The AI and crypto collision course

Transcript

The Federal Reserve has finally started cutting rates, but Rectimber has been choppy for everyone. Are we going to Valhalla in October, or is the struggling labor market going to pull everything down? Hello and welcome to Milk Road Macro, the podcast that keeps the big picture in focus even when it feels like everyone else is going crossside. I'm your host, John Gill, and today is Wednesday, September 24th, and today we are joined by the big jug of milk himself, Kyle Reedhead. Kyle is an entrepreneur, digital asset expert, and the man making investment education entertaining and accessible to everyone. We're going to check in with Kyle, break down everything that's going on in the market. So, if that sounds good to you, make sure you like and subscribe. Share this episode with someone who's going to enjoy it. And I want to take a moment to remind you all about the Milk Road Macro

newsletter, which is amazing for resources for alpha and just updates on the market in general. Macro is confusing. We're here to fix that. The Milk Road Macro newsletter is your shortcut to understanding how the big picture is moving the markets. It's delivered straight to your inbox twice a week, no charge. Hit the link in the show notes below to get subscribed to that so you don't miss out there. And without further ado, welcome to Milk Road Macro, Kyle Reedhead. How are you? >> I'm great, John. It's nice to be back on. It's nice to be here with you. We're in Croatia at the moment at a team retreat, so we get to do this one in person for the first time. Uh, so that's exciting. And by the way, I got to say, this guy's crushing the Milk Road Macro podcast, is he not? Man, the episodes

are so good. They're so much better than I think either Jay or I could do on the macro side of things. So, uh, I'm pumped to have you in here and, um, it's been fun to watch. Uh, and then on the on the newsletter side, um, we were just on a call with Thomas, uh, who writes the the, uh, the newsletter for macro. He's got a big pro report coming out, uh, I think it's next week. Um, so we were just discussing a bunch of the charts. He's got like, I don't know, 50 charts. That guy's a whiz. Uh, and so just a lot of great things and I'm just excited to be learning macro from you guys and and be sharing ideas. So, it's fun. >> Yeah, it's a great time to be in the market as we were saying before the call. Um, and I'm glad to have you here,

too, so you can't get away. Um, so I want to start with the Federal Reserve. They've just started their cutting cycle. Um Pal referred to this uh 25 basis point cut as a riskmanagement cut. The betting markets are also giving over a 90% chance of another cut in October with two more expected before the end of the year. How important is this change in monetary policy in your mind? Is this a big market moving thing? Is this like a expected adjustment that's kind of already priced in? How big of a deal is this policy change? >> Um look, I think probably the the 25 base points has been has been priced in.

uh and maybe a few more after that. Uh and so like I don't think I never thought it was going to make a massive move in markets right off off the gate. Um however, I would say it is sending a message to the market. It is sending a message to to the world. Um Canada had been cutting rates for a while, which is where I'm from, and it had stopped. And I'm pretty sure I mean, we're in a way worse position than the US. We probably need to keep cutting, but we had to stop for a while. And I think literally it was because the US hadn't cut. uh and uh we can let our currency kind of like uh fizzle away basically. So now that the US decided to cut, Canada cut in the same day. Uh and so I think it sends a

message not just to the Americans of what your policy is going to be, but I think it sets a standard for the rest of the world. Um and allows other currencies to start to weaken as well because essentially that's what this is is going to do. So I think there are big moves that are going to happen here. Let's say there's probably two more to come for the rest of the year. So three in total. Same thing happened last year and you guys remember Q4 was a really big year. Um, part of that was because obviously Trump was elected. Um, but we had a few months there in Q4 and in Q1 where where markets went crazy. Whether that was because the rate cuts or not or because Trump was coming in, honestly, I don't know. Um, but I think obviously it's a good thing for risk assets seeing

rates get cut. Um, so it looks like two more till the end of this year, maybe three at least for for next year as well. Um, so that gets us I think the the expected rate is around 3%. Um, and so I think this is all good things for markets provided we keep inflation under control, which so far we I would say we have. Um, obviously we didn't get down to the goal that they wanted, which was 2%. But at this point, they've kind of said, "Hey, inflation doesn't look as bad as we thought. Uh, and maybe it's just kind of tariffs that's causing this, and so we're going to kind of flip over and we're going to focus on unemployment, which is beginning to go up a little bit. It's not it's not crazy bad at all in the US. It's way worse in

Canada, but I think that's kind of now their their new mandate, which gives them some room to to bring rates down. I think in terms of just like the strategy of what the administration wants to do, which is grow their way out, this is needed. Uh, and so I think we're about to see a massive tech boom. We're already seeing a massive tech boom. Mainly, I'm talking about AI, crypto as well, and I know we're going to talk a lot about crypto here in this show, but a lot of that needs debt, which means we need rates down, and I think that's coming. uh and whether it's just two more and then three next year or it happens to be more than that, I don't know. We'll have to see where things go.

