#995 Nik Bhatia On Why Bitcoin Is The Layered Money We Need Now

Nik Bhatia is the Author of the book "Layered Money" and is a Professor at USC. In this conversation, we discuss Nik teaching Bitcoin to college students, the death of Ethereum, why the U. S. Dollar is broken, if the Fed will stop crashing the stock market, if we can grow our way out of debt, and why Bitcoin will co-exist with the U. S. Dollar in the coming decades. Nik joined us in our Miami studio. To see the video of the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= Bullish is a powerful new exchange for digital assets that offers deep liquidity, automated market making, and industry-leading security. Combining the innovations of DeFi with the regulated environment of traditional finance, Bullish empowers users to trade with certainty and earn passively at scale across variable market conditions, in an environment backed by multibillion-dollar liquidity contributions from the Bullish Treasury. Visit bullish.com/pomp today to learn more. Note: Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to U. S persons. Visit bullish.com/legal for important information and risk warnings. ======================= Since 2018 Copper has been at the forefront of institutional digital asset development. From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world. No other infrastructure provider covers as many assets, across as many exchanges, with the speed and security that Copper can offer. To learn how Copper helps the world’s largest institutional investors secure their digital assets, head over to copper.co Copper - the unfair advantage. ======================= Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Compass was founded with the goal of making it easy for everyone to mine bitcoin. Visit http://compassmining.io to start mining bitcoin today! ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. =======================

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Nick Batia is the author of Layered Money. He's also a professor at USC. In this conversation, we talk about Bitcoin, macroeconomics, interest rates, the Fed, and why he, as an academic, is so interested in researching, analyzing, and educating around Bitcoin. I really enjoyed this conversation with Nick, and I hope you guys enjoyed it as well. Before we get into this episode, though, I first want to talk about our sponsors. This episode is brought to you by Bullish. Bullish has reinvented the digital asset exchange. They give you access to DeFi features like automated market making and liquidity pools, all in a regulated environment. It's a whole new way to generate alpha.

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• 1:31Anthony Pompliano?

  Good reasons to be bullish. Learn more at bullish.com/pomp and follow @bullish on Twitter today. Bullish is licensed by the Gibraltar Financial Services Commission. Virtual assets and related products are high risk. Consult your investment advisor and trade responsibly. Bullish is available in select locations only and not to US persons. Visit bullish.com/legal for more important information and risk warnings. Today's episode is brought to you by Copper. Since 2018, Copper has been at the forefront of institutional digital asset development. From award-winning custody solutions to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services in lockstep with a rapidly changing world. No other infrastructure provider covers as many assets across as many exchanges with

• 2:14Anthony Pompliano?

  the speed and security that Copper can offer. To learn how Copper helps the world's largest institutional investors secure their digital assets, head over to copper.co. Again, Copper, the unfair advantage. Check them out at copper.co today. Next up is Compass Mining. Compass Mining is the world's largest marketplace for mining hardware and hosting. With Compass, everyone can mine Bitcoin. Their team makes it easy to start mining wherever you want, at home or in one of their 23 hosting facilities around the world. Through the Compass Marketplace, retail miners can access mining hardware with similar prices and purchase plans as the world's largest mining companies. Compass miners own their machines, they choose whatever

• 2:57Anthony Pompliano?

  mining pool they want, and they mine directly to their own wallets. Miners who don't want to host their machines can order ASICs directly to their doorstep. Simple and low-cost hosting agreements, coupled with best-in-class customer service, are the reasons why Compass is the simplest and most popular way to mine Bitcoin. Start mining your own Bitcoin today by visiting compassmining.io. Again, compassmining.io. Go check them out and let me know what you think.

• 3:24Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:48Anthony Pompliano?

  I'm very excited about our last guest today. Nick, how are you?

• 3:50Speaker 02

  Doing great, Pomp. Good to see you, man.

• 3:52Anthony Pompliano?

  Dude, I'm super excited about this. You're a professor at USC. What are you doing as a professor at USC? How do you get there? Let's just jump right into it. How are you a professor at USC?

• 4:03Speaker 02

  Sure. So it's actually a funny story how it happened. I was on a trading desk. I was trading treasuries, other interest rate products for a big asset manager for several years. And the guy sitting next to me on the desk, friend of Julia's actually, he's like, Nick, somebody asked me to guest lecture at SC.

• 4:27Speaker 02

  I don't want to do it.

• 4:28Anthony Pompliano?

  Really?

• 4:28Speaker 02

  Do you want to do it? And I said, sure. He goes, okay, let me set you up with my friend. So I grab a beer with this guy and he said, yeah, I'm an adjunct professor at USC. I'm also responsible for recruiting guest lectures for one of the tenured professors teaching fixed income, which is my industry. So I said, absolutely, let's do it. So I show up to SC. I gave my first lecture on the structural demand for 30-year treasuries. Basically trying to explain to these students that old people need 30-year bonds because of fixed cash flows and they cannot buy equities because they cannot afford to risk the principal. And the professor loved it.

• 5:11Speaker 02

  The next week, he invited me back for another guest lecture. Five guest lectures later, and I get an email from the professor and he says, hey, I'm looking to grandfather my course to you. If you're interested in it, would you become an adjunct professor at USC? You can teach fixed income. I'm looking to get a little bit deeper into my research. He's doing things in China, things like that. So I basically said, hell, yeah. I would love to. First of all, I'm a USC Trojan. I went there. My dad and grandfather went to USC. I'm a third-generation Trojan. It's been in my family for 50 years. And to be invited to be a professor at SC was the biggest like no-brainer of my life.

• 5:50Anthony Pompliano?

