker 00

  say that this pace is what we'd expect throughout the administration, but it's certainly starting out a really big factor, given that we're already in a fiscally dominant environment. And I think what further amplifies it is that some of the trends that they're at least trying to tackle are structural. And so I've highlighted before that, for example, the trade deficits are structural. These have built up for decades and they have very entrenched reasons to exist. And they are causing a lot of issues. This is something I've been, you know, writing about for, for probably five years now is the structural trade deficit situation. And so the fact that they're trying to tackle them is, is kind of historic moment.

• 9:59Speaker 00

  And the same thing with, with fiscal deficits. So we can get, probably get into some of that, but I would say that, yeah, the, the early period here, I wouldn't necessarily extrapolate for four years, other than obviously Trump's a showman. The, the first term had a lot going on and we probably should expect similar.

• 10:14David Hoffman?

  Now, I remember when we had you on an early episode, we talked about Trump's interest in mitigating the trade deficits because Trump really likes homegrown American products, American companies. He wants, he wants companies to bring back jobs onshore and he really wants to bolster American manufacturing. And this is really contributing to that, like that Bronze Age mentality that a lot of conservatives are hoping that Donald Trump heralds in. And this is one of the reasons why Donald Trump got elected is because a lot of the manufacturing eras, areas of the States are the swing states that flipped red. States like Pennsylvania, all the the car manufacturing zones, all the the homegrown

• 10:56David Hoffman?

  American economy that was lost because of the trade deficits. Ended up flipping for Donald Trump and putting him into office in the first place. And so there's some alignment with Trump trying to bolster this internally. Internal manufacturing, internal production, internal economy of the United States. Can we connect that desire, Donald Trump's desire to like? The strength of the United States dollar? And what Trump is trying to achieve with his tariffs? And what that means for trade deficit? So what is what does Trump want out of the dollar? What does he hope to get out of reverting? Why does he want to reduce these trade deficits and flip them the other way? Can we just open up the conversation with that?

• 11:35Speaker 00

  Sure, so I think that the funny thing is what he wants to do with the dollar is probably the most confusing thing because his his own statements are back and forth on that. And sometimes his views conflict with with outcomes. The clearest thing we can say he wants is that he wants to reduce the trade deficit. He wants to bring more manufacturing back home. And he's willing to use fairly aggressive tactics to try to make that happen. It remains to be seen how effective it's going to be, but it's clearly the biggest attempt we've seen Biden administration to even care or focus on the trade deficit. For a little bit of background, the way that the trade deficit works in the in the US is is different than most other countries. So most countries, their currency trades mainly on fundamentals of things like industry differentials or the trade balance.

• 12:19Speaker 00

  If some currency gets, you know, quite weak. It makes making things very competitive there and it hurts their ability to import. And so in addition to industry changes, they generally work itself out. They kind of hits an equilibrium and then manufacturing comes back to it and they slow down their their imports and then they kind of right right size it out. The US is interesting because unlike most other currencies, we have an extra monetary premium on top of ours. There are countries all around the world that hold dollar dollar assets just to store value in, which means that we have this kind of persistent extra demand. It's kind of like how if gold was priced only on its utility aspects, it'd be way cheaper than the fact that tons of people just hold gold as the best analog

• 13:00Speaker 00

  money. It's kind of like that for the dollar. It's the most monetized fiat currency by far. And what that does, that kind of makes it structurally overvalued on a trade basis. So we generally always have greater import power than we probably should, and we have generally less competitiveness on lower margin export things. We're still good in technology, healthcare, finance, but anything kind of low margin or physical, that's where we have more trouble than even other developed countries that can be fairly expensive to make things in. And so we have this kind of structural trade deficit. What makes it so challenging is that if we want to have the world a reserve currency, which gives us the power to, well, the government has the power to kind of issue probably more debt and deficit than they

• 13:45Speaker 00

  would. Like right now, Brazil's having a fiscal issue, and it's not because their deficits are bigger than the US on a relative basis. It's because they're fairly large, but there's not a big global appetite for Brazilian bonds and currency and assets. Whereas the US, because there is this big appetite for it, they're able to, they have a lot more rope, a lot more runway to work with. So they like that. They also like to build a sanction to any country in the world in practical effect. But the trade off with that whole approach is that we have to supply the world with dollars if they're all going to use dollars for contracts and holding assets and things like that. And the way we supply is a structural trade deficit. So being the reserve currency causes the trade

• 14:28Speaker 00

  deficit, and then also the trade deficit is necessary to kind of permanently maintain that status. But then the tricky thing is, it's not a stable equilibrium. If you run decade after decade of trade deficit, you hollow out your industrial base, and you get major winners and major losers. So if you live around DC, if you live around New York, if you live around Silicon Valley, you're doing pretty good. And if you work in certain fields, you're doing great. You're not harmed at all by this, and you're on the right side of everything. On the other hand, like you pointed out, if you're in the Midwest... If you're in these, the Rust Belt areas, historically, the manufacturing areas, that's been on the wrong side of most of this trade. And so there's, there's an attempt here to try to right-size some of that balance.

• 15:13Speaker 00

  Probably my takeaway would be that it's going to take more sacrifices than probably most of the bulls expect, which is to say that the number of things we have to do to actually bring back a meaningful amount of trade, not just like some optical wins, but like actually like meaningfully reduce the trade deficit, probably has a lot more disruptions to global finance than we think. And it's not like this like simple thing we can just do. Like right now, the manufacturer's not there for a reason. And when we start changing the reasons, it does open a can of worms that is probably worth opening, but it's still a can of worms. And I think that's probably what we're going to start seeing playing out.

• 15:52David Hoffman?

  My intuition here is that the fact that the United States dollar is the global reserve currency is getting in the way of Donald Trump's goals, where he would have a easier time reducing the trade deficit if the dollar was weaker, which would just mean that there's less of an incentive for the dollar to flow out of the United States, be printed by the, printed by the federal government, by the Federal Reserve, and then have that be like sucked up by the global economy. And the way that like, we can just print money and then we can just use that money that we just printed to buy things from the rest of the world, and that's where we get our trade deficit. And if the United States dollar was not the global reserve currency, we would not have that privilege to just print money and buy things for free. And that would bring a lot of manufacturing back on shore, produce a lot of jobs in the

• 16:36David Hoffman?

  United States, make Donald Trump very popular and very happy, which is what he wants. So my intuition here is that the global reserve currency status of the dollar is getting in the way of Donald Trump and his goals. Do you agree with that? Is that, do I need to think about that differently? Or how do you think about that?

