BTC215: Global Macro and Bitcoin Q1 2025 w/ Luke Gromen (Bitcoin Podcast)
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Hey everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals Podcast. On today's show, we have back one of the smartest macro thinkers on the planet with Mr. Luke Roman.

During our conversation, we talk about many of the expected policy changes and what that might mean for global liquidity in 2025. We talk about the impact of the potentially stronger dollar and what that means for risk on assets and how much stronger and how much more it can strengthen from here. We talk about tariff threats. And of course, we talk about the potential for the Bitcoin Strategic Reserve amongst many other topics.

So there's a lot going on here, but sit back, get ready, and I hope you guys have fun with this banger from the one and only Mr. Luke Roman.

Hey, everyone. Welcome to the Investor's Podcast. Luke, welcome back to the show. Great to be here. Nice to talk with you again, my friend. Always a pleasure, Luke. This is where I want to start off. So as everybody knows, I'm an avid reader of your newsletter. And recently, you had a comment talking about this 18%. When we've had the federal debt receipts, when they get 18% of the GDP, we've always gotten a recession, always gotten a recession. And let

Let me pull up a post here because you are, let me pull up your actual article here because I think that when people see this, it's kind of crazy the chart that was posted. And this was Tom McClellan that posted this chart. And I guess my question is how people wrap their head around this, because the part that I find really interesting is this underline that you have in the note that says, "A recession is mathematically certain to trigger a US debt spiral of USD up, US treasury yields up,

stocks down, economy down until either the US policymakers inject USD liquidity or the US and global financial system and economies collapse. So this is like a really bold statement. Help the generalist or the person who's not intimately involved in macro understand this from the simplest way that you can describe it. Yeah. So the simplest way I can describe it is we have a debt problem from multiple angles. The United States...

cannot get more than 18% of GDP in tax receipts without causing a recession. That goes back to 1933. And even the chart shows in summer of 2022, we had two straight quarters of GDP declines. When you have GDP decline with debt to GDP at 125%, number one, number two, with a deficit already at 7% of GDP,

In the last three recessions, U.S. deficit to GDP has risen by 600 basis points of GDP, 800 basis points, 1200 basis points. So we're already at 125% debt to GDP. If we have a recession, the deficit will go from 7% of GDP to 13 to 20% of GDP. Yeah. Which is like flashing, flashing red lights, right? Like this is flashing, flashing red lights. Yeah. And what does that mean for the average listener? It means the U.S. would have a severe recession and treasury yields would go up.

sharply, not down like they have always done in America, number one. Number two, because foreigners, because of the structure of the dollar system and how it has been allowed to evolve, foreigners have borrowed $13 trillion in dollar denominated debt. Dollar is global reserve currency. It's a major funding currency, euro dollar system. Everything you hear a lot of people talk about. The recession would drive the dollar down.

as it tends to do in a recession. That puts foreigners who have borrowed 13 trillion, and that's just short. They are short $13 trillion in dollar-denominated debt. They will get short-squeezed. They desperately need to raise dollars to cover their dollar short. But three, foreigners own $57 trillion of dollar-denominated assets, $22 trillion net.

which is where the liquidity, that's where the liquidity comes from. It's a piggyback. All that is, is you hear, oh, the U.S. runs deficit after deficit after deficit. Foreigners, that's surplus after surplus after surplus, and then it's recycled back into U.S. stocks and bonds. And they've been borrowing against the other side to get closer to net flat. They're not net flat. So point three to all of this is as U.S. rates go up in a recession because U.S. deficit blows out to 13% to 20% GDP, one,

Two, foreigners are short, so you're going to have them getting short squeezed on their $13 trillion. Point three is they are going to sell dollar assets until their hands bleed, as we used to say on the sales desk. It's an old futures thing, like take it, take it, take it, take it, right, until their hands bleed. And they will sell what they can, not what they want to necessarily. What they can sell are the $8.5 trillion of treasuries first.

So again, you're going to have the US deficit at 13 to 20% of GDP in a recession and foreigners adding on to that with up to eight and a half trillion dollars more. And there's no balance sheet. There's no private sector balance sheet big enough to take this on. Banks, by the way, have been regulated into buying da, da, da, treasuries as a reserve asset. Banks are gonna be taking losses in a recession. They're gonna need to be selling treasuries.

This isn't speculation we saw in 1Q23 with Silicon Valley and Signature. What were they trying to sell to raise cash to pay out depositors? Treasuries. So every... Oh, by the way, mom and pop are all of a sudden recession out of a job. Well, who's been the biggest buyer of marginal buyer treasuries? Mom and pop. There's no buyer. And so you end up what in plain English...

The entire treasury market will turn seller in a US recession. People can't fathom the trillions of net effective deficits. US deaths will be 13% to 20% of GDP. That'll be more than big enough to drive yields up in a recession. However, you're going to have banks selling alongside that, you're going to have foreigners selling alongside that, you're going to have mom and pop selling alongside that, and there's only one buyer. And that's

And that's why you get to this very binary outcome of collapse or Fed Princeton. Preston Pysh : I'm sure you can see the smirk on my face as you're saying all this, because my immediate thought when you're talking about equities basically being the relief valve for people to raise liquidity, they're going to sell what they can to raise the dollars that they're short. And I'm looking at this incoming administration and I'm looking at Donald Trump and I'm saying, "This guy is never going to let the equity market sell off," because it's almost like his entire... I mean, I'm just thinking about his last time he was in office. He was literally signing

stock market charts that were bidding into the close on Friday, literally putting his signature on them and passing them around and tweeting about it. So I just don't see that happening, which means the dollar has to be the relief valve. And I think that's where you're going with your comments, right? They're going to devalue the dollar. He's not going to let equity sell off in any type of capacity that's more than 20% or more. At least I don't think that he would allow that to happen.

And so then what's the mechanism? Does he have that control? Or is the Treasury and Fed acting independently? Or talk us through what you actually think is going to play out here. Because I think the dollar is going to be the relief valve. I just don't see that happening. Yeah. I have as high a conviction, right? When we talk through in simple what we just talked through, you can't raise taxes. No. You can't raise rates.

