WBD512 Audio Transcription
The Fed, Inflation and Bitcoin with Steven McClurg
Release date: Friday 10th June
Note: the following is a transcription of my interview with Steven McClurg. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
Steven McClurg is a Co-Founder of Valkyrie Investments. In this interview, we discuss how Steven called Bitcoin’s top, watching the Fed for policy indications, protecting wealth against high inflation, how governments should fight inflation, supply chain issues, and inflation hedges.
“You watch the Fed very carefully: you analyse every word; you try to see where interest rates are going; you try to see what the Fed’s doing. There’s an old adage, don’t fight the Fed.”
— Steven McClurg
Interview Transcription
Peter McCormack: How are you doing, Steve?
Steven McClurg: I’m fantastic, how are you?
Peter McCormack: Yeah, not bad, not bad. Okay, so last time I saw you in Nashville, we sat down, we had a conversation and you said to me, "Yeah, Pete, the top of the market's going to be about October", and actually I think it was 9 November. So, you pretty much called the top.
Steven McClurg: Yeah, 9 November was my birthday, so I was trying to get it in a little bit before that.
Peter McCormack: I didn't listen to your advice! 9 November's your birthday?
Steven McClurg: It is.
Peter McCormack: I'll tell you a story about 9 November after this. I completely didn't listen to you and I held through it, and I'm still holding. I should have listened to everything you said. What did you know that we didn't know? That was Voodoo, man.
Steven McClurg: No, it's not really Voodoo; it's called watching the Fed. I came from the world of fixed income and you watch the Fed very carefully, analyse every word, you try to see where interest rates are going, you try to see what the Fed's doing. There's an old adage, "Don't fight the Fed" and I was watching rumblings. First of all, this summer there was inflation and the Fed was saying, "Oh no, it's transitory".
Peter McCormack: Yeah.
Steven McClurg: The Biden administration were saying, "Oh, it's transitory". Well, it wasn't transitory and we all knew it; we saw prices going up and they continued to go up obviously. So, around September, October, we really started watching the Fed change their tune. I watched what Chairman Powell was saying, watched what the rest of the Fed were saying and they were starting to believe that inflation was setting in, even though publicly they were dismissing it. So, I assumed that the Fed would begin to start unwinding its balance sheet and possibly start raising rates as soon as inflation got bad enough.
October is about the time that the Fed announced that they were going to slow down the purchases on its balance sheet. Any time that happens, markets are going to start dropping, all markets. So, yeah, October, November about the same, but really what happened was all markets from October really peaked; NASDAQ, S&P, the bond market, crypto, all of it. Bitcoin peaked in November. Bitcoin also doesn't track the rest of risk markets exactly; it still tracks it right now. But that's really the event that happened; I was just watching the Fed and I'm still watching the Fed. I don't think that any risk assets are going to go back up; they're going to continue to grind down util the Fed changes its tune.
Peter McCormack: A lot of people were calling for $100,000 Bitcoin, $200,000 Bitcoin and I ignored my friend Steve. I was like, "No, come on, Steve, we're clearly going to shoot over $100,000" and I think obviously a lot of us are naïve; I'm not somebody who's worked in the markets. This is your career; you've done this for a long time and I wouldn't even have known that what happens in the Fed influences the Bitcoin market or the Bitcoin price. It just didn't cross my mind; I thought we just had this weird independent market. We go to the moon, we forget about all that, but we're obviously intrinsically linked to the rest of the economy and what happens.
Steven McClurg: That's right.
Peter McCormack: I want to ask you about that. You say unwinding the balance sheet, but then you said slow down asset purchase. Are they still increasing the size of the balance sheet but at a slowing rate or are they actually unwinding the balance sheet?
Steven McClurg: Yeah, you pointed it out, they are two different things. What happened, starting last year, was the Fed slowed down its purchases; they were on a clip to purchase a certain amount of assets every month. They began slowing it down and by the time March hit, they weren't adding anymore. Then starting in April, they started unwinding it. So, the unwind started happening in April and then of course we got a rate hike in April that a lot of people really didn't expect. So, rate hikes plus unwinding the balance sheet is basically taking liquidity out of the system. That liquidity is what people have used to make investments and risk assets.
Peter McCormack: When they're buying assets, what exactly are they buying?
Steven McClurg: Mostly they're buying US Treasuries; so the US Government is issuing Treasuries, they're issuing debt to pay for things. Then the Fed is buying those Treasuries from the US Government by essentially printing money. They're just printing money to buy their own debt, lend to themselves.
Peter McCormack: Why don't they just issue less Treasuries?
Steven McClurg: Then the government couldn't pay for things. The government has certain things it has to pay for: roads, infrastructure, military, weapons to Ukraine, art. There's all kinds of things that it pays for.
Peter McCormack: Art?
Steven McClurg: I say art because there's a lot of federal grants that pays for art. Most of them are what we call pork barrel spending. Some senator or congressman will say, "Hey yeah, I want an art museum in my district", and it might be funded by the federal government or there might be some museum; there's a lot of different things that are funded.
Peter McCormack: Is that the horse-trading, so when they want to get a bill through someone is, "Well, if you want me to sign it, I want a museum here"?
Steven McClurg: Yeah, "I want a museum, I want a military base, I want a freeway named after me", and that's why we have Senator So-and-So Freeway; there's a lot of things the federal government pays for.
Peter McCormack: Essentially, they're just issuing a loan to themselves?
Steven McClurg: That's exactly what they're doing.
Peter McCormack: In terms of unwinding, is that essentially paying it off?
Steven McClurg: Sort of. What they're doing essentially is, bonds mature and as those bonds mature, they just don't buy them back or eventually what they might do is sell off those bonds. Right now, all they're doing is as they're maturing, they're just not buying back as much as they have on the balance sheet; they're just rolling it off. It's what we call rolling down the curve.
Peter McCormack: Right, so anyone who's a Bitcoin investor, bitcoiner interested in this, they should be really paying attention to the Fed now?
Steven McClurg: I think they always should have been paying attention to the Fed! We had crypto winter back in 2018 and about the same time, there was movement in the Fed and it prolonged crypto winter. All risk assets stayed flat or went down and then they changed their tune and started going back up. Then you had COVID, then oil prices dropped and then the Fed stepped in again and then oil prices went up again. It's a cycle that's been happening since the Fed's existed.
The difference is in, Bitcoin has only been around since 2010, in all practical terms. We've been in a bull market, a cyclical bull market ever since Bitcoin's been around. So, we haven't really seen the effects of a recession, nor have we really seen the effects of Fed tightening, real Fed tightening like we're seeing today. The last time that we had real Fed tightening was in 2007.
Peter McCormack: Right, okay, interesting.
Steven McClurg: Yeah.
Peter McCormack: And that was what launched Bitcoin?
Steven McClurg: Yeah!
