Compiled & Organized by: Deep Tide TechFlow

Guest: Noelle Acheson

Host: Steve Ehrlich

Podcast source: Unchaind

Original title: Powell Is Out, Warsh Is In: What It Means for Crypto

Broadcast date: May 22

Editor's Note

Former IMF chief economist Gita Gopinath, speaking at the FT, proposed the "Bliss Trade" (expectations of a large-scale, sustained bailout) as the underlying logic of the market, replacing the "Taco Trade." This is a structural, cross-party, and cross-governmental expectation of fiscal bailouts, forming the true moat of current risk asset valuations and the core rationale for currency devaluation trading.

In her podcast, "Crypto is Macro Now," newsletter writer Noelle Acheson offers three key observations: First, there is a severe divergence between stocks and bonds. The bond market is pricing in global tightening, while the stock market is driven by AI hype, similar to the divergence between the equal-weighted and market-cap-weighted S&P 500 indices before the 1999 dot-com bubble. Second, while Powell's tenure is commendable for upholding the Fed's independence, we must not forget his role in orchestrating the 2023 shutdown of Silvergate and the de-banking of crypto companies. Finally, inflation will not fall quickly. Even if the Hormuz crisis ends tomorrow, energy price transmission and consumer expectations will take at least several months to recover, and the rise in inflation is a long-term trend driven by deglobalization, predating Trump's tariffs.

Essential Quotes

Stock-bond divergence, "Bliss Trade" and systemic vulnerability

"Global bond yields are rising, which is a global tightening, and that's not good for the market. But the stock market always follows a different rhythm, which is nothing new. What's new is the scale of this divergence, which is astonishing."
"The bond market is traditionally known as 'smart money' because they only look at macro data, narratives, and trends; while the stock market is swept up by various speculative cycles. The current situation is that the stock market follows speculation, and the bond market follows macro indicators. They are two completely different stories, but they don't need to be the same."
"The essence of the Bliss Trade is structural, unlike the Taco Trade, which is limited to the Trump term. It means that no administration today would choose not to bail out its people when they are in trouble, whether it's a market crash, a banking crisis, or high oil prices. This has nothing to do with political parties, or even whether it's a democracy or not; we've seen this far too many times south of the equator."
"The 'safety net' is now part of the system, which naturally adds another layer of vulnerability. This is one of the reasons why risk appetite remains so strong in such an uncertain environment."
Historically, market tops have often been triggered by a single mega-IPO.
"The contrarian indicator I'm most concerned about right now is that everyone is cheering for the S&P 500 to hit new highs, but ignoring the widening gap between the S&P 500 and the equally weighted index. The last time it widened at this rate was in 1999. Anything top-heavy, according to the laws of physics, will eventually topple over."

Inflation will not fall back quickly.

"I must refute an assumption: inflation has not actually been falling as many people believe. Since 2024, core CPI has remained flat between 2.6% and 3%, without declining at all."
"The real reason for rising inflation is deglobalization, a trend that started even before the Trump administration, during Biden's presidency. Trump was just accelerating it, adding turbocharger. Tariffs fluctuated wildly, and the Hormuz crisis lit another match underneath."
"Even if the Hormuz crisis ends tomorrow, it will take time for energy prices to fall, and even longer for them to be transmitted to inflation indices and expectations. So this round of inflation, no matter how the Hormuz crisis unfolds, will not end in the short term."
"A target interest rate of 3% is reasonable, and many Fed officials privately think so too. But they can't change the target because a large part of the Fed's job is to manage trust. If they change the target, they are telling the market, 'We can't reach the original target,' and that would damage the entire trust system of the Fed."