There is a chance that AI really helps on the inflation side of things. Um I think typically in a where I think we're at the business cycle, which I know we'll talk about later, um but if we're kind of accelerating the business cycle, inflation should naturally grow up as well. Um the hope is that it just doesn't go up too fast like it did in 2021, but I don't think we have those same kind of setup as we did then. So, I remain optimistic on where markets are. Uh, it's been a great few years and I think that's actually going to continue. Um, I originally was saying, you know, maybe until Q1, and I actually am starting to think that this bull market's just going to keep going for a lot of 2026. So, um, I think, uh, yeah, these rate cuts are a good thing. And I

I I don't think it's a 25 bips cut isn't like your big your big move. It's not a big catalyst, but if we just continue to do that over time, it's kind of this slow and steady up and to the right, which is what we've seen for the last few years in markets, >> right? >> Okay. So, there's a lot in that framework you laid out there. I appreciate the the explation of your thoughts on all this. Um, to break it down into smaller pieces, start with some things here. Um, you know, like you said, I think a lot of people in the market have been anticipating that this change in policy would lead to, you know, a reignit reignition of the bull run. Um, and yet we maybe haven't seen that happen just yet. How long do you think it's going to take to feel the

impact from these cuts? Are we going to have to get into 2026 before that starts to metriculate into the market? Do you think it's already priced in now, but later in Q4 that'll come into play? What's your timeline on when this change in policy starts to really be felt in the markets? >> Right. I mean, if you look in in the S&P 500 or you look in gold, it's already happening. These things are just crushing through alltime highs every day. So, I would say it's it's it's kind of already playing out and has been for the last weeks. Um it sort of I think it was like end of July and August markets were kind of choppy. This is crypto. This was even the stock market. And now here in September it's been a bit of a ripper for for both gold and um and the

S&P 500 and the NASDAQ at least in the in the big companies. Um not so much in crypto but I think oftent times in this world crypto kind of just lags uh for whatever reason. I don't know. Often you know probably because it has these big moves and then just needs to consolidate. Uh, I know you were saying before we jumped on here, crypto has these big moves and then everyone levers up and so you kind of just got to like let that relax a little bit and usually what happens during that time is the other markets will move and then crypto will eventually catch up and and blow past it. So I think we're in for a very good Q4. Um, it's generally a very bullish time of the year. Uh, but especially bullish when you have rate cuts. Uh, and so I think we're going to

see it starting at least in crypto side very very soon. Uh, I don't know what it's going to take, but I think we're gonna we're going to see the dollar come down. Um, and I think the reason for that is, um, the US has held off on cutting rates for probably longer than they should have, although I know that's a debate, but I would say probably longer than they should have. A lot of the other countries have already cut and so now it's time for the US to cut. Looks like Europe has basically stopped. Uh, and so likely what happens, the Dixie comes down. And you know, you guys have heard us on the show a million times saying when the Dixie goes down, what happens to Bitcoin? It tends to go up. So that's kind of my thought process on what I think is going to happen here

in Q4 and probably extends into into Q1. >> Okay. So I want to I want to move on and talk about the markets. I have one more question about Jerome Powell and the Fed before we move on from this topic. Um so the the Fed's FOMC meeting was last week. Uh Pal came out and did another round of public comments I think yesterday. Um because it felt like he wanted to really clarify his position for the market to make sure people were clear on where he stood. He said that there is currently no quote risk-free path for the Fed in terms of their policy path here. Basically, what he's saying is that there are risks of inflation reacelerating and there are risks to the labor market softening.

Right now, in his mind, the risks of the labor market softening are are leading. However, obviously, they're in a tough position because if inflation does reacelerate, they might have to rapidly change course here. Um, what are you paying attention to here? What does that mean for the market? What should investors be expecting here? Because it it seems like the Fed is going out of their way to signal to people like, "Hey, we're not sure yet what our policy path is going to be." And no matter which way we go, raising, hiking, holding, there's risks of all of those things. How are you thinking about this and the position the Fed is in? What does that mean for investors? >> I think um the Fed has to say a lot of things to try to manage the perception of the market. Uh, and so I take what

the Fed says, what Jerome says, not that I I think he's a great guy and I think he's honestly done a a damn good job considering everything that's gone on over the last few years. Uh, but I do take what he says with a grain of salt. I think it can change pretty quickly. Who knows if he's still going to be the Fed chair, uh, you know, in a few months from now. So, I I don't know that I fully buy into everything that they say and every word they say, which I know the market loves to do. Um, I just kind of think I don't see a world where inflation really goes crazy. Everyone finds reasons to say that inflation is going to go nuts and we can't cut rates.

And it has not happened over the last, you know, two, three years that people have been saying this, saying it's sticky and this and that. And yes, we didn't get back down to 2% their goal, but you know, overall it's come down over the last however many years. And it's sure it's kind of slowly climbing up maybe, but it's very slow at the moment. And I don't see a big catalyst to move it. Everyone said it'd be tariffs. It hasn't. Um, and so I just don't see what's going to push that out of control yet. So I tend to think that the highest probability is that they're just going to continue to cut rates. Um, because they don't want to see unemployment get out of hand. Um, and I also just think you have a lot of push from the administration to cut rates.

You have a lot of push from a lot of big tech to cut rates because obviously a lot of them want to be investing uh in AI and data centers, etc. So, and and then there's also the competition right now that the US has with other countries, let's say China in this AI in this tech kind of race and you know that they need lower rates to kind of compete with this. So, I just think um I just think there's no doubt in my mind that that's where we're going to go now. I don't think we're going to go down to zero like we've been for many many years previously. Although maybe we do. You know, it's hard to say, but probably not. But I just think we've got a good, I don't know, six to 12 months before inflation should really get out of hand.