Peter McCormack: Okay, right. For somebody like me or somebody listening who doesn't do this all day every day, are there simple rules that you can follow in terms of trying to understand certain decisions the Fed will be making and, "Okay, that's kind of bullish" or certain things that are kind of bearish?
Steven McClurg: Yeah, really when you start seeing the Fed change their way of speak -- I'm not that smart of a guy, I've just got a degree in English.
Peter McCormack: Come on.
Steven McClurg: I use rhetorical theory to tear things apart. I've got other degrees too, but my main one's in English.
Peter McCormack: How many degrees have you got?
Steven McClurg: I've got an MBA in Economics and I've got a Master of Science and then a Bachelor's in English.
Peter McCormack: You've got nearly as many degrees as Craig Wright.
Steven McClurg: Almost.
Peter McCormack: Can you bring them in on a wheelbarrow?
Steven McClurg: I was the founder of Bitcoin!
Peter McCormack: Let's not go there. Danny will start giving me dirty eyes! You say you watch their language, though. Does it feel like if they're starting to tighten things, therefore they're trying to take money out of the economy, there's less stimulus and therefore it will be less bullish for Bitcoin; but at a time when they're putting money into the market, trying to stimulate the economy?
Steven McClurg: I'll give a few examples and these are real good tangible examples. Back in 2008, it looked like everything was completely melting. The world was falling apart, banks were going out of business, big banks, Bear Sterns fell. The Fed did slowly start to lower rates but it didn't really do anything; the economy was still falling apart. It wasn't until February 2009 that Ben Bernanke made his famous helicopter money speech.
At that point, the markets realised that the Fed was going to do whatever it took to support the economy; they were going to put unlimited amounts of money, if that's what it took; they were going to open up the Fed window, which means they were just going to lend to anybody that needed it, at very low rates, and banks could essentially recapitalise themselves. When the markets saw that and when he made that speech, the markets turned on a dime. That's when everything started charging forward.
The same thing this last year. I just mentioned the rhetoric was, "Inflation is transitory". When there started to be questions about the transitory nature of inflation, that's when we knew that the Fed was gearing up to get ready to do something about it, because they do have a mandate to slow down inflation. When inflation got to the levels that it did, north of 8% in the US, north of 9% in the UK, they've got their own problems.
Peter McCormack: Quoted.
Steven McClurg: Quoted.
Peter McCormack: Not real.
Steven McClurg: Yeah. By the way, real inflation is like 20%.
Peter McCormack: I know.
Steven McClurg: Have you filled up your gas, your car lately?
Peter McCormack: I put out a tweet this morning, "Record prices on the forecourt, £1.78 in the UK". I think one person reported one place was £1.92 for diesel and that's per litre. I worked out the gallon price; so it's $10.15 a gallon but they think it's going to hit £2 and it's going to hit over $11.30 a gallon they think very, very soon.
Steven McClurg: You're down in the south right now and this is where we make a lot of gasoline; you're close to Alabama, Louisiana, Texas. This is where oil is taken out of the ground and then it's refined all around this area. So, this is where the gas is cheapest and diesel's $6.
Peter McCormack: It's not bad.
Steven McClurg: This is where it's produced, right.
Peter McCormack: Yeah, I know. It's £120 to fill up my car at the moment. I remember the first time I came to the US, first time ever and I rented a car. No it wasn't, it was when I came for my 30th; I rented a car, it cost me $25 to fill it up and I was, "What the fuck's this Voodoo? How come fuel's so cheap here?" Obviously, I know because you produce it.
Steven McClurg: Close to the source.
Peter McCormack: One of the interesting things is, I've learned a couple of things with this. Obviously, there's the expected impact on households. If it costs you an extra £40 to fill up your car and you're driving all the time, maybe that's a weekly cost. For some people they've got to cut elsewhere, which means it slows down the economy because people will not spend in certain areas. I'm starting to learn about the impact that has on other parts of the economy.
I've been talking about this thing where I saw about swimming pools recently, about they're struggling to heat the pools for people to come in, which means they either raise their prices, cut hours or cut staff. I just saw another one today; a lady has said she's given up their pub because the cost of gas for running their pub is too high now, so she's just getting out of the business. So, I've started to realise how energy prices drive a large part of the performance of the economy. So, it's not a sensible time to be in a war and cutting off supplies from various parts of the world.
Steven McClurg: It's not just the direct impact, the things that you mention; it's the indirect impact. So, think about this: diesel is what powers trucks in the US. Diesel is up 3X in many parts, which means that these trucks are driving all the other goods that people need. Food; what is the cost of food going to go up to? These are indirect, but it's eventually going to come into the economy. If we think we're at peak inflation right now and that the Fed is solving problems, we're not at peak inflation; this is going to last for a very long time and it could get worse.
We have a CPI print that comes out on Thursday here in the US, and a lot of people are expecting it to come down from the 8% clip that we're at right now, or even if it comes down slightly, it's only short term. By the way, it doesn't cover all the things that really matter; that's CPI, it's not real inflation. They're going to exclude gasoline, which is really going to --
Peter McCormack: The most important of a CPI print.
Steven McClurg: That's exactly right, especially right now.
Peter McCormack: How does the market tend to react to inflation numbers generally? The Bitcoin market, the first couple of high prints, there was an immediate spike in price and it dropped back down to where it was, so it didn't really make a difference. Do people just not trust anymore, therefore, it has no impact? Are they really always looking at the rate hikes?
Steven McClurg: The reason why you'd want to look at CPI very closely is because that's what the Fed looks at. The Fed doesn't care about real inflation; the Fed cares about CPI, which is the official government number. A lot of people are under the belief that if CPI, the clip at which we're growing, let's say it drops down to 7.5%, that the Fed might say, "Oh, we've tackled inflation. Time to cut off tightening".
I really believe what's going to happen is they'll continue to raise rates in June and July, despite what the CPI numbers are, and then sometime in August/September decide, "Oh, we've conquered inflation, we've done everything right in front of mid-term elections" which is very convenient, but I think that's about the time they're going to say, "We're conquered inflation".
Peter McCormack: There's a couple of things I want to talk about with that. I spoke to Preston Pysh the other day; he was here and he has a similar feeling. He thinks the next money print, he said he thinks they're going to print $5 trillion to $10 trillion. He says he thinks they're going to absolutely blow any previous injection into the market, they're going to absolutely blow it out of the water. That just seems insane to me; you get something under control and then you go absolutely bananas.
Steven McClurg: I think he could be right and here's the reason: it's all to do with war. You've got fund a war without fighting directly into it. By the way, if you look at the latest bill that was passed, that was supposedly the Ukraine Aid Bill; very little of that actually went to Ukraine, it was just a bunch of other projects like the art museums we were talking about earlier. There's all kinds of things that are included in these bills to placate the people that are signing off on it. It's a massive problem in the US.
Peter McCormack: But if they're going to print another $5 trillion to $10 trillion, at $10 trillion they're essentially doubling the size of the balance sheet in one hit.