If you cut spending, you're going to drive the dollar up and that's going to trigger that same dynamic. You can't cut spending. The only way out is to drive growth. The only way to drive a growth is to weaken the dollar. So I have as high a conviction as probably as I've had in my career of anything that the dollar is going to be the release valve in 2025. That is, if we're sitting here in December 2025, the dollar will be lower than where it trades today. One, you know, whatever, 106, almost 107. It's, you know, not necessarily a lot lower,

I think it goes 95 to 100, something like that. High conviction on anything I've had in a long, long time. Now, for the next three to four months, I have no conviction in how this will go.

Because, A, we're between administrations. B, you've got very powerful personalities and almost like in Elon and Vivek pushing these cuts. You've got talk of tariffs. You've got geopolitics. And the zeitgeist among sort of the financial sort of traditional financial minds is that we can just cut.

that's 100% wrong. They will blow up the system full stop if they do anything that strengthens the dollar. And so that's why I say no conviction over the next three to four months. There's a lot of very powerful people that are seen hell-bent on doing things that will strengthen the dollar first. And if that's the case, things will blow up. And at that point, I agree 100% with you that that is

that isn't gonna be allowed to happen for more than a cup of coffee. And so for me, practically speaking, I've been thinking about it as almost a turbocharged version of even the markets of 2020 possibly, right? Which is, if you remember, markets peaked like last week of December or last week of January, excuse me, in January, 2020, if I remember. And sort of bled through February as COVID fears picked up and then just fell out of bed sort of late February, first half of March.

And then like third week of March, Fed comes in and is like, "Hey, 600 billion a week, let's go." And like, it was off to the races. And point being is basically if you were running a portfolio of any real size, you could be right from January through mid-March, or you could have been right for the rest of the year. But it was almost impossible to have completely restructured your portfolio from end of January through third week of March

to get ready for the COVID crash and then anywhere near the bottom to completely restructure that portfolio to then benefit from 600 billion a week in QE. You were either right before and wrong after or you were wrong before and right after. And I think this would be even more compressed for exactly the reason you said, which is anything that causes stocks to hit an air pocket is a direct indictment of Trump policies, full stop. He owns it now.

And so I don't think it's going to be allowed to last for very long. So to me, that speaks to that, oh, they can't fall. Of course they can fall. And they will fall very fast, very sharply if they do anything to weaken the dollar. Tariffs, geopolitics, recession. You mean if they allow the dollar to bid, not for the dollar? If the dollar rises any more, basically, from here. I mean, look, we're at 106, 107. Last three, four weeks, we've had two punk 20-year auctions, a punk 30-year auction,

and the 10 years already over 441 and acting spry, right? 4.41% and acting spry. So the long end of the bond market is acting the way it has when the dollar is too strong, the auctions are kind of eh, and so here we are. So if they do anything, Elon, Vivek- Preston Pysh : I want to pull something up because everything that you're saying reminded me of this tweet that you recently had where you responded to Elon. I'm going to pull this up for folks. So

So Elon says, "Yes, if action's not taken to curb the deficit, America's in deep trouble, no different than a person who gets into too much debt." You reply with, "All we need to do is drop the deficit by more than a trillion next year as the cut rates back to 0% and issue 100% of the debt in three-month T-bills bought by the Fed if needed. Yes, inflation and assets will surge, but so will receipts. US deficit will be close to the surplus by this time in 2026."

Explain what you're really getting at with this, Luke. Luke Gromen : Yeah. When you have debt, a fiscal position of ours, debt and deficit where they are, you don't get to act in increments. Small increments.

It's leverage. Leverage cuts both ways. So what I was saying is we just ran through exactly why it is a mathematical certainty that if anything strengthens a dollar, they will trigger the worst financial crisis. I mean, 3Q23, 2022, dollar up, everything else down until either we have a failed treasury auction or someone injects dollar liquidity. Okay. So

So Musk in the meantime is talking about exactly this, "Hey, let's do something that's going to strengthen the dollar to cut debt." Preston Pysh : Right. And that was where you, and this is where people who don't know you don't realize that it's a little tongue in cheek in your reply of like, "Hey, great idea." I think everybody wants the government to get more responsible and just not be blowing money. But if you start doing this, you're going to make the dollar rip, which is going to cause all these other implications and meltdown because we're dealing with a fractional reserve banking system.

that is dependent on the expansion of the units, right? To just print more units. Is that, did I capture that correctly? I mean, the punchline is we know empirically that if they do this a year from now, if they do it by trying to cut anything except interest, the deficit as a percent of GDP will be higher. Yes. Because we'll be pushed into recession by virtue of these dollar mechanics. We know this because Obamacare did it. Yeah. In 2014, Obamacare, Wall Street Journal said it's going to reduce the deficit by

by more efficiently allocating government spent healthcare. Because the top line goes away. Because the top line goes away. Yeah, the top. So what you do, like, so this was Doge 1.0. We're going to push healthcare onto the people. Great. That makes perfect logical sense. In the real world, what happened was is my premiums and lots of other small business premiums went up 20, 30, 40%. And we said, oh, now I have to pay for my own healthcare more.

we're not going to go out to eat as much. We're not going to buy a new car. We're not going to go on a vacate. Consumer spending in 2015 dropped GDP. The revenues, like you just said, slowed massively. And 12 to 14 months later, the U S deficit as a percent of GDP was higher than the deficit to GDP when they passed Obamacare. And this was like a small cut, not a big cut, like Elon's talking about with lower debt to GDP than we have now.