And so I think that gives us some time to cut rates and and go into a proper rate cycle. Uh I don't think this is just going to be a one-time rate cut or a two-time rate cut. I do think we're going to see this for the next, I don't know, at least 12 months. Um so anyway, that's kind of just where my mindset's at. Uh and I try to remove a lot of the noise because it changes a lot when you just listen to what what the Fed says. >> Got it. Yeah, I I think I agree with that analysis and I agree with that overall thesis on the policy path. I would just say for our audience, it's uh you know, Jerome Pal is communicating that he's going to be watching the data. He's going to be changing his mind based on how things develop and what which way

the market moves. So, I think this is a great time to pay attention, stay dialed in because it's not something where like it's really clear what the Fed's path is or what the market's path is for the next year or something like that. It's going to be monthto monthth sort of feeling our way forward here. Um so, I wanted to >> I just want to ask a question. Is there anything you disagree with there that I said? Is there anything you would say, you know what, I actually think the opposite? >> No, I I think that it's look, you know, it kind of depends on the speed if these things happen and what this data tells us. I think that there's a big I think there's a fear that Pal has that either inflation or labor is going to explode in a negative direction one way or the

other. And I think right now he's not sure which one is more of a concern. So, I think that that's what people are are watching right now. I have been much more concerned as I think you know about the labor data for a lot longer than most people have. But because the data has looked stronger, very few people have shared that concern. We got this major negative revision of like almost a million jobs were taken out of the data from last year to this year. And now a lot of analysts are saying that it looks like we actually might have gone through a recession in 2024 without knowing it. A lot of other people are saying we might be in a like a double dip version of that now. But with with economic contraction in labor data, it's hard to say for certain what whether or not

you've been in a recession until sometimes up to five quarters after it's it's happened. So given that that's circumstance, you know, you're you're making policy changes based on data. However, if the data is that wildly unreliable, your policy path is going to be off. So I think the only guarantee and there's like, you know, Milton Freeman won a Nobel Prize for an essay on this in the 70s. The only guarantee with Federal Reserve monetary policy is that it's going to be wrong. it's just not clear in what direction or how much. Um, and so I think, you know, for investors, you you just kind of like stay current with the market though because whether or not it is wrong, it is the information that all investors have to go off of. Um, so yeah, I mean, it's a long way away. I don't think I

necessarily disagree. I just think that we're all basing this off of assumptions that are based on data, which is maybe not the most reliable >> 100%. And I think it's only going to continue to get worse the data that we use. So, I agree. >> Right. Uh, all right. So, I think we've we've talked about Jerome and the Fed enough. I want to move on to the market, get your thoughts on this. You've already alluded to some things about this. You've talked about the equities market going higher, gold continuing to go higher. Historically, Bitcoin tends to lag these things, but a lot of people are now viewing Bitcoin as a major macro asset, a macro indicator. So, you know, when gold moves higher, when the stock market moves higher, eventually Bitcoin follows it. However, it's still been lagging. It's not crashing, but it's it's still holding around 112,000. How

long is this lag going to go on? Is Bitcoin going to eventually give up, roll over and go back below 90K or is it going to follow these assets higher? And what's the timeline on that look like? What's holding it down? Like what are your thoughts on Bitcoin right now? >> So, good question. I think um I don't think it's going to be very long to be completely honest. I mean, gold stock market both been ripping. Bitcoin's kind of sort of consolidating. I don't think it has a lot of downside necessarily left in it. Um Bitcoin has been so resilient over the last few years in this bull market. It's been very different than others. Usually it goes up like crazy, huge swings and then it comes down like 50 40% whatever. We're not really having that. So there seems to be this like kind of ongoing passive

demand for it. Um and of course as more funds and more institutions start allocating or increasing their allocation which I think is happening all around the world. Um I just think this thing has incredible strength. And so I do think you know typically coming out of these sort of like um coiling up uh or accumulation zones you can call it um the stock market or gold can can lead and then and then Bitcoin will follow. It's usually about like a month or so. So I think we're you know maybe a few weeks uh if that to to Bitcoin making its next move higher and going past I think 120ish K uh that it hit previously. Um and I think we'll continue to see that. right now unless something crazy happens like you said if if we see unemployment go crazy or we

see inflation go crazy we're sort of in this like up only zone where we just sort of like accumulate and we go up accumulate and we go up accumulate we go up and we've just been doing that for like two and a half years and I really don't see a reason for that to stop mainly because there isn't really this we're not having these big huge euphoric moves to the upside right we like it looks like we're going to go into them and then it just kind of chills right it chops around and then it we get it again, it's like this is what you want. The last cycles in Bitcoin, it's been these like really really fast moves and it's like, okay, at some point we're going to have a crazy pullback here and we're just not getting that. Um, and so it's like a matured version of Bitcoin

this time around versus the others. So I remain extremely extremely bullish in crypto in Bitcoin, sorry. And then in crypto as well. I think um, you know, crypto outside of Bitcoin needs a more risk-on environment, which with rate cuts, I think we're we're sort of moving into. we're going to continue to see growth in uh in economic conditions, too. So, I think we're we're in a great position for for a lot of things to do well, right? Gold, stock market, Bitcoin, crypto, the whole thing. So, um I I remain really bullish here and I think I think Bitcoin is going to do well pretty soon. >> Do you have a time frame in mind for a a top in Bitcoin or a target price range that you're looking at? Is that Q4? Is it Q1? Is it further? Like, what is your mind in terms of where you see the cycle

topping for Bitcoin? >> So, it's interesting. We've we've typically seen four-year cycles uh in Bitcoin and the four-year cycle in my opinion is not because of the having although that has obviously some impact but it's been because of the liquidity cycle or the business cycle. Now since basically the financial crisis 2008 for whatever reason it has been kind of four years that we've we've had these these liquidity cycles. Um some people say it's because the refinancing of debt etc. This cycle's been a little bit different because if that were the case these four years, it would be, you know, September, October be basically now. But this doesn't feel anything like the top of a of a cycle. If you were here back in 2021 or 2017, a whole different world when you get the top of cycles. Um, it

doesn't feel like that. It doesn't look like that on any of the macro data. Doesn't look like that any price data, the the TA, etc. So, um, I think we're in an extended e either it's an extended cycle or it is like we're in almost in a new cycle. I said this when the tariffs happened back in April. Um, and everything that went down with Trump back then was we almost like reset the cycle in the middle of the cycle. And so we either reset it or it's a net new cycle. I don't really know. Thomas has an opinion on this too. He's going to I think he's written about it in in the uh milk macro newsletter and we've heard a few others suggest this too. Um, and so in my opinion, we're actually basically set a new cycle with the low being back

