Liquidity, the Fed and where the market goes next: Yann Allemann

Transcript

We're in a very negative environment right now. This is over, it's just overly pessimistic for no reason. I will tell you that we had this exact situation back in April and people are also talking doom and gloom. The underlying narrative was saying something different. If you look at volatility skew, if you look at onchain velocity of money, it's actually high. Um, you look at the inflows of money into the system is also very high. I actually mentioned this in a webinar for those of you that haven't seen it. Willie and Henrik, we went specifically into the the topic of inflows of capital into the system. they've actually um inverted with a V-shape. So, there is rotation that is starting to happen. It just takes time for these things to play out.

>> The government shutdown is dragging on. Investor sentiment is getting worse and worse. And Bitcoin struggling price action is starting to get scary. Are things going to get better? Or are we about to enter a bare market? And when and how will we know? Hello and welcome to Milk Road Macro, the podcast that knows that when people say they want to get government spending under control, this is not what they had in mind. I'm your host, John Gillan. Today is Monday, November 3rd, and we are joined today by Yan Alamman. Jan is the co-founder of both Glassnode and Swiss Block. Glass Node is a blockchain data and intelligence platform, and Swiss Block specializes in digital assets and global macro markets. Jan has built an impressive career developing and combining on and off-chain data to equip investors with unparalleled insight. And

that's exactly what we're going to try to get out of Yan today. So, if that sounds good to you, make sure you like and subscribe. Share this episode with someone who is down bad and needs to be up only. Uh, and as a reminder, our Milk Road Macro team lives and breathes markets. Every month, we drop and share a a no fluff report on what's going on in markets. Uh, this month's deep dive is all about the AI rally. Is it real? Is it going to keep going? We say yes. The bull run is not over. Uh, so if you want to get the details on that, join our pro community. Get in on the alpha. Link for that is below in the show notes. And without further ado, welcome to Milk Road Macro. Yan, how are you, sir?

>> Hi. How are you, Jonathan? Thanks for having me. >> I'm really excited to talk to you today. I think you are sitting at the intersection of macro and and digital assets. A lot of people have a lot of questions about both things right now. Um and I thought maybe a good place to start the conversation would be with just your reaction to some of the the updates we got out of the Federal Reserve meeting last week. Um they announced another rate cut um to 4% and plans to end quantitative tightening as of December 1st. Uh at the same time, it also looks like there's been an injection of nearly now $50 billion of liquidity through the repo markets as of Friday and of today. um pal has been hawkish but it seems like the Fed is starting to pivot towards a more doubbish posture. What are your thoughts

on these recent actions from the Fed? How big of an impact is this going to have on the markets? How important is all of this right now? >> Yeah, so those are obviously a lot of different things um kind of wrapped up together, right? So I I would maybe separate out a couple of things. Um on Powell's discussion on Wednesday of last week, I think there was a couple of interesting um things that were mentioned there. like you said uh the the stopping of cognitive easing uh contract tightening which was now has kind of a target date um in in 1 of September of December sorry we have a situation where Paul is obviously in between things um when it comes from an economic an economic perspective and a financial perspective

which is the economy is obviously slowing down. you have a lot of indicators that some of the leading elements like housing um basically production right even in the ISM that things are slowing down potentially even um starting to to roll over but at the same time you have massive upswing in in in asset prices. So I think if you look at his overall um kind of tune and what he was really trying to get across is bringing some sort of stability and avoid a situation where you basically run runaway uh risk um in the system right with people bidding risk on assets in the hopes of of front running liquidity that would then eventually come uh towards the year and obviously

into the beginning of 2026. So I think he's in between a lot of very complex um things and I think nothing that he can do right now is gonna kind of put the genie back into the bottle, right? Which I think is the major the major issue that he faces when it comes to the repo side of the equation and quantitive tightening. I think it's always important to look at these things um in in separate in separate ways. For those of you or maybe for your audience that wants to have a better understanding of the banking system and how credit um is created um and and basically destroyed and also how credit leads to um basically effects in liquidity. I suggest you read um a book um called 101

central banking 101 which which is a massively I think foundational book um that actually teaches you what the what the Fed actually does. So I would always remind um let's say your your audience as well and people that I that we talk to that the basically the repo is a is a is a backs stop right it's a temporary back stop to be able to actually create liquidity from assets but that reverts at some point because you have basically pay back get the assets plus interest right um so it doesn't solve a liquidity crisis it tentially postpones it so I think in a general sense you have to really look at it more comprehensively as yes there is stress in the system. We know for a fact that private markets as well starting to see the early signs of

um stress, right? You see um this as well for instance in secondaries in private equity, right? With people willing or or larger entities willing to send uh to sell their positions 70 80 cents on the dollar, right? To be able to actually raise liquidity as they also start seeing the actual um let's say the return profile that they were used to over the last 15 20 years. So there's a massive shift happening. Yeah. the remains to we've seen how that actually plays into the risk. We don't see this as the end um of the cycle, but it's probably the beginning of um the last leg.