So it is a mathematical certainty that if they cut anything other than interest, they will have a higher deficit to GDP in under 12 months. And Trump will be discredited for the next four years. And Elon's political whatever this is will be. It's not a game he wants to play. Now, that brings me to the tweet, which is sort of the special case asterisk to this, which I always like to.

extremes inform the means, right? So let's take it to the far end because we can learn something from the, you know, let's go hyperbolic with it. And that's kind of the point of that tweet, but it's like, it's only partially tongue in cheek. Second biggest line item after entitlements is interest. Yeah. Wow. And right now we're on pace next year. You know, we got a $7 trillion bolus of debt. That's going to have to be refinanced next year at a higher rate, quite a bit higher rate in some cases.

So let's just use 4% average interest rate on 36 trillion in debt to make the illustration. Which is very kind. Which is very kind. It's kind. It's kind. Because that assumes no more debt next year. We're not going to grow debt next year. When in reality, we're going to grow up by 8% CAGR as we have every year since 2018. Or 2008, excuse me. So let's just keep it flat at 36 trillion. 4%, that's a trillion two. That's a trillion four, five. Let's just round it up to a trillion five.

for easy math. So we're going to have a trillion five in interest expense next year at 4%. That's insane. This is insane because this is like double the budget of DOD or close to like maybe 1.5. Yeah, it's 150%. Yeah, it's 160% of DOD. It's 50% of all in entitlements. Yeah. Okay. How can we get rid of this? Let's cut the rate to zero and finance it all in the bill markets. Which tethers buy-in. We'll get into that. We'll get into that in a second. Yeah, let's not jump ahead. Yeah.

But, okay, that's going to take a trillion five line item out of the budget. Financing in bills versus at further out in durations is secularly inflationary because it's much closer to essentially money printing. The issuing in bills at zero is very close to money printing versus issuing in longer durations at some sort of yield. The longer durations sterilizes that inflation more. But you get the point.

We get our deficit down. Prestige-wise, yeah. As a percentage of GDP, yeah. And receipts are going to explode. Receipts are going to explode because the stock market's going to explode. Economic growth is going to explode. Inflation is going to explode. Luke, I don't mean to interrupt you, but what the person who's listening to this is thinking, I would imagine, is, but yeah, so does the price for the steak that I'm already paying $50 or $60 for. That's going to explode. Is that correct? Yeah. Yeah.

Yeah. Yeah. And these are things we should have thought about and maybe been a little more aggressive as citizens of this country when our government did the galactically stupid things it did with borrowed money over the last 30 years. People say, well, it's going to make steak more expensive. Steak's already more expensive. It hasn't been marked to market yet because, again, your choice isn't I want a $60 steak or I want an $80 steak. That's not the choice. The choice is...

I want a $60 steak or I want a $30 steak except unemployment is at 30% plus and Great Depression and I don't eat anything but dog food because I'm out of a job. Those are your choices because of the debt level that we have. When you're a company and you spend $8 trillion on an investment that yields zero-

actually yields net losses. So basically, imagine being a business and you said, I'm going to make a giant acquisition. I'm going to spend $8 trillion on the acquisition. And not only is the acquisition not accretive to your earnings, and not only do you have to wipe that value completely off, that basically you buy a fraudulent business that's worth zero with the $8 trillion. So you have to write that down to zero. But-

The fraudulent business you took legal control of has an asbestos liability that goes on for $350 billion a year, growing 8% in perpetuity. What is the value of your corporation? The answer is you're zeroed out. You're going bankrupt. You've got to write it all off and start over. Now, why do I bring up that example? The United States government borrowed $8 trillion to go to the Middle East. What

What did we do? We took Afghanistan from the Taliban and then 20 years later gave it back to the Taliban. That's less than zero. We secured Iraq's oil for China, who's now the biggest oil producer in Iraq. OK, zero. And for the benefit of spending that eight trillion, our VA government,

budget, Veterans Affairs budget is now $350 billion a year, which is bigger than the entire federal deficit when we began spending $8 trillion on these two zero corporate acquisitions. And so when you look at it that way, that's why I say like the choice isn't, oh, I want a $60 stake or a $30 stake. No, no, no. You can have an $80 stake and

and we write off the $8 trillion loss plus the 350 billion of asbestos liabilities that go on in perpetuity. And you have a job. And you have a job. Or, you know, 20, 30% of people don't have a job. And oh, by the way, that will bring stake down to 30 bucks for like six months, maybe 12 months. Because the reality is when 20, 30% of people don't have a job, they don't pay their house, they don't pay their mortgage, their car loans, their student loans, their credit cards. And

And so banks start to default again. And so now we go right back to 2008. We go right back to 2020. We go right back to 2023. Is the Fed going to stand aside and let the banking system fail? Are they going to let it fail and then compensate depositors over $250,000? Because if they don't do over $250,000, corporations will, unemployment will go 60% and like, forget it, it's over. So you know they're going to do that. And so you're going to get a...

Your choice isn't $30 stake or $80 stake from $60 stake today. Your choice is $80 stake and we start growing and it allows us to inflate away and write off the terrible corporate acquisition we just wasted $8 trillion on. Or we go to the $30 stake for like six months and then we go right back to $100 stake and

Because guess what? The Fed's going to turn around and bail out those banks from that 20% unemployment. We know it. It has to happen. So there are people that understand this in Washington at the highest level. What I have no conviction in is whether said people have the political juice to talk sense or to overwhelm Elon.

He's a force of nature. He has in his head that this is a good idea. There's an order of operations that must be respected. Will it be respected? I have no idea. However, I'm very high conviction that his boss, Mr. Trump, will not allow stock markets to do what they mathematically certainly do if Elon gets his way in terms of cutting first before devaluing the dollar. So hopefully that helps people understand, yes, it was tongue in cheek in terms of cutting rates, but yeah,

You have to devalue the dollar first before you cut. If you do it in the other direction, you'll kill your political credibility, and then you'll devalue the dollar via bailing out the banks. And everyone in Maga Maha will just go, "Ugh, they're the same frigging thing. Banks first." And the next guy we get, we vote for, will be even less pleasant to half this country. Preston Pysh : Yeah. A lot going on there. And for the record, when I said $60 stakes, I'm talking about a pack of four at Costco in their large

Just for the record. Now, if you're listening to this in the future, and let's say it's 2028, which a lot of our listeners are from the future, then I'm talking about one state. Awesome. Awesome.