• 16:50Speaker 00

  I, I think it is. I think that it's interesting because they, they put maintain the world reserve currency in the GOP platform, and him and his Treasury Secretary and his, his group around him has explicitly said, we want to keep the dollar as the global reserve currency, despite the fact that we want to address the trade balance, without a lot of talk about, that's, that's what's fueling. You know, there's a kind of two halves of the same thing. Now, the person in this orbit that probably gets that the most from my reading is Stephen Mirren, I believe is his last name. He's been nominated to be his head economic advisor. And he's the one that's done a lot of work on this, saying some of these policies might be dollar strong initially, but then later dollar weak.

• 17:34Speaker 00

  Technically, there is a difference between how cyclically strong the dollar is and whether or not it's the global reserve currency. So Trump has talked before about other currencies being unfairly cheap, talking about potentially exchange rate differentials as part of a negotiation, like intentional dollar weakening. And you can have a burst of intentional dollar weakening while still being the global reserve currency. So I think that's probably the trade off that they're willing to make, which is to risk some inflationary outcomes, potentially do a dollar devaluation, once they get some of their initial tariffs and concessions and things like that set up. I do think they'll probably look at the currency differentials.

• 18:15Speaker 00

  And some of those economists have even talked about trying to disincentivize other countries from holding as many US assets and kind of boosting up artificially our asset values and our exchange rate. But that's, there's kind of like how there's losers on this past 40 year trajectory. There'd be losers if you just kind of start reversing all that. The losers would become the winners. A lot of the winners would have to change things to stay winners or would be losers. And therefore, you probably have pushback by certain corners of the economy at those policies. And even if you didn't have pushback, just the sheer trend of trying to turn a major trend is hard. And then especially because a lot of people that want this trend changed don't necessarily

• 18:59Speaker 00

  know some of the trade offs of why those trends are in place and what some of the sacrifices might have to be done to reverse them.

• 19:08David Hoffman?

  Really, really interesting. Is this why we're getting some of the, maybe the mixed messaging that you were talking about, about what Donald Trump wants out of the dollar? Like, does he want a weak dollar? Does he want a strong dollar? We haven't gotten clear messaging out of that because he kind of wants, he wants the strengths and none of the weaknesses of both?

• 19:23Speaker 00

  Pretty much, yeah. And I think with that approach, the only way to pull that off is to basically approach things like a zero-sum game, to say that there's this, there's this board out there and we want a bigger share of the board. And so we can, like, the last several decades, ever since the fall of the Soviet Union, we've had kind of a, you know, the US is kind of, it's a unipolar world. And, you know, there's a lot of kind of international working together. And the downside is that some of these really big imbalances build up. They build, they build up within the eurozone, then they've also built up with this US whole trade deficit situation.

• 20:02Speaker 00

  And now we're kind of going more to, like, every country for themselves, or every, every block of countries for themselves, more multipolar. And I think that one of their mitigants is basically say, look, there's going to be downsides of our policies, but we're going to try to make as many of the downsides as possible, not in the US.

• 20:22Speaker 00

  I think the biggest risk there is that more of them will be in the US than they probably realize. Generally speaking, that's, most politicians, the way they do things is they'll promise things and then minimize the downside. So you want to give people tax cuts, but you don't want to emphasize that this might result in a bigger deficit, for example. You might want to do XYZ, but not necessarily want to admit that ABC is kind of a cost of getting XYZ. So I think that's probably what we're seeing here, which is, they want a lot of things and some of those things potentially conflict.

• 20:49David Hoffman?

  Yeah. Their current DXY, the Dollar Strength Index, is currently at 108. And maybe just for context, I would call that high, it's on the higher side of things. Dollar is currently strong. Maybe, can you just remind us of the context for how, how and why the dollar is currently experiencing a period of strength? And do you have any opinions or takes about where it might go from here?

• 21:12Speaker 00

  Right, so it's been fairly strong. It's been in a strong cycle for about 10 years. Really, in the 50-plus years of being this kind of floating exchange rate, you know, post Bretton Woods environment, there's really been like only three major dollar cycles. So they've really strong into the 80s, and they did the Plaza Accord. Then they got really strong into the late 90s, and then that had a big weakening. And then we've really been strong ever since 2014 or so. So we're about a decade into a fairly strong band of the dollar. Now, there's weakening years like 2017, there's really strong dollar years like 2022. But a lot of that is in the context of being on the kind of the higher side of that strong dollar cycle. And I think there's a couple of different factors to that.

• 21:57Speaker 00

  One is these ebbs and flows generally happen because of quantitative easing, industry rate differentials, the strength of the economy. And I think what we're seeing in recent years is a lot of own goals in those other currency environments. So Canada, for example, not wanting to build some of its like energy infrastructure out for environmental reasons. If you look at their GDP per capita compared to the US per capita over the past decade, it's not even close. They've had basically no growth, and we've had a pretty good amount of growth. Same thing with Europe, there's some of their energy policies. And then they, you know, they pay a lot of the price when they lost Russian gas, because that wasn't really part of their plan. And then they haven't really tackled that head on, I would say.

• 22:43Speaker 00

  And then China has also purposely tried to deflate a property bubble, which is noble. But then they also bit off quite a bit because they went after their own big companies in like 2021, kind of the whole like anti-Jacma, anti-big-tech titan type of play they did. So it's like, okay, you're going after your property while also going after your equity market, while also their COVID policies were not as effective. And they really leaned into that, and they lost kind of credibility there. So a lot of these other big currency blocks have had kind of some of their own goals, whether energy or otherwise. And so I think that's contributed to this dollar cycle probably lasting longer than it otherwise would have, because a lot of investors look around and say, there's really no other game in town,

• 23:29Speaker 00

  at least among big regions. So, and with the dollar index specifically, a lot of that is the euro. Which is a, you know, kind of a problematic structure of a currency. And then it's the dollars had a big kind of post-election surge. And that's partially because, okay, they're expecting potentially looser fiscal policy, which is debatable because of the whole, the whole Doge approach, but that's kind of what the market was looking at. Higher inflation expectations and therefore pricing a more hawkish Fed, which, which generally implies stronger dollar, at least for a period of time. And it also goes back to Trump's head economic advisor saying that some of these policies will likely be dollar strong initially.

• 24:11Speaker 00

  And then either dollar, dollar weakening over time, or as we do, you know, purposeful dollar devaluations after we get those first things in place.

• 24:21David Hoffman?