>> So, one of the things pal said in his remarks was that he views these as riskmanagement rate cuts and said that there is no risk-free path for the Fed. And I think that's spot on with your comments there and your assessment. Um yeah, they're trying to mitigate some of these risks. I want to drill down more on something you mentioned. um you in your analysis and and the the the remarks I've seen from you, you've emphasized this difference between a healthy economy and a healthy market. Um and you said that although the markets have been going up and keep going up, uh the economy itself is starting to slow down. Explain to our audience how you view both of these things and what are some of the indicators of health in the economy versus the market and why it's so important at this moment to

understand the difference between these things. Yeah, I think mainly taking a step back could could make sense here. Meaning you have to understand what let's say the GDP is actually comprised of, right? It's what is actually driving growth um asset allocation um capex investments and all these kind of underlying things that lead or leak into the real real economy that is basically or fundamentally jobs um job growth um savings right all of these things that impact let's say the the day-to-day lives of of of um US citizens and world citizens we have to remember that 70% of the GDP is basically um financial linked to the financial services um part right with banks um credit creation um

basically you know um things linked very very strictly to the creation and the contraction of credit and I think we have to always understand that that has or has created a massive shift in terms of the importance of the underlying um economy versus the actual impact and the and then the necessity of understanding um liquidity cycles to kind of use Ray Dalia's explanation the difference between the business cycle, short-term credit, and long-term credit. So if you compare today to let's say the 1960s or even the 1950s post World War II, the pro the the ratio the the the relationship between the manufacturing

um creation side of the economy kind of real products and and and let's say tangible services into the banking and kind of um services side of the equation has obviously shifted drastically right which means that on a on a day-to-day basis and I think even on a on a mid to long-term basis, it's much more important to understand what the actual credit cycle is doing versus the actual real economy. But at some point, the rooster comes home to roost, right? And that means that there's an intersection that happens again where the rubber meets the road, right? Where the creation of new jobs, the creation of basically the foundations that create stable um societies, right? That kind of keep the the engine running, right? of basically, you know, people taking out a

loan, going to college, looking for a job, creating actual um real things, you know, that eventually lead to growth and to create uh to to lead to other job creation. At some point, those those things uh merge, right? And they tend to merge when the perceptions of um future stability start to dwindle. I I myself and to maybe give a segue um I lived in Venezuela and Argentina during the the the crisis period. So um Kakolito in Argentina right during the the deep peg of the peso on the dollar and in Venezuela right before the hyperinflation. is starting 2007 basically the runup of the the the basically um um oil right which I think reached somewhere around 120 I think

maybe slightly higher than that and then these subsequent hyperinflation the collapse of the economy and and what's very interesting there is that there always was a deep between these things right where people started to make disproportionate amounts of money you had money flowing into the system you had more money chasing fewer goods which um over a prong period of time is inflation right? It's basically more let's say things that that can buy underlying products and services without actually having the ability to to have more products and services to buy. And at some point that creates it leads to a massive dichotomy. And that dichotomy creates all sorts of distortions. And I think that's why or that's what myself and Henrik were trying to get across, right? That even though people don't

really care about the business cycle anymore, they are right to ignore it for prolonged periods of time, but at some point these these things do merge again. Right? Because at the end what we saw as well during the co um years is that you can modify and change the supply side of the equation but you cannot manufacture demand. Just because you give somebody 5 grand uh into their into their savings account does not result directly in a 5k um worth of purchases in demand. Right? So there are massive um let's say there's a massive dichotomy between those two things.

>> Gotcha. So, I think this is a really helpful analysis of the relationship between the economy itself and asset prices. Um, you mentioned Hinrich Zeberg, who is a brilliant macro analyst, who has been a previous guest of this program. Um, anybody missed my episode with Hinrich, I highly recommend you go back and watch it because there's a lot of great alpha in there. Um, but a recent report that Hinrich worked on with Swiss Block uh suggested that the S&P 500 could go up as high as 7,800. Both you and Henrik have been calling for a blowoff top um to to start at some point soon. You know, you said we're not at the end, but this might be the beginning of the end. Are you still calling for a blowoff top? What is that exactly look like? And why are you and Henrik so confident that we will see a