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All right, back to the show. All right. There was another interesting thing in your report that I want to talk about because I wasn't really fully wrapping my head around this. You're talking about this three-card Monty with the Bank of England and how they're doing this mild version of yield curve control. Walk us through this. Help us understand this from a big picture. And in this part of the report, you said you think this is bullish for Bitcoin. So I want to hear what you got on this one.

Yeah, there was a Bloomberg article reporting on what the Bank of England, one of the governors, I think, said last week or two weeks ago that basically we are setting up this facility. Yet again. Yet again. And this facility will allow, will preserve the functioning of the gilt market in times of stress. And anybody can tap it. Banks, pensions, hedge funds, anybody. And we're not going to tell anybody who tapers.

who taps it so that if anybody needs it, they can just tap it. Preston Pysh : So effectively you're getting the merging of the Bank of England and the Fed, right? That's all this is, is it's a merging if they can enter into a swap line anytime they want and you don't have to talk about who it is. I mean, it's basically just a merging of two central banks, right? David Collum : Functionally, yes. Not really indistinguishable from that, right? I highlighted look,

The 10-year gilt and the 10-year treasury have been tied at the hip for the last three to four years. The biggest marginal buyer of US treasuries-

individual buyer of treasuries from a foreign standpoint this year by far has been the United Kingdom, UK. They only own 8 billion less in treasuries as a nation than China does. Now, the difference is China runs a $300 billion surplus against the US and the UK is a twin deficit nation, right? So that tells us the UK's treasury buying has

has nothing to do with trade. It's all financial buyers. So if the UK is by far the biggest marginal buyer of treasuries, and we know it's a twin deficit nation, so we know it's all financial buyers, and the Bank of England just came out and said, well, the big marginal financial buyers of debt in our country can tap this credit line anytime things get crazy to buy gilts.

Yeah, it's de facto yield curve control light for the UK and for the US, particularly if you wrap a US swap line in there with the Bank of England, a Fed swap line. So for me, it's one of these things where some people get all enraged or shocked by it. It's trade the markets we have, not we want. We knew this is going to happen. This is the only way out. They're very creative about it. I must give them credit, right? You've got to do like this three card Monty of like find the ace.

But there it is. And ultimately, what that tells me is as an investor, away from day to day and trading and monthly is the United States and the United Kingdom will not allow 10-year treasury yields and 10-year yield to be priced by the market beyond a certain point. That liquidity will come in. And that's very, very powerful knowledge. It tells me, great, Bitcoin can move up and down. It can be volatile. There

There's going to be liquidity provided to keep those bond markets functioning, and there's nothing more bullish for Bitcoin than that. Preston Pysh : I mean, at the end of the day, Bitcoin is just this relief valve for all of this printing that has to happen. If we're just going to simplify this for the listener, we're talking about a lot of fancy economic terminology, which I'm sure if people aren't intimately familiar with markets, it can be maybe frustrating to hear the depth of the conversation and not fully understand the context or the so what to some of this. But

But Luke, it seems that you agree. All of these things are just more monetary units that are going to be clacked on keys that are going to be created. And the relief valve is Bitcoin, it appears. I mean, some of the comments from Putin himself, from you name it, world leaders, we've had... We didn't even talk about the Bitcoin treasury that the US is potentially going to do with an executive order on the very first day of Trump taking office on the 20th of January, which I've heard is a million Bitcoin.

that the US is going to try to acquire. And then I'm also hearing that other nation states are going to co-announce their strategic reserve and that some of them are already building their strategic reserve in the Middle East. So all of these announcements, we're seeing states, I saw Ohio is trying to do their own Bitcoin strategic reserve for the state. There's some other states that are working some of these things. This is the relief valve, it appears,

for all of this crazy activity and global coordination between central bankers that just flood the system with more fiat units to paper over all these really bad policy decisions, fiscal policy decisions through all the years. Is that properly summarized? If we were going to just kind of wrap all this into like a midpoint for the listener as to like, what does this all mean? What does it all mean? No, I think it is fair.

Ultimately, when you make bad investment decisions, whether you are a person, a company, a state, or a sovereign, you either take the loss or you inflate it away. We just described when I laid out the $8 trillion going to zero with a $350 billion a year asbestos liability going forward in perpetuity growing 10%, there's no chance they're going to cut off VA. Okay?

There's no chance they're going to write that debt down because that debt is the collateral backing the banking system and all these other asset markets. They have to inflate it. And so if the real value has been impaired, the only thing to do is increase the nominal value is to inflate. And so, yeah, absolutely. I mean, to me, it's, you know, that's been one of the big powerful things about Bitcoin is really, you know, it was very skeptical initially. And what turned me, you know, years ago was ultimately, I

I came to the conclusion was that its structure meant it was the smoke detector that couldn't be turned off. Gold has long been a smoke detector and it's been manipulated for that exact reason via any number of ways. And maybe that's changing, certainly a binary global system starts allowing gold to move more freely, but not like Bitcoin, as you can see.

Up and down, right? I mean, that volatility is not a bug. It's a feature of what's happening in the underlying. I mean, I've highlighted this chart multiple times on X that, look, you want to see a really volatile chart? Call it the month-to-month volatility of gold and Weimar German Reichsmarks. It makes the volatility of Bitcoin look like a frigging three-month T-bill. From the early 1920s is what Luke is referring to. Early 1920s, right? Yeah. Yeah.

