Cooling US economy, falling rates and the race for stablecoins

Transcript

GM good morning welcome to the milk Road show the crypto show that drops daily hits hotter than an early 2000 mixtape I'm your host Jay Hamilton and today we're talking about the outlook for the US economy we'll be reviewing inflation numbers and a few other bullish indicators that are making us very excited for the future and that's not all we're also going to be talking about what this means for crypto and why this is getting us really excited about stable coins which also had some big news this week here to guide us today is Kyle reidhead milroad co-owner and head of research Kai let's start with the very positive news we got early in the week when drone pal spoke about the US economy what did he say yeah so pal he

said a bunch of things but really what he said was it's no longer overheated which is exactly what we want right when things are no longer overheated it means that well it's going the opposite direction which means we're either going to start printing money or it allows us to start lowering rates probably both but this exactly what we've been saying is going to happen and really if you look at the leading indicators it's been happening the FED just tends to look at lagging indicators unfortunately and so he's saying the obvious to to most of us well it's always nice to be reaffirmed and hear the obvious from chair Jerome Powell but that's not all that happened on Tuesday then today we got CPI inflation numbers what happened there yeah so inflation continues to go down I know a lot of people continue to

think it's the sticky struggle strugling thing but inflation fell down to 3% which it was at 3.4% the good news here is the expectations were for it to come lower at 3.1 but it was even more than what the analysts who always get it wrong anyway and I don't know why we still care but what they expected and then core CPI the one that we really like to look at fell as well down from from 3.4% last inflation number they expected it to stay the same at 3.4 and it also went down to 3.3 if we look at some of the charts it's quite interesting if first just CPI 3% we've been kind of going from three back up to 3.7 and then sort of bouncing in between but we did you're sort of you're on a one year right now but if we back out

that chart a little bit you can see that it hit 3% at one point you can hit the fivey year there yeah and you can see back in I think it was June actually of last year we also hit 3% and then it sort of went up uh and around from that it's right there and and so we've just sort of ranged and now it looks like probably we're going to break through that and go much low well I don't know what much lower but we'll probably go lower if not we can hang around 3% it's not that bad there's a chance that we just stay here and the FED is going to change the goal post and their goal's always been under 2% maybe we don't get that maybe we're somewhere in between two and three it's really not that big of a deal considering how fast the the

markets and everything else is is growing so we can beat this 2% by investing in basically anything if you look at the stock market of the last years and then core inflation which is the key thing this is what we really want and this is the one that's sort of been lagging that has just been falling and falling and falling over the last year currently it's at 3.3 this is great to see and I think we'll just continue to see that if you zoom out to the 5year Chart it's quite interesting to see this one it's just down only since like late 2022 um I just find it wild people can continue to be afraid of inflation when it's just literally been down every single month for almost two years now like what are we talking about guys this isn't 2021 2022 anymore it's 2024 let's

move on inflation is dead and I'll tell you right now which is the section we're GNA get into next I'm just going to ruin it for everyone the FED is going to cut there's just no doubt in my mind now the Fed this cut is coming o Kyle's calling it Kyle's calling the fed's cutting let's see what everyone else is predicting here Kai yeah so we're looking at a chart here of the predictions of when the FED will cut well this one's actually willly cut in September so what we have is they'll make a decision here in July if they'll cut I think it's on the 25th maybe of July something like that well here there's like a 90 it was a 95% chance that they won't cut in July I think that moved down to 92 so not a big move I kind of think they might actually cut

and so I'm probably more bullish on this than than most we'll see but the the reason most people think it comes in September is because they don't have a decision to make in August I think it skips that month just because the way that it's spread out and so early September they make a decision currently sitting at 82% that went up from what was it earlier just like earlier today can you hover over top of that there around 60 yeah 65% jumped to 80 whatever percent and then if you look at earlier back in June it was like below 50% so people are noticing I think the market is noticing that hey the economy is slowing down and it's time for the US to finally start lowering rates and so I think we'll see a few cuts by the end of this year and what happens if these Cuts

happen in July what would you expect or in September what would you expect the outcome to be so yeah here's the thing people are worried about the moment that they cut what you really need to look for is when does the market decide that the FED is going to cut and they start to price it in it's not about when they actually make the moves it's when the does the market decide to price in those moves and so markets are usually 6 months to 9 months ahead of what's really happening in the real world and a lot of people forget that and so to me it's very obvious that the FED will cut whether it's July or September I don't care I think the markets will price that in before they actually do it and so people always try to like buy and sell based off of like what the inflation