Steven McClurg: Yeah, I don't think it'll be in one hit.
Peter McCormack: Okay.
Steven McClurg: But I do think it'll be over a period of time.
Peter McCormack: That will be positive for markets, do you think?
Steven McClurg: Yeah, because think about it. If you have more money to spend on things, the dollar goes down and asset prices go up.
Peter McCormack: But then what?
Steven McClurg: Weimar Republic.
Peter McCormack: This is what it is; this is yo-yo, this is the yo-yo.
Steven McClurg: Yeah, this is Zimbabwe, this is Weimar Republic, this is Argentina.
Peter McCormack: But is it? Okay, I have this expectation of high inflation, 5%, 10%, real-world 20%, but when you've heard of 50%, 100% or runaway hyperinflation, could you honestly see a scenario where the US goes into hyperinflation? What the fuck do you do in that scenario, because you don't want cash?
Steven McClurg: No, you don't want cash, but it all depends on what the Fed is doing also. Right now, we're in a really unique situation that's different than 2008. In 2008, you had asset prices going down and at the same time, the Fed was coming off a cycle. Right now, we have a really interesting situation where inflation is so high the Fed has no choice but to raise rates, but the economy has gone down.
If you look around and you say, "Okay, NASDAQ is down 30% right now" in most environments that would be a really scary thing, but people are just twiddling their thumbs going, "Oh well, yeah it's down 30%". Most big tech companies are down 70%, "Okay". It's not that big of a deal; people don't care as much. Why? Because there's still a lot of liquidity floating around in the system; people haven't been impacted the way that they should have been impacted yet, but it's coming.
This is a perfect storm of inflation and markets dropping. Eventually, that's going to hit consumer sentiment and consumer sentiments are already starting to be hit; people are going to start spending less money. When people start spending less money and start saving more, but they can't save more because their daily goods cost so much they can't afford to save, then you've got a real problem. This is going to look a lot different to 2008, 2009. This is probably a multi-year recession.
Peter McCormack: Right, okay. I mean, recession will be tough, you find a way of grinding through it. But genuine 40%, 50%, 60% inflation numbers, if they can come to places like the US and the UK, and I know Turkey's experiencing it right now, there's civil unrest there. Lebanon's experiencing it and there's been civil unrest there. I can't myself picture -- and I think everyone listening will be, "What does that mean for me? What does that mean in reality?"
Have you done the mental model of what it means for you in reality, in terms of how the economy functions? I just don't know what to -- I read what happened in the Weimar Republic, I've read When Money Dies, but I still can't picture living through a scenario like that.
Steven McClurg: The other scenario, let's say that you're 65 years old, which you're not, clearly! Way more vibrant than that, but let's imagine that you're 65 years old and you had been working your entire life, you've been saving your money, you've been putting it in your IRA because that's what you were supposed to do. You've got a few million dollars saved up which, by the way, isn't most Americans. The ones who are lucky have $2 million to $3 million saved up; a lot don't. Five years ago, that was enough to hold in fixed income and to earn enough to live out the rest of your life off your savings. Most Americans are probably closer to $1 million if they're lucky, just working-class people.
Let's say you had planned on retiring at 65, you've worked a really hard job, you're done, 65 years old, "I've got $1 million and I'm going to retire". Well, what took $1 million five years ago in savings to retire all the way through to the end of your life, now takes $8 million.
Peter McCormack: Okay.
Steven McClurg: That's factoring in both inflation, correct inflation, not potential future inflation, and where interest rates have gone. So, interest rates are much lower than they were, even though they've been going back up, and inflation's higher. So literally nobody has $8 million; maybe the top 1% of Americans have $8 million in savings, but nobody does. So, if you were planning on retiring this year, you've probably got to work another five years.
Peter McCormack: That's people retiring. Say a scenario where you're a 43-year-old from Bedford, you own your house but you've still got 20 years left on your mortgage maybe and you've got some savings, you've got a business with a good income stream. You're thinking, well if we're going to go through a tough five to ten years, which could be; Lyn Alden thinks inflation is going to be the story of the next decade; firstly, how do you ensure that you come out of that still owning what you have, like maybe your house and you can still pay your bills, your basics?
Secondly, how do you maybe come out of that having protected some of your savings? If you're holding it in cash, that's going to get eviscerated. What are the options? I know some people will buy vintage cars or property or artwork, but is that literally the only option?
Steven McClurg: At the moment, that really is your only option. If you own a house right now, you've locked it in at a good price, real estate will probably continue to go up, it may flatten for a little bit just because it's become a little bit more unaffordable. But real estate will continue to go up because what's happening is, the larger money managers out there, they have funds that go out and buy single-family homes and just hold them, because they're not earning the income off bonds. Bonds have gone down in price since October, close to about 6% in price. That means you have lost more in principle than what you've gained in interest.
So, they have these entire funds, like BlackRock for instance, entire funds and all they do is just go out and buy single-family homes.
Peter McCormack: BlackRock owns tens of thousands of homes, right?
Steven McClurg: Probably more than that.
Peter McCormack: I remember during the last crisis, they were involved in the purchase of -- somehow they were linked in with OneWest; I can't remember the detail.
Steven McClurg: Yeah, I don't remember either.
Peter McCormack: Yeah.
Steven McClurg: I remember reviewing debts, and this was when I was a bigger money manager right after the crisis with everybody saying, "Hey, this is the next hot thing". The US Government's printing a lot of money, asset prices should go up, housing's at an all-time low. We were launching these funds where we'd go out and buy single-family homes and just hold them. Sometimes, we rent them out; sometimes not, it doesn't matter.
Peter McCormack: It's a store of value.
Steven McClurg: It's a store of value, and that's what a lot of people have been doing, a lot of big fund companies have been doing, and they're going to continue to do that. So, even if you or I could afford a home, or people that are listening can afford a home, well they can. So, prices are going to keep going up because they're still a buyer.
Peter McCormack: Okay.
Steven McClurg: If you already own a home, great; good for you. If you can afford to buy one, go buy one now. That's going to be your store of value and you've locked in a price; you've locked in a good rate, because rates are going to go up as well. If you have it, you might want to do it now, but those asset prices are going to continue to go up. If you're younger, let's say that you're 20 to 35, and you haven't bought a home yet, you're probably going to be renting for a long time.
Peter McCormack: Yeah, looking at one of the charts from the other day, was it Preston who was showing that chart?
Danny Knowles: Yeah.
Peter McCormack: He showed the previous cycles after the Depression. There was a tightening of the money printing and interest rates went up to something like 15% at one time; it's basically an inverse correlation. I was thinking, "If this happens again, I can afford my mortgage, a 15% interest rate would start to get a bit tricky".
Steven McClurg: That's really tough. I remember my parents bought their first home in 1981 and I think their interest rate was 13%.
Peter McCormack: Did the house cost less than $10,000?
Steven McClurg: I don't know how much it was; probably $50,000 back then.
Peter McCormack: My parents' first house when they bought it was something like £6,000.
