Lyn Alden: Why does gold surge and BTC remain flat in 2025? The turning point is coming?

Source:What Bitcoin Did Podcast;Compiled by: Bitchain Vision

Highlights:

• We hit $100,000 in November of last year, and a year later we’re basically flat and even down a little bit now.I think that’s the more noteworthy thing.

• I don’t see Bitcoin as collapsing, I see it as stagnant.The factors causing this are: 1. Liquidity; 2. AI’s blood-sucking; 3. Gold; 4. Narrative disillusionment.

• People kind of get into the mindset that they “deserve” a bull market, but no one deserves a bull market.A certain percentage of people are probably buying Bitcoin for the wrong reasons – they’re buying it because they think Uncle Sam (the U.S. government) will buy it, rather than because of its own qualities and the story of long-term change it brings.

• Many people’s current holdings are either over-concentrated in Treasury companies or altcoins, or although they are heavy on Bitcoin, their expectations do not match reality.

• I do expect that in 2026 we will be back to six-digit prices.Whether it is 2026 or 2027, I think there is a high probability that we will see a new historical high.

• There is currently no particular reason to believe that the “four-year cycle” is still valid.This cycle hasn’t reached those feverish levels, so there’s no reason to expect that kind of massive capitulation selling.This cycle may last longer than people expect as it is no longer driven by the halving, but by broader macro factors and interest in the asset itself.

Are the macroeconomics at a critical turning point?

Danny Knowles: It’s been a while since we’ve done a show on macro topics.We did an episode with Andy Constan about three months ago, but that episode was all about MicroStrategy, and we’ll probably touch on that a little bit today.

But there is so much going on right now that I don’t even know where to start.Bitcoin is under $90,000; gold is having a crazy year, a 12-month bull run; we have a repo market crisis; liquidity may be drying up, or a potential liquidity injection is coming.

I don’t know if it’s recency bias or if it’s the stuff you see on Twitter, but does it feel like the macro world is at a very critical turning point right now?

Lyn Alden: That’s a good question.I do think we are at a critical moment.But I think the magnitude is probably smaller than what you see in a lot of sensational tweets or podcasts.

But I do think this is a pretty critical juncture, in the literal sense of the word: that we’re approaching the end of a multi-year period of tapering of the Fed’s balance sheet.We are moving toward balance sheet flatness and then possibly eventually—and not too long ago—to upward balance sheet expansion.Even if it doesn’t always live up to the sensational headlines, it does mark a multi-year shift.

Quantitative Tightening Ends with Bitcoin as a “Smoke Alarm”

Danny Knowles: This is the end of Quantitative Tightening.I’d love to dive into this, but I want to start with Bitcoin because we’re down quite a bit and Luke Groman once described Bitcoin as the “last working smoke alarm” for liquidity. Do you see that too?

Lyn Alden: That’s how I see it.I think that’s one of the many roles it fills.I still think it’s a small enough and volatile enough asset that that’s not all there is to it.

I’ve seen him describe it that way, basically because Bitcoin is still a fairly free market compared to other more controlled markets, so it’s able to reflect things ahead of time.

Sam Callahan and I have done research correlating Bitcoin with liquidity.While you can’t overlay a global liquidity chart and a Bitcoin chart on top of one another like on Twitter and try to make a three-month forecast for Bitcoin, there does appear to be general causation and interesting correlations between the two over longer time frames.It usually gives you a good insight into the direction.

Of course, there are other variables.Because Bitcoin is an emerging asset that, although it has been around for a while, is still young and small at a macro level, it is susceptible to idiosyncratic factors.

For example, the November 2024 election, almost exactly a year ago, gave Bitcoin a huge boost because it changed expectations about the future – what would happen with regulation, what would happen with other things.This has nothing to do with liquidity.

The same goes for the launch of ETFs, as does changes in accounting standards for Bitcoin treasury companies.These things that have nothing to do with macro liquidity can indeed significantly impact asset prices.

But certainly, I think liquidity is a very large variable, and I think Bitcoin is more correlated with liquidity than most other assets.

Why is Bitcoin stalling/falling now?

Danny Knowles: How much of a role do you think this factor plays in the current decline?Because I will say that 2025 is probably the year that almost no one has guessed correctly since I entered the Bitcoin circle.Bitcoin is not rising as much as people thought.Many people predicted that the cycle may have ended, or is ending.What do you think of this drop?Why do you think Bitcoin is collapsing now?