number is or what the you know rate news is on that day and it's like yo it's probably already priced in unless it's like a complete surprise like the ETF approval we had randomly like last month but generally the market is pretty good at sniffing this stuff out and pricing them in so look it's it's obviously very bullish if if rates go down you know more when rates go down people have more Capital to spend like my mortgage went down $65 and when Canada moved down the rates like 2.25 basis points you know what I mean like like nothing so it matters and when it goes you know we're currently at like 5% I think we'll I don't think we'll go back to like zero rates like we were in 2021 and 2020 but I think we'll get much lower and so

there's a lot of rate cuts to come and so we have not priced that in just yet at least not in crypto in the like equities markets like they have just been ripping day over day over day at alltime highs and so like yeah they're pricing this in already for sure crypto has not mainly because what we talked about on Monday Germany selling us potentially selling Mount gax refunds just a lot of supply overhanging issues there okay so positive news US economy is looking really good and that is going to benefit all of us in crypto when that gets priced in don't not sure that it's priced in yet but it's probably coming ahead of September 82% chance that rate cut happens in September which would be very good and very likely how does all

of this news affect crypto on a wider scale what does it look like for us first US economy not looking good is more I mean actually it doesn't look that bad but typically it's like okay we're lowering rates because the economy is looking bad but in terms of markets it looks good however what's interesting about this time is the economy doesn't look that bad right it doesn't look great we're not you know 2021 just absolutely booming and that's what causes the overheating it's coming down it's not like super recessionary or like you know financial crisis 2008 you know unemployment's going up but it's not that bad so it's like it's the soft Landing the FED said they were going to do like they've actually kind of nailed

it and so like whether that was drone Powell actually doing it whether it was pure luck or whether it's like a and here's a conspiracy the you know the president what's happening soon we've got the election coming up and all of a sudden everything's coming together all at once what like a couple months just before the election what do you think Biden's going to do in a month from now like Hey we're lowering rates inflation's back down to 2% like was our goal the economy's doing well unemployment's low like look at me I'm the greatest presid of all time right so like it seems to all be working at like at that exact time it's very I don't know weird to me I'm not a conspiracy guy so I don't know but either way what this means is you know when we're going to lower rates likely we're going to add

liquidity into the market because when it's not overheating it's actually cooling we actually need to heat it back up at some point and so what does that mean well assets go up right we're going to debase the currency and assets are going to go up we're already seeing it in equities Market even gold is doing quite well we already said crypto's kind of being held down a little bit but I think whenever that's done which by the way the Germans are are very close to finishing up all their Bitcoin that they're selling and so I think it's we're weeks away from markets really turning in crypto and and so the lower that we raise rates this more Capital people have the less expensive it is to take out extra Capital take out loans and whatever and so every time in a rate cut cycle environment assets do really

well and so on that side yes we've been talking about that forever so I think that's really good the other thing that I think people aren't necessarily pricing it or aren't necessarily seeing is so there's an interesting Dynamic here there's a lot of capital that are in us treasuries right now like trillions I believe that are sitting there getting a 5% yield which is amazing they've had you know however many years now almost to be able to do that and that doesn't happen very often we don't have rates this High very often we used to in like the 70s and stuff but not these days and so getting yield is quite hard in the traditional world and we don't often get it from governments because well they're not profitable countries right central banks are not generally profitable they're actually very much in debt and so unless rates

are high which they can't do for very long they can't give out a really good yield and so as these rates go down a lot of that money that's in there which is trillions of dollars is going to be looking for a place to find yield right not all that is going to go into like Bitcoin or crypto or equities because you know holding cash and getting three four five per yield is very different than like hey I'm gonna hold this super volatile asset and like go super risk on right some will go that way but a small percent but a bunch of that's gonna go okay where can I find my three four five per yield now and they're not going to be able to get that in the traditional world at least not at low risk because rates might go I don't know 3% 2%

whatever that is but what's interesting is this is the first time where we actually have a real yield that exists somewhere else and that's not in the US market or in traditional like Central Bank markets it's on chain right you can go use maker right now you can go use Athena right now hold the dollar that's backed by a dollar and you can get real yield on it and Athena's like I don't know 10 20 30% apis and maker is 8% and the interesting thing about these yields is that they don't come from just some random old dude telling you what the price of money is and what the rates are going to be they come from real revenues right so the US can't do that because they don't actually have profit but maker can because they actually have profit to give out that yield Athena can

