# Bitcoin Macro Strategy: Fiscal Dominance and AI Capital Rotation

**Podcast:** The Milk Road Show
**Published:** 2026-10-27

## Transcript

It doesn't have to be that AI rolls over.
It just has to stop being the fastest horse.
And then capital that has been in there can say, okay, well, what's next?
What could, say, 3x my money in?
a given time frame.
founder of Lynn Alden Investment Strategy, a general partner at EgoDeath Capital, and the author of Broken Money, as well as the Stolgard Incident.
She also just co-founded a company called Orange Juice, a new company that buys and holds cash flowing businesses and backs them with a Bitcoin treasury.
We are going to dig into all of this.
Lynn is one of the best people to talk about macro and all things Bitcoin, digital assets.
So if that sounds good to you, make sure you like and subscribe, share this episode with somebody who's going to enjoy it.
And as a reminder, our podcast today is free and that would not be possible without our wonderful partners at Alumni Ventures, giving accredited investors access to private market investment opportunities alongside leading VC firms and Nexo, the digital asset platform that lets you trade, earn and borrow all in one place, all from one account.
So keep an ear out for more information about both of our wonderful sponsors later in the show.
But for now, welcome to Milk Road Crypto.
Lynn Alden, the Macromaster of Bitcoin, how are you?
I'm good.
Thanks for having me.
I'm really excited to talk to you today.
I think you are one of the most ideal guests we could have on the program at this moment because macro is driving a lot of concerns in the markets right now.
And I thought a good place to start would just be with Bitcoin.
As I said in the opening, Bitcoin has been hanging on to the low 80s here.
It might be losing 80k as we speak.
But a lot of people have been bearish and expecting it to break down a lot more in this macro environment, and it hasn't.
How are you reading this response and the strength, relatively speaking, from Bitcoin here?
Yeah, good question.
I mean, my...
My expectation, and I could be wrong, is that I do think that the bottom's in for this cycle.
Obviously, anything can happen.
So it's all probability weighted.
But basically, a lot of times bear markets end just because all the money that would sell has sold.
So it's just the fast money is long gone.
Basically, a lot of leverage has been liquidated multiple times.
And kind of what's left is just very strong holders.
Now, that doesn't necessarily mean that it just goes to the moon right away either.
Because the other side of that catalyst is, okay, maybe we have less selling pressure now.
But then you still have to ask, well, what makes people come back in?
What makes the next upward wave?
So I assume that it's still going to be choppy for a while.
I'm not...
necessarily arguing that we're in a bull market per se um but i do think that the overall kind of risk reward profile of it uh it is really attractive uh at these levels if someone has a multi-year view yeah i i saw this in in the research i did in august you were saying that bitcoin was near the end of its valuation uh or near the low end of its valuation and sentiment range and that there weren't a lot of downside catalysts left is that still how you feel about bitcoin here or do you think that we have seen some potential new downside catalysts start to emerge in the market here?
Well, I think that for most risks, I think a lot of that's already kind of in the price.
And like I said, I think a lot of money that would sell for almost any reason has already sold.
And so I think kind of the structural risks are behind us, most likely.
The more recent one is like hack risk, right?
So there are people that are generally worried about kind of the mathematical sustainability of the network.
And so I would put that in a different bucket.
I mean, obviously, if something severely damaged the Bitcoin network's operations, then even people who otherwise wouldn't want to sell might be in a position where they have to just because the network's damaged.
So apart from kind of...
truly, I'd say catastrophic types of risks of that nature, I find the risk-reward compelling.
And then that's a complication that investors have to price in, is just basically some sort of tail risk.
Months ago or a year ago, people would have talked about quantum as a tail risk, and now it's more AI kind of just breaking math tail risk without quantum.
And so that's the type of technical tail risk that people would have to consider.
And of course, that's a whole rabbit hole because obviously anything related to cryptography is extremely advanced.
And it can be very hard to make a judgment of what percentage chance that someone should assign to those types of tail risks.
That's a question that I wasn't going to go to right away, but it does seem to be coming up again in conversations is these AI swarms.
You tweeted out last week about the internet being hacked beyond our wildest comprehension.
And I think I've heard competing theories on if this is bullish or bearish for crypto.
I had Chris Perkins, who's the head of crypto for Franklin Templeton on, and he thinks that because the digital asset space is so full of robust cryptographers and people working on these problems, it'll be a net long-term positive for this.
space but in the short term there's a lot of fear i'm getting questions about this from my community too how do you think all this nets out or do we just not have visibility on that yet i think on average it's worse for the more complex a project is you know i've generally not been very bullish on the broader space i mean outside of bitcoin and stable coins and certain tokenized things i tend to think that the market for what's left is not as big as some of the bulls do and one of the new risks here with ai is just that that these are public attack surfaces.
And the more complex systems are, the more there's a vulnerability potentially.
And because we're talking about largely irreversible transactions in many cases, it's just kind of an asymmetric problem.
And so I generally, I am...
more concerned around the most complex things and less concerned, but still not zero concern around the things that are kind of just the most basic and robust things around.
Because, you know, it's like, let's say if someone's using DeFi or something like that, I mean, any sort of like, you know, system of finance, you're kind of trading one type of risk for another.
So instead of relying on an opaque centralized entity.
you're getting into this more transparent environment, which does have its pros, but then you're taking on some of your technical risk.
