"For ordinary investors, they should benefit as much as possible before the government takes action."
Compiled & Edited by: Deep Tide TechFlow
Guest: Jeff Park, Head of Strategy at Bitwise Alpha
Host: Archie
Podcast Source: Archie Podcast
Original Title: Why Bitcoin Wins in Chaos: Bitwise’s Jeff Park Explains | Jeff Park | E005 Y25
Broadcast Date: May 15, 2025
Key Points Summary
In this episode of the podcast, the host discusses with Jeff Park the global impact of the U.S. government's purchase of Bitcoin, how macroeconomics attracts institutional investment, and the profound effects of tariff policies on the market.
Highlights
By 2025, Bitcoin will become a core asset in the macroeconomic narrative; regardless of how the macro environment changes in the future, Bitcoin will be the ultimate winner.
Bitcoin is an outlet to escape the financial oppression system. Instead of stealing wealth from the future through debt, it is better to invest in oneself and prepare for the future world.
Bitcoin may no longer fully follow the "four-year cycle" model driven by halving in the future. If it still shows cyclicality, it will be more driven by macroeconomic factors. However, it is more likely that Bitcoin's trends will be determined by realized profits, unrealized profits and losses, and the pace of market adoption.
In the coming months, Trump may push for intervention by creating chaos. In such an environment, the stock market may continue to fluctuate or even decline, and Bitcoin typically performs poorly when risk assets are broadly sold off.
The primary goal of Trump's tariff policy is to lower financing costs in the U.S., as this is not only the engine of U.S. economic growth but also the foundation of dollar hegemony and global economic growth.
Many things we take for granted in the financial system can actually be redesigned. Cryptocurrencies, especially stablecoins, may provide a whole new solution in this regard.
Tether has, to some extent, replaced the U.S. government and enjoys a special "monetization privilege."
Volatility is harmful because it raises the cost of capital. Once the cost of capital rises, investors need to sell assets to meet banks' collateral requirements, triggering a series of sell-offs, which is why financial stability is crucial.
I am not sure the next generation will live better than ours. Will today's children have better lives and prospects? I do not have that confidence. In fact, some long-term polls show that people's confidence in living better than their parents is at a historic low.
For ordinary investors, they should benefit as much as possible before the government takes action, so I hope more people accumulate Bitcoin individually on a global scale. If you truly believe Bitcoin is a benefit for all, it should prioritize individualism over the state.
The biggest "deal" reached among global societies in recent years is that we exchanged "unequal prosperity" for "unhappy peace."
Financial oppression allows us to maintain peace; it steals wealth from the future through debt, and the future is intangible. This endless cycle of debt is essentially intergenerational theft. Unable to obtain resources from neighbors, we take from the future, and that is the price of peace.
Monitoring cross-border capital flows presents multiple challenges, primarily due to a lack of transparency and complex financial structures. First, cross-border flows are often difficult to monitor because their mechanisms are not always reported. Second, the use of leverage in the financial system is also a difficult factor to grasp. Additionally, global arbitrage trading relies on significant leverage, and the dynamics of this leverage accumulation increase the fragility of the financial system.
The dual role of the dollar as both U.S. currency and global reserve currency brings about the Triffin Dilemma: on one hand, the U.S. needs to manage its economy through domestic monetary policy; on the other hand, the dollar's status as a global reserve currency is influenced by international capital flows, complicating supply and demand relationships.
In the U.S., you can hardly hear anyone include patriotism as part of the investment dialogue. Investors are more focused on commercial returns rather than how investments can serve national interests.
Getting more countries involved could facilitate some form of international agreement similar to the Bretton Woods system. This agreement could redefine global security mechanisms and help the U.S. manage debt costs by introducing new capital partners, which is the ultimate goal of the U.S.
The U.S. cannot establish a strategic Bitcoin reserve alone, as international alliances are interdependent. To build a true strategic reserve, the U.S. needs to coordinate with its allies.
Blockchain can leave an immutable record of actions and provide assurance of data ownership. The first intersection of cryptocurrency and AI is likely to occur in the realm of data ownership.
Jeff Park's Role at Bitwise and Experience Building the Alpha Brand
Archie:
Jeff, as the Head of Strategy at Bitwise, could you briefly introduce your work and responsibilities?
Jeff Park:
Of course. I joined Bitwise about three and a half years ago, primarily responsible for building the Alpha brand. This was to complement our existing cryptocurrency investment products and help investors discover new investment opportunities.
Bitwise has been established for over 7 years, and surviving in such a highly volatile industry as cryptocurrency is an achievement in itself. While the volatility of the crypto industry presents challenges, it also offers many unique investment opportunities. My main task is to help professional investors find Alpha in this space, which means excess returns.
In simple terms, just investing in and holding Bitcoin can already be seen as a form of Alpha from an asset allocation perspective. However, if we dig deeper, there are many inefficient markets, arbitrage opportunities, and structural misalignments in the more complex crypto market that can provide investors with risk-adjusted quality returns. My mission at Bitwise is to help investors identify and seize these opportunities.
Jeff's Most Confident Macro Trading Strategy and Bitcoin's Different Roles
Archie:
You recently mentioned a macro trading strategy that you called your most confident trading plan. Could you briefly explain the core of your macro trading strategy?
Especially considering the recent tariff issues between the U.S. and China, and the market's reaction to them, this seems like a good entry point and will help everyone better understand your analytical logic and decision-making process.
Jeff Park:
I believe Bitcoin's uniqueness lies in that it can reflect the perspectives of different investors and their motivations for entering the cryptocurrency space. Overall, investors' understanding of Bitcoin can be categorized into three types:
The first type is financial services professionals, who view Bitcoin as an asset allocation tool, especially as a non-correlated asset (not related to traditional market fluctuations) and a store of value.
The second type is technology-driven investors, who focus more on Bitcoin's network effects and the scalability of payment technologies, which is entirely different from the concept of a store of value.
The third type is trade-oriented investors, who see Bitcoin as a frictionless, borderless payment tool rather than a store of value or technology investment, focusing more on its convenience in capital flows.
Depending on different macroeconomic environments, Bitcoin's performance in these narratives will vary. I believe that starting after the 2024 elections, Bitcoin will enter a new phase. In this phase, macroeconomic factors will become the primary perspective for investors regarding Bitcoin, especially in 2025. The reason is that global economic uncertainty persists, and regardless of who is elected as U.S. president, this uncertainty will drive Bitcoin to become a safe-haven asset.
We are already seeing Bitcoin gradually becoming the dominant asset in risk trading, while other altcoins are performing poorly. Additionally, Bitcoin's volatility is adapting to a more turbulent world. For example, the recent actual volatility of the S&P 500 index even exceeded that of Bitcoin, which is a very special phenomenon in the current complex economic environment.
Therefore, I believe that by 2025, Bitcoin will become a core asset in the macroeconomic narrative. In summary, regardless of how the macro environment changes in the future, Bitcoin will be the ultimate winner.
Market Reaction to Tariff Policies
Jeff Park:
There are two possible developments for the macro story. One is a world of high inflation, and the other is a world of deflation; both scenarios are actually favorable for Bitcoin because Bitcoin is essentially a unified asset that can represent relevant store of value in an inflationary U.S. or a deflationary global environment.
The pace of adoption may vary across different market segments. Therefore, the basic market condition that most investors are currently focused on is that Trump will not make tariffs a permanent fixture in the U.S.'s ongoing globalization and trade liberalization efforts over the next 20 or 30 years. I think this is a fundamental baseline view. The market still holds hope and expectations, which is why when Trump slightly tones down his tariff rhetoric, the market rises; and when Trump again intensifies his protectionism and tariffs rise, the market falls.
The current mainstream expectation in the market is that the Trump administration will eventually gradually lift its protectionist policies, which will restore normalcy to global trade and business activities. In this scenario, the U.S. will continue to maintain fiscal dominance, adjusting the economy through currency devaluation and inflation, a model that has been the mainstream framework for the global economy since 1971. Bitcoin will continue to benefit in this environment as it is a store of value that can counter dollar devaluation, appealing not only to U.S. investors but also to investors from other countries.
