Trump’s New Tariffs: Genius Move or Risky Political Gamble?

Transcript

bank Nation welcome to the weekly rollup This week I have the pleasure of being joined one last time with Hib Keshi GP over at Dragonfly Hib once again happy Friday It's an honor to have you Thanks for having me man I know you're just waking up and uh processing what has happened in the world over the last 12 hours or so You're you're on the other side of the world at the moment in in Singapore So we we got the world surrounded Uh how are you feeling It was a long week dude Dude how are you how are you doing I am I am exhausted Not just from traveling here but just like the the sheer volume of whipssawing happening in traditional markets It kind of feels like everything trades like crypto now It's just total total insanity in the traditional world Let me run through we'll just speedrun through

the last seven days of events starting with liberation day tariffs that were announced last week on Wednesday evening This implemented a 10% baseline tariff on the whole planet and additionally 86 countries that had much higher reciprocal trade tariffs in the 30 to 80% range Staggering tariffs levels never before seen before which immediately sent the stock market plummeting uh because the market really believed that Trump was serious about these tariffs So from liberation day peaked to trough the S&P 500 declined 16% setting a record for one of the fastest quickest stock market declines in history Meanwhile the next day on uh on Monday excuse me April 7th Scott Besson the uh Treasury Secretary uh said that 70 countries have rushed to the negotiation table with the United States

showing that the world was indeed ready to negotiate with the United States on resetting their trade arrangements uh all except for China After Trump imposed a 34% reciprocal tariff on China China announced its own 30% uh tariff on all United States imports that would go live in the coming days And this really kicked off the trade war Uh a few days later President Trump threatened an additional 50% tariff on Chinese goods unless China withdrew its retaliatory measures by April 8th April 9th came China did not back down and proceeded with its planned 34% tariff increase which actually stacked on top of previous tariffs So total net new tariffs that China had placed on the United States came to 84% That 84%

number came into effect on Wednesday uh April 9th Wednesday of this week Uh once it did President Trump immediately increased tariffs on China to 125% and at the same time simultaneously he announced a 90-day pause on all tariff hikes for the rest of the world going back to the general import tariff at 10% He posted on a So to clarify China is actually at 145% because it's stacked on top of the previous 20% So 145% for China and then 10% for the rest of the world on it with a 90-day pause Uh this was posted on truth social which gave huge relief to the to the to the whole market The market immediately started rallying Uh he posted uh on truth based on the lack of respect that China had

shown to the world's market I am hereby raising the tariff charged to China by the United States effective immediately Uh it was also later revealed that secretary Besson had actually written this post to be posted by Donald Trump And this is kind of the the art of the deal that people are crediting Donald Trump with This strategy specifically left China in an escalating trade war with the United States while the rest of the world is currently at the negotiating table with the United States presumably ready to give favorable terms while China is alone stuck inside of a trade war with the United States So that's where we are left to with today Yesterday we had the biggest stock market increase in a one-day event It was like up 10% Uh we have today uh the day of recording the 10th uh let a lot

of those gains go Uh so as we wrap all this up hibs netting everything together summing it all up how do you think how successful do you think Donald Trump's maneuver has been Was he playing 3D chess or like 1D checkers So on that spectrum where do you think he is Um I I'm definitely more on the checker side than the chess side And I think you know if you just if you just go through the overview of like the series of events you you laid out you might have thought that like aha this was a very clever gambit to try to selectively enter into a trade war with China Um now if you actually unwind a little bit and you go look at the playbyplay of what he did and how he did it it suddenly becomes very clear that a lot of the moves

individually that Trump was making did not make sense Okay so let me let me let me elaborate because I think last time I was on the show I was also talking a lot of [ __ ] about Trump's trade policy and I I for the most part I think for the most part I think for the most part my views have been vindicated Okay so the first and foremost thing he repeatedly he described these tariffs as reciprocal tariffs and what the market assumed that meant was that if you have a tariff rate of 30% we give you a tariff rate of 30% except you know divided by two right that's not what the quote unquote reciprocal tariffs were the reciprocal tariffs instead of being a measure of tariffs and trade barriers which is what he explicitly said is what he was doing that is not how the numbers were

calculated okay so for example we have a we we were placing a 70% plus tariff rate on Vietnam Okay we do not have Vietnam does not have 70% tariffs on the US Like that that no that's absolutely incorrect Go look up the tariff rates in Vietnam Nobody could possibly come up with that number Now why is that number so high Where where is it Why is it there For example Australia Um we have a trade surplus with Australia uh like the so what what ended up happening was that the the policy that Trump used was that he he looked at a measure of the trade deficit not tariffs Tariffs are a tax on trade right That's like okay when you want to give me something I'm going to

artificially increase your price of you trading that thing with me That's what a tariff is Um what Trump was measuring was not tariffs but what was measuring is the imbalance of trade Basically they're buying fewer things from us than we're buying from them that is what he based his tariff policy on Okay that does not make sense Why does that not make sense It doesn't make sense because first of all it's not an indication that they're doing anything bad to you They may have no agency at all Such as for example take Vietnam Vietnam is a very poor country There is no way that they could possibly buy more things from us than we could buy from them because they do not have a consumer economy They don't have a middle class with which to buy our stuff We we build high value items and services and that's what we

export as a country Uh Vietnam is too poor to be able to afford those things but we can buy cheap goods from Vietnam So what you ended up seeing was that very poor countries were overwhelmingly slapped with very high tariffs because of the way in which Trump calculated this thing He applied the tariffs to every single country regardless of whether or not they even had a trade deficit So for example uh Australia was was uh despite the fact that we are a net exporter to Australia Australia was was hit with uh the the tariffs and the the weirdest part was that Trump just started accusing countries of just doing random things So for example he he said that Japan was a currency manipulator Um which if you know anything about the monetary policy of Japan makes absolutely no sense So Trump clearly

just doesn't he he didn't really understand what he was saying Um he he didn't really have a strong grasp of who exactly do we even have tariff disputes with Um and so what ended up happening was that he obviously had these extremely high tariffs set across the entire globe And Trump was just not backing down The the the communication he was giving to the market was that this is pain we have to undergo This is going to bring jobs back to America This is good for manufacturing It's good for investment And what you saw was that over the period of time between liberation day and when Trump backed off the tariffs you saw measures of investment in the US plummeting You saw all sorts of companies saying we are we we're going to pause all investment in the US Why were they saying that They