in April. Um, and that tells me we've probably got a lot a long way to go before things get too crazy. And so I early on, uh, actually last year had this hunch and said, I think we're kind of like Q1 2026. I actually have a feeling we're going to extend way past that and we could go into deeper into 2026 maybe, and this is crazy to say, maybe into 2027. Um, but I think it's not like we're going to do that like a 2021 wildness of Bitcoin. It feels like it's going to be just like we've seen over the last couple years, which is honestly an amazing time to be in markets. Uh it just means you get to just be patient and you just get to kind of hold on to good assets, whether

that's your make 7, whether that's your Bitcoin or your your major assets in crypto or that's gold. Um and I think we're just going to see that trend uh go up over the next little while here. So I'm I'm kind of starting to for the first time look into second half of 2026. Um, obviously I'm always looking at the data and always trying to understand, but I just um not really seeing anything tell me that this should be done this year like a lot of people thought it would be and and even some are saying now. >> Okay. Well, I know she didn't give an exact price, so I'm going to let you off the hook on that one, but I do want to ask some questions about this business cycle that you've talked about. Um, a lot of people, analysts from Bloomberg, Mike Lee or sorry, not Mike Lee, Tom

Lee, uh, from from Bitmine have started pushing this idea that we might be starting a new business cycle in some way. Uh, just talk a little bit more about this and I'm I'm particularly curious curious about like the the business cycle historically for like the last I think like 20 years um, has been a very stable liquidity cycle of four-year patterns and now a lot of people are saying that that has been broken here. How do you see that playing out going forward? Are we going to have liquidity cycles? Is this a permanent disruption? Is it just like a one-off thing? And why do you think that this narrative of a new business cycle is gaining so much traction right now?

>> It's a good question. I think the reason why is typically the ISM skyrockets and goes kind of crazy and then it comes back down, right? This is the ISM PMI, I believe. Yeah. >> Um, so it goes above 50. >> Manufacturing. >> Yes, exactly. Manufacturing. So, typically it, you know, it comes down below 50. That's when we're in kind of our our bare market zone of the lower end of the business cycle. And then, you know, things start to pick back up. Usually, that's kind of around the time that you have rate cuts. Inflation tends to fall because growth is getting much bigger. We're accelerating. The economy is doing better. Uh, and then things get a bit crazy. Inflation usually goes too high. So, they have to start raising rates, slow down how much they're they're printing or the debt that they're creating. Um, and then we start

to go down and we get below 50. What's been really weird this time around is we've never been able to go and sustain above 50. We've never had that big move, which is probably why we haven't had this big crazy move in markets. We've had good big moves in markets, but not these like wild 2021 style moves. And so I think the business cycle was almost like maybe it's stunted. Uh maybe it's because the change in policy with with Trump coming in. I don't know the exact reason as to what happened here. Um, but we basically never got to have that big move where the business cycle picked up.

And so it's actually the longest we've had with the the PMI manufacturing under 50 I think the last maybe 60 years or something like that or since the 60s I think it is. So it it it's definitely a different environment. The question I have because I actually don't know the answer is do we then get the sustained uh business cycle above 50 which I do think we do but is it this like if you look at the chart of the PMI it's very fast once it goes above 50 and it really accelerates and then you see it come down and I'm just we haven't been able to get that and and I don't know why that is uh I guess maybe because rates have been quite high the dollar has been pretty high uh and so you know it's taken a while to get that all to kind of

come down and create this like better environment for the economy. So probably we do get that move. I just don't exactly know when. And so in terms of like timing and that it's hard for me to say. I do think that there is a world that is possible and this isn't the super cycle. So I'm not saying that. So don't get me wrong here. Um but I think the amount of spending and the amount of capex we are doing with AI. I think there's just not no limit but we're just nowhere near the limit yet. So there's so much more spending that they can do to keep growing and keep building new data centers and fixing what we need in the energy side of things. Like there's so much in this AI world that we have to just keep spending and that's going to create jobs and keep pushing the economy

forward. And so but at the same time it also might lose jobs. It might change the way that data functions and the macro sites. It's like I don't really know how that's going to work out. But I know that is the thing that you need to keep an eye on. That's the thing that makes me very bullish now because the administration said, "Hey, we're going to grow our way out of this debt problem that we have and the only way they're going to do that is with AI." So, I just think um there was a world where this whole business cycle can just be very much extended. The liquidity cycle can very much be extended because of this. The question is is how quickly does AI actually make as big of an impact as we need it to make? And that's the answer I don't know. Um, so this is why I'm I'm

more leaning on the side of I think we could see a very very extended cycle or these like mini cycles. Whichever one it is, I don't know. Instead of this big boom and bust, it's kind of been like this, you know? So, I don't know where things are going to go from here, but at the moment, I'm very bullish. >> Right. Okay. So, again, for the audience to to kind of synthesize this, um, what K what I'm hearing from Kyle is this idea that there's still bullish momentum. There's still a lot of opportunity in the market, but it's not clear exactly how a lot of these things are going to play out. So, it's just like we said about Jerome Pal, this is a great time to pay attention, to stay educated, to lean in on this because there's a lot of opportunity here, but

not a lot of certainty has arrived yet for market participants. So, so stay dialed in on this stuff. Um, >> and I just want to say and a great time to just be allocated to major assets and just sit on your hands. >> It is that's all you've had to do for the last three years. If you just owned Bitcoin, you owned the NASDAQ or or the MAG7. Choose whichever one you wanted. It didn't really matter. Uh, and you've owned gold and you just done nothing, you've done incredible. You didn't need to worry about trading and all this kind of stuff because we're just kind of letting the cycle play out. And this because the cycle's taking longer to play out, it just means there's more room for growth, which is fantastic. you know, um, interestingly, if you think about if the cycle did actually reset

like I was talking about, what's really cool about that is the cycle actually started at about 20K, I think it was 16K was the bottom for Bitcoin back in end of 2022. So, the start of the cycle, let's call it, was Bitcoin at 16 or 20K. So, okay, how much room can you go from there? 100K, 150, 200 were a lot of the things that were were thrown out, right? um it's like a a 10x in the cycle, which would be pretty good at this size of an asset, at least for Bitcoin. But if we did actually have this reset in April, then it means we restarted the cycle with Bitcoin at I think the lowest it got was around 80K. Maybe it tapped like in the high 70s.