Lyn Alden: I actually think the more interesting factor is why it stayed “sideways” for so long.Because the crash itself right now…even in the 2017 bull market, which was a pretty smooth and parabolic bull market, there were multiple sharp 30% retracements along the way.It would have this V-shaped retracement and then bounce back very quickly.

So, it’s not necessarily how big this one is – we hit $75,000 in April, for example – it’s not really about the size of the pullback, it’s about the length of time it stays like this.

We hit $100,000 in November of last year, and a year later we’re basically flat and even down a little bit now.I think that’s the more noteworthy thing.

I don’t see Bitcoin as collapsing, I see it as stagnant.

There are many factors that contribute to this:

1. Liquidity: Our current liquidity has indeed tightened.But it’s not terribly bad and I don’t think it’s going to be.I think underlying liquidity in the U.S. is bottoming out right now, while broader liquidity is generally fine.So liquidity really didn’t help this month.

2. AI blood-sucking: This may be a broader problem.Artificial Intelligence (AI) may have sucked some capital enthusiasm away from Bitcoin as it became the new “fastest horse” narrative.

3. Gold: Gold has performed very well this year.

4. Narrative disillusionment: This is partly a disillusionment with other Bitcoin catalysts.For example, one of the most asked questions I was asked on the Bitcoin Podcast at the beginning of this year was “What do you think about sovereign Bitcoin reserves?”.I think this is the most boring question and have even said it a few times.
First, from the spirit of Bitcoin, the decentralization aspect is more interesting than how nation-states deal with it.
Second, I said that I would rather my price predictions did not include the “Uncle Sam buys 500,000 Bitcoins” hypothesis.If this does happen, I’d rather it be an unexpected surprise than factor it in and then be disappointed when it doesn’t happen.
My basic assumption at the time was that they would ring-fence the coins they already had in their hands that did not need to be returned to others, and any accumulation beyond that would probably be minimal.I’d love to be proven wrong, but that’s my basic assumption.
I think a significant portion of Bitcoin holders are very bullish on that outcome (U.S. reserve Bitcoin), very bullish on a lot of things.When those expectations don’t match reality — even though the environment remains favorable for Bitcoin from a two- to three-year perspective — you start to see expectations dashed.

Finally, because the previous sample size was small, such as peaking in the fourth quarter of 2021 and peaking in the fourth quarter of 2017, a lot of people would say, “Well, it might peak in the fourth quarter of 2025, so I have to sell early,” thereby creating a self-fulfilling prophecy.

I don’t think the halving cycle is particularly relevant anymore.Even last cycle I don’t think they were particularly relevant, just happened to be relevant to the liquidity cycle.I thought the first three halving cycles were really relevant, but now their impact has diminished to the point where I don’t care at all.It’s more about other factors.

So, I think there’s a bunch of disillusionment that’s being purged.You might have a good asset, but people are holding it for the wrong reasons.So the chips are rotating away from those holding on for the wrong reasons or wrong expectations, back to those with more conservative but also more determined expectations.

Who is selling BTC

Danny Knowles: There is a growing narrative in Bitcoin circles that long-term holders are selling.Checkmate talks about this a lot, and Jordi Visser also wrote about the “Bitcoin IPO moment.”Do you think this is what’s happening?Is this what’s causing the price drop?

Lyn Alden: I think so, but it’s not unique to this time.In every major bull market cycle, chips are distributed to long-term holders.This is true for any emerging asset.If a startup starts with three co-founders, then dozens of early employees, and then hundreds, after it goes public, those who have held it for more than 5 or 10 years sell it and distribute it to new buyers in order to rebalance their assets or improve their lives.

Bitcoin is going through a similar distribution cycle.It happened in 2013, it happened in 2017, it happened in 2021, it has been happening for the past two years – this situation where the OGs (early entrants) took advantage of the strength and sold.

The difference is that it is now more deeply integrated into the financial system and the situation is more complex.Some people say, “Well, I can actually hold Bitcoin in a regulated environment.” They would rather not have a billion dollars in a wallet somewhere, even if they know how to use multi-signatures.Some want to bring assets back into the system.Some funded treasury companies, some moved into ETFs.This general distribution is happening, but it is essentially consistent with previous bull markets and is not particularly new.