were saying that because there they had no idea what was going to happen with these tariffs and they were correct to think that that they could not trust the word of the US government because the US government as we've seen backed off their word within a week So we went from the biggest tax hike in history which is this massive imposition of tariffs on almost every country in the world that trades with the US with the exception of Russia and Barus which is like okay interesting um to then having those tariffs completely unwound within a week which tells you okay you cannot trust the word coming out of the Trump administration ultimately businesses need predictability it's okay to raise taxes a tax hike is is is manageable by by companies but what they

cannot handle is just I I I'm going to decide one thing tomorrow the it's another thing the next week uh and there's no clear communication going on from the administration you saw you know what Bessant was saying what Lutick was saying what uh Greer was saying all of them were diverging None of them were telling you the same story as what Trump is saying Trump was contradicting his own trade people within the same day All this stuff was sending markets into a tail spin Okay So then cut to a few days ago you had at at at a certain point you basically had a revolt within the financial class which largely had been staying quiet uh within uh Congress which now suddenly you had Republicans going on the other side of the fence and saying these tariffs are bad These this is nonsensical policy and this is going

to tank Republicans in the midterms right We like we just do not there's no popular support for these things If you look at the polling that's been done in the last week overwhelmingly negative on Trump's tariffs even among Republicans nobody thinks this is a good idea Okay So then you said you see Bill Aman who was a big supporter of Trump and a big donor to Trump's campaign Bill Aman came out and said "Mr Trump I think you've made a great mistake I think I made a mistake in backing this administration and believing that they understood what they were doing on trade policy Clearly what's happening is a total you know own goal Um but here's how he could salvage it Trump could announce that he's walking everything back and taking a 90-day pause and he I think his his his words were you know markets would see

the wisdom of Trump's strategy and it would all be great in the And and what ends up happening a couple days later boom Trump announces with the exact same terms that Bill Aman had advocated for a 90-day pause And what you see in the in the storytelling by the Wall Street Journal which reported very well on this is that apparently Bessant flew down to Mara Lago where Trump was and basically just locked him in a room and convinced him at basically like "Look if if you don't if you don't do this the country is going to fall apart and we're going to completely lose our economic mandate." Um and that was what led Trump to ultimately publicly backpedal And then again you see this this story that oh you know Trump was uh supposedly he keeps saying he wasn't paying attention

to markets He doesn't really care what's happening in markets And yet the reporting is that he absolutely was paying attention to markets He was he really cared what Jaime Diamond and what Bill Aman said Um and then yesterday he said "Oh yeah did you see what happened to the market You know our trade policy is amazing." And then today he said "Oh," he was asked by a reporter "Oh the market's down You know what do you think about it?" He said "Oh I haven't even looked I've been so busy today I don't know what the market's doing." Yeah exactly So what what you see is just they're clearly playing from behind This looks 100% to me like you know Herbert Hoover just kind of you know vibes based economics Uh massive massive just just indigestion from everything that he's doing in the market And the problem is

that look the market rewarded him so much yesterday for being able to claim "Aha I knew it all along This is all big grand strategy Of course we're not going to a world of massive tariffs on everybody in the world That would be so stupid You guys fell for it This was all just a ploy." Okay if that's what you're saying then why is it today that he's saying "Well we know the tariffs might come back you know oh you know we still are going to do these massive tariffs Oh I'm still going to add tariffs on pharmaceuticals which the markets [ __ ] hate because they're like oh no you're not done You're not done you you you got your temporary win but you still have not backed off from the fact that the whole world is telling you this is an enormously stupid policy and you

yourself don't even clearly articulate what your goals are They're still not saying is the goal to have zero tariffs and free trade agreements with other countries Is that the goal or is the goal to raise revenue and punish people for being unfair to America Right And at different times they've said two different things which are to be clear opposite policy goals If the goal is we're abolishing the IRS and we're going to make all of our money from tariffs then these tariffs are going to be high forever If the other hand the goal is we are going to have free trade and zero trade policy or or zero tariffs with all these countries and have beautiful trade deals Okay then say that Say that clearly that that's the goal and then there's not going to be an ERS There's not going to be this long-term reliance

on tariffs But the market doesn't know It doesn't know what tra what Trump fundamentally wants And to be clear it's not clear that he knows There's already been plenty of signals from people around uh just executive leadership across countries uh companies in the United States about everyone saying like we cannot make plans in the United States We cannot make investment in the United States just because uh the this administration wants us to bring manufacturing home We have no long-term assurances that we can actually build these factories these manufacturing centers in the United States because we don't know what four years is going to be like because we don't even know what what four days is going to be like with Donald Trump And I'm definitely partial to that It takes years to build a factory right This is not something like oh you know Trump raised tariffs so

therefore let's go do like a six sevenyear investment uh plan on the basis of these tariffs right If the next administration I mean if Trump can create these tariffs then clearly the next administration can remove them right I mean that's goes without saying given that he's trying to do all this through executive order which by the way is also potentially uh you know legally dubious But if if that if that is the story then nobody's going to make a 4-year investment on the basis of that Well obviously we're now going to be able to move all of our factories from Mexico or from you know uh uh from Latin America or from uh Vietnam No no company's going to do that They're just going to sit it out and they're going to wait until they get clarity because it's such a massive decision and such a huge

investment timeline to actually get your payback on a factory that might become totally worthless if tariff policy reverses in four years So I'm I'm hearing this from you and I'm I'm partial to your point of view At the same time on Twitter there's a bit of a tale of two cities right now because there are plenty of people out there who are like "No man This was this was the art of the deal." Uh look look at what he did Like China's just misaligned versus the rest of the world This was all a part of the plan It was masterfully masterfully executed uh Mr Bessant uh why why is there such a gap between I I mean I guess it's just partisan lines so I'm not sure what I should expect but that there is just a huge difference in interpretation totally okay so the first thing is that