But in this scenario, the U.S. remains relatively strong. The U.S. can demonstrate its dollar and financial flexibility to both its allies and enemies, maintaining a superior position in the global monetary framework. Another concern for the market is that Trump may continue to push at certain times, causing military and market stability, which effectively deconstructs the global trade system that the U.S. and its allies have benefited from since 1971. In this case, many ripple effects would arise. However, I believe that in this scenario, the largest ripple effects may be felt by foreigners, as the U.S. has many alliances globally, and these investors benefit from the ability to invest in U.S. assets.
For example, Japan is one of the largest financial allies of the U.S., currently holding more U.S. Treasury bonds than China. Japan provides a significant amount of cheap capital to American consumers while also investing in U.S. assets such as stocks and real estate. However, if the U.S. trade deficit is reduced and the capital account surplus decreases, countries like Japan may reassess their investment strategies, shifting some funds from U.S. assets to other areas. In this case, Bitcoin may become one of the primary options for these countries to hedge against uncertainties from the U.S. economy.
Explanation of Global Arbitrage Trading
Archie:
In the context of the deconstruction of the global economy, how much capital can Bitcoin absorb or attract?
Jeff Park:
The number is substantial because it depends not only on the nominal amount of existing securities but also closely relates to the velocity of circulation of that capital. Typically, we view Gross Domestic Product (GDP) as a static indicator representing the total economic activity at a given moment. However, the dynamics of economic operation resemble the relationship between balance sheets and income statements, where the velocity of money plays a crucial role.
In recent years, the velocity of money has significantly increased due to changes in financing models. For instance, during Janet Yellen's tenure at the U.S. Treasury, an important strategy was implemented to replace long-term bonds (like 10-year or 30-year bonds) with more short-term Treasury bills (such as 3-month or 6-month notes). Currently, about one-third of U.S. financing relies on short-term bills, which need to mature and be reissued frequently (i.e., "rolling"). In contrast, the capital cost of long-term bonds is fixed and does not require frequent adjustments. Therefore, the widespread use of short-term bills effectively accelerates the circulation of capital.
Similarly, it is insufficient to focus solely on the nominal amount of U.S. Treasury bonds held by Japan; we also need to consider the role these bonds play in supporting the global arbitrage trading system. Global arbitrage trading is a complex financial activity that profits by exploiting price differences between different markets. Although its scale is difficult to estimate accurately, it is clear that this trading has a significant impact on global capital flows.
Challenges in Monitoring Cross-Border Financial Flows
Archie:
Why are we unable to accurately track the scale of global capital flows?
Jeff Park:
Monitoring cross-border capital flows presents multiple challenges, primarily due to a lack of transparency and complex financial structures.
First, cross-border flows are often difficult to monitor because their mechanisms are not always reported. For example, the operational methods of some countries and how they hold government bonds do not have a unified record. No one knows exactly where the bonds held by the government are and which entities they belong to, as these entities may have different reporting exemptions based on various jurisdictions. This is a structural and jurisdictional issue.
Second, the use of leverage in the financial system is also a difficult factor to grasp. In the cryptocurrency space, operations similar to "recursive loop trading" are particularly typical. This trading model refers to borrowing an asset, depositing it, borrowing again, and repeating the process, creating a self-reinforcing cycle similar to a fractional reserve banking system. Because the nominal amounts involved in this trading are dynamically changing and not easily tracked broadly, it increases the difficulty of monitoring.
Furthermore, global arbitrage trading primarily profits by exploiting financing cost differences between different markets. For example, Japan and the U.S. have long maintained low interest rates, theoretically allowing arbitrage trading to achieve returns through large-scale leverage. However, this model relies on stable interest rate fluctuations. Once interest rate volatility exceeds expectations and basis spreads widen rapidly, it can trigger a crisis.
Many global arbitrage trades rely on significant leverage, and the accumulation of this leverage is often based on long-term trust in the stability of the dollar and the yen. This dynamic accumulation of leverage increases the fragility of the financial system, which is why the Federal Reserve has called for increased transparency requirements for institutions like hedge funds in recent years. These institutions are typically not bound by traditional public reporting regulations (such as 40F fund requirements), making their activities difficult to fully understand. Currently, regulators are attempting to grasp the dynamics of these liquidity pools through higher transparency requirements to better address the risks that arbitrage trading may pose. This remains a long-term effort.
Trump's Impact on 10-Year Treasury Yield
Archie:
The current economic environment seems very tense, like a powder keg that could explode at any moment. Trump is back in the public eye, and one of his economic goals is to lower the 10-year Treasury yield. However, from the market data I have seen, this has not changed due to his tariff policies, and the market reaction has even been contrary to his expectations.
Why is this happening? What impact will it have? What other means does Trump have to achieve this goal? I remember you mentioned that if Trump wants the 10-year Treasury yield to drop, he would spare no effort to push for it. I'm curious about what he can specifically do?
Jeff Park:
This is a complex issue. First, many mechanisms in financial markets have self-balancing characteristics. Most of our operations in capital markets can be viewed as a "zero-sum game," where one party's gain often means another party's loss. However, in certain cases, by leveraging factors like volatility or duration, some arbitrage opportunities can be found, superficially breaking the "zero-sum" situation. But overall, most financial activities still follow the principle of "zero-sum."
Regarding the relationship between the 10-year Treasury yield and the dollar exchange rate, theoretically, they are correlated. In an ideal market, if a country's interest rates rise, its currency typically depreciates. This is because the foreign exchange market follows the "no-arbitrage condition," meaning investors will choose to move to other markets with higher yields to achieve the same returns. For example, if I can obtain a higher yield in the U.S., I can transfer those returns overseas for the same return.
The relationship between currency pairs is crucial. If U.S. interest rates are high, under no-arbitrage conditions, you must balance this by allowing the dollar to depreciate, making it very difficult to achieve a lower 10-year Treasury yield and a lower dollar simultaneously.
Generally speaking, interest rates and the dollar exchange rate must change in opposite directions. So the question arises: what should we prioritize? Should we aim for a lower dollar exchange rate as a target, which may lead to higher interest rates? Or should we choose lower interest rates, which may mean a stronger dollar? This relationship actually has a zero-bound condition.
What we see now is that the market has, to some extent, decided to prioritize dollar depreciation. This can be seen from the behavior of foreign markets. The volatility at the back end of the yield curve for 10-year and 30-year bonds is actually completely independent of U.S. monetary policy decisions. A significant misunderstanding about the shape of the yield curve is that the Federal Reserve can only influence the short end of the curve. When they set benchmark interest rate policies, they are essentially controlling the short end of the financing costs in the banking liquidity system (i.e., the interest rates of shorter-term bonds or financial instruments in the yield curve).
The long end of the yield curve is typically influenced by buyers and sellers of long-term bonds, and most of the U.S. long-term debt is held by foreign investors. They can actually exert some influence in this regard, which is closely related to the U.S. credit rating. As a representative of a global risk-free sovereign asset, U.S. Treasuries are seen as the cornerstone of the modern financial system, with the pricing of other assets often benchmarked against them. However, in recent years, this assumption has begun to be questioned.
If the market begins to doubt the risk-free attributes of U.S. Treasuries, it may demand higher yields to compensate for the risk, which is one of the reasons for the rise in long-end yields. This phenomenon is closely related to the U.S. trade deficit and capital account surplus. In simple terms, when the U.S. has a trade deficit, a large amount of dollars flows to foreign countries to purchase foreign goods and services. However, these dollars ultimately return through investments in U.S. assets, such as purchasing U.S. Treasuries or stocks. This capital inflow forms a surplus in the capital account and is one of the reasons for the highly developed U.S. capital market.
How Stablecoins Address the Triffin Dilemma & Eurodollars
Archie:
On the surface, the U.S. trade deficit is often seen as a result of other countries "exploiting" the U.S. However, a key point you mentioned is that the trade deficit is actually a necessary condition for the dollar to function as a global reserve currency. In other words, to maintain the dollar's status as a global reserve currency, the U.S. must maintain a trade deficit to provide sufficient dollar liquidity to the world.
So, is it possible to maintain the dollar's status as a global reserve currency without a trade deficit?