Powell's merits and demerits during his tenure

"Powell looks like the kind of grandfatherly uncle you'd be willing to go out for a marshmallow latte with, but we can't forget that he's also the driving force behind the debanking of crypto companies, the mastermind behind Silvergate's shutdown and the series of events in March 2023, and he completely misjudged inflation."
"The word 'independence' itself is questionable. He did stand up and fight back when the U.S. Department of Justice subpoenaed, which is commendable; but in shutting down crypto-related banking operations, there was no independent thinking whatsoever; it was influenced by politics. Does independence mean being absolved of responsibility for any decision? Does it mean ignoring subpoenas?"
"He wants to shrink the balance sheet, but the market won't let him succeed. It's that simple. The bond market is the boss here, and the Fed can't allow the Treasury market to become disordered because that would affect the dollar and price stability. So he can make a wish, but it won't come true. I also wish I were a professional pianist, but that won't happen either."

The Costs of Bitcoin's Macro Assetization and the Prospects of the Clarity Act

"Bitcoin is a hedge against currency devaluation. When Bitcoin surged during the 2023 banking crisis, everyone said, 'Because people realized the banking system was corrupt and fragile.' I said then that was wrong; it was because people expected central banks to intervene and loosen monetary policy. Bitcoin truly reflects that."
"It's a good thing that Bitcoin has become a macro asset, but there's a cost to it. It's just one of many macro assets right now. Volatility-seeking investors will choose even more volatile assets, which isn't Bitcoin right now. There are countless AI concepts to hype, and prediction markets too—there's just too much to play with."
Even if the Clarity Act passes this year, it won't have a significant impact on Bitcoin, as Bitcoin already has no shortage of regulatory clarity. The real beneficiary will be ETH, and when ETH rises, it often pulls Bitcoin up because they frequently move in the same direction.
"My concern is the details of the innovation exemption. If third parties are allowed to issue tokens wrapped around a company's stock without the company's knowledge or consent, it becomes a market for derivatives speculation, not a market for capital formation. This goes against the fundamental purpose of the market and is detrimental to the crypto industry's existing stigma of 'pure speculation.'"

Steve Ehrlich: Hi everyone, welcome to Bits and Bips, where we explore the intersection of macroeconomics and crypto. I'm Steve Ehrlich, Head of Research at SharpLink, and our host for this episode. Today's show is very interesting. There's a lot going on in the macro world, with stocks and bonds moving in completely opposite directions, and the crypto market caught in the middle. Tomorrow we have a new Federal Reserve Chairman taking office, and there's even more to discuss.

Now, let me introduce our guest. She previously worked at Genesis and served as Head of Research at CoinDesk. She is currently the author of the highly influential newsletter, Crypto is Macro Now, Noelle Acheson. Welcome, Noelle.

Noelle Acheson: Hi Steve, it's great to chat with you again.

Steve Ehrlich: How are you today?

Noelle Acheson: I'm still recovering from the nearly 35-degree heat in Philadelphia. It's so hot in May.

Steve Ehrlich: I know, you'll probably have to get used to this kind of weather again. Like many of you watching today, I'm also trying to figure out what's going on with the market. As I said at the beginning, the stock market is still strengthening.

Noelle Acheson: Yes, but there have been some warning signs.

Steve Ehrlich: Yes, Nvidia delivered another very strong earnings report, but the market reaction was muted. There's considerable panic in the bond market, with both 10-year and 30-year yields rising, which is something you've been closely watching. To make matters worse, we got our first inflation data since the start of the Iran war. Nobody knows what's going to happen next. Powell is stepping down as Fed chairman on Thursday, although he will remain on the board to vote, at least for the foreseeable future. The crypto market is also caught in the crossfire; Bitcoin recently surged to the $80,000-$83,000 range, and ETH briefly reached the $2,400 range, but both have since retreated.

So let's go through them one by one. First question: how do you interpret the panic in the bond market? Yields are being pushed up, with both 10-year and 30-year yields rising. In my view, these are all worrying signals, but the stock market is basically unmoved.

Stock-bond divergence and the "smart money" narrative in the bond market

Noelle Acheson: You're right, these are indeed worrying signs, and global warning signs at that. Global bond yields are rising, which is a sign of global tightening, and not good for the market. But the stock market always follows a different rhythm, which is nothing new; what's new is the scale of this divergence.

You might recall that the 60/40 portfolio used to be highly recommended, with the theory that stocks and bonds would move inversely. We are indeed seeing that inverse now, but on a staggering scale.