we've seen how many mistakes they have made in this process right so how many unforced errors there were with respect to diplomacy with respect to how they've spooked markets with respect to how they've failed to really rally excitement around investment right what what what companies need to see it could well be that and I think it's actually a very reasonable thing to do for the US to say Look we have we have let go of too much of our strategically important manufacturing capacity We need to bring some back home And to be clear that was also the justification for the chips act under the Biden administration was it was also industrial policy on the basis of hey we need to make sure that we can actually build semiconductors here in case something happens to Taiwan and relations with China sour right that very very sensible very strategic I

think that's absolutely the right thing to do to create more uh energy production domestically Absolutely the right thing to do Um now how you do it there are many different ways to get there One way to get there could be through tariff policy Another way to get there can be through stimulation and you know basically uh you know creating a lot of grants for companies to do this domestically in the US They're two sides of the same coin effectively U but the worst way to do it is to make your allies very angry and think that you're an unreliable partner Okay What that's going to do is one it's going to push them into the arms of China because China can show them So you know we saw for the first time um this uh this this claim that there's going to be coordination now increasingly between

China Japan and Korea Okay these are your history Yes Um if if you don't know your history these are three countries that [ __ ] hate each other's guts right This should not be happening that China and Japan are working together But the only one way that you could possibly make that happen and potentially introduce the possibility that the US dollar might might further weaken in its global hegemony is by pushing people into the arms of the R&B and by China being able to take the position you know what we are the reliable free trade partner We're not going to freak out We're not going to have tantrums We're not going to claim everything is the the fault of you know foreigners and globalists taking advantage of us um and that kind of stability in a trading partner regardless of whether or not you

agree with the policies of the of the of you know the the CCP other countries they need reliable trading partners because of course they cannot manufacture everything themselves they have to import from somebody and if they're not going to import from the US they're going to import more from China and so you're already seeing that starting to happen um the other thing is that you know we've learned from Trump's commentary and there there's been a lot of reporting now on trying to understand why does Trump believe this so strongly um there was there was some uh a lot of people were posting this stuff from Gary Conn who was um you know leading trade in the first Trump administration and Gary Conn was trying to understand why does Trump believe so strongly that we're getting ripped off by everybody in the world So he's said things like this

basically since the 80s He's he's constantly said that he thinks that other countries are scamming the US They're ripping us off That trade is somehow intrinsically bad And what is specifically bad about trade In his answer the answer is trade deficits He thinks a trade deficit means that another country is ripping you off Right A trade deficit just just to reiterate what does that mean That means that you are buying more from another country than you are selling to them He thinks when you're doing that you are getting ripped off He thinks the person who is selling more things is making more money Okay This is this is like this is like a a seventh grader's understanding of economics Yeah Do you think it's as simple as oh I'm giving them money I'm getting less money in return therefore

that's bad And it's like that like left curve 70 IQ businessman understanding of oh money is leaving the United States and we're not getting any money in return And that's the complete calculus Look I'm I'm not reading his mind This is literally what he said He said "I want these trade deficits reversed." He said "Look I'm only willing to drop the tariffs on China if they can get us a trade surplus." Wh why why do you want Why Why is it important to have trade surpluses with every country right Like the the what is the inverse of a of a of a trade deficit It's a capital surplus It means they're sending you money right You're you're getting in more investment into your country Uh that's good We like that That's a that's a big part of the reason

why you know America takes the world savings in all the all the countries in the world they want to send money into the US stock market into the US economy that's wonderful this was the institution since 2008 is like we would print money we we would buy goods from the world the goods would come into America it would subsidize our way of living the money would flow out to the countries and then they would buy our bonds totally totally now what you're seeing again as a result of Trump's brilliant trade policy So what many people were saying was that aha what he's really doing what he's really doing this is the best master plan is that they're pushing down the tenure because they have all this debt to refinance They're pushing down the tenure and that's going to make

it so that oh my god look at this brilliant move 10 years all the way down to below 4% It it crested or it peaked at uh uh 39 something 86 Yeah 3.86 Yeah Okay So they was like wow this is the master plan They're using this to refinance the debt Trump was even retweeting this Mhm He was retweeting this to make people believe that he's intentionally crashing the stock market in order to refinance the debt at a better rate Okay that was the that was the claim All right Well what happened when they actually did the Treasury auctions you can see the second part of that chart right there is that everything legged way back up and so you had both stocks going down and yields on treasuries going up meaning that there's fewer demands fewer demand on uh treasuries This was in large part

because apparently the basis trade was unwinding in a really really brutal way Um and so all of this ended up worse Yields are now higher yields are higher and the stock market is lower than liberation day So liberation day net I think we're down about 10% on the stock market Um that's right And and yields and yields are worse So somehow we have the worst of both worlds Yeah this is a what this tweet says from Mike Bird The mis miserable trippy triple whammy begins again Stocks down 10-year bond yields up like you said also the dollar down And so what I'm seeing from this is the capital center of the world the United States Wall Street where again just like I said money flows out to the world because we get the world's goods and then the world reinvests in our stock market our businesses our bonds

That is going out in two ways The stocks are down so it's going out in that way Uh the 10-year yield is up means bonds are being sold And so the capital center which is United States strength is gone And then also and also the dollar is down And so I think like the big question that everyone ask is asking is like okay well even if we just look at the S&P 500 uh the the the stock price it we gave a lot of the gains that we got back yesterday uh we just gave it back away so we're down 4% from yesterday we're up about 10% off of the bottom but you know even before liberation day we are just like you said we are down eight or nine% And so there's there's scar scarring There are wounds in the current American economy and the stock market and trust in

