How Trump's policies and tariffs could affect crypto markets

Transcript

GM good morning welcome to the milroad show The Daily crypto show that's as comforting as realizing that weird noise in your car well it fixed itself I'm your host Jay Hamilton and today we are joined by Christopher Cameron AKA paper Imperium on Twitter you probably be better know him as paper he is the governance lead at gfx Labs now if you don't know gfx labs gfx labs holds delegation in some of the largest projects in the space I'm talking about optimism arbitrum Unis Swap and more last year Chris sat on Grant committees that gave out probably in excess of $200 million to various projects so he really has his thumb on the pulse his finger on

the pulse of what is happening behind the scenes how what is going to come in the next year also he also really understands macro better than a lot of people so we're going to talk about macro we're going to talk about TR coming in next Monday oh baby big day what's what's Trump likely to do nobody has a crystal ball but we're going to look into that we're going to talk about tariffs what would be the impact of tariffs if Trump did that on markets and we'll get into a bunch of macro talk as well before we jump in we just take a moment to hear from our sponsors who make this show possible meet odos the defi aggregator that makes your token swap smarter faster and a whole lot easier tired of trading like it's 2019

odos finds the best prices for your swaps across 900 liquidity sources and 14 blockchains so you always get more bang for your crypto Buck whether you're swapping setting a limit order or just avoiding gas fees like the plague oos has you covered it's like having a genius Trader in your pocket minus the coffee addiction join 3 million wallets already using odos to power over six billion in monthly trades start making smarter swaps today at milroad docomo paper Chris I never know what to call you welcome back to the show thank you for having me it's always a pleasure to have you uh let's start with that the question that I know is on everybody's mind we're

sitting here we're three days out from Trump's inauguration the the energy and expectation amongst in within crypto is maybe a little bit too frothy to be honest because everybody's expecting he's going to come in and day one he's gonna say Bitcoin strategic Reserve or something and maybe he says something crazy but doesn't necessarily mean it happens on day one what's that isn't that crazy enough a Bitcoin strategic Reserve oh that would be insane that would be insane what what do you maybe not what do you expect because I don't I don't expect you to tell us exactly what Trump's gonna do nobody know I don't even think Trump knows what he's going to do on Monday but what are the different scenarios or hypotheticals of

what could happen once Trump takes office yeah so that's a great question so I I think we we should divide it up into executive and agency behavior and legislative Behavior so I I think they're very different and have one has more potential for both gains and losses than the others so I don't know which one you want to talk about first let's just go through the the list I love that you're breaking it up in this way so let's start with executive Behavior because that usually gets the biggest splash and has the most uh imp on media yeah so I think uh so we've already seen that Trump has suggested that he's going to pause any investigations in into crypto projects and litigation unless

they involve uh allegations of fraud so I think that's like a really good example of what the executive can do which is they can direct the agencies that work for them and at their pleasure they can direct them to prioritize or deprioritize certain types of enforcement actions Ru making Etc so I think we will see things be very different at The Regulators uh people always worry about the SEC the cftc these are the two that have generally litigated the most against decentralized projects but probably not see a big difference in how the doj and God forbid the IRS treats treats crypto cases so

this is I think lower risk and lower reward so on the the risk side there's just you know Trump has has just seems very crypto-friendly at least com comparatively to the Biden Administration which was absolutely hostile there's no other way to put it there's no comparison yeah I don't know that Biden himself could tell you tell you the difference between Bitcoin and and Dogecoin but the people working for him a lot of them did not like us let's just put it that way I just I distinctly remember some past conversations with former enforcement folks the SEC them regaling me with stories of going after like kids that launch like pizza coin or whatever to tip people and be like it

was easy so I think we can hopefully close the book on that chapter of Industry agency interactions so you know that's that's I think that's that's a bright spot that we can look forward to if nothing else even if there's not more regulatory clarity about the rules the taking the foot off the gas pedal on just suing everybody all the time means there's all there's that many more resources available for developers to build products and launch products and try to actually focus on providing value to users rather than defending themselves in court yeah please thank you very much