The stock market is currently driven by some endogenous and temporary factors, mainly enthusiasm for AI, as evidenced by the performance of the chip sector; while the bond market focuses on the macroeconomic outlook and the future. The bond market is traditionally known as "smart money" because it only focuses on macroeconomic data, narratives, and trends; while the stock market may be caught up in various speculative cycles, and the frequency is increasing.

So today, the situation is that the stock market is driven by speculation, which may or may not have some basis—we can discuss that later; the bond market is driven by macroeconomic indicators, which are not looking good right now. This is why these are two completely different stories, but they don't need to be the same.

Steve Ehrlich: Let's talk about those macroeconomic indicators. Inflation data is what everyone's watching, and the PPI (Producer Price Index) is starting to rise. What else are we seeing? How do we interpret these inflation signals? I don't want to use the word "temporary," but theoretically, if the Straits reopen and there's any solution to the Iran issue, the energy market should at least return to pre-February 28 airstrike levels, and things should calm down.

Noelle Acheson: Things will calm down, at least regarding oil prices. But this doesn't mean inflation will immediately fall, for two reasons. First, inflation transmission is slow. We've already seen the core indices monitored by the Fed rise somewhat, but not significantly, because while oil prices affect everything, the transmission takes time.

Second, we will see increased volatility in expectations. This is particularly interesting, especially in the US economy, where gasoline prices have a huge impact on inflation expectations. Seeing the numbers jump up at the gas station feels like money is being withdrawn from your bank account. So even if gasoline prices don't enter core inflation, consumers already feel that inflation is rising. This affects their expectations, which in turn affects their behavior, ultimately impacting actual inflation.

Therefore, even if the Hormuz crisis ends tomorrow, it will take a considerable amount of time for energy prices to fall, and even longer for this to translate into inflation indices and expectations. In other words, the inflation story will not end in the short term, regardless of how the Hormuz crisis unfolds, because this is not a new phenomenon; inflation was actually accumulating before the Hormuz crisis.

Steve Ehrlich: Could you elaborate a bit more? I know you're in Spain, so you have a European perspective; I'm American. Since inflation peaked after COVID, the Fed has been pushing rates down, and while it hasn't reached the 2% target, it's definitely declining. What do you mean by "it started accumulating a long time ago"?

Noelle Acheson: I have to refute an assumption that it's not falling as you think. Looking at the chart since 2024, core CPI has been hovering between 2.6% and 3%, it hasn't been declining at all.

In fact, a year, or even a year and a half ago, many people were saying, "Okay, the inflation story is over, the anti-inflation process is finished, we'll consolidate here for a while and then go up again." Why was inflation expected to continue rising? Because of the trend of deglobalization, a trend that even predates the Trump administration, starting during Biden's term. So this is a long-term trend; Trump is just accelerating it, adding turbocharger pressure. Tariffs have been fluctuating wildly, and the status of tariff refunds is still unclear, but prices have already gone up because of tariffs; the Hormuz crisis has added another spark to the fire. But honestly, if you look at the charts, you'll see that inflation hasn't been declining for a long time.

Steve Ehrlich: You're right. I recall there being discussions about whether the Fed's 2% target should be raised, essentially recalibrating the neutral interest rate.

Noelle Acheson: 3% is a reasonable target. Many people are discussing this, and even many Fed officials privately think so, but they can't change their expected target. The reason is that the Fed's fundamental problem is credibility. A large part of what the Fed does is manage trust. If it suddenly says, "We can't reach 2%, so we're changing our target," it would undermine the market's trust in the Fed's ability to achieve its goals.

Steve Ehrlich: I understand. We'll talk about the Fed and trust issues again in about ten minutes.