Another concept that confuses me is the Eurodollar system. The dollars in this system are not directly created by the Federal Reserve but are generated through the European banking system.
So, are there other ways to create dollars globally? In other words, can the dollar maintain its role as a global reserve currency without relying on a trade deficit?
Jeff Park:
Many things we take for granted in the financial system can actually be redesigned. In my view, cryptocurrencies, especially stablecoins, may provide a whole new solution in this regard.
First, the relationship between trade deficits and capital account surpluses is as follows: when the U.S. imports more than it exports, foreign companies earn a large amount of dollars by selling goods to the U.S. These dollars ultimately return in the form of investments in U.S. assets, such as purchasing U.S. Treasuries or stocks. This capital return forms a capital account surplus.
However, the dollar is not just the currency of the U.S.; it is also a global reserve currency. This dual role brings about the Triffin Dilemma: on one hand, the U.S. needs to manage its economy through domestic monetary policy; on the other hand, the dollar's status as a global reserve currency is influenced by international capital flows, complicating supply and demand relationships.
This can be understood by comparing it to China's dual foreign exchange system. China has two types of renminbi: CNY (onshore renminbi) for the domestic market and CNH (offshore renminbi) for the international market. Although both are the same currency, their prices and liquidity differ due to their different uses. Through this separation, China can better manage domestic and international monetary demand.
For the U.S., the key to solving the Triffin Dilemma may lie in introducing a similar dual-track system, and stablecoins might play this role. Stablecoins can be designed as a digital currency pegged to the dollar, allowing foreign investors to purchase U.S. Treasuries without directly holding dollars. This could not only reduce the demand pressure on the dollar but also allow the dollar to focus more on serving the U.S. domestic economy.
For example, currently, foreign investors need to exchange their currency for dollars to purchase U.S. Treasuries. However, their actual goal is to obtain the safety of U.S. Treasuries, not the dollars themselves. If stablecoins allow foreign investors to directly purchase U.S. Treasuries using their local currency or other digital currencies, it would bypass the direct demand for dollars. This mechanism would fundamentally change the current pattern of international capital flows, reducing the phenomenon of excessive demand for the dollar due to its status as a reserve currency.
Returning to the issue of Eurodollars. Can Eurodollars essentially be seen as a representation of U.S. Treasuries? I would say yes and no. Because Eurodollars are not officially issued by the U.S. government, they are not directly supported by U.S. sovereign credit.
Archie:
But the situation with stablecoins seems different. Many stablecoins (such as Tether and Circle) are now required to use U.S. Treasuries as backing assets. I'm not sure when the relevant legislation will take effect, but we already know that Tether has invested a significant amount of funds in U.S. Treasuries to support the value of its stablecoin. This creates a significant distinction from how Eurodollars operate, as Eurodollars do not have similar Treasury backing.
If the use of dollar stablecoins continues to grow globally, will this exacerbate the Triffin Dilemma?
Jeff Park:
It could indeed exacerbate the Triffin Dilemma. Because if stablecoins are financed through U.S. Treasuries, and purchasing Treasuries requires dollars, this would further strengthen the dollar's dominant position. However, this dominance could negatively impact U.S. domestic economic policy.
Current stablecoin legislation, while a good start, does not fundamentally address some key issues in the financial system. The current operational model of stablecoins resembles that of money market funds but lacks the yield-bearing component (i.e., investment returns). This makes existing dollar stablecoins a combination of assets that neither yield returns nor provide a certain level of risk.
For domestic investors in the U.S., such stablecoins lack appeal because they do not offer any actual returns. However, for some foreign investors, such as those living in Argentina, being able to indirectly access the safety of U.S. Treasuries through stablecoins still holds some value.
I believe a new mechanism may emerge in the future that allows for differentiation between foreign investors and domestic investors. For example, foreign investors might enjoy some discount when purchasing U.S. Treasuries, while domestic investors would not. This mechanism could alleviate the Triffin Dilemma to some extent while protecting U.S. domestic economic interests.
The Role of Tether in Capturing Offshore Dollar Demand
Jeff Park:
Tether's success largely stems from the strong demand for dollars from offshore investors, who value the safety of holding dollars themselves. In fact, this indicates that Tether has, to some extent, replaced the U.S. government, enjoying a special "monetization privilege." This privilege is typically held by the issuer of the reserve currency, and Tether has leveraged the demand from offshore markets to convert it into its own profits. This could impose certain economic costs on the U.S.
I am not saying that Tether is a negative market participant. On the contrary, Tether has simply seized the opportunity presented by offshore dollar demand. The U.S. may realize this and attempt to establish similar channels. However, it is unlikely that these channels will be operated by U.S. entities, as one reason offshore investors choose Tether is to avoid U.S. regulation. For instance, they do not want to face anti-money laundering (AML) and know your customer (KYC) requirements, nor do they want their assets to be at risk due to credit freezes or de-banking. This concern has become particularly pronounced after the Ukraine war, as investors worry that their assets may be restricted for geopolitical reasons.
However, there are some gray areas, especially regarding the distinction between Tether and Circle. Although they are often compared, they actually meet different market demands. Tether focuses more on the offshore dollar market, while Circle primarily serves domestic payment needs in the U.S.
This reminds me of the history of Eurodollars. After World War II, many countries wanted to store funds in the U.S. but were concerned about regulatory risks, so they preferred Europe as a storage location. France, Switzerland, and the UK all established Eurodollar markets, with the UK ultimately emerging as the center of this market. The key is that this market must be offshore to establish credible neutrality and cannot be directly associated with the U.S.
Archie:
However, this offshore market still benefits the U.S. by increasing demand for dollars and U.S. Treasuries, thereby lowering U.S. borrowing costs. As relevant legislation progresses, the changes in this dynamic will be very worth watching.
Jeff Park:
Currently, we can categorize stablecoins into three types.
The first type is non-yield bearing stablecoins, primarily used for domestic payment scenarios. These stablecoins function similarly to payment processing tools, such as how to transfer from Bank of America to PayPal rather than through Zelle. This is essentially an interoperability issue between payment platforms. For merchants like Shopify and Stripe, this is also a B2B challenge: how to make the payment process smoother for end consumers? In this case, stablecoins can provide better instant liquidity, while existing banking systems perform poorly in this regard. However, these stablecoins are dollar-to-dollar transactions within a closed system and do not involve any yield. I believe that currently, users in the cryptocurrency space are not very interested in such non-yield bearing stablecoins, as they are more focused on products that can generate returns rather than mere payment tools.
The second type is yield-bearing stablecoins. These stablecoins provide investment returns but also trigger regulatory scrutiny under securities laws. According to current laws, any financial product that offers returns may be classified as a security. This means that non-yield bearing stablecoins may be exempt from securities law regulation, but once returns are involved, they must meet strict compliance requirements, such as who can use these products and who can issue them. This undoubtedly adds complexity.
The third type is offshore stablecoins. These stablecoins primarily target foreign investors, especially those looking to hold U.S. Treasuries and dollar cash. This is very different from stablecoins that meet domestic financial needs in the U.S. I believe the evolution of stablecoins may go through three stages: from non-yield bearing stablecoins for domestic payments to yield-bearing stablecoins, and finally to offshore stablecoins serving the global market.
“Bond Vigilantes” and the Phenomenon of Patriotism in the Market
Archie:
You previously mentioned Janet Yellen's refinancing issues when managing short-term debt, which seems to have exacerbated market volatility. In this case, how likely are they to achieve their goals?
You also mentioned the concept of "Bond Vigilantes" in a recent article. This term is often used to describe investors who exert influence on government policy through market behavior, especially during the 1980s when George Soros broke the Bank of England.
This market correction mechanism seems to have disappeared, but what do you think? Is the current volatility in the 10-year Treasury yield a form of "Bond Vigilante" return? Or is it just some investors pushing back against the official narrative? Do you think this is an increasing trend? Which market sectors are leading this trend?
Jeff Park:
This is a very interesting question. The term "Vigilantes" was previously used to describe U.S. investors, especially those who pressured government policy through market actions like selling bonds. For example, investors like Stanley Druckenmiller or George Soros used market power to express dissatisfaction with the Federal Reserve's policies, attempting to force policy changes.