because they actually have profit to give out that yield now Athena's yield comes from open interest which does even better during bull markets so as rates go lower there's going to be more open interest more leverage which means and Athena is not leverage but that's how they make their money basically which means there'll probably be even more yields as rates go down from Athena and makeer similar and so there is this real yield scenario higher than what you can get today that exists on chain now will trillions of money like in the real world come to that definitely not of course there's more risk with maker or with atha than you know holding a US Treasury but I think some will you know I don't know how much will but there's without a doubt there's multiple reasons to move your dollars on chain one of

that is yield another is just the cost the other opportunities you can have and so I think that while we're already seeing a massive let's call it like a bull run in stable coins right they've gone up a ton this year so far I think as rates go down it actually is just going to play in our favor and we're going to see even more 27 trillion approximately currently in us treasuries so we'll take a few of those we we don't need to get much to move the crypto Market we get a little piece of 27 trillion we'll take a tenth of that and that's literally doubling our entire ecosystem so our entire industry actually even I think we're way lower than 2.7 trillion at this point so even less wild so stable coins are as you mentioned are heating up right now a lot

of news coming out about sable coins this week let me just give you a couple of the big headlines that came out this week first up py USD has had a big month their market cap has gone up almost 100% they're sitting around 535 million market cap now that's seventh globally in terms of the ranking of stable coins and what's interesting is the bulk of that growth is happening on salana and as if that's not enough also this week usdc joined the action and on salana as well and they printed 750 million usdc on salana this week so stable coins growing rapidly as you said Kyle what does this news say to you about where

we're at right now yeah I mean a couple things here I think I think there's a race for stable coin accumulation amongst blockchains and probably applications as well and the reason I say that is if you think about a competitive Advantage right now it's like what is the one use case that we know for sure has product Market fit and is working and is growing and like is 100% the future of Finance well that's stable coins like that one is pretty much wrapped up it's guarantee we got that and so if I'm a a blockchain right or I'm a business that you know is on top of a blockchain what do I want to accumulate I want to accumulate the one asset that I know is going to be here for sure right I could accumulate some other asset of like whatever token but like is that use case really going to

exist that token really going to do well like I don't know I know stable coins are and so I think right now that the blockchains that start to accumulate the most stable coins and the way they'll do that is is one they get the issuers like Circle and and others PayPal Etc and they get them on board but they also build the ux around it so that people actually want to use it on that chain right so stablecoin has stripe has Visa Etc so like they're building the ux the infrastructure around those stable coins and so of course that means if they can really do that well and get the wallets stable coins are going to go there they're going to flood that way because there's a way to actually use them and so I think there's sort of a race for like who can acquire the most stable coins

right now and the interesting thing is whenever we think of crypto we think of you know you need this asset that does really well and you need volumes on on a deck and whatever but I actually think like stable you can have a blockchain that's just stable coins and it will perform extremely extremely well like it could become the biggest blockchain that we see today right if it just has millions of users using stable coins transacting and there's no speculation there necessarily although if you have stable coins people are going to build defi protocols around it and so for me it's like this is the first asset I think you just want to really get on your chain and I think we're seeing salana really lean into the stable coin payment side of things ethereum and Tron are the two biggest in terms of stable

coins ethereum is growing again but it's it's kind of slow and and they're not back at alltime highs Tron has just been growing since day one they never really had a strong pullback it's just up up up up and up and that's because Asia really uses usdt and they're doing that all on Tron so Tron is the example of what I'm saying of like a blockchain that's basically built around stable coins and they are succeeding they're printing revenues over on Tron they're getting they have millions of users that you're using their stable coins and there's applications being built around that and so I think that's a huge deal if you go to the other chart you can see these smaller ecosystems that are kind of growing here the key one to see is I mean Bas has had a massive run in the last couple months and then salana

basically just printed a billion dollars in stable coins in the last four days which is wild and they're doing it through Circle who's about to be a public company in the US and they're doing it through PayPal one of the biggest fintech companies in the world so for anyone that's fading to me that's just like wow that's insanely insanely bullish and I think we're going to see these are numbers that I'm really keeping my eyes on because I think it's going to be a big race over the next I don't know 12 18 months whatever that is like even when the bare Market comes whenever that is in two years I see no reason why this slows down I think we'll just really be picking up at that point and when you look at these charts and for those listening we're looking at two charts of stable coin Supply across

blockchains when you look at these what does it say to you from an investment perspective yeah good question one it just sends a signal that hey blockchain's working right there's a use case here it is growing very very fast and and to me it's just like invest in the secular trend of crypto because we're obviously have something of product Market fit every secondy before this we never had it nfts were not a product Market fit I don't care what anyone says not in the sense of like the nfts we were buying last year they were just more came along because rates were zero and everyone had a bunch of money and whatever and so it wasn't really Pro Fit when def came around like yes it is product Market fit Now sort of not really in the real world but like it didn't back in defi summer it was just