While selling pressure has been strong from holders of 5-7+ years, I made a post on Nostr pointing out that the 5-7 year holding ratio itself has been higher during this cycle.Because the older Bitcoin is, the more of these “old” groups are unlocked.The current 5-7 years are not even particularly “old” in the history of Bitcoin.So you see people selling from two cycles ago.

I think it’s not about new coins and halvings, but about what price will unlock existing tightly held chips into the market.

Another factor is that while much of the demand is coming from treasury firms and ETFs (and their investors), broad retail demand is quite weak.The narrative focus lies elsewhere.

So, the concentrated demand side, moderate liquidity conditions, coupled with continued selling pressure from the OGs, led to some weakness.

The bullish side is that, as I said before, there is no particular reason to believe that the four-year cycle remains intact.We haven’t reached that level of fervor yet this cycle, so there’s no reason to expect massive capitulation.This may be a “last word”, but basically because the fanaticism is not that high, there is not so much to clean up.

As we return to an environment that is more conducive to liquidity, and those who held money for the wrong reasons have been purged, I think this cycle may last longer than people expect.

“Self-fulfilling prophecy” and market sentiment

Danny Knowles: So, do you think a lot of people are going to be thrown off by this self-fulfilling prophecy narrative?I saw Luke Groman, who I respect a lot, but in his recent newsletter, he advised people to cut their Bitcoin positions.Do you think some people believe that the four-year cycle still exists and may be caught off guard because things are different this time?

Lyn Alden: I think to some extent that’s already happening.Many people’s current positions are either over-concentrated in treasury companies or over-concentrated in altcoins, or although they are heavily invested in Bitcoin, their expectations do not match reality.

Being “heavy in Bitcoin” means different things to different people.If you’re holding it because you’re expecting a 10x gain in a very short period of time – even though it’s a $2 trillion asset – treating it like it was in previous early cycles, that’s unrealistic.That’s different than holding it because you expect it to significantly outperform, but not in that explosive time frame.

I think people get caught up in the mindset that they “deserve” a bull market, but no one deserves a bull market.

This emotional roller coaster is very palpable.If you look at Twitter, when MicroStrategy (MSTR) reaches 3x premium (MNAV), the whole Twitter is shouting: “It can actually go to 5x, it can go to 10x, we are going to the moon, guys!” And then once the market reverses, it becomes: “Oh, the cycle is dead, this whole thing is a Ponzi scheme.”

This roller coaster comes and goes like a cartoon.Often things are not as good as one expects, nor as bad as one expects.So you can basically do Twitter in reverse.

Are Treasury Companies worth buying?

Danny Knowles: We should talk about treasury companies.Last time Andy Constan and I talked about MicroStrategy.Now its stock price has dropped a lot, and I think the current premium is about 1.2 times.Many other companies with pure financial reserves now trade at even less than 1x premium.Do you think this is a buying opportunity?Especially for MicroStrategy?Or is this trading logic breaking down?

Lyn Alden: This trading logic collapsed in 2022 and then started again.So the question is, will the collapse be followed by another positive cycle?My basic assumption is “yes”.

In that discussion, Andy and I both agreed that you don’t want a particularly high premium (MNAV), that would be a significant risk.The number I gave at that time was about 1.5 times, which was reasonable. I took 1.2 to 1.8 times as a reasonable range.So now we’re at the lower end of the range, but still roughly within that range.

I’m not interested in the long-tail (lower-ranked) pure-play treasury companies because there is a self-reinforcing liquidity network effect.If you’re the fifth largest and don’t have any meaningful differentiation, there’s not going to be much demand.

Of course, if you are the largest player in a particular capital market, for example, if you are the largest in a certain country, that is interesting because that is differentiation.So I think for a handful of leaders in their respective markets, this structure still makes sense.

I’m personally more interested in the rise of cash flow positive companies.I think that will be an interesting next narrative.As for those who play pure treasury strategy, I only focus on the highest quality, jurisdiction-specific leaders.

The whole treasury strategy did get a little overstretched this summer.What surprised me and many others was how quickly things turned around.For example, I tweeted in June that I liked MetaPlanet, but I didn’t like it at a 6x premium.I think it’s overrated.If you had asked me if it would fall below 1x in a few months, I would have said probably not unless something big happened.But it fell from 6x to below 1x very quickly, and these things do move very quickly.

The direction of this cooling is not surprising, but the one-stop decline is.

I think this is a test for Bitcoin as well.If you do see another bull cycle for Bitcoin, those companies that survive with leverage will be in demand.Because once the momentum turns back, people are going to say, “Well, I’m bullish on Bitcoin, why wouldn’t I be bullish on Bitcoin with a little bit of smart leverage?”