finally uh it's about time all of those superlatives uh let's talk about the legislative side any predictions of what might happen around the legislative side so I I will not make many explicit predictions but I will maybe issue some warnings and and uh advice so I think this is where there's a lot of opportunity but it's there be dragons this is off the map um because we this is new area we haven't been there before so I think there's an opportunity and this is why people should open up their wallets for the coin centers and defi education f and blockchain associations uh because they can get in there and have access to a

lot of these people uh and their staffers more importantly who actually write the legislation and so if we can get some regulation that's very sensible uh which in my book I would if if it were me if I were the king of Congress which doesn't exist and I were going to start legislating I would very much emphasize regulation around disclosures and and curing information asymmetry and not try to say what can or couldn't be done and burdening as particularly protocols that are actually software not just uh financial institution dressed up with a multisig you know protecting them from having to do some of these very honorous recordkeeping and policing

regulations like the bank secrecy Act is a great example I don't think we want you know liquid to have to figure out who you are and your address and Social Security number and things like that and then hang on to it somewhere uh think of all the dii apps you use you don't want all of them to even if there was a legitimate reason for them to collect all that information on you which I don't think there is you wouldn't want them all to have your information because then it's sitting in so many different places to be stolen so uh I think it there's a lot of potential for legislation that's smart but remember all regulation there's no such thing as as generic regulation there's good regulation and bad Reg regulation and we this is a chance to get good regulation

that's a light touch that protects users and consumers but not at the expense of grinding everyone into the dirt or turning the industry into a tool of the surveillance state so that's that's we can talk more about that if you want but you know I think one of the big dangers here that I want to warn against and that people should keep their eye on is now that we have the ear of these legislators and now now that there's this Avenue for legislation to be written and new laws to be passed and new rules written about those laws to implement them we need to be careful that incumbents don't pull the ladder up behind them and I say that because past

crypto legislation crypto related legislation from the last Congress uh and the one before that you know when I get asked to comment on legislation a lot people pass me drafts and say you know what do you think of this and some sometimes I am just really struck by how brazenly the some of the larger well-funded incumbents in our industry will advocate for things that are not good for everyone right that would entrench their position and I I don't I I don't want to be in the business of naming names on here about that because hopefully they'll behave well in the future and we can all be co-travelers on the same road but um like one of the wedge one of the wedges here that I see a lot is that

centralized crypto companies often are very good at getting the ear of these Elites but the things they advocate for are indeed Pro crypto but not pro defi for example and do do any of the decentralized companies have the ear of these legislators and of trump and maybe not Trump directly but Trump's office and supporters I mean they wouldn't be decentralized if they had companies um I mean yeah I mean what's a decentralized project like a da it's a loose Confederation of developers and contributors that are developing and marketing a piece of software right

that's it doesn't really lend itself to organized lobbying there are a few groups the only one that I know of that specifically focuses on uh defi is of course the defi education fund which was born out of a a large uniswap SW Grant originally you know I if you want something def5 specific that's a great place to start um the coin Center folks also do good work but I wouldn't characterize them as focusing purely on defi um so you just this is something people should keep their eye on the ball and particularly around things like staking and real world assets and stable coins in particular it's just it's very

easy for uh things that look and sound innocuous to legislators who are not domain experts to to think they're doing us a favor when perhaps they're not well one thing's for sure it'll definitely be a big shift from the past four years let's talk about tariffs because this is the big you know headline that keeps getting passed around and Trump keeps on hammering down that he's going to put in all these tariffs if we don't know if Trump's going to do tariffs and maybe you have thought and maybe you want to speculate but regardless what would if he does do tariffs I think the big question is like what would the impact be what would the

impact be on markets on us on crypto can you explain that to us yeah so let's let's kind of walk through what would happen if there were widespread meaningful tariffs I mean who knows maybe he he's all bark and no bite and he puts very high tariffs on like three things that most people don't use no big deal and then he can say say that he did it but let's assume the worst case scenario which is that there are large tariffs put on a wide array of goods that come from a wide array of countries so first let's think uh like what happens if uh America runs a large trade deficit that's why Trump sees this