America And I think that's what people are currently contending with like when the stock market opens up tomorrow and then next week This is the dust needs to settle And it's not this is a before and after moment I think for the United States economy and its center as a trust trustful place to do trade and commerce and invest And we're going to have to contend with that now Just as you said like there's a new equilibrium of a capital center and I don't think it's as strongly ini the United States anymore because Donald Trump is just so goddamn chaotic Yeah completely agreed I mean this is this is the fiscal policy of a third world country right Of like in a single week whipssawing on oh we're

going to do this we're going to do that we're going to make all of our money through tariffs never mind we're going back to normal Um and you know if if if liberation day like remember when initially in liberation day uh when Trump unveiled the tariffs there was initial reporting by the Wall Street Journal that he was doing a 10% universal tariff and markets jumped markets jumped like 3 4% When this is this is uh in after hours trading so it's not necessarily going to show up here Um and that was the best case scenario that was like oh wow these are less than we thought it was going to be Trump is being reasonable like that's where we should be right now We should we like what you're seeing in this market of why we're down 10% and more than 10% relative to where we were

the moment that the market thought that what Trump was doing was imposing universal 10% tariffs is that this is the cost of instability This is the cost of being an unreliable partner This is the cost of people saying I can't trust what comes out of this government until things stabilize And who knows when they're going to stabilize Being a financial center means have having good rule of law being very predictable and being very stable That is the strength of the US government We we're one of the we're one of the longest continuously running governments in the world and we've been the financial superpower for coming on a hundred years now But the way that you lose that status is by doing stuff like this Mhm It's it's it's hard to lose But this is if if you wanted to do it this is how you do it

right like if what you really cared about was bringing manufacturing back to America and that's the thing that ultimately is most lamentable about this is that what Trump is doing clearly is not accomplishing that goal right so one if you want like you know Trump is saying oh you know foreigners are going to pay these taxes they're not guarantee you that they're not the reason why they are not is that the US doesn't have the manufacturing capacity to produce all the things that it imports right we we just we just don't even with 10% tariffs across the board you will buy things foreign because the America just will not be able to get them uh produced in time to be able to out compete even foreign producers with a 10% 10% search charge So what that means is that the cost of everything is going to go up Now

if you charge individual countries right let's say we only had um a trade war on particular goods right well then you can have some substitutability meaning that okay well you know margin is more expensive so we're going to buy butter or whatever you know this kind of thing Um but if you tariff everything 10% universally then there's no substitutability Nothing can come in and say "Oh we're going to shift consumption from here to here and punish these bad trading partners." Right So like even if that's your goal if your goal is to punish people a 10% universal tariff does not do that It is simply a tax on trade And why do you want to tax trade Trade is what made the West rich Trade is why Western Europe ended up becoming the center of the world Like trade is

what trade is the reason why our world is so wealthy compared to where it was 50 years ago 100 years ago So taxing that and saying you know what instead of trade trade is terrible We should not do trade We should do other things Uh it's just like why where did you get this belief Mhm Well okay So see I feel like I'm at a loss for what to do as an investor in in crypto and in like the equities market I'm just like kind of holding on to my chair and just like kind of going along for the ride Just like trying to be at peace with it But like so when we resume the markets tomorrow on Friday uh the day of the day that listeners are going to listen to

this but then also next week like what are you doing Like how what are you looking for What signals are you looking at Like how how are you trying to like navigate this over the next like week weeks and months I mean so look as I've said before I'm not a trader Um certainly not a macro trader So for the most part like you know I'm I'm long I'm riding out this market Uh I obviously wish I wasn't because I I do think that things are uh things are things are going to be rocky for a while Things will remain extremely volatile as long as Trump doesn't make up his mind about what he's doing And it's very clear the next 90 days uh the 90 days is the period of time through which these uh reciprocal tariffs have been paused in favor of the 10% tariffs that they've

said is a floor meaning that they could be higher than 10% He's not signaled whether or not there's the opportunity to do 0 which is of course what markets really want Markets really want renegotiated trade that's going to be zero Now to be clear in the beginning this wasn't a problem Markets weren't like "Oh my god you know tariffs are so high We got to fix that." Um but okay maybe some of these non-tariff trade barriers are significant There's some stuff around IP that I think can be renegotiated more effectively Um you know some of the digital market stuff in Europe in the EU I think that's real That's worth uh negotiating over Um so I'm I I certainly would not claim that there's no reason in coming to the negotiating table with some of these trading partners Um so I think that's what markets are going to be looking out

for is are we going to see constructive deals actually being put together Now the reality is that if you remember how long it took for example USMCA in Trump term one or TPP or all these like massive trade deals they're extremely complicated They take a really long time to create and to uh you know put into law and enforce So the idea that Trump's going to do that for like 50 plus countries in 90 days um is kind of beggars belief right That probably there's going to have to be some really janky kind of fast and loose form of of trade agreements um in lie of actually getting like the full fullyfledged uh you know ideal idealized forms of these agreements But um long story short I think the next 90 days are going to be

really volatile Um I do suspect that by the end of this year things will stabilize will know what the new regime is Markets will be able to calm down a little and probably the the better angels within the Republicans uh the Republican party are going to push Trump toward more sanity and more stability Right I think Trump realized that he had a small a short window in which to do this because of course he knows that he's very uh uh vulnerable in the midterms and right now of course all the stuff that's happening I mean the the one thing that he had a mandate for was the economy If he triggers a recession right now poly market is is uh pricing in 50% probability of a recession Even after the Trump the tariffs getting walked back before that it was like 66% So right now it's still even money that

a recession comes on in 2025 It looks like we're up to 60% now Um so yeah th this this means that things are still very likely to be bad right What causes this recession companies getting scared people uh pausing investment and no longer wanting to hire new people because they don't know whether or not that this tariff environment is going to remain stable Um and this is again purely self-imposed Uh if if we see this the Republicans are going to get trounced in the midterms And so I think when you go into Q4 Q1 of next year Trump is out of rope He has to be stimulative He has to be good to the market in order to make sure that they don't lose the midterms I think it's I think it's kind of doomed at this point

but of course they want to hold on to as much as they can Otherwise you know Trump is just going to be basically um unable to get anything done in the second half of his administration There are are a couple optimistic uh spots in the blue sky that I see that I don't want to get your opinion on Um midterms is is one stimulation going into the midterms I totally see that I like that That's that's a possibility One another one is that well once this debt rolls over then we can forget about it And I think that that debt rolls over in six months or nine months which is also leading up to approaching the zone of midterms being very topical And so once we can get this debt load that they are just super worried about Scott Treasury Secretary Scott Bessant is just