  I recently had a macro podcast with a guest, Jeff Park from, from Bitwise, who was murmuring about this idea of a Plaza Accord 2.0. And my intuition here is that this is a way for the dollar to maintain its role as a global reserve currency, while also being devalued. And just, you know, for quick context, Plaza Accord, the first one, was a strategic devaluing of the dollar that was kind of done in a coordinated fashion with all the, many of the world powers. And so I think the, the idea of a Plaza Accord 2.0 has increasingly come across my feed, my radar. Just what do you mention? What do you think about the feasibility of a Plaza Accord 2.0? Do you think Donald Trump would be interested in this?

• 25:03David Hoffman?

  And would it actually do that job of devaluing the dollar while maintaining its position as a global reserve currency?

• 25:09Speaker 00

  I think it would be good for another cycle. I think that, that kind of buys them time.

• 25:15Speaker 00

  And Plaza Accord is based after the hotel it was in. So this one would probably be something like the Mar-a-Lago Accord.

• 25:22Speaker 00

  And so he has talked about currency differentials more than, say, Biden did. It's clear it's on something on, on Trump's mind. And if we do see ongoing negotiations around these tariffs and things like that, we could see currency components in there. The, the initial Plaza Accord was done for similar reasons, which is when the early, in the earlier phase of this hollowing out started to happen. Where Japan is basically eating our lunch, Taiwan was eating our lunch, you know, like they're, the foreign cars are coming in and like, you know, we're, and we're, we're having a very strong dollar environment because the, the Volcker had done really tight monetary policy trying to curtail inflation. All these factors made the dollar strong, made it hard to manufacture things. So they intentionally did this to, to kind

• 26:05Speaker 00

  of assert US's desire to not be so unbalanced. And so they, they absolutely could do that again. The question is, will they? I don't know. I mean, there, some people say that the weakening of the currency in 2017 was kind of a hidden accord of this type, where like the US and China kind of worked together. They, it's kind of, sometimes it formally called the Shanghai Accord. There are probably periods of time, moments of intentional movements. Now, the Plaza Accord was a particularly big one. And I, I do think that there's a chance we would see a similarly kind of cycle ending move and therefore give another kind of whole 10, 15 year cycle to this whole kind of dollar ebb and flow that it's

• 26:49Speaker 00

  been doing ever since we ended the Bretton Woods system.

• 26:52David Hoffman?

  And really what that would do, the, a Plaza Accord 2.0, or I really like the idea of a Mar-a-Lago Accord, maybe we should call it that, is that it just buys us time with our debt, right? And so the, we are in, as a country, in a massive amounts of debt and that, that is accruing interest. And now even that interest is becoming very large. And so a structural devaluation of the dollar that just buys us time by devaluing our own debt, right? Is that the, the main idea here? Or are there other incentives in place as well?

• 27:20Speaker 00

  So there's a couple of moving parts there. One is counterintuitively, when the dollar's strong, it generally means that foreigners stop buying our debt. So we've already seen over the past 10 years, foreign central banks have not purchased our debt. And the, some foreign buying that has occurred has been in the private sector, but it's generally not been as much as the domestic sector. And so some of these like poor liquidity environments are because the dollar is so strong, it's hurting our assets. One of the biggest examples was in 2020 during the heart of the COVID crash, the dollar spiked and the treasury market literally broke. Like it kind of certain securities just kind of went no bid. And so that's when the Fed had to really kind of step in and

• 28:04Speaker 00

  do the fastest ever QE that we've seen and all sorts of emergency swap lines, things like that to basically tell the foreign sector, please stop selling our treasuries. We're going to supply dollars. And for people that don't kind of follow this, anytime you have a debt, that is like an inflexible demand you have for the currency that the debt's denominated in. And across the world, there's something like 13 trillion in dollar-denominated debt outside of the US, and most of it's not even owed to the US. Like, an entity in the UK will lend dollars to an entity in like Indonesia, because it's the global currency and it's the ledger that both of those countries and entities can agree to use. And the problem is that there's more

• 28:46Speaker 00

  dollar debt than there are base dollars. And the foreign sector also has a lot of dollar-denominated assets, stocks, bonds, real estate, things like that. And sometimes the entities that own a lot of those assets also have a lot of the debt. Sometimes they're different groups and sometimes they're overlapping groups. And generally speaking, when you get a strong dollar environment, the whole world kind of gets slowed down a little bit. They're in more currency defense mode. They're not accumulating reserves as rapidly. If anything, they could be selling treasuries to support their own currencies. And that can ricochet back into US markets and give us all sorts of turbulence. Like in 2020, like in 2022, these things can happen. And so

• 29:28Speaker 00

  by weakening the dollar, they ease the debt burdens of a lot of emerging markets in particular. That gives them a little bit of a boom, which is generally comes back and helps US asset prices and US economic growth as well, keeps them happy and then kind of keeps the whole cycle going. And of course, one of the big costs of that is it can keep inflation sticky because if you weaken the dollar, you can get higher energy prices, marginally higher import prices and kind of have that trade off.

• 29:59David Hoffman?

  Interesting. Okay. It seems to me that what is the inflation is of course a trade off. Inflation hurts the long tail of individuals. It hurts people that don't own assets, which is quite a lot of them. And is that really when we're talking about reshuffling the board as you invoked earlier, that's just like what it takes that there's some winners, some losers. Where do we want to pull them from? And if we accept higher inflation, then we're just kind of bearing that cost on like everything that we've seen post 2020, right? Like that's, that's how it goes?

• 30:29Speaker 00

  Yeah, pretty much. If we kind of summarize globalization, the main benefit is that it was disinflationary. So our supply chains got a lot more efficient in a way. Everybody's working together. So there's no, you know, not that many, many like frictions in the world. Everything can kind of go to wherever the cheapest thing for that is, which can change over time. But the downside is it pressures US wages, it pressures US kind of manufacturing areas. And if you do want to reverse that, one of the risks is sure, it could be good for American wages, it could be good for American manufacturing, but it could come with a side dose of inflation. And another thing I kind of point out is that in order to structurally fix US manufacturing, you probably at least have to make a meaningful

• 31:11Speaker 00

  dent in structurally fixing US healthcare. And that's because the US has by far the highest per capita healthcare costs in the world. And it generally speaking, that falls on employers to facilitate a lot of that for their employees, which is an expense that doesn't, that you don't have in say, Japan at a similar level for even if an older population, literally less healthcare spending per capita. And so it's not as burdensome. And so one of the risks is they try to fix with a bunch of Band-Aids and you don't actually tackle the core problem. And then you get maybe not as much reshoring as you expected. The reshoring that does happen is kind of expensive because only it's kind of forced there from tariffs and hard things, but then it's actually expensive once it's here.