And for example, if you're earning a yield on something, you have to think, okay, in theory, if I were to hold this over years and years and years, what is the chance that say on year six, it gets hacked?
And it goes, everything you have in there goes to zero or you get 20% of it wiped out or something.
So it's like all the yields are returned that someone can earn.
have to be offset by having some idea of what your annualized loss risk is.
And from what I've said, I mean, a lot of just the return potential isn't super attractive.
to me compared to what I see from from downside risk.
So I'm more concerned around the complex side of the space.
This pullback on Bitcoin is scaring a lot of people and I am not one of them.
So if you want to see what I'm not selling and why, what's on my watch list and when I'm going to be deploying more capital into these markets, you can join Milk Row Pro today.
It's just a dollar.
The link is in the description.
I answer questions day and night in Discord.
I'll see you there.
Gotcha.
Okay.
So the more complex, the more attack vectors, the broader the attack surface.
That kind of makes sense.
Yeah.
And I guess we'll see how that plays out because it's not going to be the same for everything in the market here.
Another thing, and I know you've been asked about this a lot of times, but the quantum fear continues to come up.
Chamath Palihapitiya said on a podcast last week that he thinks Bitcoin is capped and is going to zero because of quantum computing risks.
This has not gone away, even though it's been like a kind of a known outstanding question mark in the markets.
What's your updated thoughts on this?
And why do you think these quantum fears just can't be put to rest?
Yeah, so from talking to institutions, I mean, it is a institutional concern.
And I do think that it has a non-zero impact on price.
Now, that's a separate question from if those concerns are valid or not.
Putting that aside for a second, I do think that at the current time, it generally is impacting prices.
There'll be multiple theories about what's impacting price.
And some of them, when you talk to large entities, they're not even thinking about that at all.
But quantum is one of the ones that they are really thinking about.
And so when we bring that other question back in of like, is it a valid concern?
I think part of what makes it hard to go away is that it's, again, it's whenever you're talking about cryptography or...
you know, the nuances of quantum computing, we're in such kind of technical space that any sort of like money allocator, like they're not going to have unique novel thoughts on that.
I mean, they have to rely on...
on experts to basically assess the risk.
The closest they can get is being technically literate enough to understand good technical arguments from bad ones.
But you're still sampling through a broad range of opinions around quantum.
And there are people that are saying quantum is just around the corner.
And then there are people that are saying that ultimately it's not even clear it's possible yet, that we did a properly error correcting.
you know, economic quantum computers is just nowhere near on the horizon.
So, and there's a, obviously there's a huge gap between those two things.
I generally fall into kind of the moderate or longer camp, meaning that I, you know, I think it'll probably take longer than people expect.
And that's because almost anything hardware wise does take longer than people expect.
Hardware is just super hard.
I mean, when I was in college, you know, now quite a long time ago, I mean, we're talking like two decades ago.
So my early classes would, I'd be...
we'd be talking about quantum computers and how like maybe in 10 years we'll have them, right?
And it's like, we're still, so things just take longer than they often expect until maybe one day they don't.
But that's the general tendency.
And there are signs, like there are certain signposts that we can be watching for.
You know, there's always the risk of something being developed in secret, but there are, but in general, there are signposts that can be monitored.
And I haven't, you know, it hasn't really crossed the line that I find particularly concerning yet.
even as someone who is actively kind of looking for those types of threats.
If anything, I think that this more like kind of baseline AI hack risk, like this kind of solving math problems unexpectedly risk, if anything, I would say that that's currently leapfrogged quantum in terms of a risk because quantum basically takes a lot of money to research and build a quantum computer.
But if a week from now, a system is able to break cryptography just with a novel mathematical solution.
That is something that could, in theory, come quicker than expected.
It doesn't necessarily take a lot of money.
It more comes down to if the solution's out there or not.
As a non-math genius, it's hard for me to even assign a probability to that.
But I would say that I consider that a...
larger threat than quantum in the, I would call over the next couple of years.
And, you know, there are people in the space that are like, if something's going to, if something really bad is going to break, it's probably the next six months because it's like, if almost like if you get past the next six months of this happening over and over again, and some of the core cryptography is still safe, then the Lindy effect starts to kick in.
And it's like, you know, they keep throwing the computation at it and just not finding anything, like any sort of like unraveling.
But if I was an institution, that would take more of my mind share than quantum at the moment, just because of the speed that something could, in theory, arise there.
So let's talk about this.
I appreciate all the thoughts on that.
Kind of what I'm hearing is what we're all seeing, which is that these uncertainties remain in the markets and institutional investors have been taking the lead on Bitcoin's price action here.
How do you expect that to play out from here as this asset moves from something that was kind of a retail focused asset towards an institutional asset in the face of all of these uncertainties?
How does that play out in terms of that institutional adoption of digital assets and Bitcoin specifically?
So I think part of it is just narrative exhaustion.
Like I said, if we go another six months and, you know, things keep getting hacked and math keeps getting discovered, but no one breaks, you know, key cryptography that Bitcoin relies on, you know, if anything, it starts to make the case.
It's like trying to prove a negative, which that's kind of the issue with cryptography.
So you can't always prove that you're safe.
But it's like, you know, the longer it's tested, especially with the new tools around, you know, like.
you know, the next six months are a lot harder time period than say a six month period from five years ago, right?
So it's like once it's kind of been around these tools and tested, that narrative can just weaken over time.