That's a currency that's having a problem. Look at a hyperinflating currency today in terms of dollars. It looks like a Bitcoin chart. Preston Pysh : The only way to look at it is in long terms to really wrap your head around it. Hey, talk to us about tariffs. So Trump has come out with some really bold statements and it seems to be one of his, I guess when he was calling Justin Trudeau the governor of Canada,

some of this stuff that's happening, man, this is crazy. I was calling him the governor of Canada. He's throwing around all this tariff talk. You want to play hardball? Well, we can play hardball. This is how we're going to do it. What are the implications of this, Luke? So people hear this, they don't know if it's good, if it's bad. What's the knock-on effect if he would go into this and step into it pretty heavily? Luke Gromen Yeah, good or bad, it's just a function of positioning, right? I think there's an immediate sort of tactical knock-on effects mechanically we can describe. And then I think there's a

impact that I think is important to highlight. So let's start with the tactical. I think it's relatively well understood that, okay, it's going to drive dollar up, right? It's going to probably be slightly inflationary here. Preston Pysh : Which we have already thoroughly discussed at the start of the show. If you're wondering what that means, it means that you're going to- David Collum : Yeah, that's exactly right. Like dollar up is going to touch off the US and global debt spiral. That won't work. Doesn't mean they won't try, but we kind of, so dollar up,

bad economic outcomes that way, bad market outcomes that way, and probably slightly inflationary here. Deflationary for China in particular. Okay. That's a tactical. The structural, I don't think has gotten nearly as much airtime because it's second derivative and because it's not immediate. And so those things don't get much airtime in our media. And that is that the

- The structure of the US dollar's reserve status since 1971 requires low tariffs and free capital flows. And when Trump said that, oh, that 100% tariff if people try to move away from the dollar, like that to me was like a splinter in my brain 'cause I'm like 100% tariff if they move away from the dollar, like 100% tariff ends the dollar system as it's been structured. Like that is, you know, a 50% tariff ends the dollar system as it's been structured.

Because that's basically capital controls, capital flow. The way that system works, we send our factories and jobs to China et al. They make the stuff. They send us the stuff. We send them the dollars. They send the dollars back into our markets. Washington and Wall Street get rich. The rest of the country gets poorer on a real basis. China gets rich on a real basis, starts buying our companies back and telling our corporations what to do and buying our politicians. That's what...

the last 25 years have essentially been being somewhat flipped, but not that flip. So when you have a guy come in and say, I'm going to put a hundred percent tariffs to China tries to move away from the dollar. Okay. Well then that breaks that whole, like that, that is the dollar system, those flows I just described to you, and this completely stops those. So what are the implications of that? What does that mean? Breaks the dollar system changes the dollar system. Well, we kind of have an idea.

Because we got a dry run with Russia in 2022, right? We're going to sanction Russian FX reserves. The ruble will be rubble. Well, everyone looked at it and said, holy cow. And they sold treasuries and they bought gold at the central bank level at the fastest pace. Central banks have bought 1,000 tons of gold a year since we sanctioned Russian FX reserves. Trey?

Treasury holdings are roughly flat. They fell for a while. They've come back a bit with the dollars after the dollar fell from 3Q22 to 114 to 107 today. Treasury holdings have bounced back somewhat from a foreign perspective, foreign official perspective. But that gives us an idea. If we put 100% tariffs on people-

the first derivative thinking is like, oh, China's just going to starve. No, they're not. No, they're not. They're going to go around. They're going to sign different individual deals at different... They're going to net settle in gold at a different gold to oil ratio than London. They're going to drain London to gold. There's going to be massive impact. I'm not saying China won't get hurt, but this view of all we need to do to chip over China and their banking system is put these tariffs on them is stupid. It's so...

Unipolar, stupid thinking. It's big ego thinking. It's people here thinking, oh, well, we're the best. We're the greatest. And we can do anything we want to. And it's just so idiotic. It's so out of touch with reality. Oh, completely. Completely. So it would be very disruptive. But I think there is, like I said, there are these tactical impacts that we know. There's this structural dynamic that is huge. I mean, huge in terms of mentality.

not just how it completely breaks the flows that define the structure of the post $71 system, right? Where we're net settling in financial assets, right? Bonds and stocks that is broken. And so there's going to be something else that starts to be settled in. We're basing a hundred percent tariffs is take your capital elsewhere, go do something else with it. They're going to move to a neutral reserve asset because we know China's got a closed capital account. Yeah.

not going to let you buy Chinese government bonds to sell this crap. They're certainly not going to let you buy Chinese industry. It's going to be gold or increasingly in the last, it's been fascinating to me to watch post our conversation in July in Nashville, it's really accelerated. It increasingly looks like Bitcoin is sort of like the, at least a, if not the neutral reserve asset choice of the West. I got a tweet, retweeted it on Friday or Saturday. Like

Besant is meeting with Loomis. That's fascinating to me. That's absolutely fascinating to me. And she's saying, we're talking about a Bitcoin reserve. I would not have bet that that tweet would have taken place even a week before. So things seem to be moving really fast to your point about Russian language media came out this week, or two weeks ago, excuse me. State Duma introduced a Bitcoin reserve, all in Russian. I didn't see it anywhere on Bloomberg. I didn't see it anywhere on Reuters. I didn't see it anywhere on CNBC.

I had to translate the frigging article from Russian and Google translate, but there it is. And so think about the implications of the world's biggest commodity producer bidding for Bitcoin. Are you kidding me? Are you kidding me? The implications. Sell one of my Bitcoin. Preston Pysh : Insane that it's not even covered. Not even covered. David Collum : It's not even covered. And that's why I say that the big structural impact ultimately is, tactically, inflation, dollar up, disruption, whatever. Okay.

But to me, that's not the real, that's the warmup. Like to me, the main event is a hundred percent tariffs to force people from stop, you know, exiting the dollar system will instantaneously drive nearly instantaneously drive the ending of the post $71 system because the world is not going to sit and, Oh,

oh, we're going to starve because of these tariffs. No, they're going to go, hey, Russia, I see you're settling in Bitcoin. Great. Or gold. Whatever they got to do, they're going to move to gold and Bitcoin, some mixed way, shape, or form. And the reality is, is like gold and Bitcoin aren't priced in the correct zip code. Yeah. If this is even directionally accurate. Yeah. Bitcoin need at least one, a different digit in front of it. At least. And gold probably needs one too. But anyway, that's...

how I would answer that. Let's take a quick break and hear from today's sponsors.

