Timing altcoin season with macro liquidity: Andreas Steno Larsen

Transcript

GM good morning welcome to the milk Road show The Daily crypto show that's more stable than Drome Pal's decision-making I'm your host Jay Hamilton and today we are joined by Andreas steno Larson CIO at steno Global macr fund also CEO at steno research a fellow podcaster and contributor over at real Vision guys this guy is one of the macro experts in the space today we're going to talk about you guest at macro we're going to talk about liquidity how can crypto and risk assets gain this year if we are not seeing liquidity increase we're going to dive into that and then we're going to talk about what are the different sources of liquidity that the government has to play with and

where might those flow into crypto we will talk also about can we see an altcoin season based upon the ma current macro setup what changes would need to happen in order for us to see an altcoin season now when you guys listen to today's episode we're going to be talking a lot of macro Concepts and how Markus react to that if you want to understand this deeper I highly recommend you go read a report that the milro protine wrote on February 1st it's called how to check the market pulse we'll throw the link in the show notes so that might give you a little bit more background more understanding of how macro Works today's episode is brought to you by consensus Hong Kong next week one of the best conferences in the space February 18th to 20th if you want a 15%

discount code hit the link in the show notes and use the code milk row to get 15% off off your ticket Today's Show is also brought to you by crypto.com credit cards one of my favorite credit cards you guys should check it out check out the link in the show notes without further Ado Andreas welcome to the milk Road Show thanks very much for having me Jay super excited to have you we just found out that you live in Copenhagen which is where I eloped and got married with my wife so I'm feel I'm feeling a connection already I'm feeling some good energy uh let's start zoom out um and give us sort of a the fourth grader uh background on how money is created in economies because I

think that'll help people get the base understanding of a lot of the discussion we're going to have today yeah so Jay earlier this week J Powell basically said that the quantitative easing a concept that was invented uh right after the great financial crisis would was not in play for the Federal Reserve until interest rates are back at zero and that message made the rounds on X on various media Outlets because you know the immediate interpretation from a lot of macro pundits but also a lot of investors was that okay we're not going to see new money this year but I think that's a a false assumption uh and it relates to this whole discussion on how

we create money in an economy because the Federal Reserve is not the only agent that can create money in an economy uh your bank Jay if you have a bank can create money uh the public sector um so in your case Justin Trudeau he can create money and those are basically the three agents uh creating money in an in an economy uh so the Central Bank the public sector and the private banking system so how does that work actually okay um a central bank is basically in charge of what you can call the base layer of money so they can create money out of thin air via for example this QE measure by buying an asset from a bank with new money uh they don't need an

excuse to do that they can just do it but in all honesty uh I've been working as a bank treasurer for quite a while a private bank can do the same you know a private bank can create money out of thin air so if you go there and ask for a bank credit uh if you're buying a new car if you're buying a new house they can create that money out of thin air it's not like they move it from one account to another uh as long as they keep their so-called leverage within the constraints given by the authorities they can actually create money out of thin air they can just put new money into your account um so that's a form of liquidity as well right if a lot of people go down in their local uh bank and ask for a credit they'll probably

get it given uh the current macro conditions in my opinion uh and that's new money created and then the public sector sector is actually also able to influence this uh picture um by running a deficit uh because if you run a deficit as a government um you basically borrow from future money and spend them today right um so that's moving liquidity into the uh into the present um and you know we've seen deficit spending all over the globe uh especially since 2020 right so that's been a major source of of of liquidity as well so if you look at these three agents fair enough Federal Reserve is not really willing to play ball right now they're not adding dollars uh but

the public sector is adding dollars still I know doge is trying to contain that uh but if you look at the private banking system as well they're also starting to add dollars again bya new loans to households to corporates Etc so I'm I'm not overly worried that we'll see an increase in in sort of the broader measures of money this year because of two out of three agents still adding okay so the question on on everyone's mind and the thing that I think our audience really understands is that more liquidity generally means risk assets increase so that's what everybody's sitting waiting for is you know when liquidity when are we going to

get more liquidity and what you're saying is one of these three agencies and I think this is an important concept because I think everyone focuses really on one of these agencies everyone really focuses on the treasury and what are they doing as if that is the only form of liquidity injection that we can get but you're saying there's these other two forms so what are the upcoming catalysts that you're looking at that could bring liquidity from these three different agencies so first of all in relation to the treasury as you mentioned we know that the debt ceiling is currently in place in the US meaning that they cannot issue new debt unless uh a deal is passed in Congress I don't