The key now is how they manage downside risks to survive this environment.

Danny Knowles: We’ve seen almost all treasury companies try to deleverage over the last 12 months, I think in response to situations like now.So you would say that valuations like MetaPlanet and MicroStrategy are pretty good right now?

Lyn Alden: Generally speaking, yes.Of course, they face potential regulatory challenges. For example, there is some news about exchanges and regulation in Japan.For MicroStrategy, the big issue remains the ongoing interest payments they now have to deal with.So I think you have to be careful with even the best companies.

But I think these top names will be interesting at fairly low premium multiples once the price action of Bitcoin itself stabilizes.This is a question of position control.If someone’s portfolio is over-allocated to this “leveraged Bitcoin,” it can ultimately be a challenge.

Basically, what you want to own is the core asset (Bitcoin).Utilize other tools only as accelerators, not core positions.

Where does global liquidity stand?

Danny Knowles: If Bitcoin prices remain flat or even fall, it will be interesting to see who will still be around in four years.Just now you mentioned that global liquidity is actually not that bad.If you think of liquidity as a sine wave, where do you think we are now?

Lyn Alden: Things are even more chaotic than usual right now.

Global liquidity remains pretty good.This is mainly due to the liquidity released by China, especially when the U.S. dollar weakened in the first half of this year, which was very beneficial to global liquidity.

Now that the dollar has strengthened a little bit and stocks have pulled back a bit, liquidity has become more moderate.

The pressure was mainly on Base Liquidity in the continental United States, where tensions emerged.This is very similar to the repo market (Repo) surge environment in September 2019.

This means that while this will cause a stir in macro Twitter circles for a few weeks, it will never reach the point where regular people know about it because it’s not that huge of a macro fire.

This is currently roughly in line with the Fed’s expectations.Reports from the New York Fed have been predicting that QT (quantitative tightening) will reach a level that hits liquidity constraints sometime in 2025 or 2026.Their plan then is to restart expanding their balance sheets in line with nominal GDP.

So I think we’re at that inflection point: not quite in the expansion phase yet, but getting to the point where they’re signaling an end to quantitative tightening and some members are starting to talk about a potential expansion.

Why should you care about the Repo Market?

Danny Knowles: Why does the macro Twittersphere care so much about the repo market?This is big news in 2019.About a month ago, there was another problem in the repo market and Twitter exploded again.Why is everyone watching so closely?

Lyn Alden: I would look at it in two categories.

First, I think it’s really worth paying attention to.I often mention in my research reports that we have been expecting this to happen.Because once it happens, it marks a pretty big shift: from a structural, multi-year balance sheet shrinkage to an increase.

This is also the first time in this era that the balance sheet has been expanded with non-zero interest rates.Many people have a fixed idea in their minds that they will expand their balance sheets only when interest rates fall to zero.But if it is to promote liquidity rather than economic stimulus, it can fully expand at non-zero interest rates.This was the case before 2008.This will be a tectonic shift.

Second, I disagree with the sensational parts.When that happens, there’s always someone who jumps up and says, “Oh, there’s a big crash coming, or the Fed has to print a trillion dollars, or the big banks are going to fail, there’s a liquidity tsunami.”

Some are sincerely emotional – bears want a reason to be bearish, bulls want to say “Look, the money printing press is coming, my assets are going to go up”.Some are for click-through rates.

I think the shift at the bottom is real and substantial, but less dramatic.The numbers may be more modest than many people think.

Danny Knowles: Are you saying this is milder than the buyback crisis in 2019?

Lyn Alden: Yes.Even the 2019 buyback crisis was essentially a “Twitter crisis.”What happened at that time was that the Federal Reserve stepped in and performed repurchase operations.People like me and Luke Groman said at the time, “This is not really a buyback issue, this is an oversupply of Treasuries, and they’re going to go back to structural purchases of Treasuries.” And that’s exactly what they did a few weeks later.

That was good for asset prices until COVID hit a few months later.

It’s very similar this time, except now the Fed has a Standing Repo Facility and they’re ready to go.So this time it’s gentler than then.

The reason why this thing is scary is that if no one takes care of it, a spike in overnight lending rates will be a disaster.But everyone in the market knows that the Fed will put out the fire. They have specialized tools, and they don’t need big numbers to put out the fire.