• 31:53Speaker 00

  And then, and then you get a kind of a bunch of lose-lose situations.

• 31:59David Hoffman?

  Right. Without, without fixing the inordinate massive costs of healthcare, it's hard to keep, it's hard to pull jobs back on shore and it's hard to keep them here because the cost of the healthcare is just pushing it back elsewhere. Because for some reason, we have a super high healthcare costs in America. I don't know if you have a direct answer as to why we have such high healthcare costs in America, or if it's, because the usual answer I get is just like, oh, it's a variety of different factors. And there's not really one place to really start to target that.

• 32:27Speaker 00

  Yeah, part of it is the type of hybrid system we have. So we make certain trade-offs that make our healthcare system kind of expensive. And then two, cultural eating habits, the things we subsidize in food that Europe doesn't subsidize in food. So it's kind of like we, we don't spend enough on food. We end up spending a lot more on healthcare. But there's a lot, there's actually a lot of entrenched things. It's really powerful, gaudy not to undo. If I say the opposite side, the one thing that the US has going for it in this regard is, is energy security and relatively inexpensive energy. And generally, and at least now, an administration is pretty pro-energy.

• 33:03David Hoffman?

  Yeah.

• 33:04Speaker 00

  And that can at least, like, if it wasn't for that, we'd have no shot at getting healthcare, like, getting manufacturing back without structurally fixing healthcare. This is at least an offset. You still have to tackle healthcare to make it sustainable. But the, the, the lower energy cost gives us some advantages compared to Europe, Japan, other ones that generally have advantages over us.

• 33:25David Hoffman?

  So we've laid out, I think, maybe some of the medium and long-term variables as it relates to the Trump administration and Trump presidency. I want to zoom back into the short term, just to really try and get in the head of his priorities. And the, the one action that we know that he has taken is threatening Canada and Mexico and China with tariffs. 25% for our neighbors to the north and to the south, and then 10% for China. I believe the 10% for China actually went through, but then he just paused the tariffs on China and Mexico. I don't know if you have an opinion on whether this is Donald Trump just flexing, or if he would actually go through with the tariffs. But what does this tell you about his priorities for what he's trying to get done? And in terms of just like

• 34:09David Hoffman?

  fiscal policy and the trade deficit management?

• 34:12Speaker 00

  I think a lot of market participants have been trying to figure that out. So some of them were surprised and basically like, oh, wait, is he actually serious? Like, he's actually going to do like across the board 25% tariffs on close allies. And other people were kind of pointing out that, yeah, and this is what he said. And he started off pretty aggressive. I think what we're seeing is kind of a hybrid, which is, um, yes, he means some of it. But also, uh, the, the negotiation tactic is to, you know, hard initially, get concessions, get optical wins. And, and that kind of reminds the other side, like if you don't continue to work with us, we can go back to playing bad cop again. And especially because if, if you don't know how serious the other person is, if you're playing chicken with someone and they, they just kind of like throw out their stealing

• 34:56Speaker 00

  ware from their car, you know, like you're like, well, this, this person might not, like, they may be willing to deal with kind of consequences to a high degree. So like, I had to really think twice if I want to play chicken with this. So it probably the, the strong way to describe would be it's a good opening position. The, the bearish way to describe it would be to say that it, it kind of, it, it hurts longstanding allied relationships. And it kind of has this everyone for themselves approach, which means that now all these other countries, if anything, might band together, uh, kind of against us and say, well, we're all the bullied victims here. Let's support each other and let's make sure that as we deal with the US, we are somewhat

• 35:36Speaker 00

  coordinated because alone, we're vulnerable, but together, we can make an economic block that's as big as the US and, and give them as many problems as they're giving us. So I, I don't have a firm view on how it's going to play off yet, but I do think it's a combination of strong opening bluff, but also he, he does meaningfully want to reduce the trade deficit. And whether or not he knows the detail, I mean, it's just rebuilding manufacturing and energy systems in the US and, and logistics systems. That's, that's time consuming and expensive. It can't just happen overnight with a tariff. So if you do tariffs, it is going to be probably effectively a partial tax increase for American buyers of those things, at least in part. So I, I do think that that's.

• 36:21Speaker 00

  You know, when I get asked, what is the biggest thing to watch is basically what is, what is tariff policy going to look like throughout this year and next year? Because you can have very different outcomes depending on what tariff policy looks like. It's bigger than most things the Fed could do. It's bigger than a lot of other things the administration can do. For example, I don't think the administration is going to be as impactful on domestic energy production as they're saying, but tariffs are an area that you can absolutely have huge policy implications because of that.

• 36:48David Hoffman?

  And do you think that Donald Trump is just narrowly thinking this as trying to optimize for the trade deficit and trying to just, you know, reward domestic manufacturing? Or do you think he's thinking, trying to think a couple of steps in advance and thinking about like the value of the dollar and the second order consequences of the trade deficits? Like, how far do you think this hall of mirrors goes?

• 37:10Speaker 00

  I think some of the people around him, his Treasury Secretary, his head economic advisor, I think at least certain of them are giving multiple steps in advance and then he's absorbing some of that from people around him and might have competing views around him that he has to then decide which one to go with. So I think that there are, there are at least some steps there that are internalized. And I think you've seen this pretty clearly from how well their, their transition plans were. So when they came into office, a lot of these things are happening quickly because there's clearly been a lot of coordination and saying, this is not just what we're going to do day one, but here's like the first multiple weeks of stuff kind of all lined up. So I do think that there's some pre-planning there.

• 37:50David Hoffman?

  Okay, yeah. Treasury Secretary Scott Besant, he's definitely emphasized the administration's focus on reducing long-term interest rates through a variety of policies, energy dominance, just deregulation, trying to find non-inflationary growth. So we know Scott wants to have lower long-term interest rates. Other people I've, I've heard and I've talked to have said, well, Trump ought to also be interested in lower long-term interest rates. The simple and obvious reason is, well, who is Donald Trump? He's a real estate investor. What kind of asset benefits from lower long-term interest rates better than real estate? Like, no, it's just real estate. Have you seen any indication, anything explicit out of the Trump administration and their policies about their plans here?

• 38:33David Hoffman?

  Or do we just kind of loosely understand that that's where they want to go without any sort of like concrete steps being made here?

