Bitcoin & the $40 Trillion Debt Reckoning | Nik Bhatia

**Nik Bhatia** (0:02)
There is a reckoning. There is a point at which something has to be addressed. If the Fed raises rates, they'll be able to issue the debt. It'll just be all in bills. The bills will crowd out the money market. There'll be a repo crisis, and the Fed will have to buy bills. The UK, France and Japan are much more likely to see some massive central bank and or government intervention over the next six to 12 months than you are to see out of the Treasury and the Fed. What you basically just asked is, are we really at financial war? And who are we at financial war with?

**Danny Knowles** (0:47)
Great to have you back on the show, mate.
So much has happened, and so much of what has happened is right in your wheelhouse in the Treasury market. Bitcoin obviously, what was it? A week or two ago, ripped 20 percent in a week, up to like 80k, we're now sat just below 80k. And everyone was claiming that this happened off the back of the Treasury announcing they were going to double the number of buybacks they were doing. Do you think that's what actually caused this move?

**Nik Bhatia** (1:14)
The Treasury buyback announcement is a suppressant of volatility at the margin. So, from our liquidity perspective, it's going to help because rates may be come down a little bit, volatility comes down because people are less worried. The Treasury has some backstop there. And so, at the margin, yes, there's a positive liquidity move. It ends up in Bitcoin and there's some behavioral follow through. Then you get the short squeeze and a few levels get taken out and Bitcoin does its thing. So yes, zoomed in Danny, where there was an impact there.
But zooming out a little bit, I think Bitcoin in the grand scheme of things is going to seek the price where the whole market is. So the last eight months, the market has been bearish. And over the last month or so, you can see the seller exhaustion in the market. The dips are not as intense, all sorts of momentum indicators. There are a bunch of ways to measure it. Even the most common on-chain indicators or the most frequently used on-chain indicators throughout cycles showed that capitulation had pretty much exhausted itself in the 60s. So then that sets up the next wave, which is Bitcoin resuming some bullish price action.
What are the trigger points and how they can move? It just honestly, it's anybody's guess.
My background is as a bond trader and a bond trader that became fascinated with Bitcoin. Then I started writing about the relationship between macro and Bitcoin. But I'm here guessing just as much as I'm analyzing. And I think it's important to admit that nobody actually knows how these things are going to go. And that's why the majority of fund managers underperformed the S&P.

**Danny Knowles** (3:29)
So I want to get into the bond market a little bit because with this move, people have called it like not yield curve control, yield curve control.
There's obviously they're putting in a bigger backstop. But how do you assess it? What do you think this is? Do you think it signifies anything deeper than just $4 billion of buybacks?

**Nik Bhatia** (3:49)
The buyback program has been active for many years since gone across administration. So when I think about the latest announcement on buybacks from a dollar for dollar basis, very small, and is it really a change? Not necessarily. The buyback program is targeting off the run securities. So it's targeting a better functioning of the market, not necessarily yield curve control. With that being said, they're going to be issuing bills to do this when they get involved. So it is dollar for dollar also a yield curve flattener because you're issuing bills to buy longer term securities. But the treasury doing the buyback program, and actually this is part of Druckenmiller's critique of Besant in his Wall Street Journal op-ed, that you can't paper over what the truth is, which is how much debt there is, how much issuance there needs to be digested by the market. It really comes down to supply and demand. So the demand is its own dynamic, but the supply is what the treasury has control over. And when you think about the treasury supply and Scott Besant, he has no power, basically no power to lower the deficit. It means that the amount of bonds he has to issue, whether they're bonds, notes or bills, and what part of the curve, he's going to have to issue everything to make sure all the payments get made to the bondholders and all the government contracts and government employees get paid every single day and week that the government spends money.