trying to get the yields down on bonds so that when this debt rolls over we don't have to pay at that high of a rate And that that will be a in the rearview mirror in like six to nine months about that time frame Uh and then also maybe just like more loosely I hope Trump just gets bored and just moves on from and just is done with this subject uh and just wants to focus on something else So like maybe maybe talk about any of those three that that comes to mind for you I mean look the the Treasury auctions that just took place which was the first instance of rolling over significant amounts of US government debt did not go well it went better than expected because we were basically in the throws of a of a you know what was bordering on

a financial crisis Um so doing that within like you know the historic levels of volatility we had not seen that level of a three-day draw down since co um or sorry that day of a one day draw down since co and not that much of a three-day draw down since I believe 2008 So this is like crazy amounts of volatility and in that we managed to clear treasury auctions with not too much slippage But this was at you know 4.3 4.4 um rates which are to be clear terrible That was not the goal that like we we failed If you wanted to roll over the debt at a lower rate that did not succeed Okay So we have this we have this uh debt now at a very high load very high debt load Um and that's going

to continue So anybody who was like "Yeah great We got out of the woods We rolled over our debt successfully." This was not a success story of of rolling over the debt So we're going to maintain a very high debt burden in the US Um and if if we're going to be lowering Treasury rates or sorry if we're going to be lowering yields it has to be coming from the Fed at this point because fiscal policy is not going to get us there Well that'll bring us to the inflation uh print that got reported just this uh just today actually So uh the actual inflation was measured at 2.4% where the estimated was 2.5% And so we are actually coming in with a cold CPI print which is good because that means that there is room for the Federal Reserve to cut rates We all as investors

as as risk asset holders like the idea of cutting rates Uh when this print came in uh the bond market yields did not respond It didn't they went up actually uh which is not great Uh this is probably downstream of all the chaos that we've been talking about for the last 30 minutes Uh so integrate this into this conversation for us as a thing is that of course this is this is March right this is before any of this insanity started right so it was before the the tariffs came on uh before liberation day and ultimately what happened in March is a whole [ __ ] universe away from where we're living today right doesn't matter what happened in March we have no idea what this is going to do to prices but we already see

egg prices are spiking which has been the center of a lot of controversy so far in this administration Um egg prices are spiking again despite the fact that the bird flu stuff is over Egg prices were back down So now egg prices are spiking again What does that tell you It's probably tariffs It's probably import It's not the birds now Yeah it's probably not the birds So um we we don't again we don't know yet We don't have a clear picture But markets are telling me what marketers are telling you here is that I don't care This is totally irrelevant to what I'm worried about What I'm worried about is that of course inflation will increase The Fed has said this any financial observer will tell you this is that tariffs are inflationary and when people stop trading with you we just put massive massive tariffs on one of our largest

trading partners China and China is one of the trading partners for whom it's very difficult to substitute a lot of what we import from China right so we're we're now at the point where you know with 145% uh tariffs on China which basically is very close to a trade embargo right meaning that you know if you tariff 1% Okay that's the same as an embargo It basically says you are not allowed to import anything from this country because it's uneconomical to do so Nobody would ever do it It doesn't make any sense Even somebody who costs five times as much uh to produce the same thing it's better to import it from them than import it from this person So that's basically a trade embargo 145% is so high that markets are now telling you that if if Trump continues increasing

the rate of tariffs on China it doesn't matter Mhm Because we're basically at the point where trade with China is shut off at 145% tariffs So uh we're now in this very precarious position that is almost certainly going to show up in the inflation numbers And of course inflation is very reflexive So when people expect inflation to increase that accelerates its increase and makes it stickier And what we've seen is that consumer inflation expectations have gone up massively in the last couple weeks which again very rational response to what they're seeing in terms of trade policy Yeah Yeah Is is there any semblance of how this impacts crypto in any unique way or I mean are we just along for the ride cuz I think more or less crypto is just a long for the ride

and until there's some sort of internal catalyst out of crypto that we have not seen since uh the Bitcoin ETF uh or pumpf fun uh we are just along for the ride here Yeah very that's the answer Like for the most part crypto is orthogonal to all of this happening except maybe Bitcoin Um Bitcoin has been behaving very strangely Sometimes it's acting like gold sometimes it's acting like a NASDAQ uh kind of derivative Uh other times it's doing something totally uncorrelated to both of them So Bitcoin has kind of been this very strange dark horse but Bitcoin has actually held up relatively well Alts have just been getting decimated alongside the NASDAQ Yeah And so you're just you're seeing alts basically trading like uh risk risk assets or like

tech stocks Um and I think you should expect that to continue is that that's going to be the story for alts Um that being said you know the one thing about alts and about crypto is that the the place where you should see these things untethering from each other is that although uh crypto is very tied to risk appetite it is not at all tied to corporate earnings Right So corporate earnings might go down quite a bit when when this stuff really starts to snake its way through the economy uh through the real economy But um crypto is immune to that Crypto doesn't really care right And of course a lot of the demand for crypto is international It's not just in the US So it has a kind of globalized demand base that doesn't depend as much on the you know US consumer uh having a

strong balance sheet So even if US consumers are hurt crypto can be somewhat mullified in the impact on it Uh and second the crypto I think is very much tied to global liquidity And so if you see the Feds start to cut or you start to see some kind of emergency liquidity injection if we see a financial crisis or some other some other reason why the Fed suddenly has to step in and create another you know four-letter program in order to buoy markets uh then what you may well see is that crypto ends up rebounding in a really dramatic way just simply because of the the liquidity dynamics that are introduced by by uh you know monetary stimulus So there's a lot of ways this can go from here but I I would guess that there's no way things are going to be sideways That you can you can be sure