However, in today's political climate, such behavior may be viewed as "unpatriotic." This contrasts sharply with the concept of war bonds. At that time, to support military expansion, the government encouraged citizens to purchase war bonds, which, despite lower interest rates, was a way for every citizen to support the country. Buying war bonds was not only an economic act but also a symbol of patriotism.
I want to emphasize that buying and selling Treasuries is, to some extent, a political act and involves issues of patriotism. I worry that if bond vigilantes act too aggressively, the current political atmosphere may view them as unpatriotic, especially under the "America First" agenda. Any action that could increase U.S. borrowing costs may be seen as unpatriotic. In my view, this is a relatively sensitive time, and people may resist bond vigilantes because no one wants to be labeled a traitor in the U.S.
Archie:
During the COVID-19 pandemic, people like Bill Ackman made a lot of money by shorting American companies. Many viewed this as unpatriotic behavior, yet there was no strong institutional backlash. Why do you think that is? Why was there no reaction at the time, but you think it might be seen as unpatriotic now?
Jeff Park:
I think there was actually some reaction. Bill Ackman typically does not short the companies he invests in, so that is a difference. He has shorted in activist investment activities, such as shorting Herbalife. Bill Ackman has a history of shorting. But what I want to say is that now Bill Ackman is not frequently shorting, which reflects a new understanding of patriotism within elite circles. Shorting has become a challenging conversation.
However, I also believe many would agree that shorting is an important part of the normal functioning of capital markets. When market pricing is inaccurate, shorting helps discover the correct price. The U.S. market allows shorting because it ensures the market operates at reasonable prices.
During financial crises, other countries sometimes ban shorting. In the U.S., shorting financial stocks was also banned during the financial crisis. These measures may seem inconsistent with the spirit of American capitalism, but they are often taken when there is a need to rescue the government or the market.
Controlling through regulation reveals a significant myth of American capitalism. On the surface, the U.S. is a capitalist country, but when national security is prioritized, many things happen behind the scenes that may seem less "American" and even contrary to traditional capitalist ideals.
If Americans stop short selling, what will happen elsewhere in the world?
A few days ago, there were rumors that Mark Carney, the current Prime Minister of Canada and former Governor of the Bank of England and the Bank of Canada, may have coordinated an international action. This action was initiated by like-minded countries with the aim of gradually and continuously selling U.S. Treasuries to respond to Trump's tariff policies. What do you think about this?
Jeff Park:
I think it mainly depends on how countries support their own currencies. If the U.S. continues to devalue the dollar, it will lead to an increase in the relative value of other currencies. This situation is very unfavorable for export-dependent countries. Therefore, these countries need to devalue their own currencies by selling them, which means they must buy more dollars. To achieve this, they need to adjust their asset allocations. This is also one of the reasons why China has to sell some U.S. Treasuries to manage its currency.
Archie:
This sounds like a very rational explanation, but I wonder if there are also some more retaliatory motives behind it?
Jeff Park:
There may indeed be such factors. But at the same time, this can also be reasonably understood as a way to protect national economic interests. That’s why I find it ironic when people mention the term "currency manipulator." Currency manipulation is never a one-sided action; it always involves the interaction of two currencies, and the market reacts to this interaction.
Archie:
Another reason I bring this up is that if American investors do not engage in short selling, it could provide a huge opportunity for international investors. If American investors abandon short selling out of patriotism, it could create a very enticing market space for international investors. I’m curious how long American investors can hold off on seizing this opportunity due to patriotic feelings?
Jeff Park:
We need to clarify that short selling and selling off are completely different concepts. International investors can choose to sell their held assets, and that alone can have a significant impact on the market. I don’t think international investors need to engage in speculative short selling to impact the U.S. market. They just need to reallocate capital and reduce their holdings of U.S. assets, which could put more pressure on the market than American investors’ short selling. So, it’s understandable that American investors are concerned about this. At the same time, international investors may also choose to diversify their investments and move funds elsewhere due to fears of a global asset price decline.
Archie:
This is indeed a practical issue. I’m surprised you mentioned that patriotism might influence American investors' decisions. Currently, this culture seems to be somewhat reinforced by signals from the White House. However, I haven’t seen too many clear signs of this; what do you think?
Jeff Park:
I do feel that there is a trend now, where people are trying to bring the concept of "national unity" into mainstream dialogue. But unfortunately, this effort sometimes brings about negative effects, such as attempts to define what "American identity" is. There are often significant differences in people's views on this issue.
Recently, I read a book that impressed me greatly, Alex Carp's "The Technological Republic." The core argument of this book is that some of the current problems in American capitalism actually stem from the breakdown of the relationship between the tech industry and the government. Looking back at history, many of our great technological revolutions, such as space exploration and atomic weapons, were driven by large research projects funded by the government. These projects relied on public budgets and ultimately found opportunities for commercialization.
The internet is also a typical example. However, with the rise of the internet, the culture in the tech sector has shifted to focus more on commercialization and consumer-centric goals. This shift has led many tech companies to no longer value their relationships with the government. While these companies have indeed created many amazing products, they sometimes seem overly focused on short-term consumer demands. For example, services like Doordash are indeed convenient, but are they more important than technologies with greater public value, such as emergency communications? While these services improve efficiency, their innovation direction appears too consumer-oriented. Similarly, online dating services, while interesting innovations, still center around consumer demand.
The core discussion of this book is how to rebuild a culture of American patriotism. To do this, we almost need to re-establish public-private partnerships, which are almost completely absent in the current political environment. Neither the Trump administration nor the Biden administration has genuinely promoted this cooperation. However, only by establishing true public-private partnerships can people develop a belief in serving the greater national interest, thereby achieving national unity and pride. This cultural decline is an important issue that the U.S. has faced in recent years and needs to enter mainstream discussion more.
Archie:
In fact, the theme of government-funded technological innovation has always been emphasized by people like Tronsky. Their point is that the government takes on risks that industries are unwilling to bear. I understand that many tech companies are now flush with funds, even to an unprecedented degree. Therefore, they are investing heavily in so-called "moonshots," which are innovative projects without clear commercialization prospects. This attempt is similar to the original moon landing program; although that was not the initial intention, this effort led to many unexpected and profound technological breakthroughs. However, the problem is that it is difficult to find similar transformative innovations from the commercial sector.
Jeff Park:
These transformative investments take a long time and cannot quickly yield returns. Another issue is that, with the excessive financialization globally, venture capital has gradually become an institutionalized industry, with increasingly high demands for investment returns, further limiting the development space for long-term innovative projects.
Everyone is influenced by incentives, so would you choose to invest in "moonshot" projects that might take decades to see results? Or would you prefer projects that can yield returns in a few years? Historical experience shows that without public capital support and subsidies, this risk-return model is hard to establish. Rather than investing in potentially world-changing innovations, such as cell engineering or the development of supersonic aircraft, it is often more appealing to invest in companies like Bumble, which are more likely to be acquired by cash-rich large enterprises, resulting in more certain outcomes. Meanwhile, significant innovations with potential commercial value often do not receive the same level of attention as consumer-oriented projects.
Archie:
I agree. While tech companies have indeed made many innovations internally, these innovations are often only accessible to a few internal personnel and are subject to strict approval restrictions. In contrast, government-funded technological innovations can be opened up to a broader economic field and entrepreneurs, making it easier to find commercialization opportunities. This may also be a limiting factor. I want to emphasize that government-funded technological innovations over the past few decades have often aimed at solving national problems rather than requiring proof of commercialization potential from the outset. Ultimately, the results of these efforts, whether successful or not, will bring about a sense of national unity. Besides the moon landing program, these studies are usually not aimed at evoking national sentiment but at addressing national issues.
Jeff Park:
This is also the biggest misunderstanding and blind spot for the U.S. in its competition with China; China excels in public-private partnerships. If you observe a truly "productive" large economy, China's investment focus prioritizes national security. For example, China's output in automotive manufacturing, cement production, and mineral refining far exceeds that of the U.S. These investments not only promote national security but also bring significant economic benefits.
However, in the U.S., you can hardly hear anyone incorporating patriotism into investment dialogue. Investors are more focused on commercial returns rather than how to serve national interests through investment.