think the deal is around the corner so uh it's kind of the backdrop we have right now that they cannot issue new debt but the US Treasury holds roughly 800 billion worth of US Dollars idle at an account at the Federal Reserve so look at it this way the US Treasury uses the central bank as its Bank um basically as as you would right with your deposit as they have my bank doesn't have $800 uh trillion dollars sitting in reserve so uh slightly different bank account but yeah you'll get there someday M I hope so thanks man we'll all get there right yeah if we make the right investment decisions

we'll probably yeah that's why you're listening here we're gonna get you guys there no not Financial advice um but the pointing case here is that the US Treasury can actually add that liquidity to the private system by spending those dollars instead of issuing new debt and that's exactly what they're going to do over the next say six to eight weeks because they're not allowed to issue new debt and they're running out of Extraordinary Measures um so they'll have to spend the cash they hold idle and that's actually pretty good news um so that's one source of liquidity incoming um so just to be clear just for like a technical language here that's known as the treasury general account you'll often see TGA on Twitter uh that's what they're talking

about here is this this TGA account they're drawing down this account in order to inject and the reason they're allowed to draw down that account is because we've gone over the current debt ceiling which 36 trillion is the current debt ceiling is is what somewhere around there okay so they're they're allowed to do that and that is soon that is like is it already happening What's the timing for that um it's going to happen over the next six weeks so they'll have to exhaust so-called Extraordinary Measures before they uh use the money on this TGA account uh and they're roughly 70% there so we're talking a couple of weeks from now those starts okay and and on a um how much does this matter like uh on I think you know I'm sitting here listening okay great we're

getting six within six to8 weeks we're going to get more liquidity is this is this significant does this move the needle this type of of liquidity it it moves the needle on the margin um but it's not a biggie so the the main issue here is that we know that it's a temporary liquidity addition because this as soon as a deal is passed in in Congress on the debt ceiling they will replenish this facility uh so they'll basically issue money and then take money back into this facility uh so we know that it's a like six eight week phenomenon uh typically so it's it's a temporary boost um better than nothing but you know it's not

something that we can permanently permanently look forward to if you know what I mean um so it would be much better if we got some sort of permanent liquidity addition uh and I I struggle to see that permanent liquidity addition from the Federal Reserve this year given what J Powell said earlier this week about them not adding permanent liquidity unless we're back at 0% interest rates we have quite some room to get there um so our only hope this year is the private sector basically uh but I think we can rely on the private sector and that's why I'm pretty bullish this year so look at this way um there's a quarterly survey called the senior loan officer survey SLO is the

abbreviation great abbreviation yeah if you Lo if you if you SL you lose that's why typical saying around that survey because it's pretty important uh but it's a survey like asking households corporates uh Etc whether they demand more loans or not um and currently they do so you know the optimism is basically skyrocketing in this survey um when there's an extra demand for credit for loans it's typically because business owners households they plan on expanding something refurbishing something so it's pretty good news and this survey uh was

out just a few weeks ago and it kind of hindered that a pretty decent pickup in the demand for loans uh so we'll see a pick up in credit in in the banking system despite uh the lack of liquidity from the central bank and you know that liquidity is just as good as uh the other source of liquidity uh it might even be better right because you know if you take up a loan and you um buy a new Factory whatever someone will be in the receiving end of those dollars right or Canadian dollars whatever right um they'll get a deposit and they can by crypto equities whatever um to some extent with those dollars so it is an

addition to the liquidity pool uh just based upon a money Creation in the private banking system and I think that source of liquidity is your hope this year as an investor and so what is the timing and projections for for that what do you expect to see is that soon is that later in this year and does that does it happen in a short period does it go over a long period can you give give us some scenarios to map out what you think that could look like this year yeah um so first of all I think the banking system is much more friendly towards risk than it was just a year ago and it is driven

by first of all legislative changes up coming from the Trump Administration they're going to reimplement the Wild West in the banking system uh no rules no Capital uh go ahead provide loans um we want the Golden Age here and now uh so I actually think this is a story that will unfold over the next say two three four quarters uh on a trend basis U my best guess is that the cycle in um in crypto and macro generally speaking Peaks somewhere uh late Q3 early Q4 this year so we have a couple of quarters maybe three quarters of of very very decent growth in lending ahead of us uh which is good news um so I think it's way way way too early to call the Peak