From Taco Trade to Expectations of a Structural Safety Net

Steve Ehrlich: I'd like to follow up on your question about the "unstoppable force vs. immovable object" dynamic between stocks and bonds. In your newsletter this week, you pointed out a very interesting commentary by a former IMF Deputy Managing Director about so-called "Bliss Trade," which might be a more sustainable extension of Taco Trade, belonging to the same family as the expectation of a Fed bailout. A few months ago, I read a book about the rise of arbitrage trading, arguing that the market will always have a bailout, an expectation that was turbocharged during COVID as global central banks had to flood the market with liquidity to support stalled economies. Could you explain this Bliss Trade? Which side do you think will falter first?

Noelle Acheson: Bliss Trade - A very interesting commentary from the FT a few weeks ago, by Gita Gopinath, former IMF chief economist and deputy managing director, now a Harvard professor. Read this article from her IMF background, but she makes a very insightful point: the market's expectation of a "safety net," of a "backstop," is no longer just about Taco Trade. Taco Trade is certainly part of it; Trump has indeed provided the market with countless events that make everyone believe "he will eventually back down," but her point is that the scope is much broader.

The Taco Trade is temporary, limited to Trump's term; but the Bliss Trade, an abbreviation for "big, large, and lasting stimulus or support," is structural. Her argument is that no administration today would choose not to bail out its citizens when they are in distress, whether due to market crashes, banking crises, or high oil prices. We saw it in 2020, we saw it again in 2022 due to energy prices, and now it's happening again in Europe because of the Hormuz crisis. Governments will not be voted out for not providing financial assistance.

This has nothing to do with political parties, or even whether it's a democracy or not; we've seen far too many coups south of the equator. But this is crucial to the outlook for currency devaluation. Where will the stimulus funds come from? They'll always find a way; they have many tools in their toolbox.

In the long run, this does increase moral hazard and adds bubbles to the speculative side of the market. This is why we still see such a strong risk appetite in such an uncertain environment. But it is structural; the "safety net" is now part of the system, which of course adds another layer of vulnerability.

Steve Ehrlich: I'm curious when this systemic vulnerability will surface. Because anyone who dares to short the "doomsday cycle" will eventually face a market backlash, and the market always recovers, usually in the form of a K-shape, V-shape, or other letters.

Before we move on to the next topic, I'd like to ask you about the AI stock situation. OpenAI is reportedly going to confidentially file for its IPO as early as tomorrow, and Anthropic is rumored to go public later this year. These companies are raising hundreds of billions of dollars to build infrastructure and buy Nvidia chips. I heard that Anthropic achieved a very strong operating profit this quarter; but OpenAI is still burning through a lot of money, relying on debt to build its future. Yet, this is the engine driving the stock market up. What do you think?

Noelle Acheson: Many reports insist that current and forward P/E ratios are actually reasonable. What drives me crazy is that everyone assumes earnings expectations will be met or exceeded. This has certainly happened historically, but we can't assume it will always be this way. Because what are these earnings expectations based on? Often it's the company's own guidance, and often it's just simple demand extrapolation. We're assuming there will be massive demand for chips and AI infrastructure, but that may not materialize.

It might materialize; I don't call myself an AI expert. But historically, technological innovations have their own hype cycles. When expectations exceed reality, a correction eventually occurs. Will this time be the first exception in history? Possibly, but betting everything on this exception is reckless. And right now, the market is betting everything on it, revealing a severely overlooked underlying vulnerability.

You just mentioned that Nvidia's earnings report was very strong, but the stock price fell. Actually, this has happened every time Nvidia releases its earnings report over the past eight quarters. Every time, everyone says, "The AI story is over." But that's not true. This is a typical "shoe dropping" effect. Expectations drive up the price before the earnings report, and once the earnings report delivers, everyone exits. So I can't glean anything from this reaction right now, but your point is correct: there will always be a moment when things go wrong. I'd like to add that historically, market tops are often triggered by a single, massive IPO.

Steve Ehrlich: This is a point worth noting. Nvidia is also an interesting case; I read that they've exceeded analyst expectations for 14 or 15 consecutive quarters. But analyst expectations should theoretically have a basis in reality, while the hype machine on Twitter can extrapolate arbitrarily, and that's just momentum traders' money.