>> And so now we're starting a cycle at 80K. Well, what does that mean? You asked about prices just a second ago and you said I didn't say it. Well, my original price prediction was around 150 to 200. And I'm still sticking to that. Not trying to say we're going to go higher, but there's a world where I see that we could. And it makes sense because we have this big AI boom, this big capex boom. We're going to have to spend a lot and and try to run the economy hot, which means like maybe there's a lot more upside than people really understand, which is hard for a lot of people. I mean, if you looked at tech companies back from 2000 to today, everyone said it was a top every single time and it never was. So, like maybe that's the world we're going into with

Bitcoin as well. Um, so yeah. >> Okay. So there's a lot of ideas in here. I want to kind of end uh this conversation talking about and getting some of your thoughts around the intersection of digital assets, crypto, and artificial intelligence. You know, you've brought up AI a few times and some of these answers. Uh maybe just step back and give the audience sort of your macro perspective on artificial intelligence right now. What are your thoughts on this and and what do you think our audience needs to know about where we are in AI right now from a macro perspective? Yeah, it's um so obviously AI, you know, if you if you're using it uh or your company is using it, it's going to change a heck of a lot of things just like the internet changed a heck of a lot of things. Um it's going

to be massive. I mean, we're at a retreat here with 30 something people from our company and a lot of our conversations and a lot of our discussions around how can we incorporate more AI because what it does is it hollows out companies basically making them way more efficient. I don't say hollow out, but it makes them a lot more efficient, a lot more profitable, which means that leaves a lot more room for the price of of stocks of shares to go up, right? If they're more and more profitable and so I think we're going into this sort of hyperscaling world of one in terms of like in of efficiencies, right, for for people, for companies, etc. But in order to do that, it just requires just such an amount of data, such amount of processing, of compute, of energy, of all these things

to make that happen. And I'm talking like ginormous amounts. Like you can't even really wrap your head around how big this is. So for an example, I think it's Facebook is building a data center in somewhere in the US. I think in the middle of the US, Ohio maybe it is. And it's as big the data center is as big as Manhattan. So like they are spending trillions of dollars and that's still early stages of how much they need to spend to build these data centers to power the use cases that AI is going to create which is essentially infinite especially when you think of right now we think of AI as you know a chatbot and I use it to do research or write some copy for me but where AI is really going is becoming the brain of hardware right so you think of humanoid robots that's

going to be one of the biggest products I think this world has ever seen you think about automated or autonomous cars Right? Tesla and and many of the others doing this. In a world where you have AI that can can drive a car, where it's much smarter than a human, it doesn't have fatigue, it doesn't get drunk, it doesn't get tired, all these things, all cars are going to go that way. And all labor is going to go in the way of of humanoid robots. And then you have drones and you just all the hardware you can think of that's going to require AI. And so it feels like we're using AI so much today, but it is I don't know thousandx like orders of magnitude more that we need, which means even that Facebook data center of the size of Manhattan, that's still nowhere near

enough that we're going to need. And so if you just think about how much capital is needed to build these data centers out, how many commodities are needed to build those out, how much energy is needed to build that out, it's just unheard of. Um I did a podcast with um Duncan uh and we talked a lot about this. I recommend this is on the Milk Road crypto podcast I believe that one went on. I recommend you guys check that out because he had a lot of like specific numbers about this, but it is one of the biggest trends and secular trends I think we've ever seen. Um and it's still very much the early days. Of course, it's going to have its kind of ups and downs and maybe the AI investment side of things feel a bit toppy at the moment and has been a bit

crazy in that world, but man, if you just think about how much we're going to use this stuff and again this I go back to what I said at the beginning of the show, which is it depends on how quickly we adopt this, right? That's the thing. I don't know. Like if all of a sudden autonomous vehicles work tomorrow and it just, you know, we proliferates everywhere, then okay, we've got years of this going still. But if it's like, you know, we kind of grow too fast and we don't get the adoption right away, um, which has happened with crypto many times, then we're going to need these bigger pullbacks. And so, um, I just think there's just so much room for this AI boom to run. Uh, and so it's it's it's a really exciting time to be involved in that.

>> Yeah, I think that there's this kind of mixed mindset that the market has right now of recognizing this sort of unlimited upside potential, but then also Sam Alman in a recent podcast said that even he recognizes there's a bit of a bubble. >> Exactly. a bit of a bubble. Um, how how are you thinking about the the the change in the Fed's policy and the rate cuts that we've seen in terms of how that's going to impact AI capex spending? Do you think that's going to increase and accelerate this bubble that we're seeing and all this, you know, like capital expenditure around AI? Uh, do you think there's a risk that's coming from that? Like it's going to, you know, we said we need to run the economy hot. Is there a risk of running it too hot? Like what what are your thoughts on that? Uh so I think exactly