Steven McClurg: Wow.
Peter McCormack: It was ridiculous.
Steven McClurg: But they paid that interest rate for 30 years.
Peter McCormack: What interest rate was it?
Steven McClurg: 13%. I kept telling my mum, "Hey, you need to refinance it". They were, "No, I just want to pay it off". I went, "No, no, you don't understand, you need to refinance this"!
Peter McCormack: Yeah, it's going to get really tricky for a lot of people.
Steven McClurg: Yeah.
Peter McCormack: I'm expecting civil unrest. We're seeing a bubbling of it anyway now and I think you just have to look at other countries around the world; it's foreshadowing what we're going to see here, and in the UK where I'm from. I've got no doubt the increase in violence we're seeing is a result of tensions people are feeling. Yeah, it's scary times, but the thing in my head, Steve, is where is the actual reset? At some point there has to be some reset and I don't mean some WEF Great Reset bullshit. The Weimar Republic eventually reset and Germany had a stable economy.
Steven McClurg: That's right.
Peter McCormack: At some point, this shit has to reset; they can't just print, tighten; print and tighten. Something's going to break and then you get an actual reset. I've got no understanding how a reset happens. I think currency tends to last for about 90 years; is it essentially just a complete debt jubilee, a reset and a new currency? Dollar 2.0 comes along? How does…?
Steven McClurg: Well, think about it, Germany's had four currencies in the last 100 years and we'll say the euro's one of them. They achieved in the euro what they failed to achieve in two World Wars; control of the European economy. You guys got out of it, yeah.
Peter McCormack: Yeah. I don't know if that's a good thing or not.
Steven McClurg: I don't know.
Peter McCormack: Yeah, I don't know. I've seen our debts are something like £2.5 trillion now. One of the interesting things though is despite the US Government printing so much money, the pound has been dropping against the dollar. Can you have a look and see what it is, Danny?
Danny Knowles: Yeah.
Peter McCormack: But it has been dropping.
Steven McClurg: A lot of currencies have been dropping against the dollar just recently and it mostly has to do with Fed action. But you also asked the question about what happens to the dollar, and if the dollar continues to inflate the way that it does. If you look at China, the way that China pegs its currency to the dollar is by holding US Treasuries on its balance sheet. Over the last few years, the US had been increasing its holdings of Treasuries on its balance sheet, but China has not; China's fell flat.
So, essentially what that shows me is that they have much more of a stable currency and they're trying to become the next reserve currency. They're opening trade routes for several countries that are commodity-producing countries, they're forcing those countries to trade in renminbi instead of dollars and it's a really slow game for them. But if the US continues to print money at the scale that we're printing, cause inflation and cause inflation by the way for other people -- and, by the way, any country that utilises dollars, this is the El Salvador example.
When the US Government prints more money, it causes inflation on the dollar and countries like El Salvador that use the dollar just get taxed, which is why they've gone to Bitcoin.
Peter McCormack: I do wonder if they're going to launch their own currency again though, a sovereign currency. I get the feeling if the US goes to much higher inflation, it's going to become a real problem for El Salvador. I could imagine a scenario where they do launch their own sovereign currency.
Steven McClurg: I agree.
Peter McCormack: Bitcoin isn't enough and they can't continue to get fucked by US policy.
Steven McClurg: I agree with that. They're going to have to.
Peter McCormack: Is it like 14 countries that are dollarised?
Steven McClurg: Yeah, at least. There are some that are unofficially dollarised like Cuba; Cuba runs on dollars, they don't utilise their own currency at all.
Peter McCormack: They have a mixture. Cambodia, most people want dollars.
Steven McClurg: Yeah, that's right.
Peter McCormack: Venezuela, most people want dollars. I don't want to get too depressive about this, but I feel over the next decade this is going to be super serious, like global catastrophe.
Steven McClurg: It'll definitely be a shift in power, a shift in economic power in the next decade. China's waiting in the wings, they're waiting for the US to fail. As soon as they do, they'll step in.
Peter McCormack: I'm not going to do it for ideological reasons, but do you think the renminbi is a store of value?
Steven McClurg: I hate to say it, but it probably is; I won't do it either.
Peter McCormack: Yeah, I'm not going to do it, I don't think it's a good thing. You might not be able to answer this, but say you were both the President and the Fed Chair, what would you do?
Steven McClurg: As President, I would stop spending money. Government spending is one of the biggest contributors to inflation right now, and every time we pass a new "Stimulus Bill" or all of this rhetoric around, "Well, we're going to spend our way out of inflation", I mean people actually believe this, by the way; they're, "Oh, okay. Well, I guess you'll just spend more money and send more stimulus cheques and that'll help us with inflation". I'm, "No, that causes more inflation, guys. And it doesn't help in the way that you think it does".
Really, you have to cut spending, you have to get rid of all these excess programmes that we have that just don't make any sense. We really have to crack down on the budget and the less we spend, the less inflation there'll be. That's number one.
Peter McCormack: The impact on that would be that temporary loss of that liquidity going into whatever projects; unemployment rising because people in the government are losing their jobs. A large part of them are rent-seeking, but these people then have to go out into the economy and become productive, and the economy will likely go into recession, but have the opportunity to come out of it and avoid hyperinflation, which is probably a better scenario, but it isn't hugely palatable for people who are vote-seeking.
Steven McClurg: Yeah, that's right. Think about this: productive people -- have you ever met a US Congressperson or Senator and have you seen how many staff they have? Is that really a good use of money?
Peter McCormack: What was that number we saw the other day; the percent of the US economy which is --
Danny Knowles: 40% of the US economy.
Peter McCormack: -- 40% of the GDP was government spending.
Steven McClurg: Yeah, that's right.
Peter McCormack: That sounds like everything I learned about what happened under Chávez in Venezuela, was a massive amount of income coming in because oil prices were $120, and I think one in three people in Venezuela I think were employed by the state. I could be wrong, but when the price of oil dropped to $60 they couldn't pay the people and that's where it led to the hyperinflation situation there. You just think, "These countries are a little bit corrupt", and then you think something like the US or the UK or Europe and you think, "Well, they've got smart people in there. They know this, they don't want to go into a hyperinflation scenario".
Steven McClurg: The US is not corrupt at all; not one bit! I don't know about the UK.
Peter McCormack: I think of it as a different kind of corruption. I might sound almost racist in this scenario, but I think smaller states seem to have more dictator corruption, whereby they tend to hold power. Where I think places like the UK, Europe and the US tend to be more like subtle corruption within the confines of democracy.
Steven McClurg: We're not murdering journalists or speaking out against the government.
Peter McCormack: Exactly.
Steven McClurg: I guess that's the definition of corruption.
Danny Knowles: They can't get their hands on Assange, that's why.
Peter McCormack: Danny coming in hot! They might get him soon if Priti Patel --
Steven McClurg: The journalists here commit suicide.
Peter McCormack: They do, they do.