blowoff top at the end of this market here? So I think when it comes to actual um predictions of of the actual level I think that's more on his side because I think that's more to do with his way of looking at cross asset looking at extensions right from a TA perspective which is a little bit different than what we do strictly on a on a systematic level at Swissblock. What we look at at Swissblock is like you've mentioned at the very beginning we do um we trade in global macro. So we have a global macro book cash equities and and crypto. So we have a fairly good view of how different assets trade with or against each other, right? So kind of lead lag relationships on on a larger scale. And what tends to be the case is that you've had I think

ever since late uh 2024, you've had the case of a gradual meltup, right? a gradual rotation into um risk which I think has been coming on the backdrop of of also larger entities things like family offices endowment funds etc having to also rethink the way that they actually invest right so the the classic endowment model that was based on in in part obviously the 6040 um equities um to bonds relationship etc is is out the window right because it doesn't it doesn't reflect let's say the riskreward that it um in in the 80s 90s leading up into the early 2000s. Um and I think this has created massive distortions right

massive distortions um to a level as well where people have realized that even in bigger draw downs like in March and April where the natural um let's say reaction to such an event is to sell was actually the realization that they were within two months underweight the index that they were benchmarking against right let's say the S&P as an example and the reason for this is that you had a massive V-shaped recovery right so as people were were basically unwinding their positions you basically had an inversion in a massive inflection problem in momentum right the reason for this as well there's obviously technical reasons for this one of the major ones being that in the US uh the major comp or let's say the major proportion of allocators um they do something called

taxos harvesting where the the trade-off or the opportunity cost of selling a position from a tax event is not beneficial most of the times unless you really think that you're going to have a 50 60% draw down most of the times it's actually not beneficial to do so. So there's a natural skew um or an incentive to actually allocate and not take money off the table, right? Because of that taxable. Um and this is mostly true around the world. There's obviously facets in and pockets um where the there's more tax optimization potential where that's maybe less the case, right? But the opportunity cost of not selling is much much higher. Um, and I think that naturally creates a risk on type of environment, especially on the on the backdrop of the biggest monetary

expansion that we've seen in history that was basically done with a misunderstanding of supply and demand. Right? So the understanding during COVID was that we had a a contraction of demand when in fact it was an actual um contraction in the supply side, right? due to artificial and also real reasons where you couldn't basically meet the actual um liabilities that were on the demand side and that created again the same kind of situation I explained from Venezuela right all of a sudden you have more money chasing the same amount of goods and services everybody wants the same thing you don't have to look further than Rolex Daytona watches right probably within a year year and a half doubled in price right across the board you have those massive distortions and I

that all of that leads into that risk on type of um perspective, right? Because you all of a sudden have larger disproportionate cash cash positions that all of a sudden you actually have the opposite issue that most people have, which is okay, what do I do with that money? Do I put it into gold? Gold is up 100% um annualized, right? Let's say if you look at early 2024, mid24 to now, it's 100% roughly, right? You have equities alltime high. You have Bitcoin that has been on a on a rampage for a while is now kind of settled down again. We'll probably touch upon that a little bit further down down the line in our conversation. We have like all of these weird distortions. Well, all of a sudden the pricing mechanism is out the window, right? Where this relative value perspective is really not there anymore.

And it is all about the growth narrative, the perspective of future potential returns based on how big the actual ten of that opportunity is. Aka AI, right? which is one one of those key kind of floating narratives that everybody just keeps talking about but nobody really understands the actual extent of that of that impact right the underlying um let's say underlying numbers on businesses how they can incorporate that into creating better growth better investment um and I think all of that is is kind of wrapped up into the into what you see in inflated asset prices um >> Gotcha okay >> yeah so there's there's a lot that goes into that but basically what I'm hearing you say is that there is a a common like people are not different. We kind of

behave the same way and there's a common thing that tends to happen at the end of these bull runs where a lot of money goes chasing after the same narrative. Things get really concentrated and then you end up with sort of these like distortions that we would call a blowoff top. Um I I want to bring this now back to an area of your expertise which is which is Bitcoin that you alluded to. Um and the reason why I was curious about this thoughts on the blowoff top is that it doesn't seem like we're getting one of those right now from Bitcoin. Um, and I wanted to kind of start as a way into this subject with your thoughts on the flash crash that we saw on October 10th a couple weeks ago. Um, the estimates of $20 billion of liquidations, over 2 million different positions uh in a

matter of hours. Um, you know, look, investor sentiment has been terrible ever since then. Institutional adoption though keeps growing. Uh, what are your thoughts on the digital asset space, particularly on Bitcoin coming out of this flash crash? Has this killed the bull market or do you think that Bitcoin is going to recover here? What are your thoughts on this event we had? >> Yeah, so there's been a couple of things. I'm not going to go into the details because I think they've been fairly well described on Twitter already. I think there's better people um that can explain the mechanics of what happened on October 10th. What I would like to do is to maybe give you a little bit of an understanding of how we see that impacting kind of the rest of the let's say the the upcycle that we see and what it is that we're seeing