Okay So are you with all of that summated are you optimistic pessimistic Well I guess you can't be neutral because you just said it's not going sideways Yeah Yeah So I'm I'm very optimistic about crypto I think there's almost no way that things are going to remain this bad by the end of the year I think both sides both the the monetary policy side and the fiscal side are probably going to be stimulative going into the end of the year And I think crypto is going to probably benefit more than the stock market I think the stock market is going to have a real drag from the effect on the real economy that all this stuff is is is forcing and the lack of investment Um but crypto doesn't really require investment right And of course it's not affected by tariffs Crypto doesn't import or export anything

right This is all global from the beginning And so I think crypto is going to be relatively unperturbed by the realities of tariffs but it's going to be affected by the the risk appetite the monetary policy and the fiscal stimulus The monetary policy and the fiscal stimulus I think is now garnering a new found attention from everyone in just all investors because now now I think we're going back down and popping open the hood of the Fed's Fed repo rates We are we are looking for cracks in very low levels of the financial uh side of the economy uh and I don't there are a few crack from the uh macro commentators who are far smarter than me There are a few cracks poking up that people are watching without any sort of conviction about anything materially breaking But to me that's kind of a sign of the times

is like people are looking at the lowest levels of the financial markets like the Fed overnight funds rates the repo markets just to see like yo are there cracks showing up and there are things to be to be noticed without anything breaking Uh and so I think that's maybe just kind of a summary of where things are in this present moment Yeah it's it's a good guess that if something breaks it's going to end up being very bullish for crypto Yeah Because that's what happened in CO That's right That's right And um it's it happened many times before like you know previously in the what was called the taper tantrum when um you know before COVID when the Fed was trying to raise rates and market uh it was 1819 something around there um you saw the same thing was that okay Fed immediately brought rates back down to

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help shape FRA Nation's future Ready to join the forefront of DeFi Visitfra.com now to start earning with FRAUSD and staked FRAUSD And for banklist listeners you can use fra.com/r/bankless when bridging to fraal for exclusive fraal perks and boosted rewards Let's get transitioned into some actual crypto native subjects because some good news came in this week Uh crypto pro crypto Paul Atkins has now been confirmed as the new SEC chair So this is the new Gary Gendler We have a new Gary Gendler He looks nothing like and talks nothing like the former Gary Gendler He is very pro- crypto believed to be expected to be very pro- crypto Uh he's this is a Donald Trump appointee of course Uh and I think everyone is very optimistic He is this this is not at all

like how Gary Gendler came in and everyone's like oh he is so aware and informed about crypto This let's be optimistic about this man and then he just did a 180 on us Uh Paul Atkins uh is explicitly have has given out pro crypto statements is very pro markets Um what's your take about uh Paul Atkins as the individual and what's your take about the the final this is not a surprise we saw saw this coming from months months now he's just finally working his way through Congress and now he's been approved uh what's your take that's right I mean I think everybody knew more or less that Paul Atkins was going to get confirmed very uncontroversial pick very stalwart guy obviously served in the Bush administration um he he very clearly has his bonafites about crypto specifically so he was I believe he was on the board

of the digital chamber which is like a crypto lobbying group Um he was an adviser to reserve protocol which if you if you're familiar with them they're like a decentralized stable coin So he's he's in the arena He understands crypto very well He's a he's a libertarian Um I've I've heard him on some podcasts where he's like he's in a valid libertarian He's he's basically from the Hester Purse school Hester Pur actually worked under him under his jurisdiction at the SEC in the Bush administration So this is exactly the guy that you want very uh smart capable open-minded experienced I think an excellent pick and just clearly somebody who's going to be you know continuing the the the current charge of the SEC under Hester Pers's leadership in the um u what's it

called The crypto a what's the agency task force The crypto task force Um I think my my expectation is that probably the the the SEC is likely going to delegate to her and let her drive a lot of the policy stuff given how deep she's been in the space and how much trust she's garnered with the industry Um and given the fact that her and Paul Atkins have such a long working relationship my assumption is going to be that he's he's going to trust her to to to run point on it Um but on the whole my expectation is that he will be supportive and the SEC is going to be a much more steady hand in this administration Yeah I think this really just locks in the progress and the current state of the SEC as it stands because I actually don't know how

the SEC could be any better than how it is operating with the crypto industry under the leadership of Hester Purse It is doing as an organization everything that we need it to to elevate our industry get the regulatory clarity get everything that we need out of the SEC So you know even though it's great to have like what is the inverse of Gary Gensler step into the SEC chair seat it's actually already in a perfectly fine position So I it's not really it's hard to be any more bullish than we already were That's at least my take Yeah completely agreed I mean this is a big part of the reason why again I'm I'm very bullish on crypto going into this year that the fundamentals of crypto actually look fantastic you know like just seeing the complete regulatory reversal the the positive uh policy

noises coming out of the administration Uh just seeing the normalization of everything in this industry and more and more companies being able to engage with the space the growth in stable coins the you know onchain adoption looks really strong Everything kind of looks great It's just this kind of backdrop of macro craziness that's pulling everything down And of course it's not just crypto Um but this is a big part of the reason seeing what's happening with this new SEC uh which was really you know public enemy number one over the last four years Uh they were they were they were sort of the world's most aggressive regulator on crypto and they were single-handedly pulling the entire industry back and now it's it's just a complete 180 which is great to see Uh h you said everything looks great in

crypto Well uh I'm going to pull up uh the ETH BTC chart which uh looks like dog [ __ ] uh we are down below 0.02 uh and I want to I want to give a take to you I want to connect a few points of data So we have this this ETH BTC ratio which everyone knows has just been terribly down even in an accelerating fashion I have to actually go out to like one day candles to really put all of the downness Uh we got um almost a thousand days a thousand days of down in the ETH BTC ratio Uh and a second chart I'm going to pull up is uh this one that Peter Pan tweeted out uh which is monthly crypto VC funding And I believe this is funding into crypto VCs So this is LP investment into VCs and had of

course a massive gargantuan spike in the 2021 I don't think that's correct I think this is deals of uh like VCs in into portfolio companies into Yeah because they they difficult to measure Okay That's very easy to measure It's very Okay Well it's down is ve down very bigly Uh the investment from VCs into companies is as bad as it was in the middle of 2020 when root crypto really started to just poke its head back out of the 2018 2019 bare market And the two things that have done very well over the last two years is Bitcoin and stable coins And there are now some gargantuan stable coin deals that everyone will see if they're not already seeing it on their timeline We'll continue to see

massive stable coin deals in the timeline And I'm so I'm connecting those two things this like barbell of crypto Bitcoin digital gold 21 million units the the OG of crypto Uh and then on one side of the barbell uh and then we have stable coins on the other side of the barbell And we have this ETHBTC ratio which to me like represents just a thinning out of the crypto maximalist the blockchain maximus where we're going to do everything onchain We're going to have all of these onchain apps We're going to have a DAP store Uh we're going to we're going to live our life digital identities and we're going to fill out we're going to fill out what it means to be in the middle of the crypto economy and that thesis seems to be just slowly dissipating over the years over the last two years and now we are just left with