Steven McClurg: They don't get murdered.
Peter McCormack: They do in Russia as well; they shoot themselves in the back of the head!
Steven McClurg: Yeah!
Peter McCormack: You just think if you knew hyperinflation -- the best thing is to accept the natural cycle, accept that you might lose the election, but do the right thing to avoid hyperinflation. Therefore, is there some kind of national security issue and it's a game of chicken between countries; you break first?
Steven McClurg: Here's what happens, because there is a game of chicken that's always been played. It's called exports, okay.
Peter McCormack: Right.
Steven McClurg: So, if the US is producing washing machines and China and Korea are producing washing machines, and the US prints so much money that things cost more here, then there's a balance that's offset in exports; the stronger a currency, the more their exports cost other people to buy; the weaker a currency, the less. If we go too far, then our exports begin to cost less because our currency becomes weak against those other currencies, if that makes sense.
Peter McCormack: That makes sense.
Steven McClurg: There's a balance that's always being played. That's why China keeps having to step it up, because their whole business is exports, their whole economy is exports.
Peter McCormack: Is there any sense in bringing back manufacturing to the US? Is that a viable scenario; let the currency weaken?
Steven McClurg: There has been really for the last 10 years, 12 years a real push to bring manufacturing back to the US. It's happened mostly regionally but also at the federal level; there's been a real push there. Whether it's the Obama Administration, the Biden Administration, even the Trump Administration really pushing to bring back manufacturing.
Peter McCormack: So, if you were the President, you would stop spending -- actually, on that point as well, I saw this fascinating thing in the UK. Obviously, they're trying to cut spending as well and one of the things they said they were going to do was -- we got the number, didn't we? It was 90,000 employees?
Danny Knowles: Yeah.
Peter McCormack: They wanted to let 90,000 government employees go, and I think that was about, I can't remember what percentage that was, but that was the increase in the number of employees in the government in the last four years. So, despite the fact it's been difficult economic times, COVID, the government has continued in the UK to increase the size of its staff, which seems completely fucking stupid. It goes back to the point that every government really does need to have a budget.
We have a budget; this show has a budget. If the show goes over budget, I can't pay my staff, they quit, therefore the show dies. In the UK, it's so simple, Steve, I have a budget. There's my mortgage, there's my shopping, there's my holiday, there's some stuff for the kids. If I go over that budget, I can't pay something; like my mortgage, I lose my house. The government does not have a -- well, it has a budget; it goes over budget and it just takes money off us.
Steven McClurg: Yeah, that's right.
Peter McCormack: It's so fucking simple, why don't people fucking realise? Why do we put up with this?
Steven McClurg: It's because of the short-term nature of politics; it's long term but it's short term too. Most people point to at the federal level, the President; at the state level, the governors; and they have limited terms. So, they want to do the best they can within their limited time; for the President it's eight years. So, anything you can push off to the next guy, every single guy will do. You want to graduate with the best possible economy and let the next guy suffer.
It happens at state government as well; state governments will always issue a ton of bonds to pay for a lot of infrastructure, a lot of cool things, and bring more jobs, then they leave it to the next person to manage. What does that person do? Well, they're forced to now take up the slack and do the same thing, and they just create this bigger and bigger debt gap. Very few states actually have a balanced budget.
Peter McCormack: Do you think this culture war that's blown up over certainly the last four years, but has been growing over the last decade, do you think this is intrinsically linked to what's happening?
Steven McClurg: Not really.
Peter McCormack: No?
Steven McClurg: This has always happened and it's always been the Democrats blaming it on the Republicans or Republicans blaming it on the Democrats. The culture wars may have exasperated it a little bit, but it's really the same story; just a different tune.
Peter McCormack: Yeah. I don't know if you remember, you probably do, but a couple of years ago, we had that other podcast, Defiance, and we made a show that you came on; we did one on supply chains.
Steven McClurg: Yeah, yeah.
Peter McCormack: How much are you looking at that as well now, because we've seen the actual cost of shipping containers has gone up with the cost of -- I don't know what fuel they use in a ship, but whatever. We've seen China locking down large parts of its economy, which I also want to know what the fuck's going on there, because that seems weird. I don't think it's to have zero COVID, I don't know if they're doing dry runs for war.
Steven McClurg: Right.
Peter McCormack: But there's supply chain issues there. Are you looking at that as well?
Steven McClurg: Absolutely. Some of the supply chain issues -- look, inflation's been caused by a lot of different things. The majority of it is money printing and loose monetary supply or loose monetary policy, but supply chains is contributing to short spikes. So, we had a chip shortage, for instance; automobiles just became unavailable for a long period of time or anything that ran on a chip. But then all of a sudden magically they all came back, so at Christmas time you couldn't buy anything with a chip for a long time and, all of a sudden, you had TVs stocked everywhere, more TVs than anybody even wanted. Where did all the chips come from? So, there is a shortage there.
Food has been really interesting thing to watch. There's a really bizarre thing happening and I don't even know why or what it's attributed to, where all these food processing centres are catching on fire.
Peter McCormack: Yeah, I've seen that.
Steven McClurg: Have you been following this at all?
Peter McCormack: Yeah, what is it; 31?
Danny Knowles: I'm not sure, I'll have a look.
Peter McCormack: I mean, I saw was it an egg one the other day?
Steven McClurg: Yeah, there was just an egg one and there's been milk facilities. My co-founder's just had a baby and she kept buying formula; she's been sending me pictures. She's, "We've got write an article about the formula supply shortage". There's no formula on the shelves.
Peter McCormack: I have seen about these food places that have been going up in flames and I've seen the natural reaction by certain people who you would say are more suspicious, conspiratorial, although I don't want say it. "Conspiracy" feels like a wrong word.
Steven McClurg: A lot of things are happening and if you're asking questions, it's not really conspiracy.
Peter McCormack: A lot of conspiracies have turned out quite true over the last few years, but anyway there is this finger point of what's going on here; is this on purpose, are they trying to squeeze the economy? My first question is, "Why, who benefits from this?"
Steven McClurg: Who's "they"?
Peter McCormack: Yeah, some secret black ops to, I don't know, someone going round and firebombing these places. I know it's happening, but if it's something sinister, who and why? I'm trying to answer it; is there some Chinese/Russian plot to starve the US? It sounds completely moronic.
Steven McClurg: It does.
Peter McCormack: So, it can't be that, because I would imagine people would be caught quite easily doing that. So, is it internal? What benefit does this have to the government? There's no benefit, but when you start to look into it, actually I think it was Jeremy who looked it up. This does happen, but there has been an increase recently and they think one of the reasons being is all these places shut down during COVID or some of them shut down during COVID, they've been reopened and maybe there's been staffing issues or parts issues. So, there could be a correlation between that and what's been happening.
Steven McClurg: Maybe they're not making enough money and they're collecting on the insurance, setting the place on fire.
