The Exponential Age

Transcript

where we are today, where we're going, what it all means for us, where the opportunities are, cuz I know that's what you're after. And in the summaries in the beginning is like, I think this is one of the most skewed risk-reward opportunities we've had in crypto for a while. So, I'm I'm pretty excited. It's not a straightforward opportunity, but it's coming. Let's see if this will work. Okay. So, the everything code, just remember that because that's the name of my book and I'll plug it at the end. Um is all about this magic formula. Magic formula is that GDP growth equals population growth, productivity growth, and debt growth.

And as we know, populations are aging, productivity falls with an aging population, and we filled the rest in with debt. And what we need to understand is, okay, what does this all mean for us? And the key thing is everyone's saying we had the cycle and we're in the new cycle. Not that this really matters, you know, we've all had a bear market, we have to live through that [ __ ] but bull markets usually have huge liquidity.

And we've had very little liquidity. So, this is year-on-year liquidity in the US. It's the narrow measure, so includes the treasuries that the banks hold plus the Treasury General Account and the Fed balance sheet. And you can see we haven't really had a big rise in liquidity. Crypto prices came off the low when liquidity started expanding from the low, it's still negative. And then we've had this struggle where liquidity's gone sideways, but you can see in past bull markets, we have a full liquidity cycle, and liquidity is key to how you pay the debts.

So, if we zoom in here, again, you can see we never got that downward liquidity cycle, which is why the Nasdaq never corrected, but crypto did because there hasn't been enough And you can see the relationship here. Now, these things shift around over time, but here's the liquidity measure leading Bitcoin by about 90 days. And while it's not a perfect fit, it gives you a good sense of direction. And it kind of got the rise here in Bitcoin from the lows. It's still lagging liquidity. It's still a little bit showing those alligator jaws where it's not quite matching.

And liquidity, as you can see going forwards, still not great. So, I'm not kind of expecting fireworks yet, but also Bitcoin can decouple. So, we've seen that in the past as well. So, we have have to kind of wait and see. We're in a bit of a wait and see mode. Um and that kind of lack of liquidity that we've had, the ups and downs, is what's given us this bear market. The one measure I've started looking at now is also excess liquidity. This will explain to you why tech stocks went up and crypto didn't is excess liquidity is the extra liquidity in and above GDP growth. And what we

found is that basically, if you want to fund something like the AI build-out, you're going to need a lot of excess liquidity for other assets, for speculative assets or things further out the risk curve. And we didn't have that because excess liquidity, here it is against Bitcoin, has a good job of explaining what Bitcoin does. Now, excess liquidity, you can't probably see the scale very well, is still below zero, which means there's not enough liquidity above GDP growth to drive all assets up. So, which is one of the reasons why as the AI trade slowed down, Bitcoin went up cuz they're rotating liquidity across. We don't have enough

liquidity to drive two things. And this AI build out is absolutely massive as we know. But, we did get a two standard deviation sell-off across everything. Even crypto versus Nasdaq was a two standard deviation sell-off. And those are the things I look for because they're opportunities. And the liquidity had gone sideways in that kind of market. So, that's explaining what it is. It's a mid-cycle correction. Liquidity's been funky all year. It happened with a government shutdown last October. Then we had 10 10, which is our nuclear bomb, that kind of broke the crypto markets for a while.

Then we got another shutdown in January. Then we went to war with Iran. Then the dollar went up, rates went up, oil went up. This is not an easy liquidity environment. That's why it's been pretty tough for all of us to really make money here. Any focus of attention has gone on building out intelligence as opposed to inter blockchains. So, what happens next? So, we know one truth is that the interest needs to be paid on the debt.

Debt growth is not going up in the US. What it is is it's interest payments keep compounding. So, they're not borrowing more money necessarily. They're having to borrow money to pay the interest. It's paying your um the interest on your credit card with a credit card. And that's basically what's happening. So, this is liquidity against um the interest payments, and it leads it. So, you can kind of see what we have to do. We have to keep printing money. So, this is now the broad measure of liquidity, which includes the entire banking system. You can only create money in two places. One is the Central Bank, one is the banking system. And

Scott Bessent, um Warsh, everybody's have made very clear that really the next phase of all of this has to be the banking system increasing its lending. Because don't forget we've got record debt issuance coming out of the private sector um as we fund out this whole build-out. Plus we've got the government. So, we've got that competition for capital, the banks need to lend. So, that's got to happen. We've got to have more And for us, what matters to us for crypto is really we want that excess liquidity to rise. So, we're waiting for the conditions where that happens. And the conditions really are all about the dollar.