and he thinks that's bad money is leaving the United States when I buy a Pokemon toll for my kids uh from Japan like I have given a dollar to some company in Japan that dollar has left the United States of course I get a good worth hopefully more than the dollar I to me or to my kids worth more than a dollar than what I spent or else I wouldn't have spent it but you know that's you know the these are there's a buyer and a seller but that's not how he's thinking about this he's thinking about in terms of the money this is very very like 1700s kind of thinking where people measure Meed the strength of countries and how much gold was inside of its borders never thinking about the fact that it's a shiny yellow Rock and

what you what's really useful for us the ability to go out and buy something else that is useful so setting that aside though let's follow that dollar all right so I gave a dollar to some you know eBay seller in Japan who sent me you know this toy for my children so what is that dollar going to do now you can't spend it in Japan right like they use yen so they're probably going to S realistically that person's probably going to take it to their bank or money changer or whoever and change that into Yen so who what are they going to do with it that bank well you know maybe they net it out against other people that want that want Yen that have dollars and they can kind of but the

whole point of a trade deficit is that there's more going in One Direction than the other so the dollars are piling up what are they going to do with well you can't really spend them elsewhere in most places but some places they make good stores value compared to local currency I don't know that Japan is necessarily one of those so so what do you do with that pile of dollars well that's going to end up being reinvested back in America because they're going to say well what can I use this dollar for they're either and if they've already found what they can buy and they's still dollars piling up they're then going to say what can I invest in because America has fantastic Capital markets that's we're we're blessed with it for all of our faults and uh we have the best Capital markets in the world so that

dollar is going to come back and it's going to be used to uh Venture fund or uh buy a bond or loan out to somebody a lot of it finds its way into the credit markets you know quite frankly that's the largest one it's the uh that's what drives the bus now let's assume there tariffs and that transaction never occurred I never bought the Pokemon toy for my kids uh instead I you know bought a different Pokemon toy inside the country from someone else that was more more expensive than what I would have paid but less expensive than what the tariffs okay so what happens the dollar stays in the US that person go like goes to the grocery store you know buy some cigarettes or beer you know whatever tacos I don't know gas in their car the

money stays inside America and where it can be used for consumer goods so what that means then there's less Capital coming in from foreign investment all right because the dollars are no longer piling up in Japan or wherever it doesn't have to be Japan I was just using it as an example that that stream of dollars is no longer coming back to be reinvested by buying treasuries or corporate bonds or whatever so what happens to the cost of money if there's fewer lenders the interest rates will go up right because there's fewer buyers of debt right so you got to remember for debt uh when you buy it as the price goes down the yield goes up assuming it's a fixed payment so the net effect of tariffs is higher

interest rates is where I'm this a long long explanation to get to following that dollar back and forth but the the the too long didn't read is that it exerts upward pressure on interest rates now are interest higher or lower interest rates generally better for crypto lower interest um because it allows for longer time Horizons the the cost of capital when it's cheaper you can make more longer term or speculative bets because just the cost of money is cheaper so higher interest rates are not good for crypto generally speaking because this is still a very speculative asset class there's this is not usually like super safe stuff people come here for high risk High returns so I I have a

hard time seeing a benefit to crypto from high tariffs perhaps if you're a stable coin lender higher rates are good for you in general because it will also bleed into you know the the stable coin rates you know yeah it does work self down to like aan compound in places like that as well for sure for sure now now just this kind of makes me think and thank you for explaining that in such a simple way to us tariffs just lead to higher interest rates in the end not immediately but in the end Trump's a real estate guy right he doesn't want higher interest rates so this makes this does do you think that tariffs are