• 38:40Speaker 00

  So we have, I mean, in his first term, Trump fought with Powell a little bit, even though he appointed Powell because he wanted more dovish policy. And we've seen, so Scott Bessent was critical of Secretary Yellen's. What I mentioned before is that the Treasury purposely issued a lot of extra T bills to fund a lot of their deficit, which was, they did that for kind of pro liquidity reasons. And Bessent was, was critical of that practice. And yet he has said that in the, in the kind of the first half of the year going forward, he's actually going to keep those policies in place, which he himself had been critical of. And one of the, one of the kind of implications of that policy is generally lower 10 year

• 39:21Speaker 00

  and 30 year yields, because you're issuing less of those really long duration ones that you might otherwise be issuing more of, and instead issuing more T bills. So I do think that they're already airing dovish to some extent, but that's also somewhat doing damage control on, you know, if you get a dollar spike because of aggressive tariff announcements, but then you also get the 10 year a little bit lower because you're not going to flood the market with, with duration. It's kind of a balancing fact. But yeah, so far, I would say that they generally are taking at least initial steps to try to get yields down. But some of the things could, could backfire later, like the Fed is going to have to respond to potentially the tariff policy and what that does for prices.

• 40:03Speaker 00

  And that could keep them a little higher for longer, which could keep rates up, keep the dollar strong, at least for a little while longer. And we could see kind of arguments later this year between Trump and Powell. So far, those haven't really surfaced yet, the way that they did this, this prior administration, but they certainly could. I do think a big test later this year is that probably the Fed's going to have to end their balance sheet reduction because they're probably going to run out of liquidity. They can either do that, or they can do some policies that enable banks to hold more treasuries. There's various like regulations that get kind of wonky that kind of affect how many treasuries they can hold relative to other liquidity things that they have to consider. So one way or another, they have to kind of stuff.

• 40:46Speaker 00

  More treasuries into the banking system and it could be at the central bank or the commercial bank level and around the point where they have to kind of make that transition, that could be a little bit wobbly for markets and liquidity and you could see some debate there between the two sides.

• 41:01David Hoffman?

  Understanding that we are in the era of fiscal dominance, as in not the Federal Reserve, but the government is in control of fiscal policy and fiscal policy is larger than monetary policy. What levers, what leverage does somebody like Secretary Scott Besant and Donald Trump even have over long-term interest rates? If they want long-term interest rates to go down, that's great, but they are not the Federal Reserve. They operate differently. So what level of control do they have over long-term interest rates?

• 41:32Speaker 00

  So one of the levers they have is what I mentioned was is the durations that they decide to issue. Now that has costs to it like anything else. I mean, if you pick your extreme example, if an emerging market is having some sort of fiscal crisis, they could have all of their debt just be like one day paper and just if no one wants to buy a 10-year Brazilian bond, they can just have everything be like one week or one day or one month maturity and have everything be T-bills. Now, the US isn't doing anything that extreme, but they by issuing extra T-bills, it's like a slightly emerging market type of move to basically say there's not a lot of appetite for this long duration stuff. So we're just going to issue less of it and we're going to issue more of the short duration stuff that's kind of closer to money printing and that there's there's more appetite for. So

• 42:15Speaker 00

  that's that's something that they can do unilaterally. They also have, the Treasury has some kind of wonky things that they can do, like they can technically revalue the stated balance sheet price level of their gold that they have and that can actually give them a burst of money in their spendable account that they can then spend it into the economy. That's kind of a break the glass move. It's like something that they haven't really touched in decades. So not not a base case, but it's a move that they have. And then the other one is basically pressuring the Fed. To accommodate, generally speaking, when you have a sovereign bond market issue, almost always the central bank folds. So when the UK had the gilt crisis in 2022,

• 42:57Speaker 00

  the Bank of England literally canceled a speech on balance sheet reduction and went in with emergency temporary QE to buy bonds and to fix that. They could, you know, on paper, they could say, well, that's a fiscal issue. You have to fix that yourself. But because they're responsible for the whole system and it basically was on fire, they said, okay, it's a fiscal issue, but we have to put out the fire first at least. Similarly, when Powell and the Fed were facing, okay, we want to get inflation down, but a lot of our regional banks are in trouble. So they did a pro liquidity, generally pro inflationary move to favor the banks over rapidly getting inflation down. And they have kind of an unofficial mandate of market stability.

• 43:40Speaker 00

  That if the treasury market outright breaks or something, they kind of have to step in. So one thing the fiscal authority can do is kind of to say, well, we're going to stay on this track. And when we do get a really illiquid day, Fed is what they kind of have to do. So they can kind of just push the Fed into doing stuff unless they want to be really, really standoffish, which I doubt Powell has in him. And then in addition, the lever they can pull is that when Powell's term as the chairman's up, they can make sure whoever they appoint is more friendly to them.

• 44:10David Hoffman?

  Yeah. So it sounds like if the Trump administration and Trumpianism, Trump fiscal policy, if he wants it to, the long-term interest rates to go down, it sounds like my intuition from your tone and everything you're telling me is that, he's probably going to be able to get what he wants. Would you agree with that?

• 44:28Speaker 00

  I think so. I think at least in the moderate sense. And in addition, they have other policies in mind, like getting more energy production, which can make sure that's not a constraint. That's more of a mixed bag, because one of the things I pointed out is that the Biden administration, despite all of their talk against energy companies, they didn't really do a lot of actions against energy companies that were really meaningful. A lot of the, like we did get back up to basically record production in the US post-COVID. But the part of, most of the reason why we're not even higher is because companies themselves have just not been strongly incentivized to drill a lot more oil. Oil's been in this kind of range-bound price area. And compared to the 2010s, they're not really getting a lot of external financing,

• 45:13Speaker 00

  oil companies, and instead they're kind of drilling out of their own profit. So every time they make a profit, they think, okay, do you want to pay off some of our debt? Do you want to pay a dividend? Do you want to buy back some shares? Do you want to build cash or make an acquisition? Or do we want to kind of put fresh dollars in the ground and expand our production, which they generally only want to do if they're feeling particularly bullish. And so I think that that's a variable that they can try to pull, but that they have only kind of indirect action there unless they want to get really big in terms of like subsidizing energy or, you know, having really big policies around that.

• 45:46David Hoffman?

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• 46:29David Hoffman?

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• 47:14David Hoffman?