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All right, back to the show. Let's look at this tweet you had. This one here is miraculous to me. Forbes, BlackRock recommends Bitcoin for your 60-40 portfolio. And then I'll let you talk your test here. This was so funny, the reply that you had. This is massive, right? Because I mean, for the listener that doesn't understand in the financial world how BlackRock is perceived from a, you know, you go to your ordinary everyday nonfictionist,

not analyst, but professional investment advisor. How does that person look at a recommendation from BlackRock as to portfolio construction and their recommendations, Luke? And then talk through your retweet and your comment that you had on this. Luke Gromen It's like the Pope, if you're a Roman Catholic. So much of Wall Street, traditional Wall Street is around managing career risk. And it's not polite to say, but it's true. I was

I gave a speech a year or so ago, and I was told, look, Luke, everything you lay out makes perfect sense. And my conclusion was basically about a year ago, buy gold, sell treasures, buy Bitcoin, sell treasures. And it's worked out pretty well. But again, 12, 14 months ago, I was told, look, if I...

and it goes down 30%, I lose my job. If I buy treasuries and they go down 30%, I keep my job. And so like the key, when I say it's like the Pope for a Roman Catholic is like when BlackRock tells you to do something, there is an army of financial advisors, et cetera, RIAs out there that go, okay, this is now- We've been greenlighted. I can point, well, BlackRock's advising it, so now it's safe. So I thought that was really big from that point. The lesser understood part

part of that is, remember, in Jim Rickards' book, Road to Ruin, 2014, he details a meeting in which he is sitting in, in which Larry Fink at BlackRock, the CEO of BlackRock, Rickards doesn't name this woman, but says he's basically, she's basically Fink's conciliar. And that this woman's job is the interaction between the US government and BlackRock. And the

that she tells Rickards that, oh yeah, like at a moment's notice, the U.S. government could tell BlackRock, stop selling. And it was the ICE 9. I think there's a book where Rickards coined the term, used the, I think it's Fahrenheit 454. Anyway.

the ice nine term, like freeze the markets, like just like stop. And so that, like, I think the whole BlackRock as, you know, Pope to the Catholics for sort of the managing of career risk for an army of RIA and investment advisors is somewhat well understood. I'm not sure it's as well understood that like BlackRock wouldn't do that probably unless parts of the US government at least were like, at the very least benign neglect, right? At the very least,

I'll give you another example on that. And what I mean by benign neglect, call it, I don't know, it was post, it was post 2014. It was probably 15 or 16. I don't know. I was told there was a investment fund that had done all the analysis on Russian bonds and objectively from a fiduciary responsibility, they were superior to some dollar bond. And so they,

were a big enough investment fund. Obviously, tensions with Russia were already high by 2015 or 2016. The fund went to their compliance department internal, which all big funds have internal compliance departments, and said, we are thinking of buying Russian bonds. We are aware of no sanctions by the US on these Russian bonds. Will you call your contact at Treasury and

and make sure that we're in the clear. This is what compliance does at these high levels. Compliance calls Treasury. Treasury says, correct, there are no sanctions that would prohibit you from buying these bonds, but we highly recommend you don't. And that was the end of it. The fund did not buy the bonds, even though there were no specific sanctions, and even though they were superior and beneficial to their clients. Carry that back to the BlackRock records, 2% in the Bitcoin allocation. Mm-hmm.

My read on that away from the career risk management, which I think people well understood for me, was an even bigger deal because I look at this and go, if the US government did not want that to happen, that would not have happened. Full stop. Full stop. I'm not saying all of the US government does. I continue to think there are multiple parties of sort of the Rubin, Summers, Walsh, what's good for Goldman is good for America crowd. And I think

And I think there's a growing what's good for America is good for America crowd. What's good for DOD is good for America crowd. And I think the what's good for America and DOD crowd has increasing sway. And I think the fact that BlackRock is talking about a 2% Bitcoin allocation is evidence of that. And so I thought it was a much bigger deal maybe than generally people sort of took it as, which is, hey, you know, like the Pope to Roman Catholics.

which is valid in its own right. I'm not saying that I'm not downplaying that, but I think there's an even bigger, once you get the inside baseball of what Rickards talked about with BlackRock and what my own personal experience being in this business for 30 years, I thought it was a bigger deal than that. Preston Pysh : So here's for people that are just listening to the show, this tweet that talks about BlackRock recommending the 2%. Luke had a reply. He said, "Okay, so is this a late stage bubble signpost?"

That's the first one. Is this a systemically important institution is advocating undermining the dollar? Is it that? Is this, it's not undermining the USD, it's supporting the USD, or they're trying to shift retail away from gold? Which one of these is it, Luke, in your opinion? That's the real question. Which one of those is it? Luke Gromen : Think. Preston Pysh : You think it's the first one, I think. Luke Gromen : Well, I think there's elements of all of it, right? Preston Pysh : There are elements of all of it. Luke Gromen : Right? Preston Pysh : Right. Luke Gromen :

One of the benefits of having as many followers on Twitter is there's a two-way flow of information, right? Like, you know, I can learn by what I read and I can learn by what I don't read. And I do a lot. Okay. Late stage bubble. In what? In Bitcoin or in treasuries? In treasuries. Yeah. In treasuries. Yeah. I think it's the treasuries of the fiat system. Bubble on a nominal basis or bubble on a real basis? I think a real basis. I think treasuries will be fine. You might actually make money. If the dollar goes down next year, you're going to make money in long-term treasuries. Yeah.

In dollar terms. In Bitcoin and gold and stock terms, you're going to get killed. Right. And so- In Bitcoin terms, you're going to get killed on anything other than owning Bitcoin.

So the second one was late stage bubble. Second or first one was late stage bubble. What was the second one? Wow. It's undermining the US. Yeah. It's undermining the USD or it's not undermining the USD. It's supporting the USD, which would be your tether discussion. Right. It's one of my favorite. I know a lot of people ask me, like, well, aren't you worried that it was a creation of the CIA? Right. And like they always have. I ever thought about it. Absolutely. I've thought about it. Yeah. Is it possible? Sure. I don't know. Yeah. But.