what happened to crypto in 2021 and really I guess all stocks in 2021 which was hey we move rates really really low. We're going to take out a lot of debt. We're going to buy and we're going to lever up. That's what's about to happen to the AI world. It already kind of is happening in the AI world to be completely honest. Uh and so I think rates uh rate cuts are only going to extend that. So this is the question of how low do rates go. If rates only go a little bit lower maybe it's not that big of a deal. we don't end up having this like crazy blowoff top of AI and it doesn't make that big of an impact. But if rates do come down to three, two percent, that's a massive, massive amount when you're talking spending trillions of dollars. Might not be a

massive amount to like your mortgage if it's only, you know, $100,000 or $200,000, but when you're spending trillions of dollars, it is huge. And so I think that there is a world very much so where rates are going to come down. We're going to spend the trillions that I'm talking about, but a lot of that's going to be from debt. And that's where we're for sure going to have a bubble in AI. So, it's always when people hear the word bubble, they think that, okay, this thing is useless and it's a bubble. It's going to blow up and go to zero. Just like crypto didn't go to zero. AI is not going to go to zero either. It really is. You got to think of like two lines and it's like, okay, the adoption and the use. And then there's like the investment in the capital going into it.

And what I think is going to happen is I don't think the adoption, the use is going to go as fast as this capital's going to go, assuming rates go down lower. And so, you're going to get this craziness here. And maybe this is linear. it's probably more exponential, but this is going to go even more. And that's what creates your bubble where it has to come back down at some point to that line. Uh, and then it'll go up from there. So, we're going to get a pullback, but it's going to be much much much higher, I think. Um, my hope is that we don't get too levered up where it creates issues in the financial system, which tend to happen in the financial world. So, it probably will, but I have no idea the back end of that yet because I'm not involved in that.

But, we'll see what happens. >> Okay. I want to ask one more question about AI before I bring in some crypto thoughts on this. Um, a lot of investors right now, I think, are seeing what you're describing, the sort of alligator jaws of outperformance happening, but they're also struggling to find ways to get allocations to AI and to invest in AI other than, you know, just like buy Tesla or like some of these Mac 7 stocks. What are your thoughts on this? What should investors be paying attention to? Do you think it's a good time to just sit back and wait? Do you think they should look into the energy sector? How should investors be thinking about an allocation to artificial intelligence and participating in this?

>> Good question. I think the easiest investment if you're down for long term because I have no idea where it goes in the short term is to buy Tesla. Um I just think there is no there's no company that is using AI and all the different technologies whether that's robotics etc. um better than than than the way Tesla is right now. And so I think the upside of Tesla is absolutely unbelievable. And I think one of the things that people struggle with is well it's already a trillion dollar company or whatever and you know Apple and Alt Meta and all these they're already you know three or four trillion dollar companies and you know it's funny because back in 2019 I don't think we even had a trillion dollar company at that point. I think we're going to have a $10 trillion company and probably a 20

trillion company in the next few years. Tesla to me is one of those companies that I think can do that. And so I think there's actually still a lot of upside uh in Tesla. So if you want to get exposure to to AI, that to me is is probably the best way to do it. Of course, the make seven, whether that's, you know, Microsoft or um or Meta or Nvidia, you know, these are all great ways to do it as well. How high and what upside do they have? Hard to say. Don't know. But like we've seen over the last 20 years, these things are going to be the they have the most capital. So they can spend the most money on AI. I just talked about Facebook building that or Meta, sorry, building that Manhattanized data center. they are the ones that are going to capitalize on AI better than

anyone. And so I think it is a the easiest play is you just buy makeup, right? And let those continue to go. Um the other thing I'm excited about and this is again check out that podcast with Duncan is is Galaxy. There are these there are a few opportunities to buy some public companies that have data centers or exposure to data centers that are coming. Um and one like Galaxy which is still in my opinion very much underpriced because it's it's not really thought of as an AI company yet. it's more thought of as a crypto company which it is also a very good one of those two. Um so that's an interesting way to get exposure to to data centers.

Other than that there's really not a lot in public markets. You can look in energy. Uh you can look in commodities. Um but that's it's very difficult. That's a tough thing to do unless you're really uh experienced and and have a lot of like understanding in that space. Um, the one thing I am very excited about, and this is going to tie in our crypto that you're going to talk about soon, is we are soon going to have the ability, I think, to invest in private companies on chain. It's a very hard thing to do, not on chain, but I think uh what blockchain has enabled is for us to put private companies and the there is marketplaces for private companies today, but it's kind of harder to to get access to. You kind of have to be in the know. Uh, and once that goes on chain, it's going to

be accessible not to everyone, but to a lot more people. And so you might be able to invest in OpenAI and Starlink and I don't know whatever. Um so there's going to be a lot of other options for private companies in that world. So that's something I don't know when that's going to come. Robin Hood has already started that. I think you can get OpenAI on Robin Hood as far as I know. Um I'm Canadian so I don't really Yeah, it's not a not necessarily the the best version of it, but you have Coinbase, you have Robin Hood, you have Kraken, you have all these companies trying to do this now. So, I don't know how long that's going to take for it to be super legit and be like actually uh good exposure, but I think that's something to look forward to in the

next, let's say, 6 to 12 months hopefully. Uh and so maybe there's going to open up more doors for us to get access to to exposure to AI. >> Yeah. So, I think that there's a lot of supportive regulatory changes that have been happening in the United States over the last well, you know, since the current administration has come into power. Um, this is, I think, a great segue into what I wanted to ask you about digital assets and about crypto and kind of bring these two ideas together. Um, the SEC has announced plans to introduce what they're calling an innovation exemption for digital asset crypto projects to do a lot of the things that you're talking about of like private equity settling on chain tokenization. Um, and I'm interested to hear your thoughts on how you think this is going to play out in the market. Do