  But why should you care about Cello's transition to a Layer 2? Layer 2s unify. Ethereum, L1's fragmented. By becoming a Layer 2, Cello leads the way for other EVM-compatible Layer 1s to follow. Follow Cello on X and witness the great Cello happening, where Cello cuts its inflation in half as it enters its Layer 2 era and continuing its environmental leadership. Okay, so all of everything we've said, talked about so far has all been the fiscal policy side. And again, like you've identified, we're in the era of fiscal dominance. So that is the larger of the side of the equation. But I do want to hop over to the other side of the equation, monetary policy, which is just all the normal stuff that I think anyone would ask you if we were in a normal macro environment, which is just like, you know, what's the state of inflation? What's the outlook for rates in 2025? QE versus QT?

• 47:59David Hoffman?

  In this side of the equation, what's standing out to you the most? What's the tail that's wagging the dog here?

• 48:04Speaker 00

  So what's standing out to some extent is that inflation's remaining sticky. And recent sentiment polls have detected that the public now thinks it's going to be a little bit higher. It could be because of the tariff threats, it could be from other things. Now sentiment's always somewhat political. Like if you have a Democrat win, generally you'll get Republicans to be more bearish on a bunch of indicators and vice versa. So some of the uptick we've seen in inflation expectations has been more on the Democrat side, where those polls work. But regardless, there's higher consumer expectations of inflation. And the actual numbers have been, you know, even though we're here in early 2025, we're still not back down to the Fed's official target. And so that's kind of one factor

• 48:46Speaker 00

  that they have. In addition, we've seen an unusually hawkish long end despite the cutting that they have done. So when the Fed did try to, you know, moderately ease policy by trimming rates here and there, the long end went up. And so the part of the curve that people actually borrow in mortgages, business loans, that kind of thing, that's not really been eased.

• 49:08David Hoffman?

  Right.

• 49:08Speaker 00

  So there's still pressure on commercial real estate, there's still pressure on maybe not residential real estate prices as much, but certainly on volumes that are in turnover that are happening. A lot of that is pressured. And so that's kind of still in a holding pattern. And then probably the couple of big variables to watch is one, as long as the debt ceiling is being negotiated, that is ironically somewhat pro liquidity, because it could mean that the Treasury has to dump their cash into the market to keep paying their bills. But if you look past that, look toward more of the center, the middle of the year. The reverse repo facility used to have over $2 trillion in it. And that's basically excess QE.

• 49:51Speaker 00

  So they did so much QE back in 2020 and 2021 that they literally did more QE than their banks can even hold. It's like pouring liquid into a bucket and you're already at the rim. So any additional pouring in is just going to flow out of the bucket. And they did that and a lot of the excess flew into the reverse repo facility, which they did on purpose because they didn't want it to drive T-bill yields too low because it would threaten their interest rate approach that they wanted. So $2 trillion plus flowed into reverse repos. And as the Fed has then shifted to quantitative tightening, the Treasury has tapped into their reverse repos by issuing all those extra T-bills. And therefore, they've been doing this kind of anti-QT.

• 50:34Speaker 00

  It's about the same rate as QT. And so you have the Treasury offsetting the Fed almost perfectly one for one. That's now down to almost zero. So it fluctuates week by week, but it's something like $100 billion currently in the reverse repo facility. And when we look toward the end of the year, especially after any sort of debt ceiling complications that can occur and that's kind of normalized, they potentially run out. And then you could have an environment where much like the repo spike of 2019, the Fed has to kind of quietly go back to no longer doing balance sheet reduction and going back to either a flat balance sheet, up balance sheet, or easier regulations to stick more Treasuries into big banks.

• 51:18Speaker 00

  That's kind of their policy mix that they have. And the exact timing will vary, but I think probably by the end of the year, we'll see that. And that could be a little bit contentious.

• 51:26David Hoffman?

  And we are still in an era of QT, right? The Federal Reserve is still doing their best to tighten up liquidity, pull out liquidity. We're, even though we've cut rates like maybe once or twice, maybe two times, we're still having sustained high rates, high is relative, high for the last decade or so. So we have 4%, 4.5% interest rates, holding that, pulling some liquidity out of the market. We're still doing QT. The Federal Reserve is still doing QT, pulling liquidity out of the market that way. And the Fed is just doing that until something breaks and is trying to do that and absorb as much as possible before something breaks. Is that kind of the attitude?

• 52:03Speaker 00

  Pretty much. So they've, they already slowed it down once and then they kept going. So there, there has been some debate within the Fed of how do we even know? Like when you run into a problem because I, in a perfect world, they don't want to do what they did in 2019, which is just they tighten, they tighten, they tighten, they break something, then they put the fire out and, and go back to fixing it. They ideally don't want to do that. It's not the end of the world if they did like 20, the repo spike in 2019, most people outside of macro don't even know what that is. Cause it was just like financial plumbing thing that broke. That's probably what it would look like when they break something again, which is things get messy, then they fix it. And they have internal models saying, here's what we, where we think we're running into the danger zone.

• 52:47Speaker 00

  Uh, and they're kind of entering that phase now, but there is a, some degree of debate about where that zone is. So some might advocate to ending a little earlier. Some might want to push it a little bit more and say, well, let's try to find where, where that zone is. But we've already kind of seen that their general plan is that whenever the situation comes up, they probably want to keep doing QT for their mortgage backed securities. Uh, but end QT for the treasury securities. Uh, that's kind of another hallmark of fiscal dominance. Uh, but it's in, but it's from their perspective, still trying to normalize what the balance sheet looks like, which ideally does not include mortgage backed securities. So that's probably one of the ways that they're going to justify it is okay, we've hit the liquidity floor.

• 53:31Speaker 00

  We want to maintain financial stability and so we're going to end, you know, treasury reductions on the balance sheet. Maybe we can go back to mild buy. It's not like explosive QE, but, but maybe gradual QE. Uh, but we are going to continue selling mortgage backed securities and that's probably the, the base case to expect.

• 53:49David Hoffman?

  And there's no, you don't have any indication of a timeline on, you know, when there's too much liquidity pulled out of the market or when the Fed's actions actually do like break things, right? So maybe in the Donald Trump administration, by the end of his four year administration, we do get to a lower dollar and lower yields because that's what he wants, maybe. But there's a timeline on that. Is there a similar sort of timeline on this next era for the Fed's actions?

• 54:15Speaker 00

  Yeah, I think the reverse repo facility winding down is like a clock ticking down. So it's like running out of time. Now, it doesn't mean that when you hit zero, it's like you immediately go to go to QE, but it basically means that your liquidity buffer is gone. In addition, there are liquidity strains that happen at the end of every quarter. All the banks do window dressing and they try to, you know, make their make their balance sheet look exactly like they wanted to for their quarterly report. And so there's generally more demand to move money around literally in that day or two period. And so we've now had two quarters where there have been pretty clear signs of liquidity strain.