actually going to happen then or is this more a tactic by Trump which he is known for doing of saying a lot putting a lot out there but you know really his his bark is much bigger than his bite in this case he's going to use it as leverage I think he can use it as leverage and it's a threat which is a tactic he uses when he's negotiating but is it likely that this is going to happen or is what do you think the likely scenario is here because I just feel like why would Trump want to create higher interest rates that doesn't feel like that's his style at all well I mean I think it's important to not there are lots of reasons both good and bad to impose tariffs and so if you're not thinking about interest rates but you're

thinking about something you feel to be more important then you know you you you may feel that the good outweighs the bad it could also be that he and those around him are not particularly financially literate but I I think the charitable answers that they feel there are counter counterweights that that more than offset that uh to the extent that they Implement anything so like a good example uh you know is like National Security right like if U you don't want let's take a really extreme example uh which is like are you familiar with the Opium Wars uh you know where the West was selling opium into China this is several hundred years ago you know and they were like no like that you know it wasn't a tariff they tried to ban the

trade in general but that's an example of well that was in their National Security interest not to have a bunch of poison being sold to their their populace yeah it can also you know around export and import controls around important components military technology advanced technology uh scarce natural resources and again sometimes these uh whether you think these reasons are valid kind of depends on where you sit but interest rates are not the only thing at play you know if you know Trump may also believe well maybe it's worth you know paper Imperium paying a a buck and a quarter for that Pokemon toy that he would have paid a dollar for because that's going into another American's pocket instead of uh you know some

seller in Japan who would then the dollar would find its way back into the credit Market The Faceless credit market and you know instead of financing government debt you know something like that so people can just have different priorities yeah which makes a ton of sense let's talk about the credit markets and treasury yields and a little bit more on what's going on in the macro side right now that's has been sort of impacting been a slow start to to the year right now that's not unusual for us to have a slow start after such a bull run last year a lot of people take profits in January and so that might have affected the markets but what's going on that you what are you looking

at when you look at the current macro setup in the macro regime yeah I mean I a lot of people have been I think disappointed that there have not been a long series of aggressive rate cuts out of the Federal Reserve I also would not anticipate them to cut rates if there are like a a lot of aggressive economic policies coming out of the Trump Administration uh if only just to see what effect they have before they themselves act but the crypto markets and the real money real world money markets are a lot more integrated than they used to be I think people don't you know really think about that but they're becoming more and more in sync with each other uh it's not just about asset prices it's about the flow

flow of money back and forth the easier it is to own an off-ramp money from crypto uh then the more um the the less likely it is that there's going to be large Arbitrage opportunities in rates so higher uh the the credit markets have generally been inching upwards uh when it comes to rates I think this is largely due to a supply uh issue I'm I'm not a credit expert so you know bear with me but just to my eye the the there's more and more government and other debt being issued same amount of buyers the buyers can get a better the buyers of the debt can get a better deal by demanding a higher rate because

there's just not enough of them to go around you this is like I say higher rates are not necessarily great for most of the crypto markets so you know it makes me I kind of have my eye on on on the the credit markets quite a bit now that being said crypto because it's so n this is actually perhaps maybe it'll be a blessing in disguise because that might be a way to Raft something other than zero to six-month T bills and bring it on chain in a way that then creates constant Capital flows into the crypto markets and provides stimulus that way kind of like all the different flavors of T bills do now so you think that it's possible that some of these credit

markets could get tokenized and that crypto people could want access to that I mean t bills being tokenized was sort of the the hot thing uh a year ago and we saw a little bit of that happening uh but generally people in crypto aren't interested in 5% return they want they want the big return they want to make the big the big gambles that's that's right um I think part of it this is kind of we maybe diverging from your original question but I think part of the struggle for the t- bill products has been uh that they're not very composable right so like if I have t- bills in my schwab or Fidelity or whatever account uh I can use them to secure margin uh it's there I can't really think of very many places in defi where I can take my