you think we're going to get a lot of new companies launching new ideas, new innovation in the United States or do you think that the bigger thing that's going to happen is a lot of companies that had to move offshore during the prior administration are going to come back onshore in the United States and start doing business here? How do you see this playing out in the market? What are your thoughts on that? >> So, I think both are going to happen. I think we're already seeing both happen. We're already seeing companies that, you know, crypto companies that left the US uh because they were afraid of the SEC coming back. I think the thing I'm most excited about and I really hope happens is we start to see a lot of innovation in the crypto space. Um to be honest, I haven't been super excited about the new

things coming in the crypto space for a few years now. There was all this like hype and hope back in 2021 and there were so many companies that were launching and I really think it was because of the SEC once they started putting out well notes is that it actually just stopped innovation for a little bit. And so we haven't had anything like I'm still very pumped about what we've created so far in crypto, but we haven't had a lot of net new things over the last couple years. And I really think that's because of the SEC. Um, and so what I'm most excited for is so new entrepreneurs to come and create something where they feel free to create it and they don't, you know, aren't afraid to go to jail. Also experienced really good entrepreneurs like the biggest entrepreneurs in the world that are already creating really

good companies. I think they've been afraid to come and and use crypto or innovate in crypto space. And I'm talking like maybe your MG7, your other big companies in the S&P 500, the in the NASDAQ or even private companies, a lot of them, which would be the best place to innovate because they have the money, they have the devs, they have the team, um, and they have the users, a lot of them have not been able to innovate in the crypto space either. And when I think about like, okay, who's innovating in the AI space? Yeah, there's open AI as the the net new company, but most of it is from, you know, X and from Meta and from Microsoft, the companies that have been in forever, but they weren't afraid to innovate in AI, so they can go and create all these cool products. We

never had that chance in crypto. And so I think now finally because of Trump and the administration and the new SEC, we're finally getting that. And so that takes a while, right? They've got to figure out what is it that they're going to innovate on. They've got to go hire that team. They got to go figure those things out. So I think we're about to see a proliferation of net new companies but also just existing companies start to innovate. I mean you saw it with Robin Hood this year. This was one of the bigger things that I think happened in the space is Robin Hood's going to launch a chain. They're building all these things on chain. We just talked about their you know bringing stocks on chain. So I think we're about to see I mean Stripe is launching an an L1 and they're integrating stable coins etc.

So, I think we're about to see a lot of new companies and existing tech companies really start to embrace crypto and I think that's where we're going to start to see some innovation finally. Unfortunately, that takes a year or two years to play out. So, we still don't necessarily see a lot of it today. Um, but again, just like we talked about with AI, maybe another reason why the bull market continues even further because we're about to create a lot more inefficient or sorry, efficiencies in a lot of companies as they integrate crypto and blockchain and stable coins and all that kind of stuff. So, there's a lot to look forward to. >> Yeah. So, okay, I wanted to bring this all together with a question uh that came up in one of our pro community AMAs. Um, which I think, you know, if you guys are not members of the pro

community, definitely check that out. Get plugged in there. You can get access to private conversations with Kyle and myself, other procreators much sooner. Um, but I wanted to bring this to our public audience because I thought this was like a really great topic to to kind of share with a a more public way. Um, the intersection that's coming between crypto and AI and where this is going to go from here. Um I think the way I wanted to come at this was uh yeah so like as we see this innovation happening and the SEC giving more permission to this and we see AI growing a lot of people are speculating and there's been a lot of speculation about this I think for a long time now about where the intersection of crypto and AI is going to be and what's going to be some of the

actual lasting use cases from this because >> obviously there's been a lot of things that have been tried. We've we've seen some products come to the market that have gotten some let's say hype for the moment but have quickly faded. What do you see as sort of like the the the target areas or the the places for investors to focus on as AI and crypto are both maturing and both really having the opportunity to innovate in in the United States for the first time together? What are you paying attention to? What's overhyped? What are people missing? Just tell me about how you see this intersection playing out from here. >> Yeah, great question. Uh if you were in crypto back in I guess Q1 of this year, 2024, Q4, there was a lot of this AI crypto hype. It was everywhere. There was a lot of talked about the tokens

were going absolutely crazy and I think basically 100% of it was pure hype. Uh there's basically nothing there. Um and if you are excited about AI, the crypto entrepreneurs are not the ones doing the best things on AI. I don't care what anyone says on this. It's like they're they're not building better data centers. They're not building better, you know, agentic AI. They're not they're crypto people. They're not AI people. The ones that are doing the best for AI are unfortunately or fortunately whatever the biggest companies in the world because they can actually have these data centers. They can spend trillions of dollars. These crypto companies can't do that. So um most of that stuff was basically just like taking chat GPT wrapping it in some app or some whatever and then sticking a

token to it. And that is very very useless in my opinion. Uh, in fact, adding a token to anything is not necessarily a good idea as much as crypto people will tell you it is. Um, because we actually don't really know how to use tokens that well for companies yet, right? It's very, very, very difficult. Uh, and so I I think the the combination of those two is actually mostly hype. What excites me about AI and crypto is how crypto can provide solutions for the AI world we're going into. Uh, one of those, of course, is having digitally native money or digitally native currency. Um, it's very hard for AI to take a $20 bill and give it to another AI, right? AIS are going to be working together. Um, it's hard for them to do that uh with the traditional financial system,

traditional financial rails. Uh, and so to me, it's quite obvious that they're going to use something on blockchain because then there's no um there's no borders, right? There's a lot less fees. It's it's immediate. Uh, and so there's a lot of reasons why they'll use whether it's stable coins, I'm not sure, or it could be something like ETH or Salana or whatever. I don't know how that world's going to go, but definitely it's going to use some sort of value that exists on blockchain. So, that is a for sure thing. The next one, and probably the thing I'm most excited about that feels like this one's very obvious to me, is we live in a world where we already have a lot of bots and fake content on on the internet. And we use social media obviously a ton. Everybody does. And with AI, that's only going to get way