And, you know, if Bitcoin is maybe not in a bull market, but it's not going down anymore, then that combination can be enticing.
And people can say, well, you know, we were avoiding it for this, but as time went by, we, you know, we find it more compelling.
I mean, that's probably the main thing I would think of is just, it's kind of more time-based.
I mean, again, we're trying to prove a negative here.
So the best we can do is kind of say, well, I mean, we'll see everyone take their shot at it.
And if, you know, if it works, we'll find out in a negative way.
And if no one can break anything critical on it, then that's, I mean, that's information in and of itself.
It's not perfect information, but it would be information.
And, you know, when it comes to institutions or even personal ownership, I mean, the way to mitigate that risk is position sizing, right?
So, you know, I've generally been in the camp of, you know, there are people that put 100% of their net worth in Bitcoin.
And I've generally been in the more diversified camp.
I mean, I come from an equity analyst background and a macro background.
There's a bunch of different assets I like, of which Bitcoin is a very significant one.
And the one that's got potentially the strongest return profile or near the top.
But it's not something I just bet everything on because I would only do that if I had...
perfect knowledge which i don't have you know i don't have perfect knowledge of cryptography or or the other risks we've been discussing and so i have to to allocate accordingly and institutions i mean you know they're gonna have a smaller allocation usually unless they're like a treasury company or something then then say an individual like me in terms of percentage.
But so it comes down to, you know, if they maybe would have said, okay, we're coming to putting 5% into Bitcoin.
And if instead they say, well, because of all these risks, we're going to dial that down to 3% or 1%, that does have really real impacts on price action.
And then the question is, can enough risks get alleviated for them to be interesting going back to the higher end of their potential allocation spectrum?
Gotcha.
Okay.
So we just kind of need more time and more assurance from the markets that these things are battle-tested and some of these risks start to dissipate and maybe that capital comes back.
Lynn, I want to ask your thoughts on this.
Equities markets have had a really rough time of it in October.
And a lot of people have speculated, and I think you've talked about this idea in the past as well, that if AI stocks start to peak or plateau, that some of that capital could move to digital assets and come into Bitcoin.
Do you see any signs of that beginning to happen?
Do you think that's still on the horizon here?
Or what do you think might happen in terms of that capital rotation?
I think we're seeing signs of the AI trade getting exhausted, which is not to say that it's like the mega top.
It just, you know, it goes through cycles.
You know, I still think there's a lot of build out that's going to happen.
And certain parts of the space are kind of higher, like overvalued compared to others.
And so, for example, I still think that chip stocks have potential.
But for example, like the models themselves are just, you know, they're extraordinarily high value compared to the revenue they get.
very real questions around their economic moats, if they have moats, and how wide are those moats compared to those valuations.
So I do think that at least certain parts of that market are getting exhausted.
And part of it is just size.
So like the whole, for example, just the semiconductor space, like you've looked at, I forget the exact number of stocks that you use, but call it the top 20 semiconductor stocks.
It was under like, you know, two or three trillion just a handful of years ago, the entire market cap.
And then it literally like 8X'd.
It was kind of knocking on the door of 20 trillion.
Obviously, you know, NVIDIA and the RAM stock, some of the others are doing really big, you know, and then Taiwan Semi are doing really big rolls there.
But that's, I mean, it's, you know, it's one thing to 8X from, you know, 2 trillion.
It's another thing to, like, what kind of returns can you get when you're already knocking on the door of 20 trillion, right?
It's just a different, it's a different market size.
And so part of what happened here is that Bitcoin used to be the fastest horse.
at least among large liquid assets.
And for a while, that's been AI.
And it doesn't have to be that AI rolls over.
It just has to stop being the fastest horse.
And then capital that has been in there can say, okay, well, what's next?
What could, say, 3x my money in a given timeframe?
And if they see...
Bitcoin on the bottom of a typical valuation range and say, it's not that big.
It's not that hard for it to triple compared to, say, the semiconductor industry or one of the top semiconductor stocks.
So I think part of that, I think we're not in the stage where any money is really coming back into Bitcoin.
But I think we're in the phase where some money that's in AI is now looking to see what might be next.
gotcha okay and that's still something to to be sorted out by the markets here um lynn i want to kind of do a hard pivot here because i i got you on the show to ask you some questions about macro and i haven't really gotten to some of those yet but um a lot of thing that investors are watching is is the federal reserve and uh interest rates they've they've raised race raised rates once.
There's another Fed FOMC meeting this week, and the market seems pretty certain at like 90 something percent that they're going to hold rates.
But the market is also very strongly expecting another hike in December.
Can you walk me through your thoughts on this and what that macro backdrop in terms of monetary policy means for Bitcoin through the rest of Q4?
Yeah, good question.
I think a hold is likely.
December, I'm less sure about.
My base case from many months ago was that somewhere around one hike would be my base case this year.
but I wouldn't be surprised by two.
And so far, that's where we've landed.
We got one hike from this new Fed.
And like you mentioned, we might get one in December.
Obviously, a lot can happen between now and then, especially how headline-driven everything is.
The point that I brought up is that it's almost irrelevant when we're talking about 25 basis point hikes or cuts, in my view, because that's not really the issue, right?
It's not like it's actually...
It is true that rate hikes will take some fuel out of the market, but then they also put fuel into the market through the higher interest expense on the debt and deficit.