We need the dollar weaker. Now, the dollar's not super strong right now, but it's strong enough to tighten financial conditions, which leads liquidity, which leads markets. So, the dollar's been going up. Rates have been going up. Oil's been going up. So, that's a tightening of financial conditions. Um and we need those to dissipate. Now, we're coming into the midterms. We presume that somehow there'll be an Iranian resolution because Trump really wants to get the oil price down. They want to get rates down, and they want to get the dollar down.

And those are the things that we need to see that will then ignite more ability to take risk, for more capital to come into markets overall. But, I actually think the probability is is this is a super cycle. That this is a very different cycle than we've had before. And if you remember, the whole everything code cycle was based around the debt refi cycle. It used to be 4 years, it's got pushed to 5.7 years right now.

But we've got something else going on in the middle of this. We've got much larger forces at play. And we've got this whole interest payments that need to be paid. So, the super cycle is actually really all about intelligence. And the growth of intelligence This chart is an amazing chart. Cuz this is a log chart. This is Moore's law. So, it's kind of how much compute you get out of a chip idea. And then what happened in 2020 and 2021 as AI started, it went vertical.

And how I measure this from now, so there two different measurements. One's Moore's law, the other one afterwards is output of intelligence per unit of energy, which I think is one of the most or the most important formula for how everything works. Not just markets, not just technology, but how the universe works itself, which is a whole other thing that you'll hear about another day. But what we've got now is the first ever example of Reed's law, which is Metcalfe's law squared. It's never been observed in nature, it's never been observed in anything before. We've got it going on in intelligence.

The pace of intelligence per unit of energy is doubling every 5 months. It's simply staggering, which is why none of us can understand what's going on. We've actually shifted substrate of intelligence. All intelligence we've ever understood has been carbon substrate. Humans, animals, nature, all of that, all carbon. And we've jumped substrate. We're now putting electricity through sand, and it's a million times faster. Which is why this is happening. And intelligence builds its own intelligence.

So, once you understand, okay, this is the game. This is the biggest game in history. It's the biggest rate of change humanity's ever going to go through. It's the most important technology ever discovered. The it's all about this. And what I've started building is new economic indicators based around this exponential age when all of these technologies are going vertical because I think this is going to help us understand where this is all going and how this all fits together. And so, it's maybe a little bit difficult to see on the chart cuz of the light colors, but leading this is the intelligence curve that I showed you before.

Then it's the CAPEX curve. Leading intelligence is actually semiconductors. You order the semiconductors, you produce more intelligence, you start making profits, you start reinvesting the money, and you start building out data centers and CAPEX and all of that. We're in the middle of that cycle, and that chart should show us the way of what's happening with CAPEX, which is it's going to keep going. And then hidden on the left side of this is productivity. Productivity is the game we're playing here. We're trying to change the trend rate of GDP because then debt will grow less than GDP and GDP disappears as a percentage of

debt disappears as a percentage of GDP. We are seeing the first evidence of productivity coming into the economy. And I I see picture of it everywhere. But the most obvious one is corporate profits per employee. We plateaued for a long time, decade. And then suddenly it's ripped. Companies, and these are basically the um hyperscalers, have stopped hiring people.

In fact, many of them have let people go, but their profits per employee have exploded. That's productivity. And it hasn't happened to the full economy yet. It started with people who are using AI first. And we're starting with people like Amazon who started robotics earlier than everybody else. Amazon is like a working example of a economy that adopts all of this new technology. They started in about 2017-2018 to automate every single thing. And they're there with drones, self-driving cars, robots, AI, everything.

And what you've seen with Amazon is they stopped hiring people 6 years ago. And the number of robots um will overtake people at Amazon's workforce by next year. So, we're seeing extraordinary changes beneath the surface. I know nobody believes it yet, but this is what is coming. And then as these hyperscalers are making more money, what they're doing is recycling it into the biggest capex build the world has ever seen. So, these guys make huge amounts of cash flow. They're the biggest cash generating businesses again the world has ever seen.

And it's accelerating because of productivity that they're witnessing because they're using the technology that they're building themselves. You can see this self-reinforcing loop happening. And then they're going into debt to fund their So, they're using all of their corporate cash flow and more borrowing money. Now, people get worried about the borrowing of money, but these guys have 3 and 1/2% of their entire market cap in debt. They're barely in debt. This can go on for a very long time. And it's going to have to. This is already the second largest capex event in history.