Peter McCormack: That's a fair --
Steven McClurg: You see, now I'm a conspiracy theorist because I just created a theory.
Peter McCormack: I guess conspiracies are theories.
Steven McClurg: Yeah.
Peter McCormack: What have you found?
Danny Knowles: There's been a lot of fires, but nothing linking them obviously or anything; I don't know.
Peter McCormack: I think it's just Twitter linking them.
Danny Knowles: But I mean, it's certainly real, there are a lot of fires happening.
Steven McClurg: I'm going to say I don't know; I'm just going to say, "All I know is it's happening".
Peter McCormack: Everything's fucking weird at the moment, Steve.
Steven McClurg: Everything's weird.
Peter McCormack: Shall we just laugh about it and drink whiskey?
Steven McClurg: I think that's what you have to do, you have to do it.
Peter McCormack: Danny, can you bring up Dan McArdle? He did a little tweet thread this morning and I want to get your opinions on this. I don't think it's a healthy time right now to be telling people, "Hey, you should buy Bitcoin as an inflation hedge". I'm kind of nervous with that narrative at the moment, because some people were buying Bitcoin at $50,000, $60,000 to hedge inflation and not only has the price dropped, they've also had their money inflated away. But I found this really interesting, because for people listening, Dan McArdle, "Claim: Bitcoin hasn't been an inflation hedge; reality: Bitcoin responded aggressively to the 2020/21 money-printing and front-ran CPI inflation. And BTC is still way ahead of other assets".
So, I think this is a really interesting point because the narrative of Bitcoin being an inflation hedge did start in 2020; people were talking about it then. I increased my stack, I expect you did; a lot of bitcoiners I know did. Do you think this is just re-narrativing, or do you think that's actually a fair shout, "Bitcoin is good at front-running inflation"?
Steven McClurg: Narratives are simply narratives and I'm going to say that most people want to assign very simple solutions to things. It's like, "If there's inflation, you buy gold and then gold will go up when inflation goes up". Actually, that's not true.
Peter McCormack: Okay.
Steven McClurg: "Bitcoin, it's an inflation hedge". "Why?" "Because it's limited supply". The reality is assets trade the way people want them to behave, very simple. It doesn't matter what things are supposed to do. Good companies are supposed to go up in value, they don't always do that. Sometimes bad companies will spike. AMC Theatres, remember that? GameStop.
Peter McCormack: GameStop, literally no business.
Steven McClurg: Things react the way people trade them, period. If somebody wants to trade out of risk assets and Bitcoin is traded 24/7 and you're running a book, an event happens on Saturday, and you can't trade stocks out of it, what are you going to do? "Oh, I've got some Bitcoin in my portfolio. Why don't I just sell some of that and I'll see the rest of it when the markets open?" So, that's all it is. I think people try to get too complex in the way they assign reason to things. The reality is things simply trade the way that people trade them.
Peter McCormack: So, Bitcoin doesn't have a narrative; it really is some people are buying a lot of it and some people aren't?
Steven McClurg: If you see it as risk and trade it as risk, it becomes risk.
Peter McCormack: Right.
Steven McClurg: Yeah?
Peter McCormack: It is risk. What do you think, Danny?
Danny Knowles: I think what Dan says here is quite interesting, because he's basically saying it has been a perfect inflation hedge.
Peter McCormack: Only because you timed it right.
Danny Knowles: Exactly, so I guess it's hindsight like everything.
Peter McCormack: Only because you bought it before Saylor and bought it before Elon Musk and then we had a run-up.
Steven McClurg: Yeah.
Danny Knowles: What I'm curious of is whether any of the people that have seen what Saylor did in the last run-up and have been sitting on their hands, they're going to start deploying in the next year, two years.
Steven McClurg: Yeah.
Danny Knowles: People might get a better buy price than Saylor at this point.
Peter McCormack: Average buy price, if someone was buying today -- where are we at? $29,500, $29,000?
Danny Knowles: Something like that, yeah.
Peter McCormack: What was his, $31,000 average?
Danny Knowles: I think it's something like that. I think he's under water now.
Peter McCormack: You can't buy a billion right now and beat him because you will move the market, but you could certainly buy small amounts and…
Steven McClurg: Yeah.
Peter McCormack: The tricky thing with Saylor saying -- people have had quite a pop at him about his average buying being below. He bought $3 billion; he's going to move the market.
Steven McClurg: Yeah.
Peter McCormack: But next cycle, if we do go above $70,000 or stay above $70,000 and hit $100,000, he's in prime position. He had to buy into the cycle to do that.
Steven McClurg: Well, I saw an interesting tweet once and I can't remember who to attribute it to. Somebody said, "I should have known that when a software company that nobody heard of became famous because they bought a bunch of Bitcoin, that was the top of the market"! But applying my principle really quick, let's go back to gold, for instance.
Typically, gold doesn't go up when inflation goes up; it's usually neutral. Gold historically has always gone up when people anticipate that inflation will happen. When smart people start looking at the markets saying, "Yeah, we're going to get inflation in a couple of years", they'll start loading up on gold in anticipation. Gold prices go up ahead of inflation and then they remain stagnant. Then once the fears are over, gold's the first thing that sells off. So, that's why there's not a direct correlation there. Same thing with Bitcoin.
Over the last 12 years, people have been buying Bitcoin in anticipation of inflation coming with really loose monetary policy. Well, there's been loose monetary policy, there hasn't been inflation, but Bitcoin's been going up drastically in anticipation of that. By the way, that's not the only reason it's gone up, there's several factors and that's just one of them.
Peter McCormack: I think it's also gone up because people have bought it because they think it's going to go up.
Steven McClurg: Yeah, exactly right. That's a risk asset and that's the other factor. Then the final factor is just simply the network effect; the more people own it, the more price has to go up to support the number of people owning it. Those are really the three main factors. Well, when one of those factors goes away, the first factor that went away was, "Okay, people are no longer taking big risk, they're selling risk". Well, that causes price to go down. The other one is, "Okay, well inflation's here now. We've already bought Bitcoin in anticipation of inflation and now it's here, and now we're going to sell it off and buy those dollars". So, that's the other thing.
Then from a network effect part, I don't really see that many more wallets being created versus say two years ago, so that's flattened out as well. It's going to take one of those three things to bring it back up.
Peter McCormack: We also have the halving narrative which timed nicely. I think that we talked a lot about, we're a year and 300 days away or something, and I'm expecting in about a year, when there's a year to go, that people will be chirping up about that as well. I think that's more narrative.
Steven McClurg: Yeah.
Peter McCormack: What I am interested in is more if people are starting to think of Bitcoin as a hedge in another way, not a hedge against inflation; it is, but a hedge against the collapse of the currency. I know that is essentially a hedge against inflation, but I'm thinking of it in a different way in that if the currency collapses, if the dollar collapses, the pound collapses, I want to hold something that seems valuable. You said property; I'm not thinking hedging inflation, I'm just thinking I'll have something that has some fucking value.