And so in an environment, and I've kind of gone over this on other shows, but basically in an environment like the 70s, where the money supply is primarily growing because of very high rates of bank lending.
And so in that, and the public...
debt is low as a share of the economy, then industry hikes have a very one directional trend.
They do indeed slow down that money supply creation.
And while they can blow out the deficit, it's not as big of a number.
as the downward pressure it puts on housing and other types of lending.
Whereas when you're in the current environment, we have 7% of GDP deficits, over 100% debt to GDP, a really big, just massive stock of interest-bearing debt.
Higher rates, it is true that they put downward pressure on housing.
They would put downward pressure on other types of lending, which is already kind of...
sluggish, not super fast.
That's not really the source of the issue right now.
But then they actually blow out the deficit by a larger dollar figure.
And a lot of that gets spent into the economy as money.
And so it's not at the stage where like...
In a very extreme fiscal dominance scenario, let's say you had 300% debt to GDP and very little bank lending, and you have inflation, if you try to raise rates, you're probably just going to make inflation worse.
You're just blowing out interest expense on a comically large amount of debt.
On the other hand, if you're where they are now, which is you're a little over 100% debt to GDP and mediocre rates of bank lending, you're more in that questionable territory.
You're taking one step forward and one step back.
And it's more industry specific.
Like it is, you know, it is restrictive on housing primarily.
That's the biggest factor right now is just buying a house on a mortgage is extremely costly.
But then it literally, like every time they raise rates, people with very large like money markets balances just get a raise.
You know, so like they've already locked in their mortgages in many cases.
And then they have this kind of floating rate cash or cash like assets that just pay them more.
And especially when you have pretty significant wealth concentration and an age population where that's where the deficits are going, that's who has the money.
When you raise interest rates like that, it's kind of a mixed bag at the moment.
So that's kind of in the nature of being in fiscal dominance rather than monetary dominance.
What are you expecting from the other side of the Fed's FOMC meeting here in terms of balance sheet management?
Because they've been doing these reserve management purchases, sort of like adding a little bit liquidity to support reserves in the banking system.
But they haven't really gone into like quantitative easing and that Warsh seems very opposed to that.
What are you expecting there in terms of providing liquidity from the balance sheet side if monetary policy side, the interest rate side isn't the most important thing right now?
Yeah, good question.
I mean, so far they've done exactly what they said they would do.
So, I mean, years ago, they projected that their balance sheet would probably bottom around 2025, 2026.
And it did in late 2025, because they kind of ran into like a bank liquidity floor, in a sense, at least based on current regulations and things like that.
And so they started doing the purchases.
Then they intentionally said, okay, we're going to do it at a certain rate until tax season, because on tax day or tax week, there tends to be a big...
drawdown of cash from the banking system to the Treasury's cash account for settling tax day.
And so they wanted to have enough liquidity that even after that unusual seasonal liquidity pull, that there still would be enough liquidity.
So they purposely...
bought a little extra leading into tax day, and then slowed down, which they have done.
And now they've kind of slowed to a crawl.
And at the current time, I mean, there's still, like, there's some room to kind of keep it flat for a period of time.
Banks are on some of the lower end of their kind of modern cash level range, you know, kind of the post-GFC kind of environment that they operate in.
Not at the absolute bottom yet.
And so, I mean, I think they could hold this for another year or so.
But then after that, they'd have to explore one of a handful of options, either resuming balance sheet growth at a pretty slow pace or doing kind of various deregulations that allowed banks to operate on slightly lower cash levels, which generally means letting them hold more treasuries without kind of penalizing them in a capital ratio aspect.
And so we'll see what ultimate kind of decisions they make.
base case is this more gradual print scenario.
So I keep fading like the really big, you know, that some gigantic printing is around the corner.
I mean, certainly a long enough timeframe, sure, but in a kind of intermediate term timeframe, I keep fading that risk.
But also I think they're going to be kind of limited in how much they can reduce the balance sheet, you know, unless they just radically change kind of the bank regulation environment.
And the reason that QE, I mean, QE is not really on the table right now just because they don't consider the economy to need stimulus.
I mean, if they wanted to stimulate, they could cut rates and do things like that.
The main thing is that they're making sure that banks have adequate cash levels.
They're making sure that just the sheer amount of treasury issuance doesn't crowd things out, which is basically like a minor form of debt monetization, like a pretty small percentage of it, but still.
you know, permanent balance sheet growth and permanently buying treasuries.
But they're not trying to suppress duration.
You know, they're not trying to buy the long end.
The yield curve is not particularly steep.
So they don't really have a reason to want to buy the long end.
And so it's more just like what allows banks to operate smoothly so they don't show up in repo markets and other areas like that.
Okay.
So leaving the Fed and monetary policy and their balance sheet management aside, because, you know, what I'm hearing you saying, and I kind of agree, is that they're...
They're still important, but they're diminishing and important.
And the thing that's most important is the deficit, the fiscal situation.
We're about to have a midterm election in the United States.
It seems likely that the Democrats will take the House and likely the Senate as well.
So we'll have a split government.
How does that factor into your thesis for the next two years on this gradual print and fiscal dominance?
And just like what do you expect to happen in that picture from the fiscal side if we do have a split government for the next two years in the United States?
Yeah, one of the pillars, not the only pillar, but one of the pillars of the kind of nothing stops is train view is the polarization of Congress and politics, which is, I mean, even in the current environment where it all leans red, you're not over, for example, filibuster thresholds and things like that.