people were farming tokens and playing around and whatever icos all those were trash so like we've always had ideas and things that could come true and now we we actually have one and so it's like okay we're here you know it's like whenever the internet got its first thing whatever it was that I think it was like Napster basically like pirating music was like the first product Market fit for the Internet it's like that's what stable coins is to to crypto it's like one it's like okay the secular trend has begun uh and then it's like okay what chains are the ones that are accumulating the most stable coins and getting activity around those well maybe I want to invest in that underlying asset right or maybe I want to invest in the protocols that are issuing those tokens now I can't invest in circle I

could invest in PayPal actually if you wanted to I don't do that but they have been their stock has been beat up so maybe it's a good idea coinbase owns Circle and so you could invest in coinbase as sort of an indirect play for that or as I mentioned Athena maker they could be ones that do really really well when rates go lower because they will be the spot to get yield on your dollars how well they do I'm not sure but I'm quite bullish on them and so that's your other way of of getting exposure to the stable coin space fantastic thanks Kai That's not the only news that came out though we saw some more news around stable coins pop up this morning from stalking about usdc from Jeremy air the CEO and founder of usdc what was he selling us yeah so one of the reasons

stable coins I mean what's what's crazy is we're talking about how big stable coins are growing and how fast they're growing but they still don't have regulation at least in the US and not only regulation they actually there's lawsuits against stable coin providers like paxos which is a you know pretty much a regulated company that helps companies launch stable coins and they have been getting sued by the SEC so they've been trying to fight this whatever's been going on there and and so that actually holds back stable coin growth so like we could have way more growth than we're currently having if we just had Clarity in regulation and we didn't have these lawsuits well we found out this morning that the SEC has dropped the case and so we have some regular regulatory Clarity around payment stable coins payments is money they're not Securities I don't know why

the SEC is trying to say that stable coins are securities it's just ridiculous literally is just a rapper that tracks a dollar and its whole purpose is to stay at a dollar so like how could this be a security this is just the SEC another I don't know if it's necessarily you call it a loss but pretty much a loss and a big step for crypto regulation stable coin reg regulation story in the US I don't know that this changes everything right away but I think this is like one of the dominoes that needs to fall for the rest of the things to come and when we get clear regulation on stable coins and companies and institutions whether that be like Financial companies or just corporations in general know that they can hold this stuff and use this stuff it's just going to be game over like I

don't think people realize how fast stable coins will grow I mean you just said there's 27 trillion in US Treasures right now now they're not coming in crypto because of Regulation and stuff but when that gets cleared up there's a lot of that's coming in and that is just so massive yeah that 20 7 trillion stops getting yield BEC on their treasuries because rates go down which as you said is coming later this year and they're sitting there saying hey we can get more yield over here what do you think they're going to do they're going to move over there but so long as they're not worried about regulation and so long as the ux is good for them to do that and they feel comfortable doing that and moving their money on chain which as you said slowly but surely and then all of a

sudden things are looking good things are looking up Kai the of using a bank is not that great either so I don't think we need to do much to get a better ux in in crypto payments or in just holding dollars in general man I hate calling me I actually have a thing I need to do with my bank that I've just been putting off for like two weeks because I just don't want to call them because I'm like why do I have to call you and why is it going to take two hours to speak to you so we don't have to do much on the ux side let's set the bar higher let's set the bar higher the Milkman expects us to produce better milk for the whole world you know we can do better we can do better Kai thanks so much for joining us

again today in case you missed it here's what else happened in crypto news today but first ever wish your crypto apps played nicely together like your favorite web apps agoric is making that a reality our partners agoric are building a seamless D5 future and the coolest part it's all powered by JavaScript web two languages that's right the language you already know can unlock the future potential of web 3 head over to Ag gor.com and join AG gor's Early Access has programed to start building the decentralized future big news out of Goldman Sachs today Goldman Sachs plans to launch three tokenization products by the end of 2024 these products will be

geared towards institutional clients in the US and Europe while specific details are under wraps one product will be a Marketplace for tokenized real world assets the bank also aims to Target the fund complex in the US and European debt markets Goldman Sachs sites major uptick in client interest and the rise of Bitcoin ETFs as the driving factors the bank will focus on permissioned blockchains emphasizing speed and collateral options for its rwa Marketplace that's all the news for today folks thanks so much for listening in have yourselves a wicked awesome day thank you for listening to milroad radio the easiest path to get smarter about crypto if you like this episode share it

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