This perspective is not popular in the U.S., but China has been practicing it for a long time. Especially in times of crisis, the importance of public-private partnerships cannot be underestimated.
Capital markets may not only fail to solve problems but may also exacerbate them. Alex Carp mentions in his book that the largest growth areas in the American tech industry mostly come from advertising businesses, such as companies like Facebook. The core of the advertising business is to attract as many users as possible, so companies must avoid expressing any stance to prevent alienating certain groups. This model leads these companies to become "neutral," thus unable to engage in national culture or national agendas. This phenomenon is also reflected in the issue of cultural division, especially among the younger generation, who have had few opportunities to learn how to engage in constructive dialogue as they grew up.
Alex also frequently mentions that this phenomenon has led to some of the issues we face today, such as "cultural nihilism." Part of the reason is that a generation of young people has come of age without ever being taught how to engage in meaningful dialogue. Because in the current social standards, offending others is seen as a very serious matter. One of the roots of this phenomenon may be related to the profit model of search advertising. In pursuit of maximizing profits, these companies have to remain as neutral and "clean" as possible to attract a larger audience, and this model has, to some extent, shaped the current cultural environment.
Archie:
We see that Elon Musk took over Twitter (now X platform). Subsequently, some brands' reactions indicate that this seems to be a "brand conspiracy," where they are either overly sensitive or possibly politically motivated. However, their concerns about brand safety do exist. For a long time, brand safety has been used as a tool for content censorship, not just on Twitter but across all platforms. This also reflects the "boring" and "faceless" issues you mentioned.
I find it interesting that China is often referred to as America's enemy. As a non-American, I don't fully agree with this characterization. I think of China more as a competitor to the U.S. In terms of scale, industry, market, and customers, they indeed have competition.
But what I find ironic is the comparison between the two countries. China has emerged as a strong advocate for global free trade, while at the same time, some elite institutions in the U.S. are supporting tariff protectionism. This situation strikes me as very ironic. I can't help but wonder, how can a country that many still call "communist" be more supportive of global free trade than a country that has capitalism and free trade at its core? After all, the U.S. was once the main driver of globalization, wasn't it?
Jeff Park:
When discussing the trade liberalization policies that the U.S. might promote today, we need to be cautious. I call it "conditional bilateralism." The U.S. is now trying to readjust global trade rules to ensure its own security interests while addressing dynamic challenges that are unfavorable to the U.S. I believe the core issue facing the U.S. is that when global trade involves all countries, the situation becomes complex, leading to problems similar to the "prisoner's dilemma" and moral hazard. Countries often take different actions for their own interests. Currently, this global trade system may be fracturing because it has been in operation for too long, and many issues have not been genuinely resolved.
But this does not mean the U.S. is heading towards protectionism, such as closing its borders. That would also be detrimental to the U.S. On the contrary, the U.S. hopes to gain more benefits through bilateral negotiations to make up for what it has failed to achieve in global trade in the past. This is not a simple "good" or "bad" issue, but a spectrum issue: how do we find a new balance within the historically considered "good" outcomes?
This also raises the question of Trump's motives, such as why he promotes tariff policies or creates trade chaos. In my view, **his primary goal is to lower the U.S. **financing costs, as this is not only the engine of U.S. economic growth but also the foundation of dollar hegemony and global economic growth. To lower financing costs, support from other countries is needed. The U.S. indeed requires other countries to increase their participation and fund its debt. Recently, we have seen China reduce its support for U.S. debt, while Japan has increased its investments. Perhaps it is time for more countries to join in. I believe that **this dynamic could lead to some form of international agreement similar to the **Bretton Woods system. This agreement could redefine global security mechanisms and help the U.S. manage its debt costs by introducing new capital partners, which is the ultimate goal of the U.S.
The current market volatility is, in fact, trying to pave the way for achieving this goal. Whether through creating chaos in trade relations or disrupting the U.S. stock market to force the Federal Reserve to take intervention measures, it is all aimed at attracting more countries to participate. Recently, Scott Besson mentioned that the U.S. might consider yield curve control, indicating that the U.S. is gradually approaching Japan's policy path. I have always believed that if you want to understand the future, you just need to look at Japan. Japan's policies are basically 30 years ahead of the U.S. The U.S. may ultimately have to adopt similar measures.
Archie:
This is something I have been thinking about for the past five years. Although I do not have your experience and background in financial markets, my intuition tells me that the changes in the U.S. over the past 20 to 30 years are essentially a generational war. The baby boomer generation realized early on that the government might not be able to provide sufficient funding for their retirement. So, they addressed the issue by promoting the growth of the housing market and the stock market. And now, we are seeing a reversal of this trend. I believe this could lead to a transfer of wealth, potentially skipping a generation.
Jeff Park:
I had a similar feeling at the end of last year. I believe that in the past few years, the biggest "deal" reached among global societies is that we exchanged "unequal prosperity" for "unhappy peace."
Today, we are very fortunate that, as ordinary people, most of us are not embroiled in war conflicts and can enjoy a higher standard of living than the previous generation. We all benefit from better basic living conditions, such as services like Netflix, which are now accessible to almost everyone. These were unimaginable for the previous generation.
Archie:
From the perspective of consumption, business, and technology, our living standards have indeed improved significantly. But from the perspective of fulfilling basic human desires, such as starting a family, having a sense of community belonging, buying a home, and living a decent life, I believe these aspects have been gradually deteriorating for at least the past 20 years.
I have been in the workforce for over 20 years, waiting for a correction in the real estate market, but that correction has never really happened. I used to think that as long as I saved some money and waited for the market to adjust, I would have the opportunity to buy a house, but that opportunity has never come. It wasn't until I learned about Bitcoin that I began to understand how money printing and liquidity support market prices. We do have these technological devices that allow us to communicate with people around the world. But I live in London, and the subway system is terrible, while some small cities in China have airports that are better than London Heathrow.
But from another perspective, I am not sure the next generation will live better than ours. Will today's children have better lives and prospects? I do not have that confidence. In fact, some long-term polls show that people's confidence in their future lives being better than their parents' is at a historic low. I actually feel somewhat pessimistic about this.
While we have a higher technological foundation, some basic desires seem harder to achieve than ever. I know Elon Musk once said, "Just do it; people in the past were poorer than you." But that is not the point. The point is that in our current environment, people are unwilling to further sacrifice their quality of life to fulfill these desires; our direction of development should be upward, becoming better, easier, and more prosperous.
Unfortunately, we are no longer maintaining the status quo but are starting to erode the foundations that allow people to fulfill their desires. What do you think about this?
Jeff Park:
I agree with your point. That is also why I call it "unhappy peace." Although we enjoy peace, this peace comes at a cost, and this unhappiness stems from the conditions you mentioned. If you think carefully, you will find that the root of these problems is financial oppression. Financial oppression allows us to maintain peace because it steals wealth from the future through debt, and the future is intangible. These children have not yet been born and will not have the ability to voice their concerns for themselves in the coming decades. So, this endless cycle of debt is essentially a form of intergenerational theft. If resources cannot be obtained from neighbors, then they are taken from the future; this is the cost of peace.
Indeed, we have gained many benefits from peaceful international relations, but these benefits come at the expense of the future. Financial oppression ultimately leads to asset price inflation while also changing people's behavior. For example, people no longer die from wars, and life is more stable, so they begin to over-invest in human capital. For instance, my mother was one of six children. In that era, raising six children was more about the overall benefit to the family rather than making each child a "prince" or "Zuckerberg."
But the situation is different now. Each child is seen as a potential "Zuckerberg," so people over-invest in their children's education and growth, a phenomenon that is supported by a peaceful environment. Because we know children will live longer, are generally healthy, and have higher living standards. But in a world filled with war or unexpected changes, people would not invest in human capital in the same way. This behavior ultimately exacerbates social inequality.
This is also why I believe Bitcoin is significant at this moment; Bitcoin is an exit from the financial oppression system. Rather than stealing wealth from the future through debt, it is better to invest in oneself and prepare for the future world. Bitcoin provides a unique way for people to escape this social trading system and choose to opt out.