What I find interesting is that Jensen Huang and Nvidia themselves are also emphasizing concerns about "inbreeding" among AI companies, and the complex web of relationships between chip manufacturers and customers. They are trying to alleviate concerns about excessive concentration by saying that about half of their customers are not large cloud providers.

Noelle Acheson: The issue of high customer concentration does exist, and these customers themselves are facing rising costs and debt interest rates. How can we be sure that the health of these customers can continue to support the profit expectations that these cloud vendors and chip manufacturers are selling to the market? Okay, I admit I might be wrong. I've been anticipating a market correction for some time now, and I've been wrong about timing. So this statement needs to be taken with a grain of salt.

Powell's resignation: merits and demerits, crypto-debanking and independence controversies.

Steve Ehrlich: Powell's tenure as Federal Reserve Chairman covered almost the entire period from the early days to maturity of the crypto industry. And Bitcoin and crypto were originally designed to counteract everything the Fed did. Could you talk about what his tenure meant for the industry?

Noelle Acheson: The charisma surrounding Powell can be incredibly contagious. He really is the kind of grandfatherly figure you'd want to go out for a marshmallow latte with. But we can't forget that he was also the driving force behind the debanking of crypto companies, the mastermind behind the Silvergate shutdown and the series of events in March 2023 (referring to the collapse of Silvergate, SVB, and Signature Bank). He did a lot of bad things that damaged the reputation of US banking regulation. He also completely misjudged inflation.

So while I admit I have a favorable impression of him personally—and I watched the FOMC press conferences, where he did a good job communicating the Fed's goals and internal operations—there were many things he was aware of and supported that ultimately harmed the crypto industry and the overall reputation of the US banking sector; there were also things he was completely unaware of, which is also a problem. And this doesn't even take into account the credibility of the US Department of Justice's cases themselves. His complete lack of response to those subpoenas suggests a certain arrogance and non-cooperation. Even if you disagree with the premises behind these White House actions, you have to put on a show for precedent and procedural reasons. So overall, it's a mixed assessment. He certainly has a lot to deal with, such as the repurchase crisis, the pandemic, and inflation.

Steve Ehrlich: Yes, I forgot he was also the Fed chairman during the 2019 repurchase crisis.

Noelle Acheson: He certainly has a lot to deal with. But for me, having a good impression doesn't absolve me of responsibility.

Steve Ehrlich: I think so too. I'm an institutionalist, and those who have listened to my show know I used to work for the US government and military. I have a strong belief in the objectivity and nonpartisanship of key government institutions. Powell's insistence on defending the Fed's independence is commendable, and he clearly faced immense pressure. Moreover, I think this pressure didn't come entirely from the White House; Congress has also somewhat relinquished its responsibility for setting fiscal policy in recent years, forcing the Fed to take over. Kevin Warsh actually wanted to reverse this; he wanted to shrink the Fed's balance sheet and refocus the Fed on monetary policy. So I can understand. However, if the first line of Powell's "obituary" as Chairman is "He defended independence," then the second line must be "He misjudged inflation." In 2021 and 2022, we were all tired of hearing the word "temporary." There was some logic to it then; COVID seemed like a one-off tail event, and theoretically, the market would fall back after reopening. But that didn't happen. As you said, factors like deglobalization changed supply chains. He misjudged the situation, leading to the highest inflation in decades, which had to be brought down again; this then led to the banking crisis you mentioned, with some banks being trapped by this interest rate cycle due to their holdings of government bonds, resulting in an unprecedented bailout. These two things are difficult to reconcile.

Noelle Acheson: Even his reputation for "independence" is questionable. He did stand up when the Justice Department subpoenaed, which was impressive and necessary; a large part of his job is to deliver information and build trust in the institution, and he did a good job there. But we must also remember that there was no independent thinking in shutting down crypto-related banking; it was politically influenced.

We must also ask ourselves: does independence mean no accountability for any decisions? Does it mean ignoring subpoenas? So what exactly does "independence" mean? Has this Federal Reserve truly demonstrated that kind of independence? These are all open to discussion. And this opens up a fascinating question: what exactly are we talking about when we talk about "central bank independence"? When has it become a disadvantage rather than a strength?