• 54:54Speaker 00

  So two quarters ago, someone had to use the Fed's repo facility. It was only $2 billion, but it was it was a new signal. And then in this, in the most recent quarter, they didn't have to use the Fed's repo facility, but there was a pretty clear funding strain that happened. So everybody was able to get the liquidity they needed, but it was expensive. So every quarter, at the specific, the end of the quarter, we get a little bit of a snapshot of either looking at the price of liquidity or needing to use the Fed's liquidity facilities to say, okay, what's the state of all these musical chair? You know, the music's kind of briefly ending for a second. We get a little glimpse of liquidity constraints. That gives us some indication. And in addition, we're at kind of the rough target.

• 55:38Speaker 00

  So they talked about the balance sheet as a percentage of GDP being in like the 10% to 11% band. We're kind of already in the top end of that band now. And so whether or not, what, looking at their kind of quantitative measures and then looking for actual signs of liquidity issues are the closest and the reverse repo facility are the closest things we have to a clock. And they generally point to some action likely being needed in the back half of this year, probably.

• 56:06David Hoffman?

  Okay, so in the back half of this year is when the cost of liquidity is going to, this is my interpretation of everything so far, is when the cost of liquidity is going to approach some local high, there we're going to be liquidity constrained. That's going to tell the Federal Reserve that yo, there's not much left of QT that we're able to do. Maybe that doesn't mean QE, but it does mean we're stopping the tightening at least a little bit. And that's on the monetary policy side of things. And then on the fiscal side of things, we do know Donald Trump is pushing towards a lower value dollar, pushing towards lower 10-year plus yields, lower long-term yields. So can we line up this confluence of factors that I just laid out?

• 56:50David Hoffman?

  And like, kind of extend this to two-plus years? At least as it relates to equities markets and then therefore also crypto markets too? Because those are my bags, those are our listeners' bags, this is where like the actual substance of everything kind of meets our listeners where they are, which is like, okay, how does this impact me on like the one to three-year long time horizon? So saying that those factors do line up, what would you expect that to do to equity and crypto markets?

• 57:15Speaker 00

  Well, so when we saw the balance sheet reduction in the past happen, and the REIT was spike happened and they went back to balance sheet increases, that was good for risk assets generally across the board. We only had a multi-month sample of that because eventually in early 2020, COVID hit and we got liquidity bazooka. But even before then, that period from September into January, February was pretty good for asset prices and you did have that kind of background QE. Generally speaking, any sort of intentional dollar devaluation or Mar-a-Lago accord would probably be constructive for risk assets across the board. You know, you could face a little bit of a hangover if you get like

• 57:57Speaker 00

  a weaker dollar gives you higher inflation, therefore the price in a more hawkish Fed, but that's kind of a second order thing. Generally speaking, the initial impact is probably pretty good for risk assets. And so I think that the challenging thing is that here in 2025, because we're on a potential trend change, it's potentially a more volatile year for a lot of risk assets. Now, this administration's Viewed as favorable toward Bitcoin and crypto. So it's probably regulations surprises are to the upside there. Some of the tariff things, while that can impact liquidity, that's more likely to impact profit margins of companies. So being an asset like gold or Bitcoin can be perceived as protecting investors from any sort of uncertainties there.

• 58:40Speaker 00

  And they're more kind of putting themselves in the whim of liquidity. When you have a debt ceiling dispute, which we don't know how long it's going to go. Historically, they've not really had intra-party disputes that go on very long for the debt ceiling. Use it uses Republicans using against a Democratic president. We haven't really seen Republicans using it aggressively against a Republican president. So I don't expect the debt ceiling thing to last a long time. But should it, it could go all the way in the middle of the year and be good for liquidity. But then you'd run into problems in the second half of the year when they try to refill their their cash account. So the the short answer is I consider the next two years probably be moderately good for liquidity,

• 59:22Speaker 00

  but more bumps than you've had probably since the regional bank crisis of of early 2023. So we have more twists and turns ahead, but probably still reasonable for liquidity.

• 59:33David Hoffman?

  Interesting. And one thing that's happening on the on the macro front, maybe the geopolitical front. This has been a slow trend shift in this direction for a long time now. But some maybe just to name some of the acute events. It was when Russia invaded Ukraine and then United States seized the assets of Russia. And then all the central banks started to like reevaluate their position on the United States as the reserve currency. I think the narrative at least was good for Bitcoin. Since then, Michael Saylor has been really memeing Bitcoin with MicroStrategy, now called Strategy, into being a corporate balance sheet asset, which I think extends upwards into central banks as well.

• 1:00:15David Hoffman?

  And then more recently, the Czech National Bank is considering incorporating Bitcoin into its foreign exchange reserves. Nothing has been really decided upon, but there's a proposal to reallocate 5% of the Czech National Bank into Bitcoin, which is just Crazy to think about in the long arc of crypto as I've been in it when I came into crypto in 2017 and Bitcoiners were talking to me about how Bitcoin would eventually show up on central banks' balance sheets. And that seemed ludicrous at the time. And here we are eight years later and there's truly a proposal like this. What can you, what can you tell us about your interpretation of the macro geopolitical interest in Bitcoin as it's shifted around over the last one to two years?

• 1:00:54Speaker 00

  Right, so ever since, ever since the Russian invasion and then the subsequent freezing of their reserves, that's certainly given global central banks more of a friction around the dollar and the treasury and pointed them more toward either diversify their fiat exchange reserves or hold more neutral reserve assets. Gold is their kind of go-to initial choice, so we've seen a lot of gold buying among central banks. But then some of the more forward-thinking ones can then say, well, is it just gold we should be looking at? Or are there maybe Bitcoin, maybe other assets? Now, when Bitcoin is like sub-two trillion market cap and quite volatile, there's generally a lot of career risk in some of these proposals.

• 1:01:36Speaker 00

  So it takes kind of a pretty forward-looking person to kind of take that risk. So in MicroStrategy, in their case, it was, you know, the founder still running the company at the time. Now he's chairman, but he was CEO at the time. And so he could kind of, he was, he could kind of run that almost like a small business despite being publicly traded. And it kind of took another cycle to see other corporations hop on board and have clear accounting and see a full cycle of it working really well for MicroStrategy before they started kind of dipping their toe in the water and trying that. In addition, we've seen El Salvador stack Bitcoin on the sovereign level. We've seen Kingdom of Baton do it.