What I find fascinating, again, is no one ever pulls that thread. Like I say, pull that thread. Let's pull that thread. Let's pretend we know for a fact it's a creation of the CIA. I don't. But explain to me, like I'm a two-year-old, why the CIA would create something that, according to many economists, undermines the US dollar. Why would they do that? It's a fascinating question because it completely... I mean, if you knew the dollar was going to die one way or the other, then you have to replace it. So maybe that would be the argument, right?

That would be the argument. You can make the argument that what started as a small group is now a sizable group of professionals in the DOD and intelligence world that understand that this dollar system is actually crushing. It is a significant threat to US national security. It has crushed the US defense industrial base. That has been proven empirically by what happened in Ukraine, where we got outproduced in key military technologies by a country with one-tenth our GDP in Russia.

So yeah. And what's the fix to that? The fix to the dollar system and ending the Triffin's dilemma is what you and I've talked about ad nauseum. You have to have a neutral reserve asset that floats in all currencies. And arguably, if you're the CIA, using gold advantages the Russians and the Chinese more. Or some gold people say, look, the American gold's gone. Well, look, if the American gold's gone, you frigging better create something new. So there's a lot of ways you can take it.

None of which, you know, I don't know which one's right, but I know that all of them completely and directly contradict the sort of mainstream economist view of Bitcoin, which is interesting to me. Right. The third one was getting people off of. I think there's an element where they are getting off of gold. It does redirect some flows away from gold. Sure. I mean, I think that's empirically you can see that. Right. That's a fact. You know, to what end? Who knows? You know, is it because we want to use Bitcoin and we don't have any gold left?

Or is it because it empowers China and Russia more than us? Or is it so that the US government can wave it in and/or it can flow where it needs to go and then they're going to revalue it later? I don't know. I can make a credible case all three. I don't know. And then I guess, was there one other one? Or was that all? Preston Pysh : No, you got them all. Yeah, you got them all. Here's my final question for you, and it's super speculative and I want you to give me a binary answer. You don't have to, but I want you to.

Is the first day when Trump takes office on the 20th of January, is he going to use an executive order to establish a Bitcoin reserve?

If I was him, I wouldn't actually. Really? Yeah, I wouldn't actually. Talk us through this. Why would you say that? Only because... And you, I mean, full disclosure, you're a Bitcoiner. You have Bitcoin, right? Oh my gosh. It's like full disclosure, Bitcoin is my biggest position. I love Bitcoin. I think it's going a lot higher. Okay. And I also full disclosure, I know all the Bitcoins are going to freaking hate me for saying that. No, I love that you have a, you know, a contra take. Let's hear it. For me, if I'm him, I want to leave my flexibility open.

If I do it day one- Preston Pysh : So what you're really saying is you want to basically do the reserve without announcing to the world that you're doing the reserve in the background and then announce it after you've acquired a real position size. David Collum : That's how I would do it. I would do it that way. It's hard to imagine a way where he could get more favorable to Bitcoin without taking that final step of actually out there buying Bitcoin. The other thing, again,

I think moving to a gold or Bitcoin neutral reserve asset, like I said, this administration very much seems to be shifting toward Bitcoin objectively, which I think makes a lot of sense. As I've long said, Bitcoin does a lot of things that gold does better than gold.

it's an energy link, neutral reserve asset. That's what we need to sort of have this global economic Renaissance. So like, however it happens, I'm not religious or dogmatic about whether it's gold or Bitcoin. Like I just want what's best for my kids, for our country, for my compatriots, which is a neutral energy linked reserve asset. Okay. If I'm him, yeah, A, I can do it quietly.

quietly, but I think I just keep making positive noise about it. I mean, he's got a crypto czar. Aren't you allowing everybody to front run you if that's the approach? I'm hearing rumors that there are countries already front running us.

I hear the same rumors. I hear the same rumors. Yes. You are going to take heat for this online. I'm going to take heat for this one. That's okay. I think ultimately, the reason I say I don't think he's doing it right is that I don't have confidence that sort of the traditional economic advisors, I mean, get on Twitter and look at sort of every traditional economic person and what they're saying about whether strategic Bitcoin reserve is a good idea or not. No.

I'm not saying he won't ever do it. Day one, I just don't think he'll do it day one. But again, I would be happy to be- I think he is. I don't have great connections on that. I suspect he's going to sign some type of executive order to establish it. But as far as the teeth-

But on the execution of it, that's what I don't know. I'd have to go do a lot more research as to like, he can go out there, sign an executive order to basically encourage Congress to push something through. But I think Congress is the ultimate authority to get something like that established. Would that be your- So two things, and this is, I think, ties into why I think maybe he wouldn't is number one, he is a businessman, right? So he can do this one in two ways. He can announce it day

day one, and the market's going to run away from it. So how is that in the American interest? Hey, I'm going to do it day one, and now the market's going to run away from me and enrich my trading partner. Versus I have told you that we're moving in this direction, and then you can get more, you can wave more in, in a way that paints a picture for people. If he comes out and says, I'm favorable Bitcoin, Bitcoin's good, all the things he's talked about in the last six months,

and Bitcoin goes from 100 to 30, he looks like a frigging idiot. The market's saying, you're an idiot. In the meantime, if he talks more and more favorably about it, and Bitcoin just goes up and up and up and up and up and up, he looks smart. It's like me saying the sun's about to rise at 6 a.m. and pointing my hand and I'm going to make the sun rise, right? But I think from an optics and narrative perspective, it makes more sense to not announce it day one, continue to talk positively about it,

Buy it in the background and manage the chart as you talk positively about it. And then after the fact, say, "Hey, I have established a Bitcoin reserve," because then the market's going to run away from you versus doing it day one where the market… And there's some experience in this, and this also kind of informed my thought processes. Preston Pysh : Let me help you out for the people online. You're basically saying talk is cheap.