Steve Ehrlich: To me, he's more like Paul Volcker (the Fed chairman known for raising interest rates to suppress inflation in the late 1970s and 1980s) than Arthur Burns (the Fed chairman in the 1970s who was accused of succumbing to political pressure). But independence does have multiple definitions.

Kevin Warsh Takes Office: Balance Sheet Reduction, Forward Guidance, and Expectations of Interest Rate Cuts

Steve Ehrlich: Let's talk about his successor. Kevin Warsh has also evolved between "dovish" and "hawkish" stances. He made it clear at his hearings that he wanted the Fed to move away from fiscal policy, phrasing it something like, "Fiscal policy is more about picking winners and losers, monetary policy is more democratic and has a greater impact on the overall economy," which is the right position for a Fed chair. He also wants to create new inflation measures to make the Fed more accurate and forward-looking. Powell provided a lot of forward guidance, which Warsh doesn't want to do. What are your expectations for him?

Noelle Acheson: He could say he wants a smaller balance sheet, but the market won't let him. It's that simple. The bond market is the boss here, and it's closely related to price stability. The Fed can't allow the Treasury market to become disordered because that would affect the dollar and price stability. So it's a wishful thinking; I also wish I were a professional pianist, but that won't happen.

As for forward guidance, I wouldn't be surprised if there were fewer FOMC press conferences and fewer dot plots. There will be a lot of debate about whether this is good or bad. This is related to what the SEC is doing; they are also discussing reducing the number of annual disclosures. Will the market accept a state of less information? Or will it increase volatility? Does this mean analysts really have to use their brains and do their work, instead of being fed data at set times? I don't know. This is a very big change. We've become accustomed to a certain rhythm, accustomed to being fed data at set times. Once this is taken away, will it disrupt the market to the point that he has to put it back, or will it be a healthy shift, reducing costs and reintroducing original thinking? I don't know. I wouldn't be surprised if he tried, but whether the market will allow him to succeed, I'm not sure. This is probably all he can do. He certainly can't change the way inflation is measured; that's not his responsibility. He can influence what people focus on, but people will judge for themselves what's important. And he certainly won't have the ability to cut interest rates.

Steve Ehrlich: On this point, the Fed released the minutes of its April meeting yesterday. One revelation was that there were actually more hawkish voices in the meeting than in the final vote (to keep interest rates unchanged). This is exactly the environment he faces: higher inflation, but the president wants lower interest rates, believing that AI productivity will suppress inflation. And Warsh also has to prove himself "independent of the president." What are your expectations for the next few Fed meetings?

Noelle Acheson: The first thing to see is what Trump will say. He publicly stated, "Warsh can do whatever he wants, I have complete confidence in him." Considering the circumstances Warsh entered into, this statement is quite astonishing. We know Warsh can't lower interest rates, firstly because he only has one vote, and almost no one will vote with him; secondly, Trump can't criticize him so soon after electing him. So there will be a truce period.

There's something the market is currently misunderstanding: the expectation of interest rate hikes. I've been saying for a long time that "there will be no rate cuts," and seeing that consensus form is reassuring; but now it's gone to the other extreme, with calls for a rate hike this year. I think this is going too far again. They can't cut rates, but few have the courage to raise rates when the "temporary vs. persistent" inflation situation is still unresolved. So it will likely be "neither increase nor decrease." This will make Trump comfortable, maybe not completely happy, but he'll keep quiet. This gives the Fed some breathing room, and gives Warsh some time to build his relationships, because ultimately it depends on the FOMC members' level of trust in the chairman, and whether they will follow his advice, which will influence subsequent monetary policy.

Steve Ehrlich: I'm actually a little relieved. Before the dissenting votes started appearing last year, there hadn't been any for decades. I actually think the dissenting votes are a good thing, because there are so many people in this room, with different backgrounds, different areas of oversight, and naturally, different opinions on economic matters; they should be moving away from herd mentality. I'd actually like to see a skit about the FOMC meeting on Saturday Night Live Season 52; these people all have very distinct personalities, and you can recognize them.

Noelle Acheson: Brilliant. Think about it another way: what if the next dissenting vote came from the chairman himself?

Steve Ehrlich: That's interesting. I'm not sure if there's any precedent for that in history.

Noelle Acheson: I also doubt he would do that. His top priority right now is to gain the trust of the FOMC members.

Steve Ehrlich: Yeah, at least not at the first meeting. But who knows what will happen after that.

The Cost of Bitcoin's Macro Assetization

Steve Ehrlich: We've talked a lot about macros. Let's talk about crypto. Bitcoin and ETH were embroiled in controversy again over the weekend. On Sunday, news broke that Iran might be attacked again, and on Tuesday, Trump said several Gulf states requested more time for negotiations, putting the matter on hold. But crypto hasn't recovered yet. I heard that several Chinese oil tankers passed through the strait, and reports say they paid some kind of "fee" to Iran. I wonder if this will become a pattern. But crypto is stuck again. Is it a high-beta, risky asset, or will currency devaluation in a world with higher inflation allow Bitcoin and crypto to regain their dominance? Or will it lose to gold again? What are your thoughts on the current performance of mainstream crypto assets?

Noelle Acheson: All of that is possible, to be honest. I don't see any catalyst that could push it out of its current range, at least not a positive one. The negative risk, however, is always there: a stock market crash could drag down major crypto assets, and even if the correlation weakens in the short term, gravity will still be at play. But will the stock market actually crash? That's hard to say.

The devaluation trade theme has always been present. Bitcoin serves as a hedge against currency devaluation. Bitcoin tends to perform better when people are worried about currency devaluation. During the 2023 banking crisis, Bitcoin surged, and everyone said, "Because people realized the banking system was corrupt and fragile." I said then that wasn't true; it was because people expected central banks to intervene and inject liquidity. Bitcoin truly reflects this. If the market experiences a genuine deterioration, and there are signals of stimulus measures (what we previously called Bliss Trade), it could potentially wake crypto from its slumber.

However, given the current risk appetite, Bitcoin hasn't moved much because there are too many other options. Countless AI concepts and prediction markets offer too much to play with. This is the price of Bitcoin becoming a macro asset. I've been following this for a long time. Bitcoin becoming a macro asset is a good thing; it's increasingly finding its place in macro portfolios. But the cost is that it's currently just one of many macro assets. Investors seeking high volatility will choose even more volatile assets, which isn't Bitcoin right now. So, in summary, there's no catalyst to push it out of its current range until it breaks free and momentum takes over.

Steve Ehrlich: One potential catalyst for the future is the Clarity Act (Market Structure Act). We don't have a chance to elaborate today, but this topic has been discussed to death. Could you briefly mention it, either the act itself or its likelihood of being signed into law?

Noelle Acheson: I hope the Clarity Act will be passed this year. But my confidence level isn't high, and it might just be wishful thinking. I don't think it will have a significant impact on Bitcoin; Bitcoin doesn't lack regulatory clarity. What it really lacks is ETH, which might benefit; and when ETH rises, it often drags Bitcoin up. Overall, regulatory clarity might make some investors more comfortable allocating to Bitcoin, but Bitcoin itself doesn't lack regulatory clarity today.

Steve Ehrlich: Yes. I've posted a few things on Twitter, and things are pretty clear about Bitcoin and ETH now. The SEC has even issued guidance saying that many staking activities are not securities, which is completely opposite to the SEC's position during Gary Gensler's era. This could be an unlocking for DeFi, as it gives some TradeFi companies greater certainty to participate; DAOs won't be treated as ordinary partnerships, otherwise there would be huge debt risks; the compliance boundaries between FinCEN and AML will also be clearer. These are all unlocking possibilities that Clarity might bring. But you're right, Bitcoin, ETH, including XRP and Solana, even without formal legislation stating they are commodities, have enough conventional rulings, not to mention the SEC has already approved ETFs under Section 33, which are essentially commodities packaged into ETFs.

Noelle Acheson: It's very complicated. Let me ask you a question: Has the market already priced in the Clarity Act? In other words, if it hadn't passed, would crypto have plummeted? Or has nobody cared anymore?

Steve Ehrlich: It's hard to say, it probably depends on the specific asset. I tend to think it's not fully priced in yet, because crypto has been sluggish for several months. If there's a real incentive to push it through in the coming weeks, it has to happen before early summer, otherwise I don't think it will. Even if it passes, it doesn't necessarily mean Bitcoin will immediately surge to $140,000 or ETH will automatically reach $5,000. It will take much longer. But I also don't think it's fully priced in, because everyone understands that to cross so many hurdles in a short period of time—for example, the Senate version needs to be reconciled with each other, then with the House version, and ethical clauses acceptable to the White House need to be included, before finally being signed. I heard the target is July 4th, which leaves only about six weeks, which is quite tight.

Noelle Acheson: The devil is in the details. Legislation is one thing, rule-making is another. But I've been thinking that even if it doesn't pass, it's not the end of the world for crypto. The SEC is already on board, and most financial regulators are on board too; they can keep making rules until the end of Trump's term. Even if the anti-crypto party comes to the White House in 2028, by then crypto will probably be too big to break down.

Steve Ehrlich: Yes. Crypto has proven itself to be a very powerful lobbying group and interest group, and I believe that any successor, even a Democrat, is unlikely to be as hostile as they were in the Gensler era, because that stance didn't actually bring much political gain.

Exemptions for tokenized innovation, key metrics, and contrarian perspectives

Steve Ehrlich: One last small topic, regarding the exemption for tokenization innovation, what are your thoughts on its interaction between crypto and traditional markets?

Noelle Acheson: The devil is in the details. One thing that worries me is the rumor that it will allow third-party issuance. In other words, anyone could issue a token that encapsulates a stock, even if they have no connection to that company, and there are even rumors that it doesn't require the company's consent, which I find insane.

In my view, the essence of the market is capital formation. Derivatives support capital formation by creating a more liquid market, providing a safeguard for investors who put money into a particular stock. But if you create a market purely for speculating on derivatives, such as tokenized stocks, you are subverting the fundamental concept of the market. This is also not good for crypto, because we've heard it far too many times labeled as "only suitable for speculation." Of course, this isn't my opinion, but such voices do exist.

So this is my concern. But if the details aren't as bad as they seem, the exemption for tokenization innovation is actually good news; it encourages experimentation. Regulators will be careful not to let just anyone in, nor will they allow unlimited scale. But it will encourage entrepreneurs, market participants, and innovators to experiment with this new market architecture. We know that tokenization will become an important part of the market within the next five to ten years. The fact that regulators are confident that "trying new asset forms won't get you punished later" is a big step forward.

Steve Ehrlich: One last question, choose one: What chart/metric will you be focusing on most in the coming weeks or months? Or, what is a counter-argument you'd like to share?

Noelle Acheson: I like the questions you asked. You don't beat around the bush; you pick out the overlooked stories. My indicator is "inflation." If we can't keep an eye on it, there's a very bad script ahead. Inflation drives the bond market, dominates monetary policy, and has a huge impact on fiscal policy globally. So inflation is unavoidable. You can change the index calculation method, as the new president said, but it's useless; you can't escape inflation.

I'd like to offer a counter-argument, focusing on something often overlooked. While everyone is celebrating the S&P 500's record highs, they're ignoring the widening gap between the S&P 500 and equal-weighted indices. We're watching the market capitalization-weighted indices, and they're constantly hitting new highs; but the equal-weighted indices aren't. This gap is widening. The last time it widened at this rate was in 1999.

Steve Ehrlich: The dot-com bubble burst later.

Noelle Acheson: Yes. Anything top-heavy will eventually topple over, according to the laws of physics.

Steve Ehrlich: Absolutely agree. Noelle, we'll invite you again next time. Thank you for watching.

a16z has accumulated 5.93 million HYPE tokens this year, with a floating profit of $86.72 million.

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