And so even now there's polarization.
Post-election, like you said, we're almost certainly going to have more polarization, which basically makes gridlock.
So basically any sort of meaningful...
deficit reduction, either in the form of spending cuts or tax increases, all the possibility of that just gets significantly reduced.
And so when you're in that kind of polarized environment, it pretty much locks the current status quo in.
So the 7% of GDP deficits, I think, are just there for the next two years.
Even after the next election, I mean, we'll see what happens, but there's no real political appetite to address them.
And so, you know, obviously the midterms can be important for any number of reasons, but there's very little portfolio decision making I'm doing based on election outcomes because it's all within the framework that I'm already operating under, which is just these very sustained deficits, at least into the 2030s.
It gets interesting when you start to run into the Social Security Trust Fund issue.
That's the only kind of a big question mark I have for the deficits, and that's not until the 2030s.
So just so I understand this a little bit better, like you're saying the gridlock means we're probably locked into where we are right now.
Does that just mean that we just continue to see this enormous amount of deficit spending?
The debt continues to grow.
The dollar continues to get debased.
Does that accelerate in your view?
Or like, how does that actually play out over the two years?
In my, I don't really have a reason to think it accelerates over the next two years.
Just because the, like, I mean, it's much harder in that environment to pass big spending things like, you know, like some sort of, I mean, if anything, if the Republicans somehow hold, I mean, they promise these $5,000 checks, which I actually don't think would happen even in that scenario because their incentive to do it would be gone.
And it's not clear Congress would support that.
But like in theory, a more unified Congress can spend more or just do tax.
reductions, whereas a more split Congress is locked on both sides.
So it's like they should not expect any sort of large stimulus in those two-year periods.
They shouldn't expect meaningful tax reductions.
If anything, the more tangible outcome is that it probably just caps defense spending compared to what you otherwise might have gotten if it stayed red, just because that side is going to push back on some of that more.
And so, yeah, it's kind of in the thesis of, you know, debasement.
I wouldn't say it's like, it's not rapid debasement.
The funny thing is like, so historically the U.S.
broad money supply grows by about 7% a year on average.
Obviously it's not.
evenly distributed in the 90s, it was quite slow.
During COVID, it was like the fastest ever since World War II.
And the current time is actually slightly under 6% in a trailing 12-month period.
So actually, we're slightly below average money supply growth.
And it's large because of that restrictive environment on housing and lending.
And so it's offset by the deficit.
And I think anywhere between 5% and 8% money supply growth is just kind of business as normal.
And I think that's the environment that we're going to be in for quite a while.
Okay.
So more gridlock, but you're not repositioning because the nothing stops this train thesis isn't really impacted by that.
So you're just kind of expecting that to continue.
And I also just want to acknowledge that I got you to say nothing stops this train on the podcast, which is an achievement unlocked.
Okay.
I want to move on to something that has really been a big shock this year.
that, you know, it wasn't really part of anybody's plans, but the oil shock with the straight-of-horn news closure, I still think is like one of the biggest macro events, maybe economically we've had in 20 years, maybe longer.
And it's still playing out.
Obviously, like the short-term impact of this has just been energy costs rising, so inflation.
But where are we on that in your mind in terms of like the ripples of this playing out?
And, you know, it's still not over.
What are your updated thoughts on the outlook for oil and just the energy crisis that is really...
resulted from this.
Well, that continues to be like the biggest macro thing to watch.
You know, like I remember before, like earliest year, I'd be asked, you know, what's a bigger risk like, you know, that or like private credit blowing up?
And I would say it's not even close.
I mean, the whole energy situation is just such a larger, you know, kind of macro variable at the current time.
And so, I mean, it's the interesting thing is that for a long time, Oil itself stayed below what many of the oil analysts thought would happen.
Basically, China had more flexibility to reduce imports than people thought.
That's probably the biggest variable.
Also, of course, you have the U.S.
Strategic Petroleum Reserve drawing down and things like that.
So the actual impact on oil prices themselves, obviously, it pushed oil up, but it wasn't as kind of catastrophic in these many months as people thought.
The bigger problem has showed up in the refineries, both in terms of damage.
not just in the Middle East, but also in Russia.
So just damage from two wars, really, hitting all that.
And then also, obviously, the transportation bottlenecks are still very much there.
And it takes a very long time to build a new refinery, both from a regulation standpoint.
There's a very strong not-in-my-backyard aspect.
And then also, I mean, they're very technically complex, expensive.
And so, again, the U.S., if you look at the last time you built a greenfield refinery, I wasn't alive when that happened.
It's so long ago.
They've done little expansions and things like that, I believe.
And so, that's kind of locked in for a while.
And it doesn't have to keep rising just by staying as high as it is or inching up.
I mean, that affects inflation.
That affects what the Fed can do.
That affects midterms because people are kind of looking around and saying, well, how have I...
been benefited from any of this, you know, with diesel prices and refined products and everything all just very high.
And then that, of course, puts pressure on stores, all the transportation.
So even if they're not, you know, worried about fueling their own car, they're worried about the cost of, you know, groceries on the store shelves that had to use diesel to get where they are or, you know, natural gas and other, you know, hydrocarbon type products for fertilizers and things like that.
So that's just the sustained background pressure.
in a world that's becoming just less globalized, having to focus on more redundancy, both in terms of supply chains and in terms of now energy infrastructure and production and transport.
And so that, on average, is a slightly more inflationary world because you just don't have certain deflationary offsets.
And then the other kind of timing thing to be able to watch is what happens when the U.S.
stops drawing down a strategic petroleum reserve because it gets too low.
And if the war is still going on and that doesn't have that offset anymore, that's how you can get another $20 on the barrel of oil if it's sustained long enough with these very high crack spreads.
So the spread between a refined product like gasoline or diesel and the initial source, that's the biggest macrovair to watch.
If we could snap our fingers and just open straight to Hormuz and stop damaging refineries tomorrow, that'd be a very different investing environment than the one we're in now.
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So I agree with you.
This is the most important thing to watch right now.
But what exactly are you watching?
Because diesel prices are up about 70% since February.
Obviously, crude prices, WTI versus Brent, they keep climbing up as well.
Is there a threshold that you're watching for?
Is there something like a specific indicator that you have your eye on around this?
Or are you just generally watching how this plays out just across the board?
Yeah, good question.
I mean, so on average, things...
break at a higher level than most people expect because they're not adjusting nominally.
And so they think of $120 oil being catastrophic.
And it was in the 2000s.
But the money supply is way bigger.
The stock market's way bigger.
Wages are bigger just because all that money has grown and sloshed around.
So $120 oil today is not as bad as $120 oil 20 years ago.
You have to get...
notably higher than that to be of a similar environment.
Now, the fact that we have high crack spreads, basically, so you have fairly high, not catastrophically high oil, but you have fairly elevated oil, which then has another $50 or $60 added on to get the refined product at the end, which is a usually high number.
You've got kind of the equivalent of $120 plus oil.
Generally speaking, I think the economy runs into problems more like $150 plus oil.
I mean, obviously, it's already running into issues, but it's like it doesn't break the way that the many sensationalists would say it breaks until I think you get to much higher thresholds.
So the things I'm watching are one, you know, plans around the Strategic Petroleum Reserve.
Two, any sort of escalation or de-escalation in the war itself.
I mean, there are some people who think that after the midterms, the incentive structure changes and maybe the U.S.
ramps up.
Again, I'm not a geopolitical strategist, so I would leave that to others, but it's a narrative that I'm monitoring.
And then weeks after the election, I'll be seeing what happens in the headlines around there.
And then just kind of going from there.
It's just part of the new background that we have to monitor.
Okay, let's kind of synthesize some of this around your outlook for Bitcoin, because what I'm hearing is there's an ongoing energy crisis, that's inflationary pressure that's in the background, and then you're expecting gridlock in Congress, so continued deficit spending and sort of growth of the debt there.
Nothing stops this train.
Does that strengthen the outlook for Bitcoin for you over the next two years?
Does it present risks if all these pressures start to break the bull market?
How does all this net out around Bitcoin for you?
Well, I think that structurally it's supportive of Bitcoin in the sense that, I mean, you know, like if you had an environment where you expect very slow money supply growth and like austerity, you would generally be more concerned around assets that are kind of debasement resistant.
Because you'd say, okay, well, there's a lot of money in them, and maybe money will be less interested in being in them because it can just come back into the relatively austere banking environment, fiat environment.
And so the fact that we are just running 7% of GDP deficits as far as I can see, and the fact that we're monetizing some percentage of those deficits, that does play a role in why you want to own things that are not the dollar.
whether it's equities, whether it's gold, whether it's Bitcoin, whether it's housing in certain environments, that's probably harder.
But that's the case for it.
And so I think that that's supportive.
Now, in the near term, if you get spikes in oil prices, you can get liquidity shocks where just various funds or entities have to sell things.
And that can create a risk-off environment which can harm Bitcoin.
And I think that it's more like the...
a one two stage so like on in general things like higher rates higher energy prices it they should kind of near term not be great for bitcoin but then when you find out okay well the fed's still monetizing anyway they can't really do much about it um that's when people say well wait a second i mean that's even more bullish for bitcoin right so then so it's like it kind of has to hold up against that initial narrative and then to the extent that either the market looks through it or investors change their view, it benefits from the long-term debasement.
I mean, you want to be short fiat and you want to be long, scarcer things.
Now, probably one of the more negative cases against assets like gold and Bitcoin right now is that the dilution rate on bonds is not terrible.
So I've historically been a bond bear since like 2018, 2019.
And it's been the worst performance for bonds in modern history.
But at 5% yields, it's way less bad for bonds.
And the dilution rate that I look at is I'll take the money supply growth rate and I'll compare it to the industry you get paid on bonds.
So for example, let's say in the 2010s, you'd have money supply growing at 7% a year and you're getting paid 2.5% on your 10-year treasury.
So if you're holding bonds and you're thinking, okay, what is my share of the money supply doing?
Well, it's getting diluted by the dividend between 7% and 2.5% roughly.
But then you're paying taxes just on the interest just to make it worse unless you're holding it in an account that kind of prevents that.
And so your dilution rate is pretty substantially negative.
On the other hand, if money supply is growing at, say, 6% like it is now and you're getting paid 5%, your dilution rate is like 1%, which is way better than, call it, 4.5%.
So it's like there's less of a kind of a screaming reason to go out and sell treasuries and buy gold or Bitcoin when that dilution rate is smaller.
And so I think that that is providing some near-term pressure.
If anything, it's remarkable that equities, gold, and Bitcoin are all at the levels they are, despite the fact that the treasury market is, you know, it's not like as a bond bear, it's hard to say, but it's not the worst asset out there anymore, you know, five or 10 year treasury.
And so that's probably one of the near-term headwinds for these assets.
I appreciate that outlook.
Len, one of the reasons I was so excited to talk to you today is that despite all of these pressures and uncertainties and macro headwinds and quantum FUD and all these other things, you're not just investing in Bitcoin, you are innovating and building on it.
And I want to talk to you about Orange Juice because I've heard you talk about this company as a private equity business with a Bitcoin treasury attached to it, which is a very different thing than just a Bitcoin treasury company.
Talk to me about this idea and what led to this and why this is a different kind of Bitcoin company.
Yeah, so basically, I think that there is a role for kind of more pure play Bitcoin treasuries.
If they're the largest, most liquid ones, that's somewhat of an economic moat, and it kind of justifies what they're doing.
But I think that the overall room for just a bunch of kind of very similar, kind of more pure play treasury companies is limited.
I think the much bigger market is to just be companies that happen to have a Bitcoin treasury.
Cash flow, if you have cash flow, you can support debt indefinitely.
You don't have a ticking clock attached to your Bitcoin stack that maybe makes you have to sell it in opportune times.
And obviously, you have less pure play potential.
So if someone happens to think Bitcoin is going to 10x in the next three years, then probably a purely levered Bitcoin strategy is the way to go.
On the other hand, if you're looking at this from a more diversified standpoint, and you say, well, what can...
help us accumulate more bitcoin long term it's buying kind of low multiple cash flow businesses uh and you know being able to stash that into a bitcoin treasury uh and just separately i mean putting bitcoin aside there's just a demographics issue with businesses which is that you have a lot of aging business owners that are looking to sell uh one of the hardest things in the world that you can sell as a business because they're they're large uh individually unique and complex you know transactions uh and so Private equity has been the bridge to provide liquidity to buyers and sellers of businesses.
But the general trend there is they benefit from 40 years of falling interest rates.
They primarily rely on leveraging cost-cutting and flipping.
So you buy a business and almost sell it for parts.
There's statistics that show companies that emerge from the PE process have a higher bankruptcy rate just because there's less margin of error when you're indebted.
you know, when you've done a lot of cuts like that, so you kind of potentially broke company morale, even if you saved on the near term.
So the whole incentive structure there is basically what can you do with a business to kind of maximize your, call it four-year returns.
Whereas you run a business differently if you never plan on selling it.
You know, you might make decisions that, you know, maybe we don't make us money this year, but it'll help us make sure we keep making money five and 10 years out.
And so there's a...
basically a lot of private equity stuffed with businesses that they're looking to sell.
There's a lot of aging business owners that are looking to sell and maybe their kid is a doctor or a lawyer and doesn't want to be the next business owner.
Sometimes they do, sometimes they don't.
And so there's just, I think, a need for more permanent capital vehicles.
which is a jargon way of saying a company that is able just to, not a fund, so a fund has a lifetime attached to it, call it 10 years, whereas a company is an indefinite vehicle.
It never has to give money back to shareholders because shareholders can sell their equity stakes instead.
So the most public example would be Berkshire Hathaway.
Now that's a trillion dollar example, but basically in addition to their public stock portfolio, they just buy whole businesses.
like seize candy, and then they just hold it for decades indefinitely.
And that's what Orange is looking to do on a smaller scale, with the difference being that instead of our kind of bread and butter being insurance, like Berkshire Hathaway, this is one kind of created by a bunch of Bitcoiners.
And I wouldn't understand how Bitcoin allows you to offer that, because I think a lot of people see and understand the problem of private equity sort of gutting these businesses, saddling them with debt, front-loading the returns, and then trying to sell them off.
But how does Bitcoin allow you to be that more permanent capital and take that longer view of these businesses?
And talk to me about how you pitch that to people and situate Bitcoin as essential to that process.
So there are a couple main ways.
One is just that...
Like we talked before, Bitcoin treasury companies have a ticking clock.
If they don't really have substantial cash flows, but they do have substantial debt, then they have to rely on Bitcoin appreciating, or they'll find themselves having to eventually trim their position down.
In addition, I've been long some Bitcoin treasury companies.
It's not a criticism, but they tend to be pro-cyclical, meaning that when they're in a bull market, that's why everybody wants to give them capital.
And when they're in a bear market, nobody wants to give them capital.
So they end up buying high.
And they're either just holding low or sometimes even selling low, which is not ideal.
Whereas if you have cash flows, and then you can conservatively lever those cash flows, especially against a holding like Bitcoin, you're not on a clock anymore.
So kind of like how private equity is on a clock, a permanent capital vehicle is not on a clock.
You don't have to do anything into that business in the near term to optimize it.
You're building it for the long-term future.
And similarly, you're not on a debt clock either.
as long as you manage that conservatively.
And so that's just a, it's a different kind of incentive structure.
And then also it makes it so there's potential less counter, it's like less pro cyclical.
So for example, when we have two main things we can buy, businesses or Bitcoin, we can kind of assess, okay, well, what is our current pipeline of businesses that are looking to sell to us?
You know, is it really strong right now?
Is it really weak right now?
Somewhere in the middle.
And then you can also go separately, look at the Bitcoin market and say, I mean, did it just go up 5x and it's near kind of the euphoric range of a lot of metrics?
Or is it in a bear market and, you know, kind of chopping along and like a lot of the metrics look pretty cheap?
You can then, you can compare those two things and say, okay, which one is the more compelling one at this use of the marginal dollar at this time?
And, you know, while we would generally intend to be, you know, growing both.
reliably, there's certainly a case where you'd lean into one more than the other.
And it would largely, ideally be counter-cyclical, which is you're leaning into more businesses buying when you're getting better deals.
And you're leaning into buying more Bitcoin when that's kind of on sale.
Lynn, I know we're going really long on time here, but I got to ask a couple more questions for you really quick here.
I've heard you say we talked about a lot of FUD in this episode of oil, the Fed, of quantum, of AI.
I've heard you say that the biggest risk to Bitcoin isn't any of these things.
It's us.
It's the people.
And I'm curious what you mean by that.
And how do we go about defending against the risks posed to Bitcoin by people?
Yeah, I wrote a piece for Bitcoin Magazine, a print issue earlier this year, and it contained that kind of thesis.
And the view generally was that when I think of things that could make Bitcoin not work out as an investment over, call it a 10-year time horizon, one would be some of those tail risks we already discussed.
But the more persistent one is just that...
what if people just don't really want what Bitcoin offers?
That we've overestimated the percentage of the population that's interested in, you know, portable, portable self-custodial money that can't be debased, right?
And obviously, in theory, that sounds great to people, but then you say, okay, well, you have to learn some things about it.
You have to learn how to hold it properly.
And obviously, we've seen challenges in terms of, you know, even being able to safely hold it.
So there's a...
risk reward trade-off with anything.
The analogy I use is that some people really like to fix up their own cars.
I had a boss once that basically built his own cars.
He'd buy these junkers and then just literally he'd just fix the entire car and notice how every part of it works.
And then there are people that just lease a car.
They never want to touch the car.
They never want to change the oil.
They're not a car person.
They're not going to be hands-on with it.
And it's kind of like that with money.
There are people that just say, I want a bank account.
self-sovereign.
I don't know what that means.
I just, you know, I want to have my bank account.
And then there are people that want to hold, you know, they have, you know, gold in their house or they have Bitcoin on a harder wallet or in, you know, multi-city collaborative custody or something.
You know, they run their own node.
So, and I think one of the, kind of the market questions is what percentage of the world population will want some percentage of their assets in Bitcoin?
and is willing to go through some of the technical hassles and risks of getting there.
Because if you look at it from purely price action, when people say, okay, it's absolute scarcity, it's like, well, that's great.
But I mean, there are equities that do 20 years in a row of share reductions.
So they're actually deflationary supply of their thing.
And there are stocks that give very strong multi-year returns.
So if someone is just holding it in an account, a Bitcoin ETF or Bitcoin on exchange, That has to compete with the entire world of equities you could own.
Whereas there's actually a relatively small handful of liquid bearer asset monies that are debasement resistant.
You have gold, you have silver.
Platinum's kind of questionable, but I like platinum.
It's way less liquid.
And then Bitcoin.
And there's really not a long list after that.
I mean, you start to get into smaller, less liquid markets at that point.
And so, and of course, Bitcoin's advantage is that among, you know, digital assets, it's, you know, compared to physical assets, it's, you know, portable, right?
So if I live part of the year in the US and part of the year in Egypt, I can't bring my gold stash back and forth every time.
But I can bring back and forth in various ways, in various kind of secure ways, access to Bitcoin.
because it's access to information, which is different.
And so, you know, and the question is, what is the market size for that?
And if governments try to keep chipping away at things like privacy or like, you know, legal self-custody or legal development of certain things, even like, you know, legally developing privacy tools or legally developing, you know, peer-to-peer type of networks and peer-to-peer trading and things like that, if people just kind of let that happen, And not a lot of people get interested in the topic and just kind of submit to the other options available.
That's a way that Bitcoin can stagnate even with nothing going catastrophically wrong.
It's just that the market isn't very big and isn't defended well enough for what it can be.
Well, I'm doing my part to try to educate people about the virtues of Bitcoin here.
So thank you for that.
Last question, I promise.
Is 2027 going to be a bull market year for Bitcoin?
If I could answer that, I would love to.
My inclination is I think it goes up in 2027.
I prefer to give two or three year views.
So I would say I'd be quite surprised if it's not notably higher, say at the end of 2028 or as we go into 2029.
One year puts more pressure because a lot of things can happen in one year.
But my bias would be toward up.
I like that bias.
That's my bias too.
And I like the long view.
Lynn Alden, thank you so much for coming on in this trying time and giving us a lot of insight and wisdom and taking the long view of Bitcoin digital assets.
Lynn Alden, investment strategy, orange juice, ego death, capital, and author.
Lynn, where can we send people to find more of you and your work online?
People can check out lynnalden.com or Twitter at lynnaldencontact or check out my books.
So thanks for having me.
I strongly recommend you check out Lynn's books.
Lynn, thanks so much for being here.
I hope we can catch up again soon.
Of course.
Thank you all for joining us.
I hope you all learned something today.
So until next time, stay safe, stay educated, stay bullish, and we will see you all in the next episode of Milk Road Crypto.
Thanks for being here, everyone.
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