The only thing that was bigger was the railroads, which was a 35-year capex. How long is this one going to go on for? Well, I'm telling you, if you understand that if intelligence keeps rising, then CapEx is going to keep rising with it. And this keeps going on and on and on. There's no end to the need for data center compute energy. That cycle is the cycle driving everything. Energy, compute, intelligence creates cheaper, better energy, creates more compute, more intelligence, and the flywheel gets faster and faster and faster.

In terms of adjusted dollars, it's actually the largest boom we've ever had, or the second largest again versus the the highways, but this is massive, and we've only just started. I think something like 30% of the data centers were supposed to be built this year got built because of bottlenecks. So, we've got This is going to go on well into the 2030s, maybe the 2040s. And, you know, we're going to be using compute and energy from space. We'll find it in every single place that we can. We'll be looking at all of this, every single com- component part of how we understand the world works will have to change to feed the beast, intelligence, because this is the biggest thing of all time. We birthed

apex intelligence. It's not humans any longer. It's AI. And the adoption of this stuff is also exhibiting Reed's law. It's gone parabolic. So, on the dark line of the top is the internet adoption. That was very fast. It was faster than televisions. It was faster than radio. It was faster than most things. Then the next one is blockchain. Blockchain was twice as fast as the internet at the time. And then AI, which is we've never seen anything like this. We've never seen an adoption of this scale before.

You know, the AI, don't forget, ChatGPT went to 100 million users in a month and a half. And it's now at a billion 1.1 billion users. I mean, it's simply staggering. And it shows you the demand for intelligence is infinite. So, where does blockchain fit into all of this? Cuz everyone's bored of hearing about AI and it's stolen our P&L and it's stolen everybody's attention and everyone feels miserable in crypto cuz of AI. The fact is is blockchain is the economic coordination layer for this whole digital age. It's like none of this can actually operate in the future. Feels like blockchain was built for this.

It's where everything settles, money, ownership, identity. We're going to have a lot of that coming up. Contracts and then agents paying agents. All of this is what we built. In blockchain space, we made the mistake or the not the mistake, it's just how it happened, of doing what the fiber guys did in the '90s. They built fiber before there was demand and before there was revenues. And we built block space and a lot of it.

But now, the demand is about to show up. And the demand is staggering. Firstly, stable coins. We all know about stable coins. This is a nice log chart of stable coin growth. You know, just by extrapolating out the current trend, we get to about a trillion dollars um by 2030 in 4 years time. And that's pretty good cuz it helps also um buy the treasuries that Scott Bessent needs to sell. But stable coins are becoming the settlement layer for the entire digital age.

Real world assets, we talk about this as well. Another beautiful trend where it's just going to keep going up. I mean, I first wrote about this in 2013 and 2014 where I said said before there was even smart contracts, I said, the entire financial system is going to move on chain. And we waited and waited and waited, and now it's coming everywhere. Um we're seeing pretty much the entire finance industry moving towards trying to tokenize cuz it's cheaper, faster, more efficient.

Um and that's the reason behind it. And the great thing is is they all end up having to use layer ones in some way, shape, or form. And that means the number go up over time because you're making demands of a network, and the network value goes up. And then we had the other thing, the new users. The new users are the agents. Early days. Don't forget, open claw only came out in what, November? And now they think there's more agents than there are human economic actors. Um not in not economic actor agents, but more agents than there are humans.

Most of the internet traffic is now agentic. That's wild. This happened in a very short period of time. More tokens are used by agents than they are by humans. as agents start scaling, and everybody's building this as we know, you'll hear about it, you know, the next 2 days here for sure, is this is going to change And why it changes everything is we always look at markets in terms of total addressable market, the TAM.

The TAM of everything that we've ever known in all of our history is one number, the population of the earth. At 8 and 1/2 billion people, we knew with the internet you get to about 5 or 6 billion, it's an S curve, it slows down. This has changed. There are infinite economic actors coming. So, if there are infinite economic actors, then the TAM has gone to infinity. And that's an extraordinary thing. And the velocity that this is happening, we don't know how many of the agents there are. Maybe there's a billion now.

Don't forget, we're all used to Metcalfe's law. We kind of understand these exponentials. So, we project out in our heads, yeah, well, maybe it gets to 5 billion next year. But, we're we're at Metcalfe's law squared. So, in which case, maybe it's 25 billion agents by next year. And if they're using wallets and a percentage of them are using wallets, maybe 1%. That's 250 million new people in the crypto space. That's a 25% increase in the total number of wallets.