Such is the disconnect between theoretical disaster and practical hiccup.

This means that we are gradually returning to a structural environment where underlying liquidity is rising, rather than flat underlying liquidity as we have been in the past few years.

We may see underlying liquidity start to rise early next year or in the middle of next year.

What does the end of quantitative tightening (QT) mean?

Danny Knowles: I’d love to know what that means.You said the end of QT, going back to some form of QE (quantitative easing), maybe consistent with GDP growth, but this is the first time that’s happened in a high interest rate environment.What does this actually mean for the market?What difference will it make?

Lyn Alden: It won’t be much different at first.

Basically this means banks are less anxious about liquidity and may be freed up to lend.It’s more about avoiding bad things from happening.

If regulators require banks to hold a certain amount of liquidity and the Fed does not expand the base layer (balance sheet), banks will reach their lending caps and have to stop lending.Because under a fractional reserve system, if liquidity dries up and no bailout is on the way, the system will get stuck.

Because they will start expanding their balance sheets again, this will allow lending to continue.

So this is more of an anti-deflationary than some kind of huge inflationary stimulus.

On average, expanding balance sheets have a positive correlation with asset prices.But that doesn’t mean it’s always the case.

This is generally good for banks because they have more reserves and can earn interest.

This is a slightly pro-liquidity, slightly anti-dollar strength, slightly upward tilt towards the asset.

But this is just a matter of magnitude.This is different from the Fed rushing in to print trillions of dollars in 2020.Their estimated scale of balance sheet expansion is relatively modest and consistent with nominal GDP.

Additionally, they are specifically trying to buy only Treasuries and still allow mortgage-backed securities (MBS) to mature and be taken off the balance sheet.This means they are not going to bail out the housing market.

In a truly dovish cycle, they will cut interest rates and buy MBS to drive down mortgage rates, triggering a refinancing boom that is often a free lunch for consumer spending.

But because I don’t think we’re going to see record lows in mortgage rates, this whole thing is off the table.Therefore, the overall stimulus intensity in the future will be weaker.

But it will be long-lasting.This goes back to the “Nothing stops this train” argument, which is more about duration than magnitude.We are entering a period in which the Fed’s balance sheet grinds higher.

QE in the future: Moderate but long-lasting

Danny Knowles: When I talk to people about this, the common refrain is: Once the Fed starts QE again, it has to be bigger than anything we’ve ever seen.It sounds like you’re downplaying that and you think they can do it modestly at 3% or 4% a year.Do you think they can maintain this low rate for a long time?

Lyn Alden: Probably, yes.My basic assumption is that it will be slower overall.

When you start from a higher starting point – say when QE started in 2008/2009, the cash in the US banking system was probably only 3% of total assets, and that was the highest leverage ratio since 1929.

We are starting from a much higher starting point this time (more liquidity), just like we did in September 2019.

Of course, 2019 was followed by COVID, economic lockdowns, and then super stimulus.Assuming we don’t get crazy wars or crazy economic blockades – taking away those unpredictable external factors – just in terms of normal macro factors, there is no particular reason to expect the next QE to be bigger than the previous extreme cycle (2020).

This expansion is more for liquidity-driven reasons than for deliberate economic stimulation.

Sometimes people drown out what happened in 2019 in the noise of COVID, but without COVID, this time might be more like late 2019: more gradual.

This is different from QE1, QE2, QE3 or QE during COVID.

Fiscal dominance and inflation

Danny Knowles: So what does this mean for inflation and markets?You have long said that we are in an era of “fiscal dominance,” where monetary policy has less of an impact on the economy.What does this mean for inflation?

Lyn Alden: The short answer is: Fed actions have little impact on inflation because the fiscal impact is much greater.

The main role of the Fed’s balance sheet expansion this time is to continue to empower the fiscal sector.This has always been part of the “nothing can stop this train” argument: when the fiscal authorities keep running deficits, and eventually bank holdings of Treasury securities reach their limits and stress arises in the Treasury or repo markets, the Fed steps in and lets the party continue.

During the global financial crisis (2008), many people believed that expanding the balance sheet would lead to inflation or even hyperinflation, but most of this did not happen.The reason is that it was a re-capitalization of the banking system and the money was not flowing to the public (not helicopter money).So I call it anti-deflation rather than inflation.

But in 2020, some people said: “Look, there was no inflation last time, and it won’t be this time.” But what I was concerned about at the time was that this time was different, this was real “helicopter money” – large-scale fiscal spending coupled with QE support, resulting in a huge increase in the broad money supply, so we had a huge inflationary pulse.

The type of QE we may see in the future is more like old-style QE, that is, it will not necessarily be accompanied by new fiscal stimulus.Of course, the administration alone can decide to hand out money (such as tariff dividends or tax cuts), but that’s another matter.

The changes on the Fed’s side are mainly to keep the existing fiscal deficit train running.

So I do think that inflation is above target right now primarily for fiscal reasons, and the Fed is just keeping it that way.

But does this mean we are entering a period of healthier economic and balance sheet growth?I would say no, not really.Because this is not coming from the Fed, and the fiscal side is pathological.

We basically have a two-speed economy in the United States (and in some parts of the world):

• If you’re on the right side of fiscal deficit or AI capital expenditure (Capex), you’re doing fine.

• If you’re not on both sides, you’re going to be miserable.

This explains why U.S. consumer confidence is now near all-time lows even as the stock market is near all-time highs.This is a very unusual environment, usually only seen during fiscally dominant periods.

The fiscal deficit mainly flows to: social security, medical insurance (Medicare), national defense and interest expenditures.These four big chunks take the money and trickle it out from there (defense contractors, health care workers, etc.).If you’re in these fields, it’s exciting.

But if you’re a young household and you’re not on the receiving end of a deficit, and housing is expensive because of high interest rates and high prices, all you’re feeling is the inflationary side effects of fiscal stimulus and maybe the impact of tariffs.You’re having a bad time.

Averages hide the truth.This environment will not manifest itself in the form of a huge macro crash, but in the form of growing dissatisfaction.People will say, “I see the stock market hitting new highs, but I’m struggling.”

Barring a market pullback as AI capex encounters limits, fiscal and monetary conditions are largely status quo: the Fed balance sheet has to gradually pivot to keep the fiscal train running.

Will fiscal dominance end?

Danny Knowles: If this era of fiscal dominance has led to a growing gap between rich and poor, I know you said “nothing can stop this train,” but does this train have to stop eventually?Do they have to switch from an era of fiscal dominance back to an era of monetary dominance?

Lyn Alden: The short answer is: If they eventually stop, it’s because they accelerated so fast that the next 10 years of progress were completed in 1 year.This is “dying by fire” (inflation/default) rather than “dying by ice” (deflation).

They really can’t stop without a major reset in debt values and global trade flows.As conditions get worse, trains actually tend to speed up.

When I use the “nothing can stop this train” argument, my investment time horizon is approximately 10 years.I’m not talking about 2070, but between now and the mid-2030s.

Because of demographics, voting patterns, a polarized Congress, and the “grow or die” nature of the fiat system, coupled with the fact that it’s now funded more by fiscal than bank credit, you get this constant state of “run it hot,” but only for one part of the economy, while another part gets dragged down by inflation.

One wonders: Manufacturing activity is flat, inflation is high; commercial and residential real estate are struggling.Who’s winning?

The answer: mainly those on the right side of the fiscal deficit and the field of AI.

50-year mortgages and real estate stagnation

Danny Knowles: That brings me to balance sheet expansion.You said it was all about buying Treasury bonds and not MBS (mortgage-backed securities).Trump recently came out to talk about 50-year mortgages.Do you think this is all part of the same picture?Is this a way to try to help the housing market without directly cutting interest rates or buying MBS?

Lyn Alden: I think so.Because without intervention, the real estate market has ended a generational cycle.

Over the past 40 years or so, we have experienced cycles of lower and lower interest rates (both short-term and long-term).I think this structural trend has passed.We bottomed out at zero rates and are now in an era of “sideways” interest rates (and maybe even rising).This means we won’t have lower lows.

Any refinancing cycle will be very weak.Typically when the Fed cuts interest rates, homeowners can refinance and take money out of their home equity to spend, which is a free lunch for consumer spending.But that’s over.

This means that when the economy stalls, lowering interest rates no longer solves the problem as it once did.You will face long periods of stagnation.

We have seen the longest yield curve inversion in history, combined with the manufacturing PMI being stagnant at low levels for 3 years (normally this would be a sine wave cycle).Real estate and private equity also face headwinds.

On the one hand, fiscal spending held up the bottom and prevented a complete economic collapse (pre-recession stimulus); but on the other hand, there was a lid on the top.