right now since since that event. And I think there's basically two predominant um things that need to be taken into consideration. One is the fact that October 10th um wiped out a a massive amount of liquidity. Um especially obviously on the side of the accounts that were basically not necessarily gambling but were taking disproportionate risk in the type of environment that we're in, right? So taking leverage like anything that was 2x or above leverage pretty much got wiped out if you were doing anything other than Bitcoin roughly speaking, right? Maybe Bitcoin, Ethereum. Um but what's interesting in that event is that it wiped out about from what I understood about 1.5 million accounts independent accounts. So we're actively trading with significant size and you

basically overlap that in a s simultaneous manner with a exodus to a large extent of some of these um proumers and active large-scale traders that were basically rotating their capital into equity markets. Right? who were talking specifically um Bitcoin miners that were doing very well prior to October 10th. You had other other basically treasury um narrative type plays are also doing very well. Not to get into specifics and I think that that simultaneous combination um created a massive gap in actual liquidity that you would otherwise expect in these types of situations, right? So in the short term that's very negative because you have much thinner books. You we're much more prone to manipulation, right? and we're

more prone to the active continuous selling that actually has been going on. So what has actually happened before October 10th that a lot of people underestimate I think as well especially after the the event of early August when we had the last um high at 124,000 leading up into October 10th was also the persistent selling of large um basically OG whales that were starting to get out of position for probably to some extent the same reasons that I mentioned before but we're maybe willing to diversify or we're needing to diversify into things like equities uh maybe bonds right there that are starting become interesting now that the Fed is more dobbish on the long term, focusing more on, you know, propping up liquidity for the banking system,

especially regional banking system. The repo um or the reverse repo basically going very close to zero, right? All of these and liquidity question marks that come up that obviously put bonds, especially US bonds back into the forefront, right? In terms of from an investal kind of perspective, but at the same time, you have this massive giration. So you have these OGs that are selling there, from what I have seen, there's at least in terms of directional selling more than 33 billion only for the month of October, right? Besides what you saw on October 10th in terms of liquidations and um spot selling, even though there wasn't a lot of spot selling, it was much more um liquidations driven.

Um and you have simultaneously a new uh a [snorts] change of the guard a new guard that is coming in but doesn't necessarily have the um the need to do so in a in a in a subsequent fast manner. Okay. So you have like this girration that is happening with selling pressure one side and AC demand coming on the other side through ETFs and other types of indirect plays. Right. Um and I think what we're basically seeing the classic situation that we've seen many many times before so mid to end of last year where those forces are basically um um basically juxtaposing each other right until one of them wins and the big question here is obviously on one side when do these OG whales stop selling I think part of that is going to be the

the opportunity cost of equities diverging significantly from where Bitcoin is right now right where all of a sudden it's an opportunity cost to not have an exposure to Bitcoin that size and on the other side it's obviously the increase in money coming into the system denoted by the amount of money um that is basically being taken off the table in plays like gold equities especially the more high-risisk plays like Russell 2K um and some of the let's say tech techdri driven um narrative plays as well. So, we're looking at those two things very closely because at the end, I think the the the trigger point of when we see a a a a retest um of the um the all-time high set in in August, I

think it's going to be a combination of those two things. Um we're in a very negative environment right now. This is over it's just overly pessimistic for no reason. I will tell you that we had this exact situation back in April and people are also talking doom and gloom. The underlying narrative was saying something different. If you look at volatility skew, if you look at onchain, um the velocity of money, it's actually high. Um you look at the inflows of money into the system is also very high. Um I actually mentioned this in a webinar for those of you that haven't seen it with Willie and Henrik. We went specifically into the um the topic of inflows of capital into the system.

They've actually um inverted with a Vshape. So there is rotation that is starting to happen. It just takes time for these things to play out. Um, so we're not seeing an indication that we're going to see a massive collapse of the system just yet. I do think that the closer you get to that QT event, the more you need to start being risk off. Doesn't mean that it's it's in instantaneously on December 1st, but I I don't I'm not expecting an 18-month bull market. That's not what I'm what I'm after. As I've also said many times before in webinars, um, I'm not in the business of predicting. I'm in the business of understanding structure.