  Yeah. What are the students' reactions when you're teaching this stuff? Are they just there and they're like, hey, I just got to, you know, this is part of the curriculum, I got to just get through this class? Or are they leaning in and super excited?

• 6:01Speaker 02

  Yeah, I think, I think you'll remember being back in school. You have some students that are super into it and others that are not. And I think that's just always the way it's going to be. And I've found both undergraduate and graduate students that the ones that are interested are super interested. They want to learn everything there is to know about markets, global macro. Some of them are very interested in Bitcoin, but it's not part of the course that I started teaching. But the big news is that USC, the dean of Marshall School of Business, read my book, Layered Money, last year, and he wanted to invite

• 6:36Speaker 02

  Me to teach a Bitcoin oriented course at USC, which I worked on for the last several months and last month it became official. So I'm going to be teaching a class in January called Bitcoin and Digital Assets at USC Marshall School of Business.

• 6:51Anthony Pompliano?

  So when you think of these students, they're 18 to 22, you know, on average, how many of them are into Bitcoin, crypto, kind of this whole world versus maybe they've heard about it, but they just got another shit going on?

• 7:02Speaker 02

  Sure. So I taught a, I guess lectured for a professor this semester in the Risk Management Department. And the topic was Bitcoin and crypto literacy going into this new era of name, image and likeness policy at the NCA level where now athletes are basically able to get paid for what they do. And my approach was, hey, you athletes need to be careful when you're offered crypto, because it could be totally a nonsensical asset that you're being offered. If you're being offered crypto, first of all, is it Bitcoin? And if it is, are you aware as to how you're going to store that Bitcoin yourself or on an exchange?

• 7:44Speaker 02

  And if it's not Bitcoin, if it's crypto, are they trying to create your own coin for you? In which I would say, please be careful and don't do that. Are they trying to offer you some altcoin? And also in that case, please be careful and don't do that because you don't know what you're going to get. So it's a, it was an attempt to teach Bitcoin only and that kind of risk management. Now, the students were, many of them were already aware of the industry, what's going on. A few of them, there's, there are about 30 students in this class. Three to five of them had clearly been trading crypto in some way, shape or form. A couple of them were into NFTs. And so, and their, their guest lecturer right before me, the week before,

• 8:26Speaker 02

  was some NFT expert from Tom Brady's, I think it's called Signature, right? The company.

• 8:33Anthony Pompliano?

  Autograph, I think.

• 8:34Speaker 02

  Autograph, exactly. Thank you. So they were aware of some of these stuff, things. But, you know, later in the lecture, I said, hey, how many of you know what Lightning Network is? Zero people raised their hand out of 30. So. It gives you a sense. Yes, there's some awareness. Yes, there's some kids that are trading. Many don't know about this stuff. Many are just reading the headlines. And there were zero out of 30 that hadn't heard about the Lightning Network, which means nobody had basically fallen down the Bitcoin rabbit hole out of 30 students. So we are still pretty early.

• 9:05Anthony Pompliano?

  How many of them are interested in this stuff because they want to get rich quick versus they see some other value to the assets or the industry?

• 9:13Speaker 02

  Yeah, I usually see that it's very few of these college students are interested in the get rich quick scheme. They're interested in what path do I take in my life and is trading a potential avenue for me? But I think that the get rich quick type of people are still into sports betting. You can kind of tell like when they come over to Bitcoin, they're trying to approach it as, you know, is this an investment line? That I could go into, something like that.

• 9:41Anthony Pompliano?

  Yeah, I haven't really talked about it too much, but when I was in college for a little while, I started to trade foreign currencies and it was more of like intellectual curiosity more than than anything else. I forgot I didn't have enough money to like think I was going to get rich. And I started to get an education around why are there certain decisions made about currencies? What is the relationship between the currencies? All the things that you would hopefully learn as you were trying to understand that market. And it feels like when I found Bitcoin, I then went even further down this rabbit hole of like Bitcoin, even though I have an economics degree, actually taught me economics, right? I learned way more from Bitcoin than I ever did in a classroom.

• 10:26Anthony Pompliano?

  And so is that like a way to use Bitcoin as a tool for education? But given that you have that tool available to you today, you can teach people inside of a classroom using this new technology. And it's something that they can relate to, they can understand, they're interested in, and you find like the uptake of the information is better?

• 10:43Speaker 02

  I think so, and I believe that when you try to understand what Bitcoin is, you have to take the historical approach, understand what is money, and then you have to understand what is economics. So Bitcoin does set the table for a higher level of education around financial and global macroeconomic topics, absolutely.

• 11:06Anthony Pompliano?

  Talk to me about other assets. So you recently wrote a post about the potential death of Ethereum. Explain a little bit of what the thought process there is and kind of what you think the probabilities are.

• 11:18Speaker 02

  Sure. So I'm a trader by nature, right? So I'm a chart analyst. I do price study every day. And when I'm looking at the Ethereum versus Bitcoin chart, not the Ethereum versus the dollar chart, but specifically Ethereum versus Bitcoin, I'm seeing a breakdown in the chart. So the price is going lower. We're below 0.06 today. And that is off of the a high of, you know, spot 1.5, you know, a couple of years ago. So we've had lower highs made over the course of now several years in Ethereum. And it's showing a pattern that is mirroring the death of other altcoins that we saw take a boom in the last cycle. And so it's really a price study only opinion here. And I'll be quick to change the opinion

• 12:03Speaker 02

  if the price reverses. Right now, the price of Ethereum versus Bitcoin looks very suspect. It is breaking down. It is making new lows. And it has made lower highs over the course now of four years.

• 12:17Anthony Pompliano?

  When you think about that type of analysis, and I think it's important to caveat, you're just looking at a price chart.

• 12:22Speaker 02

  This is an only price and listen, it is only a price analysis that I'm doing with Ethereum. Now, you could say the same thing about Bitcoin. When I got into Bitcoin, it was because the price analysis told me this is an exponential trend that is is live and right in front of us. And so I got involved. Then I started to learn more and more about Bitcoin. And then I finally decided to purchase Bitcoin once I believed that I had married the long thesis on the chart with the long thesis of the fundamentals. I did that and then I purchased it. So when looking at Ethereum, I'm not factoring in the fundamentals of the network, or their potential switch away from proof of work. But I do believe that

• 13:07Speaker 02

  the price represents all the information that is available in the market. And so maybe it is that the traders that are viewing The future of Ethereum are viewing it unfavorably. And that's why the price is declining. But I lead with price. I always have. And it hasn't led me wrong. Because when you think that price is truth, if the price declines or reverses in a way that goes against what you thought, you have to alter your perspective. You can't just be sitting on your positions forever. And so, like, for example, if Bitcoin were to go materially below 19,500,

• 13:47Speaker 02

  we're going to have to take a look at this asset. What has hap-? Why is it broken down below the last all time high of 2017? Five years later, with all this growth, the growth of the network. Until then, the long thesis is sound in Bitcoin. But yeah, in the, below 20,000, we're going to have to take a look at it.

• 14:05Anthony Pompliano?

  When you start to look at these assets, how much of price as a marketing department? I think about that a lot, right? Like Bitcoin is a decentralized entity. There is no CEO, there's no board of directors, there's no marketing team, etc. The price, as you described, brought you in. And then you learned about Bitcoin, you learned about a lot of this stuff, and then you became kind of a long-term participant in the market. Is that what we should expect everyone to come through? From like a funnel standpoint? Is price ends up being the thing that attracts them? And then they kind of go down the rabbit hole, get converted into what I think people would describe as a Bitcoiner?

• 14:42Speaker 02

  In the United States, yes. Okay. It's, it's, it is likely that the price is what attracts people the most in this country.

• 14:52Speaker 02

  We have a country of entrepreneurs and a spirit of innovation in this country. And when you see something accelerating in price, it draws attention. But if we go to different parts of the world, Latin America and Africa, where the currency regimes are disasters.

• 15:12Speaker 02

  They're not looking at price. They're looking at, does it work? Does it maintain value versus my own currency, which the answer is yes. You know, when you're looking at Turkey or Argentina, something like that. So, we do have to be conscious that in different parts of the world, the reason to get involved in Bitcoin is different, right? Let's cite Gladstein's book title, "Check Your Financial Privilege." We do have privilege in this country, and it doesn't exist in a lot of parts of the world. And so, we have to put our feet in their shoes to think about why they might be involved in Bitcoin. So, I have an Argentinian friend, and I've known him since 2012.

• 15:56Speaker 02

  What he communicates to me is that the culture in Argentina of understanding Bitcoin is at another level versus the Western world. Because they're intimately aware of currency collapse, hyperinflation, and the things that we tout as Bitcoiners as, you know, attractive things about the network and the asset. But are we using Bitcoin as Americans to escape a currency collapse? Not immediately, right? That might be part of your thesis over the next 10, 20 years. You might even think it's coming over the next two years, in which I'd say you're wrong about that. The dollar's not collapsing in two years. But it's not the reason that Americans are getting involved, is imminent currency collapse.

• 16:41Anthony Pompliano?

  This threat is not imminent in the United States, whereas in other countries, Argentina, I think, has got 50% or more, you know, annual inflation.

• 16:48Speaker 02

  Right. And the threat is present in the United States. I think that's why a lot of... See, I found Bitcoin through understanding the Fed and monetary policy and how it worked, not after. That's my background, is studying the Fed and trading rates. So, when I look at the monetary situation, the fiscal situation in the United States, I see something unsustainable over a long period. I also see something that's broken, but I don't see something that's collapsing today.

• 17:17Anthony Pompliano?

  What's broken?

• 17:18Speaker 02

  The dollar is broken because the Fed no longer is able to control the issuance of the dollar in any way. First of all, the dollar is issued by commercial banks, mostly in this country, as well as in the Eurodollar system, which is dollars issued outside of the Federal Reserve banking system. So, you have... Call it 15 trillion dollars of dollars created outside the Fed system that they weren't aware of for most of the beginning of it. And then when it broke in 2007, in August 2007, when LIBOR and Fed funds separated, what we saw is that the euro-dollar system has a

• 18:03Speaker 02

  risk that is materially different than the onshore dollar system. The Fed recognized that, and they put a swap line on with the ECB in December 2007, like four months after the system broke. And they've exercised that swap line in 08, 09, during the pigs crisis, during the pandemic, et cetera. So the dollar system is broken because the dollar exists in all these different forms, and the Fed has basically had to say, we will bail out the different forms even though we never approved of them. That's a broken system.

• 18:36Anthony Pompliano?

  Explain swap lines a little bit.

• 18:38Speaker 02

  Okay, so when the ECB, the European Central Bank, has banks in its jurisdiction that have issued dollar deposits to their customers, let's just put it on Deutsche Bank. So let's say Deutsche Bank has customers that have dollar deposits, and then Deutsche Bank is going through some trouble. They need dollar liquidity. The market says, no, we're not going to lend you dollars, euro-dollar market, you're shut off from it. So where is Deutsche Bank going to get the dollars to stay liquid on their dollar balance sheet? They're going to get them from the ECB, not from the Fed, because they're in Germany. So they go to the ECB and they say, hey, ECB, can we borrow dollars? The ECB says,

• 19:19Speaker 02

  okay, but we don't have dollars, we're Europe. So they print euros, and then they post them as collateral to the Fed, and then the Fed lends dollars to the ECB, and then the ECB can lend those dollars to Deutsche Bank. So that's the swap line. It's a swap of euros for dollars, where Europe just basically creates euros and then post them as collateral to borrow dollars from the Fed.

• 19:47Anthony Pompliano?

  If one of those two currencies strengthens aggressively against the other or depreciates aggressively against the other, does that break the swap line or are there issues there?

• 19:57Speaker 02

  It doesn't really because the movement is not material enough to... These guys are not borrowing on leverage. They're borrowing full amount. So let's say you borrow 100 million and then the currency moves 5% against you. You owe 105 million back to the European Central Bank. That's not going to break anything necessarily.

• 20:16Anthony Pompliano?

  And so when you think about some of these issues, is the Central Bank of the United States and other countries, they just have to continue to take on more debt? They have to continue to create more money? And it's pretty much just like a race to see who can do it the least fast in some way?

• 20:34Speaker 02

  It is because if you think about the way that the United States in 30 trillion of debt and financial crisis every 2 to 5 to 10 years, each time another crisis happens, the government has to borrow trillions of dollars. The trillions of dollars that it has to borrow isn't immediately available in the market in terms of the lending source. So the Fed comes in and monetizes it. The reason that the Fed does that and the reason that the government does that... First of all, the government does it because they don't want to get voted out. So it's easy to just say, "Here's the stimulus. Here's the next stimulus." We've seen that now 15 years straight, non-stop stimulus. Then the Fed looks at the inflation rate historically, not today,

• 21:18Speaker 02

  but inflation rate at 1. something percent, 2% and in decline. And they look at a declining inflation rate as a danger zone for them. Because when prices go down, a credit system starts to collapse, right? Credit needs expansion because you always have to borrow to pay back your debt. You have to roll the debt. So if deflation happens, it's the Fed's number one fear. And so that's why they do QE, that's why they lower interest rates, is because they are fearful of deflation. And so they'll do anything they can to prevent that.

• 21:57Speaker 02

  And so in that way, we have to assume that the policy from government and Fed will be stimulative. Now... Looking at this year specifically, I think we're going to have to wait for the next stimulative episode to begin. I think that the Fed views 8% inflation as maybe equally dangerous, so they have to keep going on rate hikes. I do not think we're going to see QE anytime soon. We're actually seeing the opposite. We're seeing QT. The Fed is shrinking its balance sheet. It's raising interest rates. So it's actually strengthening the dollar as an asset, as a global asset relative to other currencies. And so we'll see that and we might

• 22:38Speaker 02

  see risk asset weakness on the back of that. But I think the Fed's most important goal right now is bringing inflation down.

• 22:46Anthony Pompliano?

  The Federal Reserve is intentionally crashing stock prices, right? It may not be their stated, but that is part of raising interest rates in connection with quantitative tightening. Is there a point where they wave a white flag because there is so much pain in the asset price drawdowns?

• 23:03Speaker 02

  Yes. And we won't be able to see it directly in the stock market, right? You have to look at the Treasury curve. You have to look at yields to know when that's going to happen. So let's say, for example, stocks go down another 20%, and we look over at the Treasury market and yields haven't really come down yet. What that means is that the market is not pricing in Fed cuts yet, right? They're still looking at Fed hikes. But let's say the stock market now goes down 50%, and two-year Treasury yields go from 2.75% back down to 1%. Well, the Fed funds rate's at 1% right now. That means the Treasury market is saying, hey, Fed, you're done. You're done here. Stop hiking. It's over. So I wrote

• 23:48Speaker 02

  a piece for my Substack a couple of weeks ago about how, let's compare the federal funds rate and the two-year Treasury yield. When the Treasury yield falls below the Fed funds rate, the Fed has to be done because it's the market telling the Fed, you're done. Right now, twos are at 2 and 3/4%.

• 24:09Speaker 02

  Fed funds is at 1%, 80, 90 basis points. It'll be at, you know, 1.4 by, by June 15th when they raise another 50 basis points. So we'll have Fed funds at 1 and 1/2 and 2's north of 2 and 1/2. So there's a, a lot of room for the Fed to keep hiking.

• 24:28Anthony Pompliano?

  Who moves? Does the 2-year move down or does the Fed funds rate move up?

• 24:34Speaker 02

  So both are going, both have been happening. So the Fed funds rate has been moving up. It'll continue to move up, right? They're going to hike again on June 15th. The 2-year yield peaked at around just under 3% and went actually all the way below 2 and 1/2%. It's back up to 2 and 3/4% right now. So yields have shown that they are topping now. So now is basically when we have to watch carefully. When does the, when does the yield come crashing below the Fed funds rate? And right now there is no crash in yields. Yields are showing a topping formation, but they're again up, up quite a bit this week.

• 25:15Speaker 02

  So we have to be, we have to always watch the market and look at what the market is telling us. And I look at the difference between 2-year yields and Fed funds as the best indicator in terms of how much runway does the Fed have left to hike rates.

• 25:29Anthony Pompliano?

  Why don't they just go right to 2 and 1/2%? Why don't they just say, forget this 50 basis point thing? We're telling you guys we're going to 2 and 1/2. Let's just go there tomorrow.

• 25:37Speaker 02

  They could have done that, Pomp. They could have, a couple of months ago, they could have said, hey, we're gonna, we're gonna go right to 1 and 1/2%. We're gonna go right to 2%. And to be honest, they probably should have moved faster because now the slower that they go, the more likely it is that risk assets bleed out and that yields come back down and basically put the Fed in its place and say, you're done. So the reason why they're not going to do it on June 15th, let's say, is because the Fed does this thing where they signal, right? So they jawbone the market. They get the market to price in what they say is going to happen. Once the market gets there, then they stop talking and their goal is to not disrupt the market.

• 26:22Speaker 02

  So, you know, short-term interest rate traders that are trading 3-month bills or, you know, Fed funds rate looking 3 to 6 months out. They are doing those trades under the assumption that the Fed will do what it says in the next three to six months. We know that whatever the Fed says they're going to do in two years is bullshit, right? They're not just, we can't trust what they're going to say, what they're going to do, what they say they're going to do, looking one to two years out. But quite differently, we can pretty much completely trust what they're going to say that they're going to do within the next three to six month time horizon. So basically about six months ago, they said, we're going to start raising rates, 50 basis points at a time, every meeting.

• 27:07Speaker 02

  And so the market starts to price that in and they don't want to upset that.

• 27:10Anthony Pompliano?

  So the Fed balance sheet was 900 billion in 2008, 2009, crossed over 9 trillion about 12 years later, almost 14 years later. They're now conducting quantitative tightening. They've tried one time before and pretty much gave up, you know, almost immediately and was like, hey, this isn't working. Why should we believe that they'll be able to be successful now?

• 27:33Speaker 02

  So the last period of quantitative tightening went on for a couple of years and they did have to reverse it. Why do I think that QT is going to happen again this time? Well, there's a couple of reasons. Number one, the Fed's reverse repo operation that they do, this is a facility that they allow banks to come park money back at the Fed in a risk freeway. There are $2 trillion on balance held back at the Fed right now. That basically means that the 9 trillion that they have outstanding is 2 trillion too much. So they're looking at that repo balance at 2 trillion and saying, oh, we actually went

• 28:18Speaker 02

  2 trillion too far. That balance didn't exist during the last period of QE, where, sorry, during the last period of QT, there was, you know, about 100 to 400 billion parked at the Fed overnight during 2016 era. And it would spike to 400 billion only on March 31st, June 30th, when the banks are looking to window dress their balance sheet and they need to put money somewhere. So they just put it back at the Fed. It's very different this time around. We have 2 trillion. It stayed at 2 trillion for several months now. It's been growing in size, the balance.

• 29:02Speaker 02

  It's just an indicator that there are way too many reserves in the system. And the Fed looks at that reserve balance plus inflation at 8%. And they say, look, raising rates is not going to be enough. We have to double tighten. We have to raise rates and we have to shrink the balance sheet. And we're going to continue to do that. Now, it can't last forever, right? We've talked about the dynamics that it does in a credit system. You do have to keep growing the amount of debt in the system. But that doesn't mean it can't have periods of contraction that last for an extended period of time. So I'm looking for the Fed to continue to raise rates over the next several months. I'm looking for them to continue the balance sheet runoff for at least the next year.

• 29:43Speaker 02

  And the Fed will cave on hikes before they cave on balance sheet. But again, it's going to depend on how dramatic the next financial crisis or stock market crashes.

• 29:54Anthony Pompliano?

  I think global debt to GDP is like 350%. US is like 130. Everyone always talks about the debt. It's debt, debt, debt. But obviously, there's a GDP component of it as well. Why can't we just grow our way out of it?

• 30:08Speaker 02

  We are. There's record tax receipts. We just heard last week, record tax receipts. So GDP and revenue to the government are at record levels. And with inflation at 8%, it's also going to be a boost to the nominal GDP growth. And so there are a couple of ways to historically get rid of debt. One is to default and one is to inflate. And so the US, or grow, right? So the US is taking a combination of growth and inflation as a way out. I'm not saying that debt to GDP is going to go under 100% because of this. But it does give the United States government decades potentially of runway here. We still are the best country in the nation.

• 30:50Speaker 02

  I mean, sorry, the best country in the world for business, for entrepreneurship. Look at Bitcoin finding its home in the US after 14 years. Like finally, it's here. All the businesses are being built here. Forget New York for a second. We're looking at Bitcoin business, the first Bitcoin IPO. Several investment funds that are marketing Bitcoin. We have big multinational corporations that are accepting Bitcoin here in the United States. So. It's very bullish for the US to have Bitcoin here. And I think that the United States government has a lot of runway here in terms of being at 130% debt to GDP.

• 31:32Anthony Pompliano?

  Do you think it can go under 100?

• 31:37Speaker 02

  That would be tough to imagine here with GDP at 20 something and debt at 30 something. I see the US government not really able to get into surplus, right? And only in a surplus will you stop the nominal debt from going up. So I don't, I don't see the US getting to a healthy fiscal situation to the point where we could get back down below 100%.

• 32:06Anthony Pompliano?

  The Federal Reserve obviously is run by humans like you and I. They're valuable. There's the FOMC where people go into a conference room. They have a lot of data. They've got a lot of smart people. They try hard. They are well intentioned, but they're still human. And it's a human-led monetary policy that allows them to manipulate interest rates, asset purchase, balance sheets, et cetera, as we've been discussing. Bitcoin is the exact opposite. And I usually tell people it's an automated central bank. It's got a programmatic monetary policy, set it, and basically you can forget it because it's not changing. What are the pros and cons of a programmatic monetary policy? And do you think that that programmatic monetary policy means that Bitcoin could rise to become a new global reserve currency?

• 32:50Speaker 02

  So what is the con to an algorithmic monetary policy? The con is that you can't step in to save any individual or entity in any scenario. Now, is that really a con? Or is that just the other side of having a monetary policy that's set in stone? And I think that's why people like Bitcoin, because they view it as a more equitable situation. The Federal Reserve obviously has discretionary monetary policy. And when do they exercise that discretion? When their buddies are in trouble, right? When the banks are in trouble and they say, we have to do something about it.

• 33:35Speaker 02

  Well, is that fair to the rest of the world?

• 33:39Speaker 02

  It isn't fair just because the Fed says that, hey, if we bail out the banks, stocks won't go down as much. Then if stocks go back up, we have a wealth effect in which people that own stocks spend more money into the economy and that will create jobs. Is that going to make a bartender feel better?

• 34:01Anthony Pompliano?

  No.

• 34:02Speaker 02

  I mean, no, it's not. And so discretionary monetary policy is to help people in certain situations. And I think the people have viewed the way that the Fed has done it as inequitable. It's not like they have another choice, right? They don't have all these different tools they can use. They can lower rates, raise rates, or do QE. That's basically all they have. So they decided to do it. Let's lower rates and do QE, and that's what we have to do. But when it comes to Bitcoin, we don't have those human beings involved. So we can trust that there will be no bailout under any circumstance. And if that is something that you and the

• 34:43Speaker 02

  public view as more equitable, more fair, it is possible that they go in that direction. And I do believe that, yes, that does make Bitcoin positioned to be a world reserve, a world reserve currency. It already is, by the way, because enough people keep it as their world, as their reserve currency. So it already has started. But how many, how many people, right? Tens of millions, perhaps? Far shy of a billion, far shy of seven billion. So how long will it take to get to a billion people that think of Bitcoin as their reserve currency? Many years, but I do believe that we'll get there.

• 35:23Anthony Pompliano?

  When you think about that, not bailing people out is definitely one piece. I also think of this idea that in the human-led variable monetary policy, the world has to, or I'm sorry, the monetary policy has to conform to the world. Good times, there's certain monetary policy. When bad times come, then the monetary policy conforms and changes. Kind of what we're talking about the bailouts, etc. With a fixed monetary policy... Monetary policy or programmatic monetary policy, the world has to conform to the monetary policy, right? Like the it's a very different thing. What it does is it changes behaviors. And one of the components that I don't hear a lot of people talking about, but it feels important is when you have a variable monetary policy, it's really hard to plan years, decades

• 36:07Anthony Pompliano?

  in advance. When you have a programmatic monetary policy, it's very easy because you know exactly what's going to happen, right? We're talking about, hey, we can trust the Fed and what they say in three to six months, but we can't trust even two years, let alone, you know, 10, 20 years from now. And so by moving to a fixed monetary policy, does that drastically increase the ability for people to make long-term investments and drive R and D and innovation and actually end up being like a tailwind in some way?

• 36:30Speaker 02

  Sure. So I'll answer that by starting with this idea that I don't believe Bitcoin is replacing the dollar as the world reserve currency. I believe the two coexist for decades and decades to come. Then what that presents is a choice for businesses. Do we want to denominate our balance sheet in Bitcoin or dollars? And that choice will be driven by what they want as their own monetary policy. Do they want something that responds to the times? Or do they want something that's fixed? And I believe that choice will be present for companies, for countries as well, over the coming decades. And we'll see that, okay, this company wants to plan for the

• 37:12Speaker 02

  future without having the Fed affect what they're doing. Now, if they have shareholders that are dollar-denominated, but they're doing everything in Bitcoin, they're going to have to factor that in and maybe hedge out their Bitcoin volatility back to dollars, just so they can do activity in Bitcoin. So it is really important to, you know, remind ourselves that Bitcoin and the dollar system will both coexist, and we'll see that choice presented.

• 37:42Anthony Pompliano?

  I think that that's a good thing. And I know people get mad about that, but Living through the collapse of the global reserve currency, especially if it happens suddenly, would be catastrophic to many people that you love, care about, interact with on a day-to-day basis. And in some way, having a zero-sum view of the world of it's this or that ends up, one, not being how the world works, but, two, is it doesn't allow for the building of the parachute, right? And if you think about, there's a lot of currencies that are very, very bad, very undisciplined, they still exist. Now, it's pretty well understood, they suck, right? No one's going to use them, but they still exist.

• 38:27Anthony Pompliano?

  And so for a currency to actually die, it is very difficult for that to play out. And so I think your point about like, we actually should want coexistence and give people choice, which brings me to this idea of central bank digital currencies, which are really the same monetary policy, just kind of a technology wrapper, if you will. What's their role in the future?

• 38:49Speaker 02

  Yeah, central bank digital currencies will change the way that the Fed does things. It is just a different wrapper. It's basically changing the rails of the financial system from the old way of fax machines and swift wires to, you know, a more digital, digitally native, maybe not using a chain of blocks, but using a shared Excel spreadsheet that some people call distributed ledger, that type of thing. It will modernize the system in some ways, so that's a good thing for the Fed, for banking technology and all that. But in my book Layered Money, one of my predictions was that CBDCs will be used as

• 39:31Speaker 02

  a fiscal tool, as well as a monetary policy tool, to give universal basic income to people. So in the way that we all received pandemic payments, whether we asked for them or not during the pandemic from the Treasury Department, I feel that in the future, we will get Fedcoin into our banking wallet, whether it's your Wells Fargo app or Treasury Department app, and you'll just get the money right away. And that will be your direct payment. There'll be no check in the mail from the Treasury. There might not even be QE anymore. You'll just get money in your wallet, Fedcoins, here you go. And that's the stimulus. So the way that we're going in terms of observing

• 40:16Speaker 02

  Universal basic income, both in the US and Europe. It tells me that that is a possible direction of where CBDCs will go. And for that to happen, you will need legislation. And so this is one of the things I've been thinking about recently is that this might take a lot of time. Right now, we have a situation in which the executive branch and the legislative branch are not able to get anything done, and that will get even worse after November, and will last another couple of years of gridlock. And then we'll get into the 2024 election, and then maybe Bitcoin will be in the campaign, maybe CBDC will be in the campaign.

• 40:58Speaker 02

  But it's hard to imagine Congress and the president coming together on a new Federal Reserve Act amendment, because that's what you would need to do Fedcoin and to do UBI through a Fedcoin. So the more I'm thinking about it, the longer I think it's going to take for the Fed to have their own coin. But let's watch Europe. Let's watch the ECB and how quick they are to do a digital euro and have universal basic income going directly to European citizens.

• 41:31Anthony Pompliano?

  You wrote a book, Layered Money. You've got it there with you. Why did you write the book and what will people learn?

• 41:38Speaker 02

  Yeah, this one is for you, Pom.

• 41:40Anthony Pompliano?

  Thank you.

• 41:42Speaker 02

  Yeah, absolutely. Sign that one for you.

• 41:45Anthony Pompliano?

  From gold and dollars to Bitcoin and central bank digital currencies, which is really, it's a history of money to some degree.

• 41:52Speaker 02

  It is. The first, it's 10 chapters. This is a short book. The first six chapters are about the history of gold and the dollar system. And then we get into Bitcoin and how Bitcoin represents, I believe, the future of money. You know, I wrote it to give people an intro to Bitcoin. And I did believe that if you need a proper intro to Bitcoin, the first 60% of the book cannot use the word Bitcoin. And, you know, Saifedean did something similar in the Bitcoin Standard. He didn't really mention Bitcoin till the back, you know, one-third of the book. And...

• 42:31Speaker 02

  But really, I wanted to tell a story of money. So the biggest thing I did was try to figure out when to start the story. And I didn't know whether to start it 5,000 years ago, 1,000 years ago, 75 years ago. And I ended up, you know, reading a lot about the Renaissance era monetary system and discovered the Fiorino d'oro, the gold florin, which was a coin issued by the Florentine Mint in 1252. And it had an unchanged weight and purity for over 300 years. And, you know, the light bulbs started going off, like, this is Bitcoin. And even when I was reading how the florin was used as a denomination across Europe

• 43:14Speaker 02

  at the time where administrative salaries were done in florin, no matter what country it was, international business trades were done in florin, no matter what country it was, it reminded me of the dollar. That the dollar today is used as the currency between Brazil and Mexico. Why? It's not Brazilian, it's not Mexican, but it is the currency of choice because it's achieved that consensus. And consensus is another word that we think about a lot in Bitcoin. The dollar has this strong consensus. Where does that come from? And I try to trace the story back and back and back into time. And also trying to demonstrate that Bitcoin is achieving a consensus that mirrors gold.

• 43:58Speaker 02

  And that makes Bitcoin a once in, not a generation, but a once in a millennium, or once in, you know, a species type of innovation. And I wrote it in a way that my mom and dad could pick up, the men and women on the trading desk, sitting next to me, could pick up, or friends. Could pick up. And so I tried to write it in a way that didn't lose the reader. I had my wife and my dad help me say, hey, it's too thick here. You gotta simplify it to try to make it accessible for as many people as possible. And gotten incredible feedback so far. Thank you, everyone, for reading the book.

• 44:42Speaker 02

  And we're up to 15 languages now.

• 44:45Anthony Pompliano?

  Oh, wow.

• 44:46Speaker 02

  About half of them are live. Another half are on the way. And Spanish is coming out June 22nd. Very excited about that. And so, yes, a lot, lot happening with layered money.

• 44:57Anthony Pompliano?

  From golden dollars to Bitcoin and central bank digital currencies. I just put the link in the chat for anyone who, who wants to, to go by the book. You have a course that you're going to be teaching at USC. You already have one, but you're gonna have a second one. Bitcoin and digital assets. What are people gonna learn there?

• 45:13Speaker 02

  Yeah, so my Bitcoin course at USC, I'm going to start with the white paper. So I'm gonna show that this came from an academic paper that was put out in 2008 by Satoshi Nakamoto. And, you know, show them the origin of this. Then we're gonna go right into layered money, do a monetary history. And then we're gonna come out and we're gonna learn some of the fundamentals of Bitcoin. So there's gonna be a homework assignment. Download a wallet. Send it, download a Lightning wallet. Send a transaction. I'll give everyone 100 sats in the class. Do your Lightning transactions. Practice, write down a seed. Learn what, learn how to use Bitcoin, basically. Then we'll get into some of the more nitty gritty stuff about Bitcoin.

• 45:58Speaker 02

  One of the teach, I'm going, one of the things I'm going to teach is Fidelity's Bitcoin First paper, where we present, okay, I'll tell a quick story about this course and getting it approved. The department made a suggestion to me that I named the course Cryptocurrency after I, after I proposed the course. And, you know, I politely

• 46:22Speaker 02

  And adamantly said, no, because this is not about cryptocurrency. This is about Bitcoin and cryptocurrency is an echo boom of Bitcoin. I will address that that exists, but I'll also address it from a Bitcoin first perspective that, okay, these things might exist, but why have I taken a Bitcoin only approach? Why is the course named Bitcoin and not crypto? And so I'm going to be teaching that throughout the course. We're also going to do some on-chain stuff. I think it'll be one of the first courses in the country at a major institution that teaches on-chain analysis as something that is a new fundamental way to observe and value

• 47:07Speaker 02

  the asset. You had Dylan on talking about on-chain. It's an important field. And so Ark wrote a great paper about it, but I haven't decided exactly what material I'm going to use or which superstar on-chain analyst I'm going to have fly out to LA and guest lecture for my students. But yeah, it's going to be Bitcoin, Bitcoin, Bitcoin. That's what we're going to teach. I do, I do plan to teach the Treasury Department's paper on Fedcoin and because we have to understand the implications in other areas of the economy, but it's not a crypto course. It's a Bitcoin course. We're going to teach Bitcoin, teach people how to use Bitcoin, teach about the Lightning

• 47:48Speaker 02

  Network, teach about blockchain data that comes from Bitcoin software and just really give students an overall understanding of what Bitcoin is.

• 47:59Anthony Pompliano?

  Yeah, that's awesome. You also, I think, are going to talk today about, you're going to do a course with Saylor Academy. Talk a little bit about this.

• 48:08Speaker 02

  Yeah, so this is something I haven't shared publicly yet. So several months ago, I got in touch with Michael Saylor, who read Layered Money and loved it. And basically, you know, he invited me or we agreed to teach Layered Money at Saylor Academy. So in a few weeks, that will go live on Saylor. Academy's website, the course is called Monetary History and it is based off of the book Layered Money. So we will go through the history of money, the introduction of Bitcoin and look at the future of the monetary system. I'm incredibly excited about this course to go live. It's of course going to be free for everyone.

• 48:52Speaker 02

  And the content of Layered Money will be there for the students and I'm excited to promote it and all that kind of stuff. So Sailor Academy course called Monetary History, look for that in a couple, a couple of weeks.

• 49:05Anthony Pompliano?

  Yeah, I think the history of money is so important for people to understand because it makes it so much more obvious. What are the pros and cons of various assets that are used as currency today?

• 49:15Speaker 02

  Absolutely. And Sailor Academy, the administrators over there told me that I think it's Stefan Laveras course. The Bitcoin course is their number one most attended course on the Academy. What does that mean? People want to know about this stuff. And of course, with Michael Saylor being such a vocal advocate, I'm sure he's driving students to learn about Bitcoin. But this is going to be part of their Bitcoin offering. Absolutely.

• 49:45Anthony Pompliano?

  Yeah. And then you have a newsletter that you write and you're going to be publishing videos on YouTube as well. What are you doing there?

• 49:52Speaker 02

  Sure. So my Substack publication is called The Bitcoin Layer. We've talked about a couple of the pieces today already and decided to, a couple of months ago, take the next step in Bitcoin education and launch a YouTube channel by the same name. So people can go to thebitcoinlayer.com to find the link to my new YouTube channel, as well as the link to my Substack publication. Both are called The Bitcoin Layer. And we are going to be doing educational videos about all things Bitcoin and macro. So I want to do videos about explaining the Lightning Network is going to be my first video. I'm going to do videos on how does the Fed conduct monetary policy?

• 50:37Speaker 02

  What the hell is repo? How do interest rates work? What does my global macroeconomic framework look like? What do I do in the morning when I come in and I'm checking price? What am I checking the price of? How am I looking at all that kind of stuff? So this is my, this is my effort to give an educational research on everything that I've ever known.

• 51:01Speaker 02

  Finance and business-wise to the world. The Substack publication is a lot more timely research and analysis as we're going through Fed hikes and all that kind of stuff. The YouTube is going to take a step back. It's not going to be as timely of material. It's not going to cover what the Fed is doing this week, but it's going to explain how does the Fed do what it does and give these videos, you know, a little bit more shelf life so that people can come in, hopefully in a year's time from now, come into my channel and get a master's in finance.

• 51:32Anthony Pompliano?

  Yeah, there are some of the best teachers in the world are on YouTube, not in classrooms. You may be the first to do both, right? It's beyond both. Where can we send people to find you on the internet?

• 51:43Speaker 02

  Yeah, so people can go to thebitcoinlayer.com or layeredmoney.com. It's the same website. Please subscribe to the YouTube channel. Please subscribe to the Substack. I do plenty of free content on the Substack publication as well. I do have a paid service there for more specific and in-depth research and analysis. Layered Money on Amazon, all the books are on the website, sorry, all the links to the books are on the website. The audiobook has done incredibly well. It's the most popular format and links to other languages of Layered Money are also on the website.

• 52:21Anthony Pompliano?

  Awesome, man. I could talk to you literally forever. I think that your combination of monetary history, your understanding of kind of how the Fed works and then obviously Bitcoin is very rare. You're doing a lot. One of our sponsors is Eight Sleep. What is your sleep schedule, like your personal routine every day?

• 52:39Speaker 02

  Sure, so I, it depends if I'm writing or not.

• 52:43Anthony Pompliano?

  Okay.

• 52:44Speaker 02

  We have a four-year-old daughter and her sleep schedule is about 7:30 PM to about 5:30 AM. And, uh, and sometimes it's five, sometimes it's 4:45, but that means that our day starts early in our house. We're up at five every day and we're getting, we're getting the day started. Um, and then I do try to get to bed by nine to 10 p.m. Um, on nights that I'm not writing and on nights that I'm writing, um, sleep goes out the window and I make up for it the next day or, or throughout the rest of the week because with a four-year-old daughter in the house, um, and a lot of things going on, obviously I have, you know, contracts,

• 53:26Speaker 02

  I have things, you know, teaching to do, um, finding time to do the deep thinking in an absolutely quiet environment. It's, it's almost impossible when the sun is out for me. So at about nine p.m. on nights that I'm writing, this is maybe twice a week, maybe more during the book, it was six, six nights a week. Um, but yeah, from about nine p.m. to 12 or 1 a.m. I'm writing.

• 53:53Anthony Pompliano?

  That's awesome. I love it. Um, follow you on Twitter, read the book. If you didn't read the book yet, you're missing out. Let's go. Uh, and we'll definitely have to do this again in the future. This is fantastic. Thank you so much for coming.

• 54:06Speaker 02

  Thanks, Paul. Appreciate it, dude.

• 54:08Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more and I'll meet you guys for the next episode.