Show the proof of work and action first, and then talk about what you did, is what you're really saying, Luke. Luke Gromen : I'm saying it because we saw it in the '70s with the Saudis. When the Saudis are like, "We're going to start buying gold," and they announce that they're going to start buying gold, guess what the price of gold did? They never got to buy any. It ran away from them. And so you're better off managing that process. It's a political process. You can't just run it for the mean, so to speak. You actually got to do something.

Now, I don't think they're going to beat you up as much, Luke. I think that that's clear. Yeah. So, yeah, no, that's kind of the, as I flush it out, does he need Congress? I'm not as well versed on that. What I am, what I can say is he can do whatever he wants with the exchange stabilization fund. And the exchange stabilization fund releases a balance sheet once a year. And so anybody curious, like number one, ESF can do whatever they want in support of the dollar stabilization.

subject to only the approval of the president and the secretary of the treasury. Okay, we know Besant seems to be at least talking about Bitcoin because he was just shown meeting with Loomis last week. Okay, people can go back and look at the balance sheet of the ESF annually going back years. What they'll find is, I'm going from memory here, but I'm pretty sure that during the COVID crisis, the balance sheet of the ESF flexed up

From $90 billion to like $600 billion in assets in a year, no approval, no nothing, do it. Subject to only the approval of the president and the secretary of the treasury. So I think you could do it with ESF. And then you're like, look, everybody loves tagging along on a winner, right? Like if I'm the president and I think Congress may or may not approve it, like Senator Warren will hold it up, blah, blah, blah, great.

You know what I'll do? I won't announce it day one. I'll buy a bunch in. I'll let it run up. I'll bleed out that I'm positive. I'll buy it up with the ESF. And then I'll turn around and announce it. It will have risen by that point to some really big number. And now if Congress says, well, this is a bad idea, they're going to

they're gonna look like frigging morons. Why is it a bad idea? It's gone from 100 to 105 to 200 or 250 or 300 or 500 and the US Reserve is this, it's actually weakening the dollar against the Yuan while strengthening the dollar system because it's financing our T-bill deficits.

you're creating balance sheet capacity to finance deficits. So it's lowering rates, lowering the dollar against the yuan in a way we need to do to be more competitive while also strengthening the dollar system and pulling more global capital into the US. How is this a bad deal, Senator Warren? Why is this bad? How does this hurt the United States? And she's going to go, uh,

So I did a little bit of AI on this particular topic so people have a little bit of understanding of it. It says, "To stand up a Bitcoin strategic reserve akin to a gold reserve, the president would need more than an executive order. It would almost certainly require new legislation passed by Congress, providing both the legal framework and the necessary funding authorization. Without Congress buy-in, such a strategic reserve would not be legally or fiscally feasible.

I said, "How about what if it was an emergency declaration?" And then the response came back, "Even if the president were to declare a national emergency or invoke certain emergency powers, the authority to create and fund a substantial Bitcoin strategic reserve would still be heavily constrained." It goes on and on and gives a bunch of pretty insane that we can ask these questions and just get answers popped out like that. And I have no idea if that answer is right. I suspect it's pretty close. But for people that are curious, this is where the Lummis proposal for the

for the bill. And it seems like they might be able to get support for this based on how many Republicans are in the House and the Senate. So yeah, maybe you're right, Luke. Maybe this wouldn't be the best thing to come out and sign some executive order because in here, hold on, it was saying that...

the limited executive discretion. While the president can issue executive orders to direct agencies to study cryptocurrencies, develop regulations, or coordinate on digital asset policy, such orders cannot legally compel agencies to undertake large purchases of the Bitcoin. So basically he can charge them to do more studies and this kind of thing through an executive order, but to basically stand up the strategic reserve, you can't do that by executive order. So- Yeah, we'll see. I mean, it's like, I have no

have no reason to doubt that that ESF has very wide latitude like yeah he can buy gold he can buy you know if he can buy gold if it's in the interest of the dollar dollar system I don't know why he couldn't buy you know maybe require some sort of you know maybe you could maybe the commodity angle could work I

I just don't know what their discretion is as far as holding commodity. Does gold, the terminology that's used for them to buy gold, that would be maybe an angle for some of these- Preston Pysh : Gold, yeah. I mean, yeah, right? Because SEC has defined Bitcoin as a commodity, right? So you could, in theory, you go to the National Defense Production Act that Obama signed. That executive order, that can literally commandeer factories, commodities, your human labor. The National Production Act that Obama signed could literally force you and I into the army in an

He just has to declare a national emergency. It's incredible. There's some loopholes there, I think, that could be used. But to me, the overall flow, I think, stands. Preston Pysh : Yeah. I asked that. But they can buy gold and it's a commodity, so could Bitcoin fit into that terminology? And then I got a whole nother giant response here. "While gold is often treated as a commodity or monetary reserve asset by the US government, its status as a strategic reserve asset is grounded in longstanding legal framework and historical precedent. In other words,

the authority to hold gold in reserves comes from laws and policies specifically enabling the US Treasury to hold the gold. So it's not buying it, but these are some interesting questions. I think I like your points a whole lot more after kind of seeing what would that even do if he did an executive order? What would it even enable? So maybe it isn't the smartest idea. I don't know.

Yeah, I don't know. I mean, I don't think he needs to. I think he needs to keep talking positively and maintain that flexibility. Preston Pysh : This is going to generate some good conversation, I think. If you're in the comments after this comes out, we'd love to hear what you guys think. Luke, always a pleasure, brother. I'm obviously a huge fan of your newsletter. I learned a ton, a ton from this thing. What other things do you want to highlight to the audience? Luke Gromen :

You know, just if you're interested in learning more about it, just fftt-llc.com for more information about institutional and mass market research products. And as you know, you can find me on X at Luke Groman. All right. We'll have links to all this in the show notes. Luke, thank you so much for making time and coming on the show. It was great talking to you. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite podcast app and never miss out on episodes.

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