I don't even know the numbers and I can't guess them because I don't understand Reed's law either. None of us do. So, listen, it's a very big deal. And it still, to me, continues this chart, which I've used for a long time now, which is where does the market cap of this all go to? And right now, we're at whatever 2 1/2 trillion dollars. Um, and you just follow the log regression channel, the Metcalfe's law adoption curve for crypto, and it gets you to maybe the in the next couple of years, assuming we finally get the bull market that we've actually been desperately asking for, we get to 10 trillion. Okay, that that would make sense, a 5x from here, 4x from here.

it tells you we get to 100 trillion dollars by about 2035, something like that. That means we're going to create 97 and 1/2 trillion dollars of wealth out of this space, which is a staggering sum of money. But, that's the game we're in. That's the buy and hold game. And we're getting into the exponential age where things start to really get wild, where you're adding now AI and robots into the equation and using energy yield and computer efficiency to drive this engine.

And we get to participate in this because it all uses this substrate, the coordination layer, the layer ones. That's where the action happens for me. It makes it very easy. And what we're also seeing is these massive forces of the cost of intelligence collapsing. The cost of solar, which is scaling massively. You've seen it in China, you're seeing it in the US now. It's just collapsing. So, you've got rights law going on everywhere right now with these double exponentials. And there's the exponential age index again that I showed earlier, the intelligence per joule of energy, and then the bottom is the cheapness of electricity. Now, electricity's actually quite expensive right now because we've got these bottlenecks.

Bottlenecks just mean everyone's going to spend even more money on solar, gas, nuclear, and to clear the bottlenecks because the race to intelligence is too important. So, what you're going to get is the multiplier effect of the cheapening of energy and then the output of intelligence. So, I think it even accelerates from here, which is sort of bananas. So, we've got these massive adoption trends ahead. The debt has to be refinanced, and we've just had our two standard deviation sell-off.

So, we kind of know what's coming. We know what's coming. We know the ages are coming, the financial system coming. All of this stuff is happening. They have to facing the currency. We've already had our sell-off. So, that to me smells like a risk reward. And how I deal with this is we didn't ever get to stand two standard deviations over what's in Bitcoin, but we did get to about one and a half oversold. And so, I just accumulate into these sell-offs to compound returns. So, that's all I did is bought in June and July, and also in about January, February, and just added and just held because I think the cycle is

going to extend. I think it's going to be a super cycle. I think it was a mid-cycle correction, and I think we've got a lot further to go. And the reason here is simple. It's like once you just put it on paper, the idiot-proof thing, it's what I would say is it's just [ __ ] obvious. You've got the entire financial system now building on crypto rails. That's not a this year thing. That's an every year thing for the rest of time. The entire equity market, the bond markets, the derivative markets, all of it is going to come on chain.

Then we're building a new financial system ourselves in crypto. That's on chain, too. That's DeFi and all the other component parts. And then suddenly the aliens have landed and we've got an infinite population growth ahead of us. This is boom times. We've got new people. And then on top of that, the governments still have to debase currency because it takes a while for productivity to grow enough that GDP that debt as a percentage of GDP falls. So, they still have to pay the interest payments. So, that's going to go on, too. So, that's another super wave. The wave we've ridden is debasement. And now we've got an adoption wave coming from every single angle.

And all of this is in the middle of the biggest CapEx boom in history. More money is going to get spent in the economy than at any other time. And the race is so big that neither China nor the US can allow the other country to win. And they cannot afford to lose. And it's important for everybody that we have two systems here because nobody wants one system dominating the world. So, there's infinite capital that needs to be spent on this.

And if that includes printing of money, if that includes any single way changing the banking system laws, doing everything, this is the game they will play. It's the game even Japan is playing. That's why it's steepening its yield curve. That's why it's been weakening its currency. It's all about reigniting the banking system, steepening the yield curve, and getting lending going. The private sector's been deleveraging for two decades now. And it's about to do the opposite. And that's a lot of money that's coming. So, I think it's the idea is do you not get it yet? This exponential age, the thing I've been talking about for a several years. I think I coined this in 2020 2021 where it's where it's going.

We're now in it. We're now in the acceleration phase of the whole thing. Everything is going vertical. And I know everybody in crypto feels like it didn't go vertical for us yet. It's so [ __ ] obvious. Anyway, hope you enjoyed that. The next thing is if you're more interested in this, I'm going to plug my book. My book is now is out. It's on pre-order now. And it is um out in November the 3rd. And it basically goes through the everything code, the exponential age, and the economic singularity, which is where we're all going. And how to sort of unfuck your future in the middle of that cuz it's a very complicated thing. So, if you if you enjoy any of this, I'd

love you to get hold of the book. Anyway, thanks so much, everyone.