Looking at things from a volatility trend and liquidity perspective. Liquidity being specifically the combination of velocity of money. So how frequently people within the system interact with each other plus inflow and outflow of capital from the system. Volatility which is basically think of it like the energy in the system of buy and sell. Right? So the randomness the trend which is the direction. Combination of volatility and trend which is momentum. Think of it like the force um upside or downside depending on how it is and then the liquidity which is really the the amount of potential that is coming into the system. Right? Just because liquidity is coming in does not necessarily mean that you have a direct effect in price but the longer prices

goes down liquidity comes in the likelier it is for things to turn in a structural way. >> It's a very thorough answer. I appreciate that. There's a lot of helpful context in there. I want to take this piece by piece to help sort of like uh unpack this for the audience. Um I've been watching Swissblock's Twitter account um and kind of like looking for insights from you all there. I I've seen two price levels in the last couple of days come out. Um one tweet said that from here Bitcoin either reclaims 113,000 or short-term hodlers break completely. And then I've seen another tweet that said that 100K is sort of a line in the sand for Bitcoin for you all. Um Bitcoin right now has been ranging in this area. It's now I think it's around 105 106,000. Um so it's still within those bands. Which like

where did those price levels come from for you all? Cuz like you said there's a lot that you're taking into account when you're sort of like setting these things. Unpack for us a little bit like what's driving those levels? What are you watching for in terms of Bitcoin picking a direction in this tugof-war that you've described? >> Yeah. So I think on a um high level, let's say on a on a on a macro high level, what really matters um is understanding a couple of fundamental things on the onchain um side, which is basically the profit loss of different cohorts. So um understanding when let's say short-term holders have accumulated the majority of the tokens that they hold within let's say the last week, two weeks, 3 weeks, four weeks um versus

what they hold in the collective, right? over their entire lifetime in the system. And this is important because people or let's say market participants are generally very sensitive to events that are close to their cost average. Let's say if I put in $50,000, I make 60, right? So my 110, but all of a sudden it collapses back to 60,000. I first of all am very negative and pessimistic because I lost the ability to sell at 110. But more importantly, I'm getting very close to the amount of money that I'm putting in. So, I'm not I'm getting very close to being break even and actually starting actually losing money. So, it's not only the profit that I lost, but also the money that I've actually put in. And this becomes very important not in the short

term because people that lose, let's say, 110 and go back to very close to the money that they put in, they're not very sensitive to that money that they put in. But the longer that stays in that range, so you stay at the 60,000, you start going to 55, go back up to 62, maybe touch 48, so you all of a sudden you're in the negative. The longer that persists for, the more um sens basically sensitized people get to changes in price and they become very very elastic to those changes, which also creates them to become basically massive sellers or in an event where things become negative, right? And I think that's very important to understand. So human psychology um is very interesting because the more

something happens the more people get used to that new thing and they lose track of where they just came from. So even even in Bitcoin right we're talking about 105 107 110 if you look back 2 3 months ago we would have been super happy with 107 106 right so it's all a question of not the number but where we actually came from and how many times we've actually tested the conviction around this area and it just so happens that the actual cost spaces that is super important is between those ranges now that's the foundation right on top of that you also have like I mentioned before volatility which is the energy that is coming in of buyers and sellers Right? That randomness that happens of you yourself, let's say John coming in and saying, "I love Bitcoin. I'm going to buy it." I myself get, you know, my

wife telling me that I saw in a newspaper someone I buy some Bitcoin as well, right? So, two completely two different events that have nothing to do with each other, but create this direction, this directionality, right? Um, and the more that directionality becomes apparent, the more that becomes a trend that leads to momentum and then all of a sudden changing narrative and then you're basically back at Autom, right? It's it's interesting how these things uh tend to play out, but it is an understanding as well that within the range of 105 to 10 113, you're basically in a range where any change in perceived trend is actually really volatility, right? So, there's no indication that, you know, going from here to 113 that you actually have a new trend that is forming that will lead us um to an all-time high. That's why we we're very

we're very um um kind of sensitive to those to those pivot areas. Um but when it comes to 113 as well, we see that as a as a point where volatility really starts skewing to the upside, right? So as I mentioned before, what we're really in the business of and I think most um people that trade uh that don't trade in a in a um in a delta neutral manner, they care about the momentum, right? So it's trend and volatility was the two most important things. And we were basically looking for the the moments in the in the structure where there is actual momentum because that means that um once there's momentum it's like a juggernaut. It just goes right. It's like a currency. Once it starts trading in a certain direction with volatility with liquidity coming in and the

narrative that just converges it's unstoppable. Look no further than um April, May, June of this year, November of last year um January, February of 2024 as well. Right? So it's like when it goes it goes. Um. Exactly. So that's why those those numbers are very important. >> Gotcha. Yeah. This is really helpful to just not only hear what those numbers are for you, but hear your thinking about how you arrived there. Cuz I've been watching that 100 102k level as sort of like a line in the sand as well. There's a lot of moving averages down there that are like bull market support levels. Um but yeah, like for me, I've been watching 116K because um Bitcoin has tried I think three times now to break out of that while it's been in this range and been rejected. So for me, if that flips, it's like, okay, that