• 1:02:17Speaker 00

  So these smaller, more kind of unilateral decisions and the fact that they've worked out opens, it becomes non-silly for some of these other entities to at least entertain the notion of saying, putting a non-zero amount into Bitcoin. In addition, As a neutral reserve asset that protects seizure, it's also potentially useful for payments. Like when Russia's scrambling to say, okay, well, how are we going to make payments if we're sanctioned and who, you know, what ledger can we agree to some other trading partner to use with us? Like a leading open source ledger is like part of the discussion. Now, it's probably still too small and volatile, but it's at least entering the picture as,

• 1:02:58Speaker 00

  hey, we want to not only secure value, but build a transfer value to trade partners should we need to. You know, it's more efficient than flying a plane of gold across borders. So I do think it is. And then when the US is giving it cover, when you have, you know, like Trump talking about it and people in his circle talking about it, it reduces the career risk of other countries talking about it. So if, if anyone is at a corporation or at a government entity and they happen to be bullish on Bitcoin, they have more of a window to say, hey, maybe we should consider this. I still think it, in this cycle, it'll still be a minority, but around the margins, there's this clearly interest there. And then there's rumors that some more Middle Eastern countries have, have

• 1:03:40Speaker 00

  some reserves that they haven't really disclosed yet. Probably true, but you know, I can't vouch for that. And generally speaking, it's just more incentive for kind of smaller entities to do it, or ones with more kind of forceful or forward thinking leaders.

• 1:03:56David Hoffman?

  Inside the United States, we've had a push for a Bitcoin crypto treasury, a crypto stockpile. This has been conversations in a variety of different formats. There's Synth Alumis's bill. There's just like an executive, not an executive order, but like top down, like David Sacks, who's now the crypto czar, has said that he's looking into it. He's researching it. What indication that the fact that at least there's some supply of conversations happening domestically about Bitcoin inside of the, the central bank or the, or a government treasury. Do you think external countries are taking that seriously? And does that help move the needle towards like the legitimacy of Bitcoin as an asset in central banks?

• 1:04:39Speaker 00

  I think some are because they're saying, okay, if there's a chance this happens, do we want to front run them or do we want to follow? Right? So if it's like, it's certainly a, the way the game theory works out. Is if you're first, you get disproportionate benefits if you're early. So it certainly should be on a lot of entities radars now. Now, I probably would err towards smaller things happening, which would say that, you know, they might ring fence their existing Bitcoin holdings in the US and say, okay, we're going to make this a stockpile. They might even accumulate more. I would generally take the under on something like the full like Lummis bill going through and the size that they talk about. I was not to say it can't happen, but it just wouldn't be part of my kind of base case expectation in this administration.

• 1:05:21Speaker 00

  But the mere fact that those are even non-zero possibilities, like these were all dead in arrival in the prior administration. So the fact that there's some, there's some range of small to medium, potentially even large actions here, just the whole probability curve just better now. There's also things that they can do, like the, they can like end capital gain taxes on, on certain assets after a certain period of time. Czech Republic has looked into that as well.

• 1:05:52David Hoffman?

  Is there precedent for that?

• 1:05:53Speaker 00

  There is. I mean, like, I've heard that Germany has that to some extent. El Salvador, when they, they kind of rescinded it to some extent, but by making it legal tender, they had that approach. So there, there is out there, you know, some action for that. And if anything, that's probably that, that is, it reduces accounting frictions for any assets they designate to have that trade. You know, it's good around the margins for the medium of exchange argument. Probably wouldn't see a massive trend change from that, but it's certainly a friction that would be gone because people would have to think about their, you know, keeping track of every transaction for tax purposes.

• 1:06:32David Hoffman?

  Lynn, we've covered a whole host of topics, fiscal policy, monetary policy, the Donald Trump and his administration's interests and what they want. Is there anything else? Is there any other tail out there that's wagging the macro dog that we haven't yet talked about? Anything else that's worthwhile surfacing to our listeners' attention about what they should be paying attention to?

• 1:06:54Speaker 00

  Overall, energy policy still continues to be a big deal to watch. I don't expect any major disruptions to occur there, but any sort of geopolitical actions around Iran or Venezuela can change the direction of much of that, as well as any policy they do to encourage more local drilling. And so I think that sanctions are still probably the number one thing to watch. Some of these other liquidity actions, and then probably the one in the back would be energy. Someone asked me, what will be the market impact if we do have a ceasefire in Ukraine? And I would say probably a lot of that's already priced in, in the sense that the oil market's already come off of its 2022 highs.

• 1:07:37Speaker 00

  So while that would be obviously very consequential for human lives in the region, it's not necessarily the biggest single thing I'd be watching for broad asset prices in a similar way that tariffs can be very consequential for asset prices. So I think that's probably the concentration would be more on the tariff side and some of these other things we've already discussed, at least from my perspective.

• 1:07:58David Hoffman?

  Lynn, like I said in the intro, the last time we had you on was eight months ago, and things had just, things have seemed to be quiet on the macro front. And after having this conversation with you, it seems okay. There's no, no red flags or even maybe orange flags anywhere. There's, we have a more chaotic, bold man leading the United States government, and that matters a lot. But as far as things go, things seem to be kind of okay on the macro front. Would you agree with that sentiment?

• 1:08:26Speaker 00

  I think so. I mean, there's still like, we still have a two-speed economy, so we still have a lot of stress in kind of the lower income brackets and pretty good performance among the higher income brackets. This uncertainty level is certainly way dialed up now, so at least, at least it's more interesting from a macro perspective. But yeah, there's, I would, I would describe it as we have various yellow and orange flags out there. Mainly around tariffs that can cause liquidity disruptions and things like that. But the fact that we've already had percent kind of continue Yellen's duration policy. And that we've had a kind of a pause on some of the bigger tariffs shows that at least there's a little bit more just kind of relaxation for now until we see what the next fire is.

• 1:09:11David Hoffman?

  Lynn, this has been just a wealth of knowledge that's been very helpful to me. And then therefore I'm sure my, our listeners as well. Thank you so much for spending the time with us and helping me just level up about what's going on in macro.

• 1:09:21Speaker 00

  Of course, thank you.

• 1:09:22David Hoffman?

  Bankless Nation, you guys know the deal. Crypto is risky, macro is risky. You know, all markets are risky. You can lose what you put in, but nonetheless, we are headed west. This is Frontier. It's not for everyone, but we are glad you're with us on the bankless journey. Thanks a lot.