these two very strong thesis which is bitcoin and stable coins and institutions love stable coins and that's why institutions are so hot on crypto right now uh and then also they also love bitcoin because it's a non- sovereign store of value it's a digital gold it's an alternative investment decoupled and coupled in these weird ways It's makes it's fun to to play with It's fun to sell and package up into ETFs and sell to customers But the middle of crypto where VCs invest in and get returns from is hollowing out It's thinning out And you can just see this in sentiment on crypto Twitter because while Pump Fund has been creating a fantastic casino memecoin uh merrygoround for those who like to play in that arena people's jobs come from that middle of the market It comes from

the altcoin market It comes from startups raising from VCs and launching products that are enjoyed by the market That part is being hollowed out So I'm just kind of connecting the decreasing ETHBTC ratio to the lowered VC funding to this like just terrible sentiment that you see on crypto Twitter Uh am I hallucinating Do you see what I see And like what's your take I see why you see what you see but I would I would dispute the story So first thing is that when you're looking at the ETH BTC ratio you have to normalize for BTC dominance because BTC dominance has been going up relative to everything not just Ethereum Um and so if you look at you know uh XRP or BNB or um you or Salana uh that obviously those things are also

depreciating relative to Bitcoin but that's mostly because of what's happening in macro that like that's a you know risk riskoff kind of sentiment that's going on right now Um but because it's happening for every single asset the ETHBTC ratio it's bad but everything has that ratio to BTC and it's not because things aren't working Um and and for some of these other networks that are actually doing relatively well So uh it's still bad for Ethereum and I think that requires its own unique set of explanations There's something idiosyncratically weak about Ethereum Um but uh the other thing looking at the venture chart that you that you showed um I believe actually if you scroll down in the the comment section there's another chart that uh somebody else showed that actually there's a right there with the the D5 lama chart that

actually shows that uh there's a spike right there on the right side of like oh venture funding is is suddenly increasing significantly again and I think this is actually correct Um you can see that after Trump got uh so the first thing is that there's a lag with respect to when venture investing gets reported Right Exactly Because you you fund a startup and then you know they don't want to necessarily announce that the week that they get funded They wait until they've got some announcement to make So it's usually like 3 four month lag on average of when uh funding happens to when announcement takes place So Trump got elected about four months ago And so you're now starting to see all of the optimism and the the increased amount of venture funding that took place right after the Trump bump manifesting itself into uh you companies

now announcing their their venture funding rounds So now I'm not implying that we're back to where we were in 2021 We are probably never going back to where we were in 2021 To be clear that's also true of regular VC That's not a crypto thing That's a ZERP thing That's a oh yeah there was way too much money slloshing around chasing cheap returns and there was overinvestment and malinvestment into crypto and where did that go that was not oh people are funding all these layer ones that was like metaverse stuff that was you know yuba labs and openc and you know all this stuff like that's where all the money was going so you know if if if you're worried of like oh my god nobody has jobs anymore how are people going to work you know who's who's going to build the next you know monad or mega or

barachchain or whatever I I actually don't I don't think that's the problem and I don't think that's what that's the story that this thing is telling you It's certainly true that uh crypto assets especially VC backcoins are down a lot That is true of everything That is true of you know uh of stocks in the stock market you know any any kind of tech company it's down really really bad You saw a lot of companies drawing down like 20% in a single day in the stock market uh when you saw the really really steep declines uh around tariffs So all that is to say um I agree with you the picture is bad but I think what you will see is that this is not really about crypto None of what's happening right

now is about crypto Crypto is not immune to what's happening in the broader market But like you said earlier we're along for the ride and and in crypto we feel that especially because everybody's in the market Everybody owns these assets Um but go talk to people who work at fang companies and they will tell you the same thing is that they're feeling really damn bad their stock value is is significantly down from where it was before You know the Mag 7's gotten killed in everything that's happening in in in recent markets So uh I think it's a it's it's it's a more nuanced picture than that but I hear you that it hurts and and people are feeling the pain What about the idea that this cryp the crypto industry has started to coalesce on Bitcoin and stable coins as like a barbell of utility Uh and I was giving

the same take that I I gave you to another prominent investor in the space one of your one of your uh competitors at Dragonfly Uh and he said the industry probably should competitors excuse uh you know fellow investors co-investors in the space uh uh and they said the industry probably should feel somewhat existential about what else of usefulness has been built outside of stable coins uh and and Bitcoin So what do you think about that that specific framing about like uh it's really just Bitcoin stable coin maybe dexes too uh but that's about it Yeah Okay If you add DeFi to that list then I'd say sure Then I'd say yeah I agree with that story Um if it's like okay well Bitcoin and stable coins and nothing else of value then I would I would totally dispute that because of course a lot of what's

happening right Where are these stable coins getting used The answer is they're getting used on chain You know where is all these people paying each other with Tron They're paying each other on the blockchain using non-custodial wallets That's how all this stuff is happening Um you look at the growth of onchain treasuries right Like we're now over $5 billion of treasuries $15 billion of RWAs from a relatively low base at the beginning of 2024 Um that all of that is happening on chain So now to be clear yes the these two things are the biggest bright spots by far and I expect they'll continue to grow as being the outside success stories Um and I think the the core of it to my mind is that crypto is about money and finance And the the two biggest success stories are yeah gold

and dollars Yes those are the two biggest financial assets in existence period Probably number three is treasuries And so you see the growth of onchain treasuries on chain Yes Okay Totally agreed Um is it true that there's nothing else of value that's been created No Absolutely not There's much more that's getting created that is that is financially interesting Is it at the scale of stable coins or a bitcoin No but it doesn't it doesn't need to be Um there's probably not any more $3 trillion assets that we're going to create in crypto Bitcoin is going to be a $3 trillion asset almost certainly Um I don't think we're going to create anything else that's three trillion Um but are we going to create things that are worth you know tens of billions of dollars Absolutely One of the take from a frequent take