Trump's Tariff Strategy and Global Trade Relations
Archie:
Has Trump's tariff strategy weakened America's diplomatic options while also undermining the goodwill the U.S. previously enjoyed, making its international standing more unstable? Some have mentioned that this tariff dispute is essentially a one-way street. Once you put the rest of the world in this situation, it becomes difficult for them to turn back. This situation reminds other countries that this U.S. government is more inclined towards transactional behavior rather than valuing long-term partnerships.
Jeff Park:
But I believe this relationship can be repaired. However, people may now be more inclined to seek a hedging exit, which is why I think this presents a good opportunity for Bitcoin. Whenever people need to reserve space for extreme risk scenarios, it is beneficial for Bitcoin.
The EU is a self-interest-oriented entity. They will make decisions based on what is advantageous to them. If China, as a larger economy, can offer more opportunities than the U.S., such as the recent incident where China canceled all Boeing aircraft orders, this could bring the EU closer to China.
On the other hand, cultural identity is also very important in geopolitical relations. Huntington's "The Clash of Civilizations" mentions some long-term trends that are not solely driven by economic values. In my view, the EU's cultural relationship with the U.S. is closer than with China. It would be surprising if the EU felt its relationship with China was closer than with the U.S. Ultimately, cultural identity is crucial in establishing long-term alliances. This sense of closeness may change over time, but for now, this cultural discomfort is vital for the formation of alliances.
Archie:
Will the EU accept the options presented by Trump: choose between the U.S. or China? But the EU might say, "We will do things our way, not yours; we will keep our options open." This is also what you are implying.
Jeff Park:
This may also be what the U.S. hopes to see. We are imagining a world where the U.S. no longer completely dominates security guarantees but needs other countries to play a role in this area, which will increase costs.
Archie:
Trump has consistently emphasized that Europe is not paying enough for NATO. If European NATO partners do not pay their fair share, and the U.S. is effectively subsidizing NATO, then if they re-militarize, it actually achieves Trump's goal of having them invest more.
I see many TikTok videos discussing European luxury goods made in China, with these videos saying, "I will no longer buy from them." I wonder if this could be some sort of state-driven action, encouraging consumers to directly purchase Chinese-made goods to undermine European and global brands?
Jeff Park:
People buy luxury goods not because of the cost of the items themselves, but because they represent a concept of luxury that makes them feel good and hope others feel good about them too; this sense of ritual is key to the success of the luxury goods industry. But the Chinese mindset is, "You can buy the same bag for less money," and they overlook the fact that the focus is on the feeling of luxury, not the item itself. This is a characteristic of American capitalism.
If this is a planned action, it precisely illustrates the existence of cultural barriers; they cannot truly understand each other. I do not believe these TikTok videos will influence Americans to choose to buy Chinese-made knockoffs instead of the original Italian bags.
If this cultural war really heats up, you will see more people starting to define their cultural values or national identity, clarifying what they represent. Do we support knockoffs? Do we support those goods that circulate freely but are rejected? I think people living in Korea can feel the impact of this cultural war more directly. Korea is both an ally of the U.S. and borders China, viewing China as both a security threat and a trade partner. This cultural conflict is particularly evident in Korea and Taiwan.
Thoughts on Strategic Bitcoin Reserve (SBR)
Archie:
Jeff, when you previously mentioned the Strategic Bitcoin Reserve (SBR), you expressed some concerns about its prospects. Could you elaborate on your views?
Jeff Park:
I believe that the Strategic Bitcoin Reserve can become a very important tool at the right time, but I feel that now is not that time.
First, if the U.S. were to accept Bitcoin now, it could accelerate the decline of the dollar as the global reserve currency. Currently, the U.S. is not prepared to face such a change. Perhaps one day they will realize the need to reshape the monetary order, but clearly, now is not the best time.
Last year, I proposed a viewpoint exploring three conditions that a country must meet to purchase Bitcoin on its balance sheet.
First, the country cannot be a direct ally of the U.S. Because if a U.S. ally announces the establishment of a Bitcoin reserve, it would be seen as a rejection of the dollar, thus touching on core U.S. interests. Therefore, countries like Japan or South Korea are almost impossible to take such actions.
Archie:
So countries like Russia, Iran, or China might be more likely to establish Bitcoin reserves?
Jeff Park:
Yes, these countries have less connection to the U.S. financial system, so they can afford to take higher risks.
**The second important factor is that the country needs to have a supportive political stance towards cryptocurrencies, and its *demographic structure* needs to be relatively young.** Countries like Japan, which have a severely aging population, do not have cryptocurrency support as a popular political issue. In contrast, countries with younger populations may be more likely to see leaders who support cryptocurrencies.
Archie:
At the ordinary user level, we see that the earliest adopters of Bitcoin are often tech geeks or libertarians. Later, Bitcoin was gradually accepted by a broader user base. Can this be likened to the national level, where some smaller countries adopt Bitcoin first, followed by countries like Argentina?
Jeff Park:
From the current perspective, if the U.S. were to establish a Bitcoin reserve through an executive order, I think it would be of little significance. An executive order does not essentially represent the will of the people, and the next government could easily overturn it.
I believe the U.S. does not need to rush into action now. When the real timing comes, U.S. actions will have a tremendous global impact. Until then, ordinary investors should seize the opportunity to accumulate Bitcoin before sovereign nations take action.
Archie:
Do you think this is because young people are more interested in cryptocurrencies, or because they have a longer-term investment perspective?
Jeff Park:
I think it is mainly because young people are more inclined to support cryptocurrencies, while older individuals tend to be more conservative. If you want to win an election, appealing to cryptocurrency supporters could be an effective strategy. In this case, politicians are more likely to embrace cryptocurrencies and promote them as a means of value storage, even incorporating them into the national balance sheet.
Archie:
At the ordinary user level, early Bitcoin users were typically those with libertarian tendencies or technical backgrounds. Later, the first major application of Bitcoin appeared in underground markets like Silk Road. The users at that time were mostly "marginalized" and "outsiders," with some initially using Bitcoin to purchase goods, only to later discover its rising value and choose to hold it long-term. Over time, they gradually deepened their understanding of Bitcoin's philosophy and ultimately became staunch supporters.
I believe that at the national level, the adoption of Bitcoin may go through similar phased developments. Initially, it would be individual investors, followed by independent hedge funds. Now, in this cycle, we see Bitcoin being adopted more by corporations and institutions. Over time, the scale of investors is gradually expanding. I initially thought there would be a similar process at the national level, starting with countries like Bhutan and El Salvador, followed by G20 countries like Argentina. I think there has to be a transitional phase rather than jumping directly to a superpower like the U.S. Eighteen months ago, or even twelve months ago, this idea was hard to imagine. But now, it seems to be really happening, and the scale may be larger than we expected.
So, if the U.S. establishes a Strategic Bitcoin Reserve, what signal would that send to other countries?
Jeff Park:
I don't think it would send too many signals because if it is implemented through an executive order, it does not represent the will of the people. We need to distinguish between executive orders and policies established through legislation. For example, the Biden administration implemented ESG (Environmental, Social, and Governance) related policies through executive orders, but these policies were not widely accepted because they did not go through the legislative process. If the next government does not support these policies, they could be abolished. This is the limitation of executive orders.
I believe the U.S. cannot establish a Strategic Bitcoin Reserve alone because international alliances are interdependent. If a true strategic reserve is to be established, the U.S. needs to coordinate with its allies. For instance, the U.S. should notify its allies in advance and invite them to participate in this plan together. Many countries rely on U.S. assets, and if the U.S. acts unilaterally, it may provoke dissatisfaction among its allies. Take Japan as an example: if the U.S. decides to establish a Bitcoin reserve without notifying Japan in advance, Japan may feel overlooked or even offended. Such unilateral actions could disrupt the existing international monetary order, and such changes require multilateral cooperation to achieve.
Therefore, if there is indeed a plan to establish a Strategic Bitcoin Reserve, we would see more international cooperation and dialogue, rather than the current scattered unilateral actions. The current actions are more about catering to populist sentiments or electoral needs, but that is far from enough. To truly advance this plan, higher-level intentions and coordination are needed. I believe the U.S. has many concerns about the timing, so it is unlikely to take this path in the short term. The only situation that might change my view is if a strategic reserve is established through legislation and explicitly allows for the accumulation of Bitcoin; that would be a significant shift. But even so, convincing people to allocate resources to Bitcoin instead of other priorities remains a huge challenge.