So you get that stagflationary feeling: consumer confidence is extremely low, inflation is above target, many sectors are stagnant, and there are only a few pillars holding the economy together.This is the era of fiscal dominance.

This feels morbid, because it is morbid.This is more likely to lead to rising social discontent, not just in the United States but globally.I think this will be the biggest story we face in the next few years: how policymakers and the public respond to a situation that is structurally different from previous cycles.

Danny Knowles: Could you argue that the 50-year mortgage is another driver of the wealth gap?If you own scarce assets (gold, Bitcoin, stocks), you are basically shorting the dollar with a 50-year mortgage; but if you are a low-income earner, taking on a 50-year mortgage just means you have to pay interest for longer?

Lyn Alden: To a certain extent, yes.The modern system does reward those who can acquire long-term debt and use it to purchase scarce assets.

But I think the concept of the 50-year mortgage, while it grabs the headlines, has less impact than people think.If you calculate how much it could lower your monthly payment, it’s not trivial, but it’s not a game changer.

This is more like an artificial extension, a stop-gap measure.It’s like saying: “We’ve run out of offers for 30-year mortgages and interest rates can’t go down, so let’s try this Band-Aid.”

Even if this does take effect, it will only last for another half cycle at most.It’s not as important as “structural interest rate decline”.It only slightly helps people who can get a loan and buy a house in a good location.I don’t think it will be significant on a macro scale.

Fed interest rates, independence and the Trump factor

Danny Knowles: I want to talk about the Federal Reserve.Originally, everyone predicted that interest rates would be cut before the end of the year, but I know that now everyone has questions about the rate cut in December.Where do you think interest rates will go?

Lyn Alden: First of all, I think this may be a minor catalyst for the recent sell-off in Bitcoin: the market is having to recalibrate expectations to potentially have a slightly less dovish Fed for the rest of the year.Although an interest rate cut is not a big deal, when the market expects A and the result is B (even if B is not that big of a difference), asset prices still have to be repriced.Add to this the problems in the repo market, and it’s not surprising that volatile assets are experiencing friction.

As for what the Fed will do specifically, I usually don’t have any special inside information. Whatever the market predicts will usually happen.It’s a recursive process: Fed officials look at market expectations, and if the market deviates too far, they speak out to guide expectations.So rather than guessing at a single session, I’d rather focus on the long term.

I do think we will see several rate cuts by 2026.As for whether it will drop in December, it’s like a coin toss to me.It’s more about what happens next year.

I think we’re going to see moderately low interest rates and at the same time we’re going to get back to balance sheet expansion.But I think the two are roughly independent variables, and they don’t need to happen at the same time.

Danny Knowles: Next year is really the most interesting, with Jerome Powell’s term coming to an end.If we don’t know who will take over, or if it’s someone like a Trump stooge, what will it mean for fiscal leadership and Fed independence?

Lyn Alden: If that happens, the Fed will obviously be less independent.But in fact, fiscal dominance itself is already weakening the Fed’s independence.

For example, the Fed will expand its balance sheet based on nominal GDP, and the fiscal deficit is an important input to nominal GDP. This is equivalent to the Fed indirectly saying: “The speed of our balance sheet expansion depends in part on the size of the fiscal deficit.” This in itself is a reduction in independence.

It would be very bad if the administration could order rate cuts at will to coincide with the election.While there is no absolute Fed independence, there needs to be at least some insulation between near-term interest rate decisions and election cycles.

Even with a few different directors, they usually have to maintain some degree of independence to avoid looking like a complete scam.Because if they look too political and dovish, the bond market could collapse (sell off long-term debt), causing mortgage rates to spike — even if short-term rates are low.This is not what any administration wants.

So I don’t think there will be a 180-degree turn.But because we are in a period of fiscal dominance, even if inflation is above target, they will expand their balance sheet to maintain liquidity in the Treasury market.They can adjust tools such as the Supplementary Leverage Ratio (SLR), which is like shadow QE for banks.

All tools have one thing in common: allowing the existing system to continue functioning without triggering acute liquidity constraints.This just keeps the “deficit train” running at a stagflationary pace.

AI Bubble and the Future of Employment

Danny Knowles: Regarding AI, there’s a lot of talk right now about the AI ​​bubble.You also mentioned recurring deals between Nvidia and other companies.Do you think we’re in an AI bubble?