there's that momentum there. Um, but yeah, just really helpful to hear that there's a lot of like confluence around some of these price targets, some of the thinking that goes into that. Um, I want to drill down a little bit more on this idea you touched on. Um, Jordy Visser, uh, who's a previous guest of this channel. So, if anyone missed my deep dive on AI with Jordy, I'd highly recommend you check that out. There's a lot of great alpha there. Um, but this past weekend, he wrote an article on Substack that now has over 2 million reads, which is unusual for a Bitcoin paper. Um, but he talked exactly about this thing you're mentioning about Bitcoin changing hands from original investors to institutions. Um, he called it sort of like a silent IPO process and he says that this is a sign that it's a

maturing asset class um, but that the four-year cycles are dead as a result of this. And I wanted to kind of get your thoughts on some of these implications from this because you're you're saying you're seeing the same thing happen. What does this mean for both the short-term and long-term price action for Bitcoin? How does this change this asset? What should we expect in terms of different behavior from the market here? Yeah. So, I actually did read um Jord's paper, at least a good part of it, and I I definitely agree with a lot of um his kind of underlying thesis. We we call it something different or have been calling it something different for quite a while now, probably maybe the last couple of years, which is the change of the guard, right? So, we have kind of the old guard, which is the OG whales that were

um you know, that came from the kind of the cipher punk um era, right? that were very absolutist maybe um anarchco capitalist right very extreme in the way that they look at um the the let's say even the legalities around ownership of money how much the government should be able to intrude in in being able to actually influence your ability to own right um let's say something like bitcoin physical cash etc to an environment now that is becoming or that is prepping itself to accept this new wave um of investors right and I I don't want to call them necessarily institution utional or not because I think it's a combination of many many different things that are wrapped up in this sleeve that we call the ETF right let's say all the backdrop behind the

ETF and all the mechanisms that that funnel and flow into into those into those products um and what's very interesting with what Jordy said is that yes you have a change in the guard that change is happening very slowly I think we've been used to a certain type of pacing in in in in crypto especially Bitcoin over the last let's say um 8 to 10 years that is not necess necessarily the pace that the traditional finance um moves at. Right? If I'll use again the example of the family office, they don't just come in with 10% of their portfolio and put it into Bitcoin. It's a progressive iterative process where they constantly rebalance, reshuffle the way that they understand the underlying asset and how they trade off that

allocation versus other things that they do, right? And that is progressive. Um which also means that Bitcoin is actually becoming a real macro asset. Right. So when in the past things like the Having things like um miners selling off their excess reserves were important that is basically dwindling in comparison to how Bitcoin trades within a macro portfolio. Right? you you've now had let's say people on Twitter as well mentioning the fact that you know Bitcoin is becoming a little bit of a schizophrenic asset because sometimes it trades like um equities or specifically tech stocks sometimes it trades like gold right it's like all these different facets that that Bitcoin is going through because I think also allocators and portfolio managers are trying to

figure out how to incorporate this within their larger um set of assets that they right within their portfolio. Um and I think that leads it lends itself very nicely to the thesis that Jordi very eloquently has has put out. Um I tend to agree with a lot of it and we've been saying it for a very long time that we are in that transition phase. So that's why I think there is going to be a deviation um between let's say the traditional fouryear cycle versus whatever we're experiencing now. I would invite everyone to not be kind of you know hard set on predefined markers because I think especially the macro world is not predefined that is stochastic in a lot of ways right a lot of the interoperability of how these assets trade are um complex they're by

definition not predictable in a lot of ways um and I think it just yeah just kind of reopens Pandora's box for what is Bitcoin and how does it fit within a larger um kind of collective of of of of assets that you can trade in a macro loan. Um, which is obviously great because it means that there's new opportunities that arise for this. It also, by the way, sorry, opens the door for >> looking at Ethereum um as an independent thing, which we have not seen in a very, very long time. The last time we've seen this dichotomy between Ethereum, Bitcoin, at least on a um structural level in the way that we do analysis was back in 2017 during the launch. Um, [snorts] yeah.

>> So, well, yeah. So, I actually was going to I have a couple more questions about several things here, but um we're always running short on time, but since you brought up Ethereum, let's maybe hear more about that because that's something I've been curious about, too, is that, you know, tokenization is taking over Wall Street. Stable coins are going global. Um Congress is is considering passing this Clarity Act, which would bring a lot of market structure to um the the rest of the digital asset space outside of Bitcoin. um what are your thoughts on Ethereum as a network, Ethereum as an asset and yeah expand more on what you what you said a minute ago.