Archie:
I mean accumulating Bitcoin, not just retaining Bitcoin seized through law enforcement actions.
Jeff Park:
In my view, the so-called executive strategic reserve is almost meaningless. It essentially does nothing but stipulates that you cannot sell the Bitcoin you already own.
Some may find comfort in this, but the reality is that Bitcoin's price has not risen due to the lack of selling pressure. People hope for widespread global participation, but that has not truly materialized. The U.S. does not need to do this now. In fact, I believe they should not do this because when the U.S. truly decides to incorporate Bitcoin into its balance sheet, it will be a massive change, and you will wake up the next day feeling the world's transformation. This feeling will be very strong, not like what you felt in January.
For ordinary investors, they should benefit as much as possible before nations take action, so I hope more people accumulate Bitcoin globally as individuals, and then when nations join in, they can all benefit, as the cost basis is also important. You want nations to intervene last because if you truly believe Bitcoin is a benefit for all, it should prioritize individualism over the state.
We all need to participate in advance. If Bitcoin reaches an unattainable price in 2025, while 80% of the global population has missed the opportunity to participate in this systemic change, it would be very regrettable. Therefore, I think this is not a big issue, but one day it will be, and we should all be prepared for it, but it will take longer than people imagine. Simply being a cryptocurrency enthusiast and lobbying in Washington is not enough because you will realize that the U.S. government has many other areas that need funding. This is actually part of the reason why, after that, cryptocurrencies have never really found a way back to the White House. How much effort did the industry put in to help elect the first cryptocurrency president, only to end up with very little?
Archie:
But there is no guarantee that Trump will win the election without a fairly effective political action committee's support, so even if this is all we get, it is still a significant victory and has changed the regulatory landscape.
We have ended the enforcement or so-called punitive regulatory regime through lawsuits, and we are getting more people who are open to this industry. I think the overall tone of the situation has changed, and even if no significant and concrete results have emerged from these decisions, I still believe the message being conveyed is positive. I think they gave Trump 90 days to take some action. We have not yet seen what the results will be, but I want to counter your point; I wouldn't even call it skepticism. I think you have made a very realistic summary of the situation. But what we are hearing is indeed a fairly strong message, such as the digital asset executive director coming out and saying we want to buy as much as possible. I don't know the difference between the digital asset executive director and the cryptocurrency czar, but they both seem very optimistic about the ambitions of the SBR.
How do you interpret these signals and messages?
Jeff Park:
I hold a reserved view on these perspectives, but this is my personal opinion. Of course, I am not saying my view is necessarily correct. I am just accustomed to starting from a key question: What are the incentives? Who benefits from this, and who does not? In my life, whether making decisions, trading, or judging uncertain outcomes, I always ask myself this question. Why would someone do this? What are their motivations? And why are we being told this information?
At this point in time, I agree that it would be a wise choice for the U.S. to start accumulating Bitcoin. I think this is challenging for the U.S., especially considering their current primary goal is to protect the sovereignty of the dollar. If a way can be found to combine Bitcoin with the dollar, such as through stablecoins, I think that is a feasible path. There is indeed some discussion about this. If a rational approach can be found to achieve a rational outcome, I would consider it more credible. But right now, such discussions have not really taken off. I feel that much of the current discussion about Bitcoin is more like a fantasy, lacking actual political feasibility.
There is another issue. When public officials openly support Bitcoin, they are actually in a very awkward position. I have seen many such examples in my career. As a public official, you cannot profit from the rise in Bitcoin prices like ordinary investors, but when prices fall, you bear all the responsibility, including reputational damage. If you are a rational person, you will realize that in this situation, you cannot privatize the gains but must socialize the losses. These losses include not only the economic losses to the state but also your personal reputational risk. Therefore, almost no one is willing to take the risk of becoming a scapegoat blamed for this decision.
Of course, anyone can freely express their opinions, but if you ask them whether they would be willing to sign off on purchasing Bitcoin when its price reaches, say, $100,000, would they truly take on that responsibility? Ultimately, the person who actually signs off on this decision and bears full responsibility will, to some extent, be seen as a hero, as most public officials cannot meet such a standard. This is also what I am waiting for: if there are public officials willing to truly take risks, rather than just talk, then we can really push this plan forward.
This also brings us back to the issue of legislation. If you can reflect the will of the people through legislation and clearly state that this is a result everyone collectively desires, then you will gain some political protection. But if you are merely pushing it through an executive order, you will not have that protection, and your reputation will suffer after a failure. Therefore, most smart people will not easily venture into such high-risk areas.
The Outlook for the Bitcoin Market and the Debate on Four-Year Cycles
Archie:
The current market seems to be in a consolidation phase, with little volatility, just fluctuating within a range. What do you think about the remaining time this year? Do you believe we are still in a cycle? Have you ever believed in the "four-year cycle" theory? Or do you think Bitcoin's movements are more driven by changes in liquidity?
Jeff Park:
Historically, the "four-year cycle" does have its rationale, and it is not directly related to other four-year cycle events in the world (like elections). Elections happen every four years, which is unrelated to Bitcoin; it is just part of the rhythm of our social life.
Additionally, there are cycles of credit expansion and contraction, which typically occur over four to seven years. However, in recent years, this cycle has become shorter, now usually happening within four years. This is closely related to the Federal Reserve's monetary policy. Of course, the Bitcoin halving event itself is also a unique factor.
However, I believe that over time, the impact of halving on Bitcoin's price will gradually diminish. As institutional investors join, Bitcoin is gradually becoming a global macro commodity asset. So, my view is that Bitcoin may no longer fully adhere to the "four-year cycle" model driven by halving in the future. If it still exhibits cyclicality, it will be more driven by macroeconomic factors. However, it is more likely that Bitcoin's movements will be determined by realized profits, unrealized profits and losses, and the pace of market adoption.
The launch of Bitcoin ETFs was once a significant capital inflow event when Bitcoin's price was between $50,000 and $60,000. For these investors, they will focus on the internal rate of return (IRR), which is their investment return over a period. If you buy in at $50,000 and the price rises to $100,000 a year later, you will make a substantial profit. If the price remains at the current level or even drops to $75,000 by the end of the year, then your return over two years is 50%, just meeting the two-year return threshold of 25%. In this case, investors may choose to sell because they need to justify the rationale for the trade and avoid the price dropping to $60,000, which would prevent them from meeting their return goals.
This is also why I believe $75,000 is a critical price point, as it may determine whether there will be a liquidity gap in the market. While we may briefly dip below this level, over time, the price floor will gradually rise, creating a new liquidity gap. This is an important indicator that needs to be closely monitored. To better predict market trends, we need to understand investors' cost bases and their potential behavior patterns.
Archie:
**What do you think about the current market phase? Do you feel the market is turning into a **bear market? What might this mean for the remaining time this year?
Jeff Park:
Let's start with the known facts. Currently, the trade deficit and chaos caused by war are intensifying. We know that in such situations, the winners are not Bitcoin, but gold. **If you believe this long-term trend of chaos will continue, then overall market volatility will be higher. The market has currently chosen gold as the primary means of value storage, which is why previous discussions about using Bitcoin as a strategic reserve seemed premature, as *the world has not yet accepted the concept of Bitcoin as an asset like gold.*
Before sovereign institutions intervene, Bitcoin needs to demonstrate its ability to surpass gold, especially as a popular asset, not just as an object of institutional investment.
Overall, if the volatility of other assets increases, this is unfavorable for Bitcoin. Those who choose Bitcoin typically value its volatility because they hope to leverage that volatility for higher returns. However, due to the highly developed financial markets, volatility itself has become an asset. If the volatility of the S&P 500 exceeds that of Bitcoin, most investors may prefer to trade the S&P 500 because it is more familiar, while Bitcoin remains unknown to many. Overall, this is unfavorable for Bitcoin. I believe this situation may persist in the foreseeable future.