Lyn Alden: I think we may be in a kind of feverish partial bubble phase, but I think the underlying trend is real.This is like someone asking “Is Bitcoin a bubble in 2017?” The answer is both yes and no.It’s a local bubble built on structural things.

This is how I view current AI as well.While some things are overdone and crowded, and some transactions become a bit “incestuous” (internal loops), this is still real growth.Looking back ten years from now, there will definitely be many more data centers than there are now.It’s just that you may be running too fast in the short term and need to calm down.

Danny Knowles: If it is a “black swan” event, for example, if AI really replaces a large number of jobs, how will the economy respond?

Lyn Alden: On the one hand, it’s like previous productivity cycles (like tractors replacing farmers), which freed up labor to do other things.

What is scary is that if the machine is so good that many people will not be able to find jobs that can be done better than the machine.If this happens to a large percentage of the population, that’s uncharted territory.This is why people talk about Universal Basic Income (UBI).

But I think there is a silver lining: there is a huge difference between data center AI (which handles white-collar jobs) and mobile AI/bots (which handle blue-collar jobs).

The human brain requires only 20 watts of power to operate, while doing the same thing in a data center requires megawatts of power.While computers are computationally powerful, robots are still far behind when it comes to handling real-world edge cases, self-healing, and more.

I think a robot that comes to your house to repair your air conditioner is still very far away.The star now is data center AI, which is replacing white-collar jobs.This could instead lead to a boom in blue-collar jobs.

Automation is easy in a controlled environment (factory) but difficult in the real world.Moreover, robot maintenance costs are high and parts may be in short supply.If a large number of people lose their jobs, they may not be able to afford robot services and will instead return to a human-to-human mutual aid economy.

What I worry about is not that 99% of jobs will be replaced in a generation, but that 10% of jobs will be replaced in the near future, and those 10% are very angry.This is where the social contract deteriorates and extremism thrives.

Why is gold soaring but Bitcoin is flat?

Danny Knowles: If you had asked me a year ago, I would not have imagined that gold would have such a crazy bull run while Bitcoin was flat.Why?

Lyn Alden: I was also surprised that it reached $4,000 an ounce this year.

There are several transformations:

1. Re-accumulation by sovereigns: Since 2009, central banks have switched from selling gold to buying gold.This trend accelerated after the freezing of Russian assets in 2022 (fear of asset confiscation).

2. Understanding of financial dominance: Big money realizes that “the train cannot stop” and wants to hold gold, an asset with a historical record.

3. Hedging demand: Although U.S. stocks hit new highs, this is not actually a “risk-on” environment, and the economy is stagnating.The market views gold (and AI) as low-risk assets.Bitcoin has been classified in this category before, but it has cooled down recently.

Danny Knowles: Are you surprised that Western retail investors are queuing up to buy gold?

Lyn Alden: Not surprised, but it’s a later thing.

This wave of gains was first driven by institutions and sovereign countries (China, India, etc.). At that time, Western retail investors were not interested.It wasn’t until the second half of this year that Western retail investors began to experience FOMO (fear of missing out).If it doesn’t rise first, retail investors won’t come.

I also think gold may be in a partial bubble (overheated) right now, just like AI, but that doesn’t mean it’s structurally overvalued.It just went from undervalued to reasonable.

Bitcoin outlook and summary for the next 12 months

Danny Knowles: Finally, without asking for a specific price prediction, but where do you see the direction of Bitcoin over the next 12 months?

Lyn Alden: My guess is upward.

I don’t predict the next quarter.For 2025, I once said that it would be disappointing if it was less than 150,000, and it does seem a bit disappointing now.

But I do expect that in 2026 we’ll be back to six figures.Whether it is 2026 or 2027, I think there is a high probability that we will see a new historical high.

I have this portfolio structure: If Bitcoin disappoints me this year, gold will make me happy.This is what diversity means.I don’t just want to bet on the fastest horse, I want to own several horses.

A lot of people bought Bitcoin for the wrong reasons (betting on a government takeover) and now those chips are being purged.

Also, I think the broader crypto space is basically out of narratives.Except for Bitcoin, stablecoins and a few technical facilities, most of them are “dead weight”.ICO, NFT, DeFi, Meme coins…these narratives have all been exhausted.

Bitcoin must decouple from these dead weights in order to continue making new highs.

Danny Knowles: I completely agree that the era of altcoins is probably over.

For investors who are panicking right now, the best advice is: If you’re not sure, just do nothing.Just wait, I know 90,000 won’t be the top forever.