worse. We've already seen it. If you're on Twitter today, it's the amount of bots that are on that thing is just insane. And one of the things that blockchain does is it creates uh digital identification and kind of digital verification. Uh and it does it via blockchain. And so that to me is going to be the most obvious sort of synergy between the two because I think we're going to use blockchains to tell us which accounts are real, which accounts are human, and which ones are are fake. We're going to have fake accounts or bot accounts, and that's okay. Not necessarily all bot accounts are bad accounts. Um, but I think it's very important at least as a human to know is this one human or is this one a bot, right? And we can't really figure that out unless we have blockchain. Same with

content. Um, it is very cool what AI has done in terms of being able to create a video out of scratch in one second, right? Or an image out of scratch in one second or take, you know, Drake's audio and make a new song with it or whatever. Like this stuff is interesting and very cool, but there needs to be ways to verify was that AI generated, was that not? I think the way we're going to do that is is via AI or sorry via blockchain. So there are already some protocols or projects you can call it in the crypto space that are sort of trying to fix this. Worldcoin probably the biggest which is uh one of the founders is Sam Alman. So it kind of makes sense.

Is that the end solution? I don't know. I know it's a lot of controversy on that one but I think it is very cool what they're doing and I think they're taking a very let's call it first principles approach to solving this. Um but there's others I know Coinbase is doing this. There's others that are playing around with finding ways to integrate digital identity using blockchain. So that's the thing I'm probably the most excited for. I don't know when that comes into fruition. It's not a thing that's going to happen tomorrow. Um but it's an obvious thing that's going to be a huge impact. Probably is going to take at least a year if not farther for this to happen though. >> Yeah. So what I'm hearing in this answer is something I think our audience would would appreciate is that there's now an opportunity an environment created where

there's a lot of capital being expended. There's a lot of regulatory accommodations coming. So, we're going to see a lot of rapid prototyping and AI. Something that that does is it allows people to spin up an entirely new business, an entirely new idea in less than an hour with vibe coding. So, we're going to see a lot of rapid prototyping and iteration uh and rapid disruption I think happening in this space as all these different projects and technologies are searching for product market fit. There's a lot of potential there. Hasn't really been realized. So, it's a great place to stay focused on as we're going forward here. >> And and maybe attaching a token to these apps is a good thing. Maybe the thing is we've never we've basically never proven that yet. Every time you attach a token to something except for like maybe five

tokens in this entire industry, it's been either a scam or a fraud or a way for them to ex, you know, take value from from the company. Um, now that's not to say I think that all tokens are bad. I think that part of the the issue is that the SEC hasn't allowed us to experiment and innovate with tokens, right? Just like we haven't been able to experiment bit innovate with crypto um tokens tied to regular companies. We haven't been able to do anything with that. Uh and so we're going to go into a world and I mean Coinbase just announced they're going to launch a network token and so you know we're finally going to get >> they're exploring it.

>> They're exploring it, right? They've been to launch it. Joe Luben, for example, is also launching a token with Lineia and and maybe MetaMask is coming soon too. um why hasn't he done that? Of course, he's wanted to do this. He's a crypton native uh person, but he hasn't been able to and now he feels confident in doing it. And so I just think having Joe Lo Luben and Brian Armstrong, the kind of grown-ups of the crypto space, finally be able to innovate on like what is probably the most important thing of crypto, which is tokens, uh, and be able to try to tie those to companies and and and not just blockchains, but like centralized companies like like MetaMask, is um I think we're finally going to be able to hopefully figure out how to do that in a way that makes sense for investors um and makes sense for the

the users and the customers um and make them not all just scams. So that'll come at some point. But again, what's the timing of these? I I don't really know. >> Okay. I just want to say a little disclaimer. The entire digital asset industry is not all scammed. Um so >> it is now. It is now. It is now. >> Okay. Uh so look, I have a lot of other questions I want to ask, but we're we're getting think getting past time here. So I just want to wrap this up with um some some take-home things for the audience here. Going into Q4, going into 2026, what is your personal largest allocation? Where are you most heavily positioned in this market? And is there anything you're thinking of rebalancing on or allocating more to just how are you thinking about your own portfolio going into Q4 this year?

>> Yeah, good question. So, I'm definitely very risk on uh and so most of my uh investment portfolio is in either crypto uh or or AI. Um and so the balance of that the bulk of my my portfolio is in Ethereum and Salana. Uh and then I would say Bitcoin is is also high up there as well. Um, and then a small amount in like, you know, other altcoins in the crypto space. There's not a ton of them that I'm I'm very excited about, but there's a few that I'm very excited about. Um, and then the the way I get my exposure to to AI is basically Tesla and Galaxy. Uh, and so those are a fairly big portion of my portfolio, but but definitely cryptos is is the largest for sure.

>> Gotcha. All right. Well, Kyle, I think we covered a ton of ground here. I think we moved from the Federal Reserve to the business cycle. We talked about digital assets. We talked about AI and how this is coming together. So, just thanks for coming on. Thanks for sharing your thoughts with the audience. Uh, and thanks for helping us fill in sort of the big picture at this uncertain time in the market. >> Glad to be here. Thanks for listening, guys. And glad to be with you in person. Man, this is great. >> Thanks. Thanks for joining us everyone. Stay safe, stay bullish, and we'll see you on the next episode of Milk Road Macro. Thank you all. Want insights on what's really moving markets and how we're trading each event? Subscribe to our channel, then join the Milk Road Macro and Macro Pro newsletters. This

show is for educational purposes only. Nothing we say is financial advice. Investing is risky. Never invest more than you can afford to lose.