Currently, the MOVE index (which measures bond market volatility) and the VIX index (which measures stock market volatility) remain high. At the same time, we see increasing instability in the liquidity market, especially regarding the spread between short-term interest rates and fund rates. In this context, "risk aversion" sentiment may have a greater negative impact on Bitcoin. Although Bitcoin has shown some non-correlation during certain time windows, over the longer term, when risk assets are generally sold off, Bitcoin's performance is usually poor. I believe this may occur in the coming months. Part of the reason is that the uncertainty surrounding the U.S. economic outlook has led to a pessimistic view on whether a recession will occur. Another reason is that I believe the Trump administration may take some measures to influence the stock market. For example, they may intervene in the bond market to lower the yield on 10-year Treasury bonds. Trump's primary concern is his personal economic interests, which are closely tied to commercial real estate. The current state of commercial real estate is very poor, and without lowering long-term interest rates, the market may worsen further. Therefore, Trump may create chaos to drive intervention. In this environment, the stock market may continue to fluctuate or even decline, which is not a good signal for Bitcoin.
I hold a slightly pessimistic view of the market. I believe the market will become more volatile, and Bitcoin's volatility has already decreased, especially in terms of upward speculation; the current skew of volatility is at a historical low. I believe it will be difficult for Bitcoin's volatility to even stay above 60. Every time the volatility exceeds 60, someone always sells related assets, causing the volatility to drop back to 54 or 55. This is a very low level of volatility for Bitcoin, and it is not a good signal.
There is also a phenomenon with Bitcoin that I call the "positive Vanna dynamic," where price and volatility are positively correlated. When Bitcoin's volatility is high, its attractiveness increases, which is one of Bitcoin's advantages. Gold, on the other hand, is more suited for long-term stable increases, which is the performance gold investors seek, but Bitcoin investors do not favor this pattern.
Archie:
If we compare Bitcoin and gold, gold's bull market has lasted for more than two years and has performed very strongly. If we look at their price trajectories, we can find some similarities. Although the absolute values of the increases are different, **Bitcoin's rise is intermittent: it rises rapidly in a short period, then stagnates at that level for a while, with some small fluctuations, before rising again. From the bottom of the last *bear market* to now, Bitcoin's price has basically experienced three stair-step increases, while gold's price has been more stable, gradual, and consistently growing.**
**You previously mentioned that chaos would lead to lower interest rates; does this imply a slowdown in economic growth? When the market becomes more volatile due to Trump's actions, is it because people believe the economy may enter a recession, thus forcing the Federal Reserve to lower interest rates? Because generally speaking, my understanding is that higher volatility leads to higher uncertainty, which in turn raises **capital costs.
Jeff Park:
The usual view is that the economy drives the market, but there are also those who believe that the market actually drives the economy. This trend is particularly important in the U.S., as American wealth largely depends on people's confidence and consumption ability. If asset prices do not rise but instead fall, this may suppress economic growth, as the decrease in wealth leads to a decline in confidence. Therefore, understanding the relationship between the economy and the market is key.
Moreover, the use of leverage in the modern financial system is very common, and the volatility of underlying assets (like bonds) has a significant impact on the overall stability of the financial system. If bond prices fall sharply, banks need to apply higher discounts to these assets, triggering a series of deleveraging operations that ultimately affect the stock market. This deleveraging can lead to more assets being sold off, creating a vicious cycle.
**Volatility is harmful not only because it brings uncertainty but also because it raises **capital costs. Once capital costs rise, investors need to sell assets to meet banks' collateral requirements, triggering a wave of sell-offs. This is why financial stability is crucial. If the stock market falls sharply, it will negatively impact other leveraged products and ultimately harm American consumption capacity. In this case, the Federal Reserve may take action to lower interest rates, and the Treasury may also introduce some special policy tools to inject liquidity into the market. Once these measures are implemented, it will be very beneficial for assets like Bitcoin, as this effectively prolongs the depreciation process of the current financial system, which may become a catalyst for Bitcoin's price increase.
I believe Bitcoin may benefit from some significant events, such as those that drive urgent outcomes and economic interventions. Recently, China has also taken similar measures, relaxing its foreign exchange bandwidth to devalue the yuan. This is essentially a form of monetary easing, but this approach is not what the U.S. desires, as it would export global deflation, which contradicts U.S. goals. For the U.S., a better scenario would be for China to use its public budget to stimulate domestic consumption, which is the traditional form of "printing money." This approach is more inflationary and more favorable for Bitcoin. I think these dynamics are very important.
Additionally, people often mention global M2 liquidity as an indicator for measuring Bitcoin's price movements. Generally speaking, if M2 liquidity increases, Bitcoin's price tends to rise, showing some leading or lagging relationship. However, the details are crucial, and the way global M2 liquidity grows is very important. There are many driving factors for liquidity growth, one of which is a weaker dollar. However, the current way the dollar is weakening is mainly through a trade war, which brings a generally negative economic outlook, so I am not sure whether this increase in liquidity is beneficial for Bitcoin.
Archie:
I noticed while observing the Dollar Index (DX.Y) that it sometimes seems to mark the beginning and end of market cycles, and Bitcoin sometimes aligns with these cycles, but there is no strict correlation between the two. For example, in the last cycle of the Dollar Index, when it hit bottom, Bitcoin reached its peak, and they do not move completely in sync within market cycles.
**I want to ask you about the intersection of two very important fields—one is Bitcoin, and the other is **AI. Do you think there will be interaction between them? Or how do you view their relationship?
Jeff Park:
I haven't thought deeply about the relationship between Bitcoin and AI. However, I have considered the combination of cryptocurrency and AI. Some core concepts related to Bitcoin, such as decentralization, censorship resistance, and permissionless networks, may find applications in the development of AI. Currently, the development model of AI is in a relatively ambiguous area regarding data privacy. I believe that more issues related to intellectual property may arise in the future, primarily stemming from the way AI training data is used.
In this context, cryptocurrency may provide better data ownership attributes, allowing data to flow freely while being tied to data creators or private individuals. This mechanism might help address the issue of excessive profit concentration in current AI models. While the applications of AI are extensive and hold great potential, this centralized model may not be the optimal choice, and there have been objections to it. I believe cryptocurrency could play a role in this area, helping to democratize data access.
Archie:
Are you referring to profit concentration, similar to how many tech platforms have compressed the revenues of media companies?
Jeff Park:
What I mean is, for example, recently people have been using ChatGPT to generate art images in the style of Ghibli, which may infringe on certain rights of Ghibli. Although Ghibli has contributed to promoting this cultural movement, they have not received any compensation for it. This is a complex issue because it is difficult to define the scope of intellectual property or trademark protection in art itself. For instance, great artists also imitate the styles of others, but this is also a form of creative energy.
Archie:
**This is indeed a form of imitation of a specific style or theme. What do you think about the conflict between *intellectual property* law and AI platforms? The use of AI has indeed become very widespread today.**
Jeff Park:
That is indeed the case. We can quickly draw some conclusions by asking, "Why do people do this?" which is a good way to think. However, I can also understand their perspective: **In reality, much of the so-called *intellectual property* has been privatized.** We need to distinguish between different types of intellectual property. For example, true intellectual property may be some scientific discoveries that require significant capital investment, thus needing protection to incentivize investment. But there are also trivial intellectual properties, such as those that the U.S. is known for with its trivial lawsuits and patents. An extreme example is that companies like Facebook have utilized a vast amount of data provided by users without compensating them for it. This is essentially at the core of social media algorithms.
From this perspective, you might understand Elon Musk's viewpoint: This data is indeed valuable, but it has been monetized by certain people in a way that ordinary users cannot receive returns, and it may never achieve ownership. Therefore, he might believe that instead of trying to solve the ownership issue, it is better to completely abandon the concept of viewing data as private property. This data is different from research-based intellectual property; I think when people discuss "intellectual property," they are actually referring more to personal privacy and related data.
Additionally, I believe cryptocurrency can play a role in this area. **Blockchain can leave an immutable record of actions and provide assurance for data ownership. If combined with an appropriate social contract, this mechanism can be used to protect data ownership. Therefore, I believe the first intersection between cryptocurrency and *AI* is likely to occur in the field of data ownership.**
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