Biddle or superstate or open Eden and then borrow against it uh so you're kind of stuck with Buy and Hold which as you say is not you know at four and a half or whatever percent right now um not especially interesting um I mean even Even In traditional markets that's not especially interesting they're treasury bills they're like they're very low risk low duration I yeah but but to get more about the the the rising rates maybe that'll make for some Innovation with other products besides t- bills uh I don't have any inside information to share here but that would be wonderful to see something with longer duration than uh a few months begin to appear on

chain because it makes it really difficult to do things like lending at at fixed rates for fixed terms if you don't have a matching asset uh to pair that against you know people often ask well why can't I get a 12 Monon loan or or when can I get my mortgage on chain well you can't lend at a fixed rate until you unless you can match that against uh a deposit that's also uh you know fixed terms so you can't otherwise you get out over your skis and you get wrecked so like I think people saw the the the what was it usd0 Plus+ the the Stak usual thing people got blindsided by that because it's a four-year lockup

right and they were treating it like it was not and which ignores the time value of money if nothing else uh and people you know people had a bad time so there may also be some education needed in the crypto markets amongst users for things that you can't just unstake one block later yeah yeah for sure so what what are going back to to the the initial question when you say you're watching credits closely what are the catalysts or the things that you'll be watching for what are the movements that you want to see to feel good about 2025 and the macro environment and this everything bull cycle still being on yeah so if so

for the crypto markets and I want to stress that this would be bad for everyone else for the crypto markets I could see a scenario where higher rates that uh appear to be coming from inflation could be good uh because crypto markets repic block by block you know it tends to be good nominally for Equity markets as well and bad for things that repic on a much slower Cadence right which is why bonds are the worst place to be long-term bonds are the worst place to be if there's unexpected inflation so there's generally speaking to drivers of high rates you know if we're just painting with a very broad brush you know one is that productivity is higher and so that

Capital can just be put to more productive uses which then means there's more uses to lend out against and again there's a shortage of lenders for more uses right the other reason is could be because of inflation people need to borrow more because their costs are going up but again there's still the same amount of capital at least at the at the starting line uh to lend out so you know when we see you know mortgage rates and you know 10 20 30 year rates going up you know that could be because productivity is increasing you maybe AI or some new chemical process or you know whatever is increasing productivity across the board or it could be because uh it's it's lenders are demanding more

because they expect more inflation if it's higher rates because of high inflation then maybe High rates aren't quite so bad for for def5 and and crypto General right right yeah it's kind of a silver lining situation because it's it's bad for everything well it's good to it's always nice to have a silver lining in the the space that you're in and everybody listening here is certainly in crypto give us your thoughts on the rest of this year or the rest of this cycle like project out let's go a little bit further in our time Horizon here what are your thoughts on 20125 in this cycle are you bullish do you think that we're still in a good setup or are you sort of

tactically concerned what are your thoughts well again I'm not a Trader but um I think to lean into kind of the stuff that I know the most about I still firmly believe we have not seen the final boss of stable coins I don't think we've seen the winner like what will end up being the winter and maybe 2025 will be the year that we see it I I just I don't believe that any of the products out there right now are ultimately what what what's going to win the market uh you know real world assets I would love to see more what I would love to see is more Commodities and equities come on chain and particularly with a lighter regulatory touch perhaps that's possible I've always been kind of surprised that credit like T bills and things like and

private credit and things like that have been the first real world assets to see large use on chain just because credit's very hard like there's a lot of ways to lose money and your upside is very defined whereas with commodities and equities I think it would mesh well both with the uh you know I don't want to say degenerate but more adventuresome investors and Traders on out in defi so I I think that would be really interesting uh to you know be able to trade you know gold and oil and copper and whatnot uh on on your swap pool how cool would that sure great yeah it' be great and and it's definitely coming timelines don't know uh very difficult

to predict the timelines but it's definitely coming to talk to me a little bit more stable coins final boss of stable coins what do you what are your thoughts thoughts there unpack that a little bit more yeah I mean I think most of the large stable coins are not particularly compelling products when you look under the hood I mean we can go down the list uh if you want but I mean like tether like unless you're a very large user you don't really have very good rights or ability to access redemptions they are increasingly investing in more and more volatile stuff I mean their reserves are now partly backed by Bitcoin and gold you know these are not necessarