What the G20, Werner, and Warsh tell us about America’s new monetary playbook

via Kane McGukin at the Mesh Point

In every transition, there are road signs along the way. Matt Dines has been one of the more accurate minds of late on the monetary and geopolitical transition we are living through.

His and Camron Otsuka’s commentary earlier this month on Mine Print Hash, post the G20 meeting in North Carolina, sheds a lot of light on major sticking points that will pave the way for both future policy and monetary frameworks. This will not happen overnight, but at the same time we’ll likely look back and say, “man, the world changed fast.”

A few highlights that matter:

1. The Financial Stability Board (FSB). Just as Great Depression meetings brought new entities for the next cycle, G20 meetings post-GFC brought the FSB for the same reason. New rules to pave the way for stability in a new economic era (2009 Pittsburgh summit). According to Dines FSB brings AI into the mix, plugging it into the Basel Accords, the last of which, Basel III, an update required because of the financial behaviors and shortcomings that caused the GFC.

As Dines points out, all we need now is a final agreement so all parties can play nice around the new rails, i.e. stablecoin/Bitcoin/SOFR rails. Global stablecoin arrangements will take final shape after the announcement of a Bretton Woods 2.0. Something I’ve discussed many times over, and something that feels nearer and nearer by the day. The most important point? Bessent has basically championed this from day one.

As Werner’s model suggests (see point four), Bessent opposes the state picking winners directly, but supports guiding private capital toward strategic ends. Video referenced in Samson’s post.

2. Bringing forward the private sector as a way to grow our way out of this. What’s critical to understand here is that during the GFC, entities and individuals were overleveraged. To combat this, the central bank expanded its balance sheet to take on all the underwater debt. Today, the script is flipped. The private sector is relatively unlevered, and the central bank is overlevered. This is important because the only way to grow an economy is to guide credit towards productive use cases. Regardless of opinion, this has been the underlying basis of the early-stage beginnings of all successful economies and empires for centuries (see Werner). For those keeping score at home, these are the breadcrumbs we’ve been given to better understand where monetary and fiscal policy are going (Office of Strategic Capital).

3. G20 is bringing in banks and private institutions, which is a paradigm shift in how credit allocation works. This is the announcement. We are going to run a different playbook for our monetary framework from now on. This is the only way out. The only way back to some state of “normal”. This is exactly what Werner lays out in the Princes of the Yen. An in-depth study of Japan and other great banking empires. Our “new approach” will be one that has succeeded many times in the past. Including during the creation of America. Why? Because this style best achieves rebuilding the US’ industrial capacity – think modernization of infrastructure. Today’s infrastructure and infrastructure for the 21st-century is inherently digital. That’s why capital formation is being directed and pointed at all things AI and digital. This is why all these related industries are points of “national security”. This is what is meant by “Hamiltonian policy”, a notion we’ve discussed before.

In short, exactly as Dines pointed out, you’re going to have to pick sides – US or China. This is what is meant by the new multi-polar world. Believe it or not, for the first time in more than two decades, “we’re actually trying to accomplish something”.

4. Credit expansion is the only way to get growth (PofY), which is why Main Street over Wall Street matters. See the Foundry School to better understand the government’s refocus on centralizing and deploying capital into productive use cases. Centralize the steering of credit, decentralize who receives it.

The key to the entire process is Matt’s highlighting of Richard Werner’s work. Richard wrote the Princes of the Yen, which outlines not only the rise and fall of the great Japanese financial system, but more importantly, the foundations of how dominant banking and financial systems work. A means by which the US economic system has drifted far away from over the last thirty to fifty years.

In simple terms, the keys are state-directed capital and credit allocation to productive uses. That’s all that matters for a budding or dominant economic system. Without it, one dies. Without it, one meanders toward financial engineering practices that eventually kill the entire system. Proper credit allocation (capital formation) is representative of early-stage and highly successful/functioning economic systems. Financialization is the sign of an aging or failing financial system. If you strip out all the complexity and jargon, it’s as simple as this.

As Werner points out, the Quantity Theory of Credit is the origin of all successful banking models that have worked for thousands of years. It started in early Asia before moving through Europe, Germany, Japan, the US, and now back to China. It was the basis of China’s rise as they’ve built out the Belt and Road system over the last decade-plus. It has allowed them to pull economic power and global sway away from the US by way of state-directed capital aimed at globally and systemically important supply chains. By doing so, China created a vast decentralized product and manufacturing hub for the world; for anything and everything at a low price. On the contrary, the US chose the more deadly path. Centralization, consolidation, and a reduction in the number of banking entities. All the while increasing the amount of financialization, leverage, and risk in the fewer and fewer nodes within the system.

https://x.com/CaitlinLong_/status/2099689636738281700

The core thesis, unlike what we’ve seen in the US over the last two decades, is decentralization. In short, you have the combination of centralized capital flows towards a decentralized private sector, which forms the basis of growth. You conquer, so to speak, in numbers.

This is a major paradigm shift from what we’ve become, but it is what we are finally seeing the US wake up to and begin to move back towards.

That’s why it feels so chaotic and out of sync. It’s different than anything we’ve seen in the last 70 to 100 years or more. It is what Hamilton implemented in the US to found our great and successful American experiment. It is what we reimplemented in the 30s to 50s to extend US dominance. But it is what we moved away from post-1971 with the creation of petrodollars and a heavy reliance on financialization and incentivization of lack of productivity (service). It is what stablecoin dollars, Bitcoin, and a SOFR based system are meant to hopefully replace. The brokenness of petrodollar and eurodollars. These steps are an attempt to revert back to something that works – productivity.

Instead of growth, for decades, we’ve implemented policies that promote fewer and fewer entities in industry and banking. The exact steps that choke off growth and kill economic systems. It also leads, as we’ve seen, to a vicious cycle of bad policy design that encourages less competition. All of which only exacerbate the problem.

Eventually, you end up right where we are. In an unproductive and overly financialized economy without the ability to provide because you’ve outsourced everything for the sake of profits, quarterly numbers, and inflated margins for analysts to bicker over. At some point, you wake up and realize the amount of power you’ve given away to others by centralizing your resources and profits into fewer and fewer hands. That’s when you realize those providing to you have decentralized their resources, profits, and state-directed capital into real economic power that eventually unseats you from number one.

For a financial system to work, the entire system must depend on the quantity of credit, as Werner lays out, and if you follow the Japanese story, which I believe we are only 25-30 years behind, then Kevin Warsh is no different than the last Central Bank prince whose specific role was to change the regime. Unfortunately, if we choose to extend, the only option is to become the carry trade for others to piggyback off of. As we see, that game can unproductively go on for decades.

As Dines notes, the QE period is over. The only move to sustain is to provide credit to those who have capacity (Main Street) and guide it into productive use cases (21st-century infrastructure).

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Dilution, Spreads, and the Modern Bitcoin Investor’s Dilemma

via Kane McGukin at the Mesh Point

This paper is the final in a three-part series examining Bitcoin Treasury Companies (BTC-TC). This third and final piece establishes the framework for viewing Bitcoin Treasury Companies as nothing more than new age version of the Business Development Company (BDC) structure [ ed note: the other two can be viewed here and here ]

ABSTRACT: What is most important to understand is the purpose BDCs have served in the traditional financial system (TradFi). These entities were established in 1980[1] by Congress and have served as critical infrastructure for extending the fractional reserve nature of our existing financial system. In a general context, the nature of these businesses is what we commonly refer to as Shadow Banks. Non-bank financial institutions that facilitate lending between investors and borrowers (credit intermediation). They are an extension of banking but do not rely on public deposits. Nor do Shadow Banks have direct access to central bank backstops.[2]

In short, Business Development Companies facilitate lending, securitize assets, and provide liquidity to markets, often using short-term financing for long-term investments.

Download the Paper

Over the last 24 months, as TradFi and Wall Street continued down the path of integration and adoption of Bitcoin, the narrative around Bitcoin and lending has shifted materially. This change in optics, in my view, is why it’s important to consider and understand BTC-TCs in the context of a BDC model.

As credit and debt have become the basis for our growing financial system, BDCs have historically facilitated the financialization of collateral assets and, most importantly, have played a prominent role in the extraction of substantial spreads between the underlying collateral and the market’s derivatives created atop. For Bitcoin’s purpose, investors should understand the short-term tradeoffs presented by yield and the long-term expectation of returns.

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Is the Core vs. Knots battle a replay of two ideological Federal Reserve Plans that ultimately centralized gold, the original sound money?

TL;DR: The Core vs Knots battle is an attack on the Bitcoin network. A monetary struggle no different than the fight to establish the Federal Reserve in 1913.

The 1900s, like today, began with bankers at war over the governing rules of money. Two competing factions, the Aldrich Plan and Glass-Owen Plan, launched an assault on sound money because men sought more power and nations demanded more control.

Gold, like Bitcoin, is money because of its first principle origins. Yet the misconception, then and now, is that survival requires more complexity.

History shows how fragile conviction can be. An offer for a seat at the table is enough to flip once passionate defenders of sound money to enablers of credit and unlimited debt. Original goldbugs like Keynes in the 1920s and Greenspan in the 1980s proved unable to brush off the emotional pull of notoriety, currency, and control. Each flippening reintroduces inflationary tactics that corrode money’s principles and value.

Cunning design and corrupt schemes have often proven far too great for man to overcome.

Never a Dull Moment

There’s never a dull moment in Bitcoin or in the world of finance, for that matter.

The latest continuous divide within the Bitcoin community may look like another technical battle. But does it point to something deeper? While it feels like there’s a never-ending need to have something technical to argue over, beneath the GitHub commits and mailing list debates lurks a ghost from the past. The ideological struggle that gave birth to America’s Federal Reserve.

The Fed’s creation was framed in the language of decentralization and regional representation.

Yet its foundation was built on two forces: filters and control (here and here). Behind the curtain, the true drivers in 1913 were the same as they are today. A desire for power, profit, and the ability to manufacture credit money from a hard money basis. A Paper Bitcoin Summer, if you will.

Ask any Bitcoin maximalist what they despise most, and the likely answers are: the Federal Reserve or the dollar’s undeniable debasement.

That’s what makes the current Core vs. Knots clash so fascinating. It’s not just a nerdy civil war inside Bitcoin development. Viewed through the lens of monetary history, the parallels come into focus. A reminder that only a little over 100 years ago, lines were drawn and sides were picked between two competing visions for a new financial system: the Aldrich Plan (big-bank, corporate centralization) and the Glass-Owen Plan (populist, individualistic ideology). With full hindsight, both promoted decentralization in name only.

Both claimed to defend the money with one important caveat, both plans led inevitably to the centralization of gold, the original “sound money”.

By expanding the Op_Return size (protocol inflation), are we not reintroducing the debasement Satoshi rooted out?

By offering a more centralized Bitcoin client, are we not centralizing trust?

Are both options not heading down a similar “Federal Reserve” path?

Regardless of side, the question we should be asking: will Bitcoin, too, cloak centralization in the language of decentralization?

Bitcoin Is a First Principle Asset

As we saw in 1913, a similar banking stalemate led to the Federal Reserve Act being pushed through on the eve of Christmas holiday. Plowing forward at all costs was not the right answer. History reminds us that just because you can, doesn’t mean you should.

Heated debates tend to harden into an us vs. them mentality, where momentum overrides principle. More often than not, the final path hasn’t resolved the gripes but has paved the way for political and centralized control of money.

“Smart cows show the other cows how to bypass the filters. You know, like you can open the gate. So, you know, it’s always been the case. You could always bypass these things, but I don’t think we would agree that we should bypass the dust relay fee and start seeing a massive amount of dust clog up the network.” – Samson Mow

In the world of banking, there have always been cops and robbers. Piles of assets and monetary value have always enticed the idea of a bank heist. Bitcoin and digital money are proving to be no different. The storage source has shifted, but the mentality to capture remains the same. It’s a reminder of how you embed a European Central Bank Plan inside of an American financial system. Divide and conquer.

If you look at ordinals, that’s one. They’re it’s kind of like an ICO but with pictures. You know, they’re selling these these PFPs or whatever wizard images and cat images and then they have a war chest and they don’t care. They can print more stuff. – Samson Mow

Whether it’s printing from the FED, ICOs, DATs, or Bitcoin Treasury Companies, the invisible hand is one of fractional reserve banking policies.

Furthermore, what Samson describes with ordinals and fee compression rhymes with history. Changing the cost to process a transaction to $0.01 sat/vbytes allows unintended consequences at some point. Just as “cheap trading” fueled reckless high-frequency speculation in equities around 2008. Cheap blockspace and zero-fee incentives risk repeating the same cycle and diluting the value of Bitcoin’s network.

Lowering friction may look like innovation, but history shows it usually ends in centralization and systemic fragility.

Low fees, in essence, remove the security of a financial moat.

Greed’s Temptation and Calling

At the height of the 1914 crisis, John Maynard Keynes was asked to brief the Chancellor of the Exchequer on whether the pound should remain tied to gold. Keynes argued emphatically that it must:

… he (Keynes) had come down very strongly in favor of maintaining the link: “London’s position as a monetary center depends very directly on complete confidence in London’s unwavering readiness” to meet its obligations in gold and would be severely damaged if “at the first sign of emergency that commitment was suspended.

… But whereas before the war he had thought that the best way to achieve this was to ensure that currencies such as the pound be fully convertible to gold at a fixed value, he had now come to believe that there was no reason why linking money supply and credit to gold should necessarily result in stable prices. – Lords of Finance

If the examples of John Maynard Keynes and Alan Greenspan, along with the parallel of 1913 versus today’s Bitcoin divide, reveal nothing else, it is that inflationary pressures, though often hidden, are always present. The history of currency is a long dotted line of individuals who ultimately bend the knee to the erosion of value systems.

Their words defended markets and sound money, but their actions were of centralized control.

Core vs. Knots feels like the same corporate-led sleight of hand that steered Keynes and Greenspan and that defined the Aldrich and Glass-Owen plans. It is the same temptation facing Bitcoin today.

What is clear is this: it is easy to praise sound money in theory, but far harder to defend it once the “in-crowd” offers you a seat at the table.

The lure of acceptance and the search for yield are powerful drugs. Both have the power to flip a goldbug into a credit junkie without leaving a trace of evidence.

The Simple Lesson That is Hard to Live By

First principles are non-negotiable. They are like primary colors in art. Remove one, and the structural foundation for all future innovation collapses. Cloud the palette with too many colors, and the core value is drowned by unnecessary bloat. Too many features introduce the Ethereum problem. Endless left-turns disguised as innovation, when the mission could be achieved in a few simple right-turns.

Gold’s important role as sound money was pushed aside, not because it failed, but because men failed to hold the line. Bitcoin faces the same test today.

If Core vs. Knots, ordinals, or fee games erode Bitcoin’s principles, then the ghost of 1913 will win again, only this time in digital form. In a future world, Bitcoin credit will be all the rage.

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Money has always been strategic, providing the foundation of nations and empires for centuries.

Owning capital and controlling its flow isn’t just about survival; it’s about building something that lasts.

If Bitcoin 2024 was the year of political invasion and intelligence acknowledgement, 2025 was a confirmation.

My key takeaway is that what started as an emergent behavior, Bitcoin, has made its way to center stage in 21st-century capital formation. New age dollars are backed once again with layers of sound money and innovative tech rails (stablecoins) that will extend our ability to build the future in both our digital and physical worlds.

This year’s conference laid out how Bitcoin + Stablecoins will be incorporated into balance sheets, national stockpiles, and act as a financial reserve asset. Backing traditional assets, new financial instruments (bitbonds), and resetting the geopolitical landscape while driving growth in the 21st Century.

“Bitcoin is now becoming one of the largest asset classes in the world. … The US needs to be able to defend Bitcoin or use it as an offensive weapon…” – Fred Theil, Mara

“The Executive Order specifically named Bitcoin… as a strategic asset because of its scarcity… and that was a signal being sent to the American population as well as the global population of other national leaders… The US Government sees Bitcoin as a Strategic asset… Is this a signal of a strategic shift? … I think that’s still an uncertain question, but I think we’re leaning towards the latter.” – Matthew Pines

Strategic reserves aren’t just about oil or Swiss cheese anymore. They’re about Bitcoin and the future of money as statecraft – Matthew Sigel, VanEck

A Historical Perspective of How We Got to Bitcoin

Money began with kings and blacksmiths, then shifted to vaults and shipping lanes as industrialized nations arose. To power this evolution, a global information and logistics network emerged: wires stretched across continents, barges moved gold port to port, and boots on the ground gathered local intelligence. Routed it back through government think tanks and major global bank trading desks. These old-fashioned and manual networks are what FED the dollar money machine, creating an unrivaled capital engine in the US.

By the 1960s and 1980s, a new era began. Derivatives became the norm, and information moved faster, requiring one to have financial trading desks around the globe to capture profitable information and support national security. Bankers ruled supreme. Bitcoin 2025 made it clear there is new capital in town, but this time is no different.

In recent decades, social networks began outperforming diplomats and spies. Capital shifted from hard assets to liquid and digital instruments. This accelerated the tempo of our world. We must rebuild that complex network of global banks, but with the advantage of nodes over buildings. In the new realm, VCs, software developers, and engineers rule supreme.

If one theme echoed throughout this year’s conference, it was this: Monetary information is a weapon, and the dollar network needs an extension. A new innovation to carry its weight around the world faster. That’s why Bitcoin is more than Number Go Up (NGU) technology.

Throughout the conference, if you heard it once, you heard it numerous times. Bitcoin won’t replace the dollar, it will expand and deepen the vast power of the dollar network. Moving forward, BTC will be the basis of capital formation, buying power, and geopolitical edge. Its volatility will be harvested and embedded into the balance sheets of public companies (Bitcoin Treasury Companies).

Stablecoins Were Everywhere

The x.com post/meme above is funny and sums up the stablecoin mania. This was an inevitable route, and there was no loss in the opportunity to weave it into almost every session. Stablecoins will lead the way in transforming our money market and dollar payment networks. They bring them up-to-date with modern technology and making “money” fully digital and usable.

Making money move at the speed with which people live today. Tether’s (USDT) Paolo Ardoino proved this in his session. He effectively showed that we’re moving from an era of tech stacks to an era of monetary tech stacks.

If you want value, it must be backed by truth and sustainability. Not rhetoric, corruption, merry-go-rounding, and nothingness.

Underneath the most popular stablecoin USDT sits: sound money assets (Bitcoin and Gold), paper yield-bearing monetary assets (US Treasuries), private company profits, Bitcoin mining and AI datacenter infrastructure, independent media tools, privacy chat tools, and more. Tether has built the future of what a monetary tech stack likely looks like. A combination of all forms of assets we might want in our society today.

“There are many senior folks in the Trump administration directly around the stablecoin space, and this was the same philosophy that really gave rise to the growth of US-based, world-dominant multinational corporations. It was not just the love of Pepsi and Coke as products. It was that they served as instruments of US statecraft, and there was a deep financial overlap between the profits of the large multinational corporations and the reach and acquisitions of the American Empire. … I think that there is a kind of belief that Stablecoins and the Bitcoin market can effectively do for the dollar what multinational corporations did in the 20th Century for the reach of the Empire.” – Mike Benz

As we’ve seen across centuries, intelligence is once again being embedded and synchronized. As power has shifted to technology networks, we’re seeing the importance these leaders are now playing in government.

Much like we saw with old Wall Street revolving doors that allowed leaders to bounce back and forth between Goldman, JP Morgan, Black Rock, The Federal Reserve, and other government institutions. We’re now seeing the same with technology companies, too.

Given the posturing around Bitcoin and AI, it would not be a shock for Bitcoin and stablecoin companies to be the next vector. After all, the power of a monetary network is in the information and profit its operators control.

As capital competition intensifies, it is clear that economic dominance and even warfare have moved from the battlefields to bandwidth.

All of this, Bitcoin’s integration, the rise of stablecoins, and the evolution of monetary tech stacks point to a deeper truth: our current financial system isn’t just adapting, it’s straining while monetary architecture is quickly becoming the next battleground.

This strain comes from a design flaw baked into the system itself: its dependency on endless growth. Its dependency on debt-backed growth.

The Problem of Scale and Constant Growth

“Basically, the way the system is constructed. … it relies on constant growth. It’s like a shark that can’t stop swimming, otherwise it drowns, ironically.” – Lyn Alden

What Lyn describes here with the shark analogy is the premise of Geoffrey West’s book Scale – The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies.

Eventually, superexponential growth systems (like financial systems) reach finite time singularity where the energy and growth required to maintain pace become catastrophically unsustainable.

The only way to avoid the inevitable collapse is through innovation. Ironically, Bitcoin is an innovation for both our financial system and our information system. Both are on unsustainable resource burn paths just to maintain themselves. For the financial system, it’s a debt issue. For the internet, it’s an energy and volume of content/information/value issue.

These dilemmas, though not Triffin’s, make the points highlighted by Vice President JD Vance even more important.

For starters, unfortunately, he made it clear that Bitcoin is now political; continued voice and action are required. As he posed, Bitcoin and AI together should be considered the two most important tools for our future.

As a reminder, empires and stability are built on one’s ability to collect, process, and profit from information. Both work nicely in these capacities. So, the undue interest does make sense.

As a reminder, those who reign are the ones who best showcase the ability to monetize the value in networks.

What nation-states, public entities, and those in statecraft seem to grasp is we’ve shifted from a world of “he who holds the gold makes the rules” to a world of “he who holds the data gets the value”.

It now appears to be an arms race to see who can amass critical capital. Because in times of geopolitical instability, strategic resources are what give control. They are what lead to historical transitions. Once again, we find ourselves in the midst of a paradigm shift, with Bitcoin at the center.

Money, information, and supply chains are the battlegrounds of the moment that will define the lanes of the future.

“We have to start thinking about the long-term strategic implications of Bitcoin. Where Bitcoin is going is as a strategically important asset for the United States over the next decades.” – JD Vance

And yet, while the Bitcoin Conference conversations touched on geopolitics, network theory, and systemic fragility, there was also something personal about this year’s conference.

One moment that captured this shift in narrative was from none other than Jack Mallers.

Mr. Mallers is Aging… A Conference Farewell

Lastly, a Bitcoin Conference would not be complete without a passionate ending from Jack Mallers.

However, this year was a bit of a flip of the script. Rather than promoting HODLing or stacking sats forever, Mallers promoted spending bitcoin and even taking loans against them… debt… because the reality is, as you become an adult, there are things in life Bitcoin can’t buy. There are real moments, real bills quoted and accepted only in USD. This realization helps us understand the simple line Jack quoted:

“Money is a means, it’s not an end.” – Jack Mallers

Money is a savings technology > Spending is for memories and life.

Jack Mallers Bitcoin 2025 Keynote Speech: The HODLers Dilemma

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A Controlled Unwind and a New Bretton Woods with Bitcoin

For over a century, the global financial system has been increasingly built on papered-over leverage, fiat expansion, and financial engineering. Since 1913, governments, financial institutions, and central banks have systematically distorted money and markets, creating an unsustainable system of derivatives, credit expansion, and hidden leverage.

That’s the state of the system today.

We are witnessing the tough decisions required to begin a great unwind—a shift back to sound money, a purge of systemic leverage, and the restructuring of the monetary order. If controlled, this transition will be painful but orderly. If not, we risk a chaotic collapse akin to 1929 or 2008.

The key players in this transition? Trump and Scott Bessent, who have both signaled a shift back to sound money. But they cannot simply declare a return to a gold-backed dollar overnight. Doing so would implode the current system immediately.

Instead, they appear to be executing a multi-step plan to transition the U.S. financial system away from fiat-based leverage and back toward a structure rooted in gold, commodities, and Bitcoin.

Step 1: The End of the Fiat & Derivative System

For more than a century, the world has been built on leveraged financial claims that far exceed the actual underlying assets.

• Gold is the hidden anchor of the system, yet governments and central banks have deliberately suppressed its price through paper derivatives.
• Rehypothecation and derivatives have created a massive pyramid of financial claims, where multiple institutions believe they own the same underlying gold, Treasuries, and assets… many times over.
• The U.S. debt and Treasury market, supposedly “risk-free,” is now the most fragile part of the financial system, with debt levels soaring beyond sustainability.

Why Now?

Foreign buyers (China, Russia, BRICS nations) have all but stopped accumulating U.S. Treasuries—a clear sign of de-dollarization. De-dollarization efforts are accelerating, as nations seek settlement alternatives outside of the U.S. financial system. At the same time, the dollar is rising as countries scramble for them to pay off dollar-denominated debt. Is it the ultimate catch-22?

U.S. deficits have reached unprecedented levels. We are currently at 123% Debt to GDP while rising interest rates are making debt servicing mathematically unsustainable.

The only realistic way forward is monetary restructuring, either through a controlled transition (Bessent & Trump’s plan) or a disorderly collapse. Oh, and of course we have to cut out the political fraud. Robbing citizens via the tax code to create generational wealth for both sides of the aisle is beyond uncalled for.

Step 2: Signaling the Shift Toward Sound Money

Trump and Bessent appear to be signaling the end of fiat leverage and the return to a more sustainable monetary system.

The purpose of this move?

Send a clear signal to smart money that the system is shifting, pushing intelligent investors to exit paper holdings before an uncontrolled collapse forces them out at a loss.

Key Signs of the Shift

Gold Accumulation – Russia, China and now the U.S. government have been quietly accumulating physical gold since 2016-2018.

source: https://goldbroker.com/news/russia-first-time-holds-more-gold-than-us-dollars-583-billion-reserves-2110

LBMA & COMEX Physical Shortages – The inability to deliver physical gold in recent weeks hints that paper gold markets are running out of actual supply.

Gold is Being Revalued Quietly – The price of gold is rising without triggering panic, suggesting strategic positioning before a formal acknowledgment of gold’s role in the financial system.

Step 3: Centralization of FICC Trading: Flushing Out Leverage

A critical component of this transition is the planned centralization of all FICC (Fixed Income Clearing Corporation) trading by 2025-2026. The SEC will require “most market participants to centrally clear cash and repo U.S. Treasuries, imposing significant changes to market structure.” The game board is being reset.

Why Does This Matter?

The U.S. Treasury market is a second derivative of gold, meaning its value is ultimately tied to faith in the dollar, which in turn rests on confidence in gold and sound money.

The carry trade (T-Bill arbitrage) has become one of the most leveraged trades in history, with estimates of 150-300% leverage on second-order derivatives.

We’ve watched this movie before with the LIBOR fixing scandal that led to 2008.

In 2017 the Alternative Reference Rate Committee (ARRC) announced that lending markets would transition from LIBOR and Eurodollar to SOFR (in 2023). Even with six years of warning, when actual implementation went into effect we saw major liquidity disruptions, contributing to regional bank failures like Silicon Valley Bank, First Republic, and Signature Bank.

Yes, it’s true. SVB and First Republic made very basic bond 101 trading mistakes. Signature Bank was captured by Elizabeth Warren’s Chokepoint 2.0. The real point, changing the foundations of the system tends to cause major liquidity problems.

What Tends to Happen?

• Forced purging of leverage, much like the collapse of FTX, Celsius, and BlockFi in the crypto market.
• Major market disruptions, liquidity freezes or credit crunches similar to 2023.
• Forced selling and margin calls, wiping out hedge funds and institutions like 2008. The current bet is massive risk-free Treasury arbitrage trades—which are, in reality, “all risk and no free part”.

This is a necessary but painful process to clear bad leverage from the system before a sound money reset.

Step 4: Early Exiters Moving into Bitcoin: Is it a 1930s Gold Rush Replay?

During the Great Depression (1929-1933), those who saw the collapse coming moved their wealth abroad, into gold, or other hard assets. Those who didn’t, maintained debt and excessive spending right up until they were wiped out. After FDR confiscated gold in 1933 and revalued it in 1934, those who had already positioned themselves benefited massively.

Is the Same Happening with Bitcoin?

Worst case, Bitcoin is serving as the next central bank liquidity tool. Best case, Bitcoin is serving as the escape hatch; allowing early movers to front-run the financial system reset.

source: https://x.com/crossbordercap/status/1861814218971812298

Institutional Bitcoin adoption (BlackRock, Fidelity, MicroStrategy) has already begun, positioning themselves ahead of the shift into the maturity phase.

Bitcoin ETF Authorized Participants (APs) most likely will enable Bitcoin rehypothecation, because they are banks and that’s what they do. This will start a new leverage cycle from a clean basis (post-reset). The chairs will be returned and the music will start again.

Early movers will have preserved their wealth, while those who remain trapped in the old system risk being wiped out as it unwinds.

Step 5: An Unavoidable Market Collapse and the New Bretton Woods

What Happens Next?

A some point, the tough decisions will lead to a financial crisis that will pop the “everything bubble” we’ve pumped full of air. The Treasury market unwinds and leverage will be purged. After the carnage, the foundations will have been laid and the new global monetary system announced—a modern Bretton Woods 2.0. That’s just how the story always unfolds.

If the US does launch a Sovereign Wealth Fund it will likely include Bitcoin as part of the new reserve framework. A multi-reserve structure is likely, where nations hold gold, Bitcoin, and commodities as settlement assets, instead of relying solely on fiat. This will bring optionality and internet rails to money.

Final Thoughts: A Controlled Transition or a Chaotic Collapse?

History suggests that financial markets rarely unwind in an orderly fashion when leverage is this extreme, and we currently sit at the tip of a debt iceberg of historic proportions.

Key Risks to Watch:

• The Fed and Treasury losing control of the unwind, leading to chaotic deleveraging and rampant inflation.
• Foreign actors China, Russia, BRICS, and their positioning for a role in the new global order.
• Market participants panicking too early, creating a domino effect of collapses.

If the transition is executed successfully, it will stabilize the system, reset the monetary order, and prevent an outright collapse.

However, if panic takes over, at some point we would likely repeat a 1929 or 2008 but on a much larger scale. Debt will be the key. It’s in uncharted territories this time. Countries and individuals will find they are no different. The less debt you have the easier it will be to manage your way through the crisis that always comes.

Key Takeaways

The fiat and derivative system is mathematically unsustainable.
Trump/Bessent/DOGE (Elon) are positioning for a return to sound money.
Gold accumulation and market signals are the first signals.
FICC centralization could trigger a leverage purge when implemented in 2025-2026.
Bitcoin will serve as a liquidity tool or an escape valve for early movers.
A new Bretton Woods will emerge. Will it feature Bitcoin and gold?

The only question left is: Will this transition be controlled or chaotic? Because it is underway, whether we like it or not.

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We’ve seen this movie before. This version is the battle of digital gold over power regimes past their prime.

In the early 1900’s, specifically in the 1920s, Benjamin Strong orchestrated deals around the world to have leaders send their gold to the United States for “safe harbor” and to balance capital flows for the “safety” of the system. In hindsight, this power play put the US at the center of an emerging fiat currency-based monetary system. One was built on the backs of US industrial capitalists, financed through international political friendships, and by way of war; conflicts in capital markets, and hand-to-hand combat. This intelligent move placed the US at the helm of our global monetary system.

As the chess board tilted, tensions rose and global wars broke out.

Some countries stood in the shadows funding by proxy, while others shot from the trenches in hopes of preserving their political views of how future power structures should look. As the web of relationships untangled global capital flows, it reordered the holders of power and money strewn across the monopoly board. Countries made calls to the US to have their gold returned. To appease, Team Strong made many overseas visits and promises to ensure their gold was in safe hands. However, the US rarely returned the base capital asset, leaving others in a jam.

Upon Strong’s death, no one knew the inner workings of his plan. Nor did they have his deep global political persuasion and ties to carry it on any longer. Without Strong’s skill as a puppeteer, world financial markets and its political players found themselves in a precarious situation. Leading to the greatest ravaging experienced in some time. The Great Depression was an event unlike any other. Leaving no stone unturned as it traveled across the globe. Only to finally end in one great global war (WWII). The ending of 31 years of financial, economic, and military might, shuffled the decks and set the table for a new monetary regime guided by a Bretton Woods system of currency pegs. All money movements now hinged on gold stashed in vaults within US borders, while opposing the views and warnings of Triffin’s Dilemma.

As anger subdued and tensions came down, the fix was in. Realignment was in order so that Bretton Woods could provide all parties access to money once again. The monopoly board was set for another round of play. New leaders, deals, and tiers of countries to shape a new level of understanding as to how the game would be played. The ground rules established how a new currency system would work.

An old story this is, though it sounds all too familiar when relatinging it to our current state of international and monetary affairs. Once again, finding ourselves at a societal inflection point.

Caught Between the Throws of Money and A Few Men’s Greed.

Reflecting on our past highlights the critical importance of understanding the value of sound money assets. These assets are essential for advancing to a digital monetary system that powers our modern lives—a transition that requires time and a complete shift in thinking.

The Kings and pawns alike are seeking access to new rules and a new monetary base that will provide power and control for the next 100 years. Citizens watch over streams of media as major political players battle behind closed doors. From X (formerly Twitter), to Meta (formerly Facebook), Tiktok and Nostr, pitches are crafted for the open airwaves of the internet. Each side casts memes and propaganda across every news and social media network intending to shape the minds of the next generation of leaders. What’s the goal? Just the same as it was in the early 1900s, the intention is to corner the free market of money and power.

“A man generally has two reasons for doing a thing. One that sounds good, and a real one.”
– JP Morgan

Over the span of the last 20 years our battles have become increasingly cyber in nature. As a result of these conflicts, we’ve seen Bitcoin move like gold of the past. We’ve watched Bitcoin Hashrate migrate from China to the US, where exchanges like Coinbase, Gemini, and Kraken have been constructed to power the future of money, rates, lending and barter across the bits and bytes of our internet pipes.

The Fix for the Next Round of Global World Order Is Almost In.

Big banks, technocrates, Wall Street, and political clout are all jostling for their version of how the future should be told. The difficulty adjustment continues to ratchet as the momentum of our new market places shift.

The transition from guns and army’s to a world of bots and DDOS attacks took time to run its course.

What started with credit cards and advanced technology research projects at the Defense Advanced Research Projects Agency (DARPA) in 1958, led us to the internet, protocols, and partial means of transferring digital money by consensus. With the rise of information and consumer technology, we found ourselves in a digital ecosystem with limited access or control of our money. This new revolution in the digital age gave way to industrial ideals and promoted a shift to a more connected and intelligent world.

As foundations for a new digital financial system have been laid, global relationships were infiltrated as new players emerged. Shifting from ideals of our past monetary fathers, Benjamin Strong (US), Montagu Norman (England), Hjalmar Schacht (Germany), Emile Moreau (France) to new forms of intelligence guided by The Five Eyes (US, UK, Canada, Australia, New Zealand).

When we crossed the chasm of the 21st Century, powers shifted. E-commerce and social platforms steered the attention of business and consumers in such a way that new tools for psychological research were necessary to keep up. From this state of need, the Intelligence Advanced Research Projects Activity (IARPA – 2007) was born to pick up where DARPA left off.

As populations warmed to the ideas of digital scarcity; Bitcoin has risen. Playing the role of the fastest horse for sending sound money over our internet rails. With the momentum of the race shifting, nations are back to warring again. Leading to citizenry shouts of spooks and kooks against anyone attempting to triangulate their location and affiliation.

At this juncture the board is set for players to make their move. A few critical questions should be asked. The answers will dictate the freedoms or draconian measures that follow.

• What Bitcoiner is playing the role of Ben Strong?
• What Bitcoin influencers are Norman, Schacht, and Moreau?
• Has the Digital Bretton Woods conference taken place? If not, then when and what parties will be invited to attend?

These are the private keys that will decide our future. The future of money, power, and control.

New terms and players will dictate the price of properties, utilities, and digital rails that will be traded so we can all transact in a civilized manner. This is a new story with new faces, technologies, and tools. However, it is the same story of money that spans across human history. One that repeats in unison with the 4th Turnings that dictate our times.

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As human civilization has evolved, one thing has remained constant; change.

During major shifts, the root desire for change is typically ignored. I believe that these generational shifts, our societal shifts, are tied to a mismatch in the speed with which people and money need to move. Let’s take a moment to look at our major revolutions.

• Agrarian Revolution: a move from hunter-gatherer to farmers.

  

• Industrial Revolution: a move from farmers to factory workers.

  

• Digital Revolution: a move from assembly lines to skilled/knowledge workers.

  

Each of these waves caused a drastic shift in how society operated. They disrupted every industry and old line of thinking. These periods experienced major shifts in lifestyle, access, and money.

Each major revolution was propelled by our ability to harness new technologies and resources. In turn, allowing us to apply and realize the potential of mathematical principles that had been understood, but not fully utilized, in previous eras. For example, the Industrial Revolution leveraged Newton’s laws of motion to develop machinery that transformed production processes. Calculations, known for decades and centuries, became the powering force behind modern tools.

When we apply known calculations to new tools and technologies we typically see an unlocking of Gross Domestic Product (GDP) or “value” in a way never experienced before.

During each revolution, GDP trajectory seems unsustainable in the moment. Having a trajectory that resembles the path of a rocket ship. However, as time passes and we have the ability to zoom out, we find that the distant past looks much more normalized. Over long periods the chaos of the moment smooths, providing the continuous up and to the right movement for our economic systems.

As we enter into the revolution of money, we should expect a surge similar to the impact of the internet in the 1990s.

For instance, the adoption of e-commerce, enabled by the internet, contributed to a substantial increase in GDP, with online retail sales in the U.S. growing from $27.6 billion in 2000 to $1.1 trillion in 2023.

Integration of digital currencies into the global economy is expected to reform banking and create new industries, reduce transaction costs, and open up previously inaccessible markets. This shift can be seen in dashboard data from Coinmetrics.io which shows the Stablecoin market having grown from roughly $0 prior to 2019 to about $160B+ today. Thus, Bitcoin and protocol innovations should continue to be big drivers of innovation for our next major wave of growth.

How Does This Relate to Today?

Much of the math that drove the industrial revolution was understood in 17th Century. In 1687, Isaac Newton published “The Principia“, laying the foundation for the laws of motion and gravitation. His work provided a mathematical framework for understanding force and motion in a way that led to the creation of mechanical systems which powered the industrial revolution of the 1800s.

Much of the math that drove probability theory and our understanding of the distribution of outcomes (Pareto’s Principle) was derived between 1500 and the late 1800s. The work of math mathematicians Gerolamo Cardano, Blaise Pascal, Christiaan Huygens, and Vilfredo Pareto powered much of our understanding and calculation of business margins in the 20th century. One could argue the genius of their work was not fully appreciated until post-1950 and again post-1980. A time when the American middle class was built. When sales and consumerism became the primary goal.

Much of the math that powers our digital and telecom networks was formulated between the mid-1800s and mid-1900s by mathematicians like George Boole, Harry Nyquist, Claude Shannon (the godfather of AI), Ralph Hartley, Alan Turing, and John von Neumann. Their foundational works were later expanded on by Paul Baran, Donald Davies, Richard Hamming, Vint Cerf, Bob Kahn, and Robert Metcalfe. These pioneers stood on the shoulders of giants before them and integrated our understanding of information (bits and bytes) with global business, enabling the digitization of industries and business models between 1970 and the early 2000s.

While probability theory served us well in the analog and early digital eras, the complexities of today’s networked world demand a more sophisticated approach. This is where Information Theory offers a framework that can support exponential growth and the interconnectedness of our modern economy.

Previously, Information Theory was not widely understood, nor were the resources and compute power available to make it work at scale. Its math, formulated in the early to mid-1950s, gave us what we know today as Artificial Intelligence (AI), noded networks, social graphs, and graph-based database technologies.

Why is this Important?

Each revolutionary moment brought major change to the world, creating a new state. During these major shifts, we often see confluence of human understanding of past fundamental laws (math), availability of resources (technology), and the ability to serve human needs (money/value). In short, today’s shift is because of a broader understanding of math derived by Claude Shannon, power laws, and the availability of new age chipsets and compute resources.

Today, we are transitioning from a digital/analog world, where systems operate independently or in linear sequences, to a ‘networked world’ where everything is interconnected through complex, node-based systems. In this new paradigm, relationships—both social and economic—are managed through decentralized networks, much like the structure of the internet.

However, our base money still operates off of probablistic principles rather than exponential laws. As our economic system evolves, it’s clear that traditional forms of money are not a good fit. Given the limitations of speed, scalability, and adaptability of fiat currency it makes sense that we commonly refer to our money as broken. Paper money no longer meets the need of our increasingly digital and interconnected world. We need to transition to a new form of currency that can grow and adapt at the pace of technological advancements. There is a critical need to shift from traditional monetary systems, which grow linearly or incrementally, to one that operates in an exponential nature. One we can refer to as ‘exponential money’—a form of currency that grows and scales at a much faster rate due to its integration with digital networks and information theory.

We are transitioning from relying primarily on probability theory—which deals with predicting the likelihood of different outcomes—to leveraging information theory, which focuses on quantifying, transmitting, reducing noise in communication and processing information. Particularly in complex and interconnected digital systems.

During the digital era from 1980 to 2009, probability theory played a central role in business and decision-making, as it was well-suited for predicting and optimizing likely outcomes in a relatively stable, linear environment. Businesses relied on algebraic models to maximize profit margins and manage risks based on historical data and statistical analysis. With money that’s lightly integrated into the system and conditioned to handle probabilities this works. However, in the cloud era our lifestyles became integrated and the connectivity to our money fell behind in it’s ability to compute.

Post 2000 as the world shifted to exponential systems that were increasingly connected, the money no longer moved at the pace of human need. More importantly the heart of the modern economic system shited from oil to Data. “Data is the new oil”, or rather, information is the new oil and money is information.

As digital data became integral to our economy, the limitations of traditional currencies, which were not designed for rapid scalability, became increasingly clear. The introduction of Bitcoin in 2009 provides a solution to this problem. By utilizing principles of Information Theory and Power Laws we have a currency that can scale for the digital age. For instance, Bitcoin’s decentralized network relies on the exponential increase in network participants, as described by Metcalfe’s Law, which helps explain its growing value and adoption. This is evident in Bitcoin’s market capitalization growth, which surged from nearly zero in 2009 to over $1 trillion in 2024, reflecting the currency’s ability to scale alongside the digital economy.

Prior to now, these scaling behaviors and distributions were only common in nature, viruses, physics, and network theory. Though this type of scaling was also common in economic theory, it was foreign to our money.

Money Powered By Networks

Moving forward, all our people, business, and money will operate off the same math that powers our networks. As AI and Bitcoin become integral to our financial systems, we can expect a dramatic increase in economic growth and efficiency, similar to the productivity gains seen during previous technological revolutions. Bitcoin and stablecoins’ ability to facilitate near-instantaneous cross-border transactions at lower costs than traditional financial systems offers a glimpse into the future of more efficient global trade. A 2020 report by PwC estimates that AI alone could contribute up to $15.7 trillion to the global economy by 2030, demonstrating the potential scale of these technologies.

This is the crux of the chaos and geopolitical battle we see. Multiple parties are jocking for power and control of the joystick of the new world order. Log of time and price will bring forth another revolution. A revolution of money.

For us to progress as economies and to unlock the full GDP value of the future, we will need money that operates at its core on mathematics that is conducive with principles rooted in network theory. Dollars, fiat money in general, cannot by nature of the math basis do this. Bitcoin and cryptocurrencies, which operate at their core using digital information (bits and bytes), are built on the principles of Information Theory.

With the internet, in the 1980s, we broke the barrier to information. Exploding the world with new growth and business opportunities. As we enter into the revolution of money. We will do the same. As we break the barrier to money, with these technologies, we will witness another explosive round of growth and business opportunities that will power the next wave of GDP. For the first time, we will see value, information, and energy integrated seamlessly within our networked systems, creating the conditions for rapid economic expansion. A precedent for this can be seen in the rapid adoption of the internet, which led to the dot-com boom in the late 1990s and early 2000s. Companies like Amazon and Google, which harnessed the power of digital networks, grew exponentially and reshaped entire industries. Similarly, the combination of blockchain technology and AI is expected to unlock new levels of economic productivity by enabling secure, real-time data exchanges and automated decision-making across global markets.

Our relationships are now deeply interconnected, both socially and financially. Yet, our monetary systems still rely on outdated probabilistic principles and human subjectivity rather than embracing the exponential laws that drive modern communication technology. It’s time to transition from a flawed, morally bankrupt currency to a new form of ‘exponential money’—one rooted in the same mathematical principles that govern nature.

As we stand on the brink of another revolution, it’s clear we must move beyond the limits of probability theory to something far more profound.

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Bitcoin 2024: Reflections on the conference.

By Kane KcGukin via The Mesh Point

For the past few years, after every Bitcoin Conference, I take time to reflect on my learnings and observations. What did I see, and what does it mean for Bitcoin’s future and the broader financial system?

Unfortunately, this year, Bitcoin’s main event was hijacked by politicians.

Their presence was so pervasive it degraded the ability to float freely, meet people, and learn from the vast set of stages talking about all things Bitcoin. On the one hand, it’s not exactly a surprise that political interests are laser focused on Bitcoin. On the other hand, it’s difficult to witness Bitcoin being used as a pandering tool.

As with any setback, we must ask ourselves. What is the opportunity? Where is the signal amongst the noise?

Bitcoin Is Much More Than “Number Go Up”

In all honesty, the “number go up” narrative is one of the most fiat-brained ideas in Bitcoin. That doesn’t mean the show can’t go on. The conference this year proved Bitcoin will outlast longer any naysaying from TradFi skeptics.

Bill Mill IV summed them up nicely: “Most people work for somebody else… even if you believe in Bitcoin and you buy on behalf of somebody else, or one of your bosses doesn’t like it. You’re done. You’re head’s chopped off. Whereas, if it goes right, and somebody that you work for didn’t like it; you get a begrudging pat on the back. So, everything comes down to incentives.”

So, why is there such confidence in Bitcoin? Because of three things:

1. The Nakamoto Stage opening presentation.
2. The focus on Bitcoin as a solution to our energy infrastructure problem.
3. Edward Snowden, 4th Turnings, and the power of paradigm shifts

Mastering Strategic Thinking

To kick off the conference, on the Nakamoto main stage, was Sophie von Laer’s talk: Mastering Strategic Thinking & Leading Bitcoin Companies Effectively.

What stood out most was it felt like a subtle psychological prep for what is to come and what types of individuals will be recruited to lead the charge. The talk felt like a high-level intelligence briefing, with its nuanced linguistic framing and psychological messaging. While I can’t say for certain if this was intentional, the theme became increasingly apparent over the next few hours and days.

There was a heavy government influence throughout Bitcoin 2024. Whether it be Trump, one of the numerous politicians, or Edward Snowden it was made clear that Bitcoin’s network would be a pivotal tool for decades to come.

Sophie’s descriptions of a Strategic Maverick, the strategic mindset, new paradigms, and the necessity of disconnection to achieve connection, felt very foretelling of what will be required for the chaos we’re living through (see 4th Turning).

Her thoughts on how we program and condition leaders seemed to outline an expectation for Bitcoiners who will inevitably partner with political forces as they bare down.

The framing around “thinking about not just your own needs but the needs of those around you” sounded much more moral, principled, and unifying than the divisiveness of our current DEI handbook.

• Strategic Plan = continuous improvement and evolution
• Strategic Alliance = it takes a village, a tribe
  • “Knowing the intersection of the things going on around you.”
• Adaptive Resilience = manage change effectively
  • “Culture that fosters the change that is going on.”
• Positive Psychology = focus on the things you do well in life.
  • A culture that thinks together becomes more coherent. We’ve got a lot of work to do based on where we stand today.

Strategic Maverick’s understand Adaptive Resilience: “The period of rest after change allows you to become the thing you want. Someone truly becomes adaptive in this time.” A framing, or warning? It seemed fitting for Bitcoin and Bitcoiners alike, amid this paradigm shift.

Bitcoin: an Energy Infrastructure Solution

Beyond politics, Bitcoin’s role in revamping the US energy infrastructure was a major focus of the conference. The recurring theme was that we are still early in this new paradigm.

Tennessee Senator Bill Hagerty made a great point in his talk when he highlighted that post-WWII was about expanding people, goods, and energy use in the US. To continue to support all that growth, we need more energy efficiency. And, caught in the middle of all the economic growth and the increasing energy demand is our money.

Bitcoin miners provide solutions to both monetary and energy challenges. They help balance energy use and, more importantly, generate revenue for utility companies by purchasing excess energy that would otherwise be wasted. As Harry Sudock succinctly put it, “Revenue cures everything.”

What better way to solve an energy issue than with machines that can switch on and off, easily balancing our stressed grid?

These machines provide revenue during periods that would otherwise be unprofitable. Additionally, they offer the flexibility to shut down during peak energy consumption, preventing the drain on scarce power.

Our modern economy relies heavily on advanced technologies. As we move forward, we’ll require significant updates and optimizations to our energy infrastructure, networks, and server farms. Each of these technologies has an exponential energy component. Bitcoin is the only solution that computes both money and energy in exponential form.

Edward Snowden: “Cast a Vote, Don’t Join a Cult”

Snowden’s greatest point was dousing cold water on the political parade. He attempted to bring us back down to earth a bit by offering several reminders that neither political party is as much your friend, as they are just out to get Bitcoiners to love them. Citing past behaviors, he urged us to remain caustious with this quote:

“for in every country of the world, I believe, the avarice and injustice of princes and sovereign states, abusing the confidence of their subjects, have by degrees diminished the real quantity of metal, which had been originally contained in their coins.” -Adam Smith

Edward reminded us that technologies have historically been designed to benefit “them”, organizations and politicians. This perspective makes it easier to envision a future where privacy diminishes as quickly as we can now connect, considering the six degrees of separation.

He touched briefly on the moral dilemma we face. Reminding us that our internal system feels broken, because of our broken money. With political interference, we may have started a new version of the same game, but with new rules. In this game, we should all be prepared to make difficult decisions.

Among many enlightening quotes Snowden made, I thought these two are worth remembering:

“We are competing constantly and cooperating rarely. We need to change that.”

“The internet is broken because the institution is competing against the individual, and the individual against another individual.”

Peter Theil made reference to the idea behind the first quote in his book Zero to One, and the second quote offered powerful insights to the situation we’re watching unfold.

Tying it All Together

The message was clear throughout Bitcoin 2024 we are headed for a paradigm shift on the other side of this 4th turning, and the Bitcoin tribe is believed to have the leaders that will shape the culture of our future.

Bitcoin is now mainstream. It’s still early in the adoption phase, but the Bitcoin network will be a crucial tool for our future.

How that future is shaped, and Bitcoin’s role in our financial system, will depend on which side of the aisle gains control and how they choose to use it. Will it be an asset and means to rebuild our aging energy infrastructure or is it just another monitoring device? Only time will tell.

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By Kane KcGukin via The Mesh Point

When it came to finance, they were the smartest guys in the room. Two Nobel laureates, one-half of the “Black Scholes” options pricing equation, and leverage.

When the carnage of LTCM stopped it was understood that it was not a case of genius men wielding math models but rather an abuse of leverage. They were levered 30-1.

LTCM made big bets on pricing discrepancies. Arbitraging stocks, bonds, currencies, and derivatives with the expectation that prices would eventually converge.

Until… They were wrong.

When the unexpected happens markets suddenly find the smartest guys in the room are mere mortals, not God’s. Declining market opportunities expose that these capitalists have no special powers. Only special agreements allow them to ignore conventional risk-taking rules.

Their addiction to risky bets is the driver behind extreme levels of leverage.

With the collapse of LTCM, it looked like a single hedge fund was going down the tubes and about to pull the entire global financial system along with it.

Is the Same Scenario Playing Out Today?

Are we seeing the same infatuations with leverage and discrepancies in a much more important space – the US Treasury market?

Is leverage and arbitrage the reason why the yield curve has remained inverted for one of the longest periods in history?

Or, is it possibly why we’ve avoided a recession for several years while almost every traditional signal has pointed to one?

Even the FEDs on data is being ignored.

Don’t get me wrong, this is not a recession post. It’s a post about the amount of leverage building up in a crowded but “safe” trade.

The problem with over-abuse of the leverage in the UST “basis trade” has been clear for years. However, it wasn’t until around 2015-2018 that we began to see it break with some level of frequency. The appearance of the trade working has more to do with growing FED programs like QE, QT, and BTFP, more so than the genius of prodigy traders.

At this point, credit facilities and backstops are more than expected. They are required. But, what if something “suddenly” changes? …

I have no level of “expertise” here though it is a clear and visible problem based on an abnormally large number of wild swings in Fixed Income markets over the past couple of years.

Reading a passage from Fortune’s Formula hints at the real issue. We are seeing an infatuation with taking on irrational risk. Assuming it’s risk-free and ignoring the immense amount of leverage required to make it all work.

Should we be okay with the pervasiveness of the “basis trade” because it is under watch by the “smartest guys in the room”?

Guys who appear smart but add a lot of complexity, arbitrage, and leverage to make minuscule profits look enticing. They are the ones working to keep things “stable”.

Is this “basis trade” or “arb” not the same as the ones we’ve seen blow up time and again? Is it back in the Treasury market?

Trades like this can go on for a while. It sounds good, and then the music stops. Once an “unexpected” event causes an entity to close a trade too early or causes a fail to deliver. That’s when a tidal wave of dominos ripples through the financial system and economy. Just ask Silicon Valley Bank.

Leverage + Excessive Treasury Issuance = Manipulated profits.

Pulling back the wool, makes it look like a pool of pricing discrepancies has likely allowed the yield curve to stay inverted for an abnormally long period.

Is There a Repeat of the LTCM Trade but This Time in US Treasuries?

Two of the largest players in the market – Citadel and Jane Street facilitate much of the discrepancies in hedge fund trades across the curve. Together they control an abnormally large portion of many of our markets as noted in Credit Bubble Bulletin.

How does the UST “basis trade” look like LTCM?

Currently, the FED is issuing a massive amount of short-dated paper. The market shorts it, buys the long end, for an extremely small gain. A gain that only appears profitable because of an irrational amount of leverage. All to make a “normal” annualized profit. Leverage that has been speculated to be in the 300%+ range!!

When The Unexpected Leads to Too Big to Fail

In reality, when something “unexpected” happens, these levered trades create pockets of destabilization, or systemic risk in our theorized “safest asset”.

“Moral hazard is today a greater issue than ever. The likes of Citadel and Jane Street have become too big to fail – and they operate as such. And to see them (and their use of leverage) expand so aggressively corroborates the “Terminal Phase” excess and speculative “melt-up” theses.” ~ Credit Bubble Bulletin, May 10th, 2024

One can only connect the dots for the growth of this trade. As people have been replaced by computers and “reduction in force” the players doing this basis trade have moved beyond just hedge funds and shadow banks. So, many small funds with billions of dollars seem to be placing the same low return, levered trade in the “safest security”.

Why? To offer bigger returns. But do they all understand the game they are playing?

Are they just another set of geniuses in the room supported by highly competitive and profit-first entities that will provide a line of credit to settle the trade without regard for where the underlying security lies?

Much like the GameStop saga… where “professionals” play a gamma squeeze game with little understanding of the signal provided by the Greeks underneath. Trades can get out of hand quickly. Causing entities to fold or requiring outside capital infusions. Creating a scenario where the rules must be changed to stop bleeding across the system of preferred players.

Many of these smaller funds and banks (SIVB types) don’t have the expertise, but are just copycatting a “trade that works.”… until… it doesn’t. Until the “unexpected”.

As we all know, every crowded trade stops working at the most critical juncture. When the last buyer buys, or the last seller sells. Just ask Sam Bankman-Fried (Jane Street Alum) and FTX.

Is the general fund market now shorting the short-end with (extreme) leverage? Is this pushing short-term yields much higher as the Treasury tries to combat by issuing more in the 2-5yr space where the buying is lower due to our geopolitical and financial backdrop?

Have we created an inversion that can’t un-invert because a large swath of the market is drunk off < 30bips that’s levered several hundred percent?

Will new FICC trading rules cause these trades to come apart at the seams?

Is the “unexpected”, a change in clearing rules that will centralize FICC trading which comes into play at the end of 2025 and into 2026?

Will rules that centralize clearing force many levered trades to be unwound?

Will it expose weak hands as players are forced to shift to meet new regulations?

Are we watching another case of the “sophisticated crowd” causing an irrational market bubble?

So far, all major bubbles have been created by the “smartest guys in the room”, not the dumbest. Not “Joe Six Pack”.

Those smart guys are the ones who repeatedly ignore the known risk to appease their internal desire for gambling and have historically been the ones causing problems for the entire global financial system.

In 2018/19, we saw the same issue causing Repo spikes and failures.

We saw the ramifications this past July/Oct when Bill Ackman was publicly, and in my opinion openly “talking his book” to enter and create exit liquidity for his trade.

In crypto, this is called a “rug pull” or “exit scam”.

Additionally, the August timeframe has become known as the period in which roughly all the players in this trade make adjustments. (see Jeff Snider’s work). Per Jeff, in this timeframe and in the Eurodollar curve, you see abnormal market moves in a historically low-volatility security.

These points and those below paint the picture of how big and out of hand the UST basis trade might be.

Are these moves just more deckchair shuffling among struggling players?

A couple of quick searches:

Amounts of leverage typically used in this market:

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By Kane McGukin at The Mesh Point

Money is unique. Its properties are what give it value in comparison to other choices. Money is generally hard to replicate and lasts for long periods, thus making it a great value store.

Currency on the other hand is none of these things.

Currency’s value is its seamless ability to transact quickly. Making it an instrument that declines in value. Spend it now for excitement, or feel the pains of disappointment in the future.

Currency, like age, brings about great decline. Ever so rapidly as the years go by. Slowly degrading at first, and then exponentially in the latter stages.

Unlike money, currency does not store value, but rather, erodes it. However, currency does provide financial engineers the illusion of providing value and stability. It provides the ability to wave a magic wand and act with sleight of hand.

In a world filled with broken money. With currency abound. With the world’s population up in arms over not having enough money that stores value; it’s surprising to see how quickly we are willing to shift from a solution like Bitcoin. To then go and charge after trying to create another mechanically broken currency on top of a store of value asset. The process taking place brings back memories of how dollars were built on the back of gold.

I guess that’s human nature and the story that’s repeatedly told on the timeline of money.

Innovation for innovation’s sake???

Money is Faith and Faith is Money

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The world operates off a basic set of Laws and Principles. You may have heard these more commonly described as “first principles”.

Here’s a short thread on why The Law of Money is always the same.

… pic.twitter.com/I9O3FljFJK

— BitKane (@kanemcgukin) March 27, 2024

Few laws dictate how we operate and those laws apply regardless of what century we live in. Those laws are bound by faith.

The predictability of these laws is what gives us faith. The predictability of true money, rather than the chaos of currency, is what gives us faith in storing value.

The interesting thing is money and wealth are no different, rooted in the same laws of faith. Thus, there are few monies… few things we can all agree to give faith to and store value in over time.

Fire for the caveman > art, gold & jewelry > real estate and coins in the middle ages > energy > and now digital assets like Bitcoin.

True stores of value are immutable.

They are assets that transend time. So, if we take this approach and realize that few things create our stores of value, then what are the seven ventures (ECC 11:2-6) we have to choose from?

Why Market Cap Matters

Market cap has always been a misnomer for me. It doesn’t matter at the individual level. It doesn’t tell you anything. It is just shares outstanding x price. What I mean by this is the market cap of a stock is not a signal. It only tells you the size of one company relative to another.

However, it’s different when you talk about asset classes, industries, or big pools of assets. Why?

Because there are relatively few places we can store value. So, if you view the size of one asset class relative to another you can begin to derive value from it. You begin to see what the 8,100,000,000 people of the world find valuable.

You begin to understand where people place their faith. You can see what people deem as money → what we consider value stores. In other words, you can see the seven ventures that we prefer to invest in. Storing value means that you decide at some point to trade some of that value for something you desire more. It doesn’t mean that you hold it forever.

We all hold a mix of assets that store value and we choose to liquidate those at varying degrees depending upon which best solves our moment of need. Naturally, some are more liquid than others and some have larger tradeoffs than others.

Here’s a quick rundown of current asset classes that dominate our markets. I’ve pulled these from the internet so they may not be 100% accurate, but they’re close enough to get the job done. Note that Global Fiat and Broad Money likely have a lot of overlap as these two markets are not easily agreed upon or transparent enough to compute.

What’s important here? These are the primary places people all over the world store value. There are roughly 13 asset classes. Maybe you can add another 1 or 2, but this paints the picture as to why asset classes matter.

Additionally, if we consider cryptocurrency in general, as opposed to just Bitcoin, the market cap is over $2T. However, most of crypto is vaporware or currency-based. Remember the value of currency is it’s cost of production which trends toward $0. So, in terms of “money”, I put more weight on actual stores of value here.

As discussed, currency does not store value, though it does allow quick, easy, and seamless value transfer.

Given this, we should mentally remove “global fiat” and “broad money”. These are included because of the sheer size and to show where bitcoin/crypto could realistically get to as we re-write the financial system because our monetary plumbing is out of date. The construction taking place will ensure that our financial pipes work better for the people of the 21st Century → the digital nomad!

If I’m making prognostications, my base case over the next 10-30 years is that Stablecoins become more dominant than treasuries while offering better currency characteristics than “Global Fiat and Broad Money”. Crypto will also play in the currency space much like credit cards do now, and Bitcoin will continue to play the role of gold in the digital arena. Though it offers optionality and programmability. Because of this, Bitcoin likely eats into real estate as well and bitcoin mining into the “power” arena.

These are reasons why market cap of the asset classes are much more important than market cap of a single stock. Because they give us a trajectory for Bitcoin’s value as it eats into portions of these assets (stores of value).

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The importance of this image conveys the importance of #Bitcoin to the energy grid.

It’s basically a history of hydropower w/ solar, wind & gas connections. All the big player names and how they integrated over time. pic.twitter.com/iHC7mX3py3

— BitKane (@kanemcgukin) April 2, 2024

Future Value and Market Cap

I’m not a big fan of if we just get 1% of total addressable market (TAM) projections, but this is the easiest way to project out Bitcoin’s value as it consumes some of the other primary asset classes we store value in. This also allows us to avoid some of the FOMO. Taking down asset classes takes time, it doesn’t happen by next Wednesday.

Realistically, in my opinion, Bitcoin likely eats into equities, bonds, gold, and potentially smaller portions of treasuries, commodities and broad money. Maybe some real estate too. In fairness, you can’t eat your Bitcoin. You can’t sleep in your Bitcoin and you can’t wear it. So, some of the most basic asset classes, those of living utility, will likely always carry more value.

When you start to look at Bitcoin in terms of Market Cap you can easily come up with future price projections by taking Market Cap / 21,000,000. And, if you’d like to get more aggressive then you can divide by 14 – 15,000,000, as roughly 4 to 5 million have been lost. The remaining 1,000,000 will be distributed over the next 116 years or so.

When looking at Bitcoin this way, you can see that its value per coin can easily range from several hundred thousand to several million per coin. But, and it’s a big but, we have to determine how much of the total pie Bitcoin will consume. And that will take time. That is why the 4-year cycles of Bitcoin are so important. They keep us interested and in-check.

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