>> Yeah. So I think my what I would say about let's say that that premise specifically I think we have to go back to maybe understanding the the couple of of killer features that have been brought into the into the space right everybody's always looking for the next killer feature but fundamentally it has been stable coins and this um pristine um collateral that is bitcoin right so it is I think the killer feature of bitcoin is that it's a un um or or at least you cannot manipulate the underlying mathematics and the mechanics of it you can manipulate the short-term maybe medium-term price of it, right?

With with different mechanisms. Um, and I think the other major, let's say, killer feature um that was developed is obviously the stable coin phenomena. I think it's very interesting on on a macro level for a couple of reasons. what the US I think and and again I invite for those of you that want to learn more about this to read um central banking 101 because I think it sets the foundations to some of these um longer term um let's say hypotheses and and and theories about how the the system that we have now or the dollar denominated system that we have now how that evolves into potential threatenwoods 2.0 zero and all these other kind of constantly hurling around. H but it's interesting from a a couple of perspectives. The US I think for a very long time has had in

the back of its mind especially the Treasury in terms of who the marginal buyer of the the outstanding depth is going to be. Right? So you have um over let's say the globalization period of let's say early 2000s all the way to probably um 2015 arguably before COVID for sure um you had um China, Japan and a couple of other countries being net buyers. So US allies being deb buyers of US debt right through basically the issuance and the buying of of treasuries right long duration and even T bills right shorter duration things um but that marginal buyer has slowly gone away right due to many different factors one of them is the this tendency now to want to deolarize um trying to eliminate let's say the dependency of the dollar

um right not just because of um geopolitical reasons but also because of the access to um such dollars right look no further let's say to Venezuela in Argentina that have a hard time getting access to offshore dollars. Um, and what becomes interesting now with the stable coin phenomena, if you look at USCT, is that all of a sudden that marginal buyer of US treasures actually appearing where you can not only on one end monetize that further, but you can also reposition or reignite this dollar hedgeimony that has been lost over the last let's say the last 20 to 25 years, right? So it puts a really interesting kind of caveat into this question of deolarization and how long that's actually going to take because yes, China can be a net seller of of these of

these things and create short-term havoc, but there's now a system that is being put in place through stable coins that is actually absorbing all of that um as it happens, right? So it's a lot of really interesting things and I think Ethereum has a role to play in that in that infrastructure. um how far that actually goes and kind of that that classic question between internet internet back in the day right in the late 90s I think we're probably going to have that discussion again how much of that is done kind of closed loop within the banks how much of that gets anchored into a um you know immutable ledger that is unhackable basically um and I think that you know there's definitely those two utilities that get defined so Bitcoin is a a true pristine um kind of asset that is collateral pristine

collateral for the creation of a a an extension of venture resistance, not a replacement, but an extension. And the new railways that potentially could replace or support the Swift system in terms of moving money around, but also being able to support the monetization of debt, right, which is a key component of this. >> Yeah. And it's really been really fascinating to see how rapidly these two assets have sort of differentiated themselves in the market and um the the different use cases that are emerging for them uh and how vital both of them are becoming rapidly to the the global economy and markets. So yeah, I think that's something to pay attention to and watch how that develops because no one's quite sure exactly how that plays out or where all that value occurs. I also

really appreciate you, you know, recommending reading about central banks. I I do that a lot as well. I think education is really one of the most important things for all investors right now because there are so many things that are happening that are let's say you know tied to these larger systems or that are uh playing out in ways they never have before but are similar to certain things from history. So I I really uh appreciate you doing that because education I think is the greatest ally of any investor right now especially with all this uncertainty and fear in the markets. Um we're coming up on time here. I I don't think I'm going to get to all the rest of the questions, but maybe a good way to end this. Um, you know, you have spent a lot of time, as I said, combining on and offchain

data, trying to develop insights. You guys are very focused at Swiss Block on on macro analysis as well as digital assets. But I think a lot of investors get very confused and overwhelmed sort of by this landscape and there's all these different, you know, headlines in the news and major events that move the market and people can kind of get lost and distracted. between now and the end of the year, what are you giving most energy and attention to? What's the thing that should be most on people's radar? What are you paying the most attention to now as we go into the end of this year? >> So, on on on Bitcoin specifically or or holistically, let's say across >> either way, I think from a macro perspective, I'm curious your thoughts on that, but also as it relates to digital assets and Bitcoin, like either