Steven McClurg: Yeah, exactly.
Peter McCormack: Does gold have any part to play in this, do you think?
Steven McClurg: I think gold has lost a lot of its lustre in the last decade. A lot of people bought gold.
Peter McCormack: Sorry, mate.
Steven McClurg: Gold used to be what people used in place of Bitcoin. I'm not saying that Bitcoin has replaced it, I'm just saying that what happened in the last financial crisis is people started buying gold in anticipation of inflation over the next decade. Well, part of that anticipation was that central governments would be buying gold on their balance sheet to support their currency. That stopped happening; that usually happens in a recession because that's the safety net for government central bank.
But what's actually happened is central banks have, on a percentage basis, loosened up their gold reserves. The US Treasuries has replaced gold as the holding instead, which is really bizarre thing. Gold really hasn't done what it has in the past and it's lost that store of value because governments weren't using it as store of value anymore.
Peter McCormack: Didn't China and Russia buy a shit load of gold?
Steven McClurg: Russia did buy a shit ton of gold back in 2009, 2010; but no, China focused on US Treasuries. And, over the last decade, the gold purchasing has basically stopped.
Peter McCormack: But if the dollar starts hyperinflating, it's no longer therefore a store of value, could you see a switch back to gold?
Steven McClurg: Probably not; it'll probably be other currencies that are strong, a basket of currencies.
Peter McCormack: A basket of currencies, interesting.
Steven McClurg: Probably with renminbi.
Peter McCormack: So, what is the role of Bitcoin in all of this? Is it just a fucking random? Because Preston talked about this and he thinks we could see this transition to Bitcoin.
Steven McClurg: I think it could happen. I think it's going to happen on a more regional basis first and I've always though this. I saw your tweet, by the way, about Monero and I agree with you. There's a lot of people don't agree with you, but I do.
Peter McCormack: There are people who have agreed with me privately and they're not going to say it; there's people who've agreed with me publicly; and there's people who have disagreed. I think if you're going to call something a scam, explain the scam.
Steven McClurg: That's right.
Peter McCormack: You can say you don't like it or you can say, "Look, I think it fails against Bitcoin over a period of time" but I'm not hodling with Monero, I just know there are transactions that I would maybe consider doing. To me, it's not a scam. I've said that since -- the Fluffy interview was 2018, right?
Danny Knowles: Yeah, before me.
Peter McCormack: I've been saying it since then. I've struggled calling myself a Bitcoin maxi because I've always been, "Well, Monero's okay".
Steven McClurg: I would go even broader. I personally choose Bitcoin; I like the fact that there's potential competitors out there because there's people that have different needs. There are some countries -- it's very easy to track Bitcoin transactions. This is why Silk Road went down, because we traced every single transaction and the FBI went and took it down, and took down a lot of people around it. There are some countries that can't afford for the people in those countries, where there are very oppressive regimes, can't afford to simply hold Bitcoin, because it's not private enough. They need something else and that's where things like Zcash, Monero come in.
Peter McCormack: I have a preference for Monero over Zcash. My problem with Zcash is my understanding is that cracking it is like a Sudoku and not enough people are using Zcash at the moment, and I think there's different trade-offs. We've actually got Seth, the guy on Twitter, sethforprivacy; I don't know if you follow him, he's worth a follow. He's coming in later today; we're going to be talking to him about that. I don't know the trade-offs. I mean, I have people telling me that you can achieve privacy with Bitcoin. But really, I'm going to make mistakes. But also with Monero, what is my risk? Usually it's going into the market and coming out of the market, what exposure to have, and we've got someone in to explain to us.
Another thing I meant to talk to you about, we had Andrew Dessler in yesterday; he's a climate scientist who debated Alex Epstein, he's also on Rogan's show. He said there's a massive benefit to the economy for moving to renewables. He said the problem is a large part of the economy is reliant upon a commodity where the price changes. He said if you can move the economy so large parts of the grid are from renewables, where the marginal cost is zero, you don't have this impact of commodity prices, therefore you don't have commodity wars.
Steven McClurg: That's really interesting.
Peter McCormack: Yeah, hadn't crossed my mind. He was, "Yeah, if you're --" he has a price where it costs to charge his Tesla; I assume it's a Tesla, he didn't actually say, but his electric car. If our gas prices, fuel prices have doubled, has it cost him double to recharge his car? No. It has increased, because part of the grid is powered by fossil fuels. But at the same time, he said, "I'm looking to put solar panels on my house". So, you can get to a point where at an individual level perhaps you can hedge against the inflation of commodity prices by being electrified.
But if you can get to a large part of the grid being renewable, you can't have anything, but if you did, you don't have that commodity price impact on the economy. Did he say 28% of the Texas grid is now renewable?
Danny Knowles: Yeah.
Peter McCormack: He thinks it can get to 70%. Other people argue against him and he thinks the other 30%, you can't get beyond 70% on renewables.
Danny Knowles: He said you could with nuclear.
Peter McCormack: It's debatable whether nuclear is a renewable.
Danny Knowles: Carbon neutral or whatever.
Peter McCormack: Yeah, carbon neutral, but he said the only reason we're not going faster in Texas is because of the incentives. But if you get to that point where you essentially electrify your houses and cars, and you do that on renewables, you suddenly don't have that impact, because like I say the margin cost is zero. It hadn't even crossed my mind.
Steven McClurg: That's really interesting. This is one of the issues with calling things renewable energy, right. Okay, you've got renewables, we've got carbon neutral. You've got carbon positive that are interesting anyway like natural gas. Natural gas just gets released into the air, why not capture it? I think definitions are really big things that people get caught up on. All that being said, it is interesting to get more, to have more renewable energy, whether it is hydroelectric or solar, wind. Again, the problem with some of those are they aren't really renewable, because you've got to build the solar panels with non-renewable materials or you've got to build windmills with non-renewable materials.
Peter McCormack: Hardly anything is renewable.
Steven McClurg: Exactly, exactly.
Peter McCormack: I think his point on renewable is that it's avoiding fossil fuels.
Steven McClurg: Yeah, that's right.
Peter McCormack: It's avoiding increasing carbon in the atmosphere. Yes, he talked about this as well; he did talk about solar panels and large parts of them can be recycled, parts of the wind turbines are moving to materials that can be recycled. But also, an investment in that will lead to a lower cost of building out that infrastructure because of the economies of scale, and these things are improving.
Steven McClurg: Yeah, that's right. Hydroelectric is probably the most renewable of all things. To me, that's why it's really interesting when New York passed that bill to try to shut down Bitcoin mining in New York, and a lot of the energy that they use is hydroelectric!
Peter McCormack: They didn't ban all mining, didn't they just ban fossil fuel mining?
Danny Knowles: Fossil fuels, yeah.
Peter McCormack: Yeah.
Steven McClurg: But it's impossible to say, "Okay, well I'm going to get all of my source of energy from one thing or another" because it's a mix.
Peter McCormack: Yeah, because they're not plugged into -- and that goes to Nic Carter's point of saying, "You're essentially saying what data centres can do".
Steven McClurg: Yeah, that's right.
Peter McCormack: SHA-256 hashing is banned in data centres now in New York. I think that was an astute point.
Steven McClurg: Yeah.
Peter McCormack: The last thing I want to talk about is Senator Lummis's Bill, because you've read it through. What's the name of the person she -- I'm sure it begins with a G? Anyway, Danny will look it up. So some people, I think, will react negatively because they don't like any form of regulation. I think some people also understand regulatory clarity is useful. I think Senator Lummis has been smart and she's front-running anyone coming in with shitty legislation. I think it's a smart move making it bipartisan, that was a smart move. She's obviously very pro-Bitcoin.
Danny Knowles: Kirsten Gillibrand.
Peter McCormack: Gillibrand, see it's a G, yeah. I haven't actually read through the Bill, you've been reading through the Bill, any key takeaways?
Steven McClurg: I actually think it's a pretty well-written bill and I agree that we need legislation here, because without legislation you just leave everything to interpretation. There are people that don't want any language at all, but I'm in an industry where I need as much clarity as possible so that I can do my job.
But some of the interesting takes that I had on it was I loved that there his a de minimis transaction amount where you're not going to be taxed. Previously, according to the IRS Tax Code, if I were to pay you -- if were out getting pizza together and I'm like, "Okay, here's $10 in Bitcoin for the pizza", I'd have to pay taxes on that $10 and I'd have to figure out a way to calculate that. If I'm using a centralised exchange, they would do it for me and then I would have a massive tax bill for all these little microtransactions that I did throughout the year.
If you keep it under that $200 limit, now I can go out and pay my hairdresser, I can pay people for goods and services; just as long as it's under $200. I think that's really good, I think that's great for Bitcoin in the US. You already have that in several other countries, so that's really good clarity and we don't have to sit there and figure out our taxes for people just trying to make payments, basically Venmo payments. Then I like the fact there's an inflation adjustment feature on that, so that it doesn't stay stagnate at $200, because what's $200 two years from now? I don't know. It might be a hamburger at McDonald's, I don't know.
Peter McCormack: It's like that thing in the US where if you spend $10,000, you buy something for $10,000, there's that form you have to fill in. You have to report it, don't you?
Steven McClurg: Yeah, that's AML.
Peter McCormack: But that's never been inflation-adjusted.
Steven McClurg: That's right, that's right. So, $10,000 today is way different than what it was 20 years ago when the Patriot Act came out.
Peter McCormack: Yeah, and it's going to be very different in five years based on our conversation today.
Steven McClurg: Yeah. I think that was a really good piece and then I love the fact that she actually put Bitcoin under a regulatory agency, rather than saying, "Okay, it's out there and everybody out there's trying to fight over who gets to regulate it".
Peter McCormack: She's CFTC.
Steven McClurg: She's clearly in the CFTC, which is probably where it belongs.
Peter McCormack: Because it's a commodity.
Steven McClurg: Yeah, I see it as a currency, but yeah, commodity is fine. That's really where foreign currencies are regulated anyway.
Peter McCormack: Essentially, that removes it from the SEC?
Steven McClurg: Yeah, it removes it directly from the SEC, but at the same time, like if you're trying to launch a Bitcoin ETF, that's still possible in the SEC.
Peter McCormack: Oh, it does? Do you think this makes a Bitcoin ETF more likely than a spot ETF?
Steven McClurg: I think it does; I still don't think we're going to see one in the next year, but this definitely gets us one step closer.
Peter McCormack: What's the hold-up with this? There's a spot ETF in Canada?
Danny Knowles: Yeah, Australia.
Peter McCormack: Australia. Sweden?
Danny Knowles: Yeah, there's one in Europe somewhere. I think South America have one.
Peter McCormack: Yeah.
Steven McClurg: All over the place; Brazil.
Peter McCormack: Yeah.
Steven McClurg: I think it really has to do with regulatory clarity. Gensler's made it very clear that he wants to have a little bit of oversight on the exchanges, which by the way, I don't think it's a bad thing; some of these exchanges having some oversight.
Peter McCormack: Terra LUNA.
Steven McClurg: Exactly, I was going to say, LUNA 2.0.
Peter McCormack: Yeah.
Steven McClurg: There were some exchanges in the US that listed LUNA 2.0; I'm a little confused about that one.
Peter McCormack: Yeah, Kraken was one. Jesse explained why; he was challenged for it.
Steven McClurg: Yeah, I would love to hear that.
Peter McCormack: Did you not see it?
Steven McClurg: I'll have to listen to that one.
Peter McCormack: No, he didn't tell me; yeah, I didn't speak to him.
Steven McClurg: I'll have to look it up.
Peter McCormack: I just saw it upon Twitter, but he was explaining that. Yeah, it just feels like the US is giving ground to other territories by -- is Gensler himself basically a problem? Is he holding the keys to all this?
Steven McClurg: I wouldn't call him a problem; I think we all want to paint somebody as the enemy of Bitcoin. I think that Gensler is pretty intelligent on the subject; he's really trying to just implement consumer protections in the best way that he can and the best way that he knows how to as the Chairman of the SEC. I don't think it's out of spite, I don't think there's any other issue there other than, "Let's just have clarity before we do this". Now, if you come from the industry, like we are, then there's plenty of clarity. I don't get it, but I think that he's just trying to check all the boxes.
Peter McCormack: You know what'll happen; he'll come, it'll get announced and then the market will crash on its launch.
Steven McClurg: Absolutely.
Peter McCormack: Like every other market product.
Steven McClurg: Now you can short it.
Peter McCormack: Yeah, now you can short it. Fuckers! Man, listen just a final question, going back to where we started. The Fed will make a probable rate hike, do you think, June and July?
Steven McClurg: Yeah, 250 basis point rate hikes, one in June, one in July. We'll see in September; there's no FOMC meeting in August. September, I really believe that they're going to hold flat. We'll see what happens. I've got to see the data over the next month or over the summer, but if I had to predict today, hold a gun to my head, September they say, "Hey yeah, I think we've beat inflation for now". Mid-term elections are coming up, you know what that means. They hold off in September, October; mid-term elections happens, there's clarity in the market; the market stabilises a little bit and they pick up where they started.
Peter McCormack: So, stack cash and about September start stacking some Bitcoin.
Steven McClurg: Yeah.
Peter McCormack: Maybe, not financial advice.
Steven McClurg: Go on a vacation.
Peter McCormack: Go on a vacation.
Steven McClurg: Leave the summer.
Peter McCormack: Alright, cool. Steve, always great, man. Love seeing you dude.
Steven McClurg: I love seeing you.
Peter McCormack: Loving it in Nashville and yeah, see you soon, buddy.
Steven McClurg: Awesome. Thanks, bro.
Peter McCormack: Thank you.