in this cycle um and you know I don't know whether you share that sentiment Jay but I've kind of gotten the vibe over the past say six eight weeks that a lot of people think the peak is already in um I and I think that's wrong uh given how the business cycle and this whole credit cycle in private banking system is evolving now yeah it's it's a I mean part of me says that it's a it's a weird state that we're in right now where you have retail sentiment at such a low for a bull cycle but then I always remember like this happens we all get impatient especially in crypto right like crypto is notoriously impatient and

also notoriously very reactive to volatility and we're in the most volatile asset market so there you kind of have to you have to remember remember that pullbacks are normal doesn't mean that it's over and I I completely agree I'm still very bullish on this cycle I think we're just in a standard bull cycle pullback right now but at the same time a lot of people have altcoins and you get wrecked when you own a lot of altcoins and you go down the risk curve and so I think there's also there's a lot of people that are down bad and there's a lot of pain out there which is what leads to these really heavy negative sentiments that we see but then on the flip side like macro looks great and then institutional s sentiment is

also really strong whenever we have anybody from the institutional side on the show which we do all the time they're they're sitting there being like we've never been so bullish all of our clients everybody's feeling great so completely agree yeah but I'll give you this a piece of anecdotal evidence right I'm running a global macro fund uh and it's not our bread and butter to trade crypto but you know we we've dipped our toes here and there crypto at least in directly via equities and you know I think that's the sign of the times we're in institutions are getting more and more interested in this space and they are a lot more sticky buyers than retail buyers so you know um I I agree perfectly with what you just described

here that the institutional uh sentiment is much better than the retail sentiment but I also kind of get the vibe that you know the trumpcoin uh they F noise terrible attempt of launching a mem coin as well you know the some of some of these um ill-timed attempts of launching beam coins and uh the subsequent failures they haven't done a lot of good for this uh for this space over the course of the past eight weeks so you know the sentiment in retail is probably driven by that as well more than yeah because that's what that's what retail is buying right and so yeah you'd also be pissed if you bought Trump coin and then lost a bunch which a lot of people

did or you bought jail stool and I mean that's why do not buy this stuff with like you know you want to buy this stuff and trade it 1% of your portfolio go ahead as long as you're willing to lose it but if you're buying it with a large chunk your portfolio yeah you could lose all your capital and then you're yeah then you're down bad and really stressed out okay uh let's come back to so treasury you're thinking shortterm a little bit of liquidity from the draw down the TGA longterm not very hopeful we're going to get much from them this year private banking system you're feeling pretty good about thinking that could be that's the main liquidity driver this year what about public system anything that we can get from that agency this

year so you know if you look at Elon musk's project right now of um yeah basically trying to increase efficiency in in in the public sector uh that's not going to add liquidity but it's going to bring bond yields down and fond yields are very important when we talk about liquidity uh because ultimately if bond yields drop it's easier for banks to borrow against the value of those bonds that they hold um and you know that essentially means that it's easier ultimately for you to get a loan in the bank and it's easier for a corporation at um to get a loan in the bank and all

that so bond yields coming lower as a consequence of what Eland is doing right now is ultimately a very very bullish thing uh but it probably requires some pain in the in in the meantime right so you know I'm I'm very upbeat on that Doge project um you know I know you're a Canadian I'm I'm I'm Danish so you know a lot of the other stuff happening in the Trump Administration right now about claiming territory U I don't feel too happy about not really down with that I don't want to be the 51st state no thanks Trump uh and I don't think I don't necessarily think that the whole world wants that either it's just Trump being Trump and being a bully in negotiating tactics

right if you are looking for a crypto credit card some way to spend your onchain money some way to get more money onchain by collecting cash back in crypto highly recommend you guys check out the crypto.com card it's one of my favorites in the space tell you why no annual fees love it uh access to airport lounges if you have certain levels of the car I have the icy white card so I use it when I travel to get access many perks Netflix subscription uh Spotify subscription check out the link in the show notes to get your crypto.com card today yes exactly maybe he he can get Greenland if the price is right oops

there goes my lighting um but but if the price is right he can get Greenland I think that's fine um that they they even wanted themselves but enough about that the Doge project is designed toing Bond deals lower uh I think the administration will have quite a few uh tricks up their sleeve in terms of trying to bring Bond deals lower some of them are very very technical in nature um but Scott bessent the new uh treasury secretary uh I've known him for a while um very very very good guy and he he knows how to play markets and he knows how to bring deficits down he knows how to bring bun yields down so all in all uh I still think it's it's decent assumption that the Trump

Administration is pro crypto I think it's a decent assumption that they're Pro markets uh but all of this noise around tariffs and uh territorial gains and all that um forget you know breathe easy and stop listening to it because it doesn't really matter all time really okay so you think it's just noise you're not you're not worried about tariffs and I mean tariffs is feels like the one number one thing that people want to talk about these days yeah but it it's it for me it's noise in my investment process because you know I first of all I don't feel like I have an edge in forecasting the next step on tariffs right uh and who's got an edge in forecasting there yeah yeah and and secondly um you know this concept of reciprocal tariffs announced today right

um I am of the view that it will lead to raise to the bottom on of tariffs on tariffs and I know that's a very contrary in R uh but look at it as tax competition um we've seen a race to the bottom on on corporate taxation uh within Customs unions before uh and if we get some sort of like Global tit fortat terrorist War it will ultimately end in a race to the bottom yeah rather than the race to the top so I think the end game here is is is very benign uh but it yeah in the meantime you'll see loads of stories you'll get some draw Downs in crypto because of tariffs headlines but buy when you see that

don't sell okay so you mention you're you're bullish right now you're feeling you're feeling pretty good any any factors that we haven't touched on from a macro standpoint that are making you bullish right now well if you look at the intersection between macro and crypto uh I think we're basically at a crossroads right now in terms of the adoption of crypto from treasuries and from central banks right um so we have a few countries on Earth already buying uh we have plenty of countries on Earth investigating this topic uh and I can

assure you even in Europe This is starting to become a topic uh the Central Bank president in Europe Christine lagard uh the Frenchman was asked about Bitcoin during her latest pressure you know we've basically never ever heard a question on bitcoin during an ECB press conference before that was a newcomer uh she handled it like a bureaucrat so her answer was terrible but you know it's it's the first sign of um you know something moving here uh and I think you know when we get to the phase where technology and well the underlying technology and the crypto uh coins themselves will be adopted by the

official authorities I I guess that interim period is basically where you you'll make the most money right um once it's adopted fully might be it but we're not we obviously not there yet uh only one country on Earth really truly looking at it right now uh so I think this is a really really interesting backdrop yeah and I think the question on everyone's mind is you know how when does this happen and how quickly does it happen and nobody nobody has a crystal ball on that but it certainly feels like the all of these large institutions governments Sovereign wealth funds are very aware of it in terms of Bitcoin

they're all aware of it and once one does it and they're already and and let's there might already be countries doing this we just don't know about it right I think that is quite likely that it's an arms race right you have you have a limited Supply asset that you would be everybody will have to do it there is no there's no choice and we're really already in that phase of it's just it's just not public it's not publicly being announced yet so I think I I I think that's here we are it's now and then at the same time it keeps coming back to this this incredibly negative sentiment in the space right now let's talk about the flow of so so you feel good about liquidity coming

this year still that's great let's talk about flow of how that flows into crypto and in particular we're talking about Bitcoin but in particular altcoins because altcoins are really getting crushed right now uh they are you know down most of them are are down I mean they're they're kind of ranging and bumping back up but a lot of them are down quite bad particularly if you're down the risk in AI coins or meme coins um H how do you time altcoin based upon altcoin season based upon macro do is and do you think we still get an altcoin season or does Bitcoin dominance just continue and we're in a totally different cycle you know so in full transparency in my personal account I have zero Bitcoins and only altcoins so

thank you for reminding me about the most recent sell off um I I'm still very bullish on the altcoin season and as a macro guy I tend to look at the most important gauge of the so-called business cycle the ISM Manufacturing PMI as my guiding star for the old coin season um the manufacturing PMI is you know it's kind of a boomer concept right you uh you call up uh Supply managers or purchasing managers at various manufacturing companies in the US and ask them whether they they have an order intake or not and whether it improved relative to last month and when you see a sharp move higher in the business

cycle it it's basically a result of households demanding more physical good Goods in the economy you know buying cars buying um stuff at Walmart and all that and we're we're exactly there now we're starting to see the first signs of this business cycle moving up um it's it's taken a long while um and you know it's it's probably been held down this business cycle by interest rates being 5 six% uh in some of the major economies on Earth but you know I'm still of the view that interest rates have peaked uh Bond deals are coming down slowly but surely uh so we're starting to see positive signs out of this business cycle uh and we'll see

this gauge of of manufacturing activity probably Rising say 10 15 index points the next six months um that is historically where you should buy all coins um there's a very strong link between Bitcoin dominance and this ISM gauge and the link is negative right so Bitcoin dominance fades when this gauge increases uh so to me that's that's your Bret and butter uh analysis from a macro perspective uh when you when you invest in Old Coins so I shifted I shifted my exposures uh ahead of New Years uh so far with a terrible terrible timing but you know uh I'm I'm in it for the long run so you know um I'm I'm not really uh

giving up on on this thesis yet so and and I think you you make a great point point that like don't give up on the thesis is something that I hear a lot of people asking a lot of people in our community are asking this question right now of uh should should I be selling out on on my losses on you look altcoins is a very broad term is probably one of the issues here right I almost don't like the term right like basically it's like every non Bitcoin token which like there's like millions of them so this does not necessarily apply to every single token but uh the this you are you've made this decision

and you are sticking to it because you have the conviction that the altcoin season is still going to come and so you're not selling out on losses just because tariffs deep seek all these like external factors yeah they affect markets week to week but you still believe in the long term uh what when when we look at the rest of the year play play outs you think think give us you mentioned this a bit earlier give us your your thesis on the rest of the year what is the the scenarios that you see playing out I think the main issue right now is that we are stuck in between headlines on tariffs uh deep seek uh Chinese US tech Wars all of that

um and I'll allow myself to to replay what happened in 2017 when Trump took office it was one big mess during the first couple of months as well you know this guy is an EAB beava right he wants stuff done during the first eight weeks of his presidency and then he wants to play golf for the remaining part of the presidency that's how he is and you know I'm kind of stuck with the same Vibe right now that you know he's just laying every single part of his policy platform out there now and signing executive orders he he's used to running a large business right so you know if when you run a large

business you sign executive orders and then you ask your minions to fix it and he'll sign everything over the next say few weeks ask his um his administration to fix it and then play golf and you know from from that time I know this is you know I'm kind of exaggerating it but you know all of that noise within the Trump presidency you should expect that to be very very front-loaded in his during his term right uh because he's such an eager beaver and as soon as we get past that I think the confidence uh among retail investors will return you because you know the Trump Administration has taken a lot of good steps um towards embracing technology

embracing crypto um embracing the banking system um allowing the banking system to to increase credit and all that again uh so you know they want a golden Ag and and they want it now they don't want it in six seven years Trump is dead in six seven years and he wants he wants his his his moment in the sunshine now uh that's how I look at it so you know the cycle is here and it's playing out now it's it's not playing out in in in a year or two uh it will be this year and I think it's very 2017 like and 2017 for those of you who don't remember and some of you were probably not even involved in the space at the time it was a crazy year uh in a positive sense yeah but it but it did

play out I think as you're saying very similar to how it is now where the start of the year was was rough because Trump came into office and made all these changes and then and then we saw this incredible Bull Run Mania which we have not seen yet I think that's the other the other reason why I feel pretty confident that we're still in this bull cycle is we haven't gotten even close to Mania yet like there is we maybe you know some people say maybe we got that you know a year ago with the Bitcoin ETF but not really and then maybe we got that in December with the Trump trade in him winning the election but like no not really yeah but but um maybe I should

specify because you know I I I prefer transparency around topics like this so you know when I when I expect an all coin season uh and that's how I've positioned myself basically I'm in eth uh salana uh sui link stuff like that you know I'm not I'm not far out the RIS curve and I think it will take like proper quantitive easing for us to get super returns in Trump coin and uh jail stool and like that pardon my French but um it is yeah so you know stay focused on stuff with an embedded value and some of the tokens I mentioned they they they obviously uh

deliver hre absolute pleasure to get you on the show thanks so much for sharing your knowledge and breaking it all down for us today uh everybody listening and as I mentioned if you want more details on macro and how it moves markets go check out that Pro report we'll link to it in the show note it's called how to check the market pulse and uh if you don't follow Andreas on Twitter make sure you do we'll also link to his show because he makes a great macro show so if you want more of this on a regular basis you guys should check out his show as well Andre thanks so much for joining us today thanks for having me thanks for listening in everybody have a wicked awesome day as always if you liked today's episode please hit subscribe and make sure you follow us so you don't

miss out on the next one there's also a link in the description to our free five minute daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our port portfolio where you can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and nothing we say is financial advice investing in crypto or any asset is risky and you should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day