way you want to take the question. I'm just curious like what are you most focused on going into the end of the year here? >> It's definitely the the liquidity side of the equation. So looking at um basically cross asset structure understanding how we're girating between risk on risk off what that actually looks like right so just because gold is being sold off does not mean that that rotates into risk on so there's like mechanisms um that we have to kind of keep in mind that exists right for that capital to kind of rotate into risk on the the most extreme version of that obviously being Bitcoin um and Ethereum and basically understanding how that how that cycle open the belt because I want to make this very clear, right? The the blowoff top concept I think gets a

little bit blown out of proportion. I think a meltup is definitely a better way of of of describing that. I'm not saying that we're going to go into a massive blowoff top and then in absolute collapse. I think there's many different ways that that can play out. I think it's more likely for it to end in a more kind of exponential type of move just because of the fact that if you look at let's say the the nifty in if you look at kind of from an equities perspective the more emerging market risk off type of plays like Nifty DAX um Nikk had that parabolic increase you've had that in gold right seems to be a nar like a general type of um kind of again as people chase the narrative because nobody really knows how to price these things um it kind of sucks in all the

liquidity. So I think there is a something to be said there. Um I think Bitcoin is right now being artificially um suppressed not because of like um nefarious um activity but more because of the fact that you have this generation. I think that's kind of throwing off a lot of ways in terms of how you can actually measure what's actually going on. I think it's it's it's you have to look under the hood. I think Swiss glass are perfectly um positioned to be able to give that perspective because it is a more broad kind of multi-layer type of view that you have to take. Um but I think that does um lend itself again as a kind of a beach ball pressed under the water, right? Like that Henrik always says as well. Um the question is once that selling pressure is gone and that that

let's say that opportunity cost of not holding Bitcoin because equities are significantly higher, we have more rotation out of gold. Um more rotation out of the NK, more rotation out of the DAX dollar, uh sorry, euro appreciating potentially, right? All these different things. What does that kind of lead to? I think that leads to a potential um squeeze. Now, is that an actual blowoff top? It could be. Um I think it's it's more likely to be that because we've seen that pattern in the cycle. But yeah, so long story short, we're looking at volatility, trends, and liquidity. So onchain is really really important here, >> right? Yeah. And you guys have brought in Willie Woo, who's one of the the legends of of onchain analysis to help at Swiss Block with that. Um Okay. So,

so what I'm hearing you saying is that you're watching liquidity. You're expecting a blowoff because that's what's happened before, but it could just be a meltup. Um, you're watching some key price levels, trying to stay data dependent and take the information that the market is giving you as opposed to being dogmatic about what must happen. Um, so yeah, really, really helpful on that. I think all of us are just going to have to keep a close eye on this cuz for the last several weeks, I feel like the market has felt like it's at sort of like a major decision point and is taking its time with that decision. Um, so we'll we'll see which way things go here. Uh Jan, this has been really helpful, really informative. I really appreciate the the context, the views you're sharing here. Um where can we send our audience to find more of you

and your work online? >> Yeah, we have a couple of things. So obviously, as you mentioned, Willie Woo, he's an absolute um expert when it comes to liquidity analysis. I think his his work is absolutely unprecedented. Like I cannot stress this enough. He's been doing this for a very long time. I think he's really gotten it down to a actual when it comes to basically profit loss and liquidity flows. Understanding the underlying fundamental mechanisms that drive um the system, right? Everybody keeps saying that there's no such thing as fundamental analysis. There is. It's just that this is not a company that has a cash flow balance, but it's a system, right? Where you're basically interacting and sharing resources, you know, market participants that come in and come out, right? So for that type of analysis I would um suggest your audience to go and look at the bitcoin

vector and the bitcoin vector light um that are basically you can find all of this under um swissblock.net net um slash um products so you can have all the different reports that we write and then we also have webinar series that we do every couple of weeks where we have Hrik myself and and Willie [snorts] um discussing just general um framework related topics um liquidity topics and how we see the global macro kind of cross asset um landscape then as you already see here I think there's at Swissblock um double underscore we have um negatropic which is my personal um and my co-founders which was also called Yan our Twitter account where we give just general opinions, right? More kind of mid to long-term um kind of, you know, with a with a kind of look look

forward window of about a month, month and a half, something like this. Um and then we have the actual Bitcoin Vector and the Altcoin Vector um Twitter accounts as well. So, Bitcoin Vector altcoin Vector, >> there's tons of great alpha there. I watch your guys' seminars and enjoy the content you're putting out. Um so, just keep up the great work and thanks for being on Milkard Macro. Thank you a lot. Thank you very much, Sean. >> Thank you. And thank you all for joining us. We hope you learned a lot and we will see you all on the next episode of Milk Road Macro. Thank you all so much. Bye. 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 [music] and Macro Pro newsletters. This show is for educational purposes only. Nothing

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