that I hear from Ben Cowan is the ETHBTC ratio is actually a indicator of uh hard money uh and quantitative tightening from the Fed and everyone who's been clamoring for ETHBTC to reverse which is the signal for an altcoin market uh an alt season uh we actually need the Federal Reserve to stop doing QT and actually start doing QE or at least starting to be much looser on the purse strings with regards to monetary policy Uh and once we can get like rates to be cut uh maybe maybe QE if something starts to break in the repo markets that we were talking about earlier uh then we'll actually see a reversal of liquidity kind of as you alluded to Uh and you'll actually see that show up in the ETHBTC ratio How does that take land

with you Well there's clearly something idiosyncratically weak about ETHBTC right I mean we you've been talking about it's also already been expressed as in like it's it has been weak It can't be that much more weak for that much longer It absolutely can Okay It it can because you know it's a little bit like the tariffs right Like the tariffs came off Tariff policy did not change yesterday but yet markets are down massively Why The reason why markets are down is that Trump did not nail the landing of Yeah Yeah Yeah We're not doing the tariff craziness anymore right With with with ETH what what do people want to hear from Ethereum They want to hear from Ethereum that we're not on autopilot We are actually going to change our strategy We're going to be

more muscular in storytelling in DC in supporting entrepreneurs in supporting DeFi and we're going to scale the L1 Right That's what people want to hear very clearly Everyone's telling you it's not even a secret This is not like me reading the minds of what I think might be somewhere out there in the charts This is what everybody is saying Mhm So the longer that Ethereum takes to clearly say we are doing that the more ETHBTC is going to be punished right I like that that is my that is my base case is that the longer it takes for ETH Ethereum to clearly say that signal it and credibly show it the more the assets going to get punished You may have already heard about Infinex Infinex has in my opinion the nicest crosschain swap and bridge feature that you will find

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not an investor in Mega ETH so I'm not pumping my bags here You are uh you are an investor in Mega E So congratulations uh uh and and so talk to me about just like the where we are in the arc uh of Mega ETH with this public test net and just what you're excited about and maybe if there's any cool apps that you're excited to get your hands on or really anything that that comes to mind about Mega ETH Yeah so Mega ETH so for those of you who are not familiar Mega ETH is basically a super high performance layer 2 Um the idea is simply just more more bigger faster stronger everything and just jumping as hard as you can on this trend of we are going to make a extremely high performance L2 at the expense of yeah this thing is not going

to be super decentralized but that's okay because we just want to be pure performance maxis so that's the that's the mega vision um mega their their claim to fame is that they have 10 millisecond latency and it's basically streaming right we think about oh what's the streaming blockchain Yeah A streaming blockchain right Exactly So the idea is that instead of sitting around and waiting for okay 1 second later or 500 millonds later we're going to get a new update of what the state is As soon as a transaction comes in there's a new state which is basically like you know that's like a video game right That's like a that's like a your computer is like that Um so they want to create a blockchain that has this property and that really changes a lot of the way that we think about what

blockchains are the way we think about latency and mev and you know the way that you know batch clearing and all this kind of stuff that uh normally ends up becoming a problem in blockchains you just very very different properties for something like for like mega in that regard So to be clear this is uh you know testnet it's new it's there's almost certainly going to be bugs and things that got to be worked out but that's why it's there Um a lot of applications that people are getting excited about like gte uh guest.b best Um we have a project that we're investing into on Mega ETH as well that that uh is is still under wraps Um oh sorry Euphoria Euphoria is the one Euphoria That's right Um so there's there's a lot of people trying these new kind of consumer applications that uh

require very high throughput low latency instantaneous feedback type trading applications which is kind of a perfect use case for something like Mega ETH Um so it's the other thing is that they have really really fast oracles So I think uh uh what is it Redstone that uh just launched on Mega ETH and Redstone they have um like basically 10 millisecond latency for their oracle because it comes out every single I think they're called microblocks on Megath And so you basically have instantaneous realtime pricing on on anything that you can get an Oracle for which again very different than what you see on even on something like Salana where you have okay you know you have this offchain uh you have this offchain oracle that's streaming but you

ultimately have to post the price on chain with 500 millisecond latency I've been uh enjoying Bred's uh tweets about how all of the previously available infrastructure just doesn't make sense on me Uh because like imagine ether scan on a blockchain that is streaming Uh and it really just changes what an infrastructure provider needs to look like around me Uh Brett he was actually going to be on the episode today uh for the weekly rollup but we bumped into next week just because uh Brett was like "Yo I don't know how to talk about tariffs." And like much respect Uh so we had to tap his I can just rant unly appreciate your rants about I'm sure I'm gonna get a lot of hate for it So I'm excited for that Well we're we're going to hear from Brett next week and we're

going to peek a little bit more into the Mega ETH test net because like you said there are a bunch of cool apps uh on the scene Uh and that's pretty exciting Mega ETH is it's definitely one of the the hottest project I think in Ethereum land and it's kind of going right at the heart of like the crux of Ethereum's issues which is like it's actually just so disconnected from Ethereum itself ex because it doesn't even consume Ethereum DA It just settles on Ethereum Uh and that's going straight to the heart of like some of the big conversations in Ethereum land But nonetheless Mega ETH is exactly what the Rollentric Roadmap was trying to produce in the first place Uh and so I'm pretty excited to see what happens So congrats to the Mega ETH team to get the test net out just a test net

um TBD on when mainnet comes Uh hib uh I really appreciate you tapping in Uh this is going to be the last time that I bring you in for the rollup Uh because like I said uh Bred comes next week and then after that I will let the guests uh the listeners uh guess as to who comes back after bread uh next week uh uh does the weekly roll So thank you You've done it three times I really appreciate appreciate all your takes my man A wealth of knowledge Like I said the amount of knowledge per second that comes out of this man's brain I think is uh the highest there is in crypto So you make a fantastic guest and I really really appreciate you coming on to Banklist and helping me go through the news Thanks for having me Banklist Ancient you guys know the deal Crypto is

risky You can lose what you put in but nonetheless this is the frontier It's not for everyone but we're glad you're with us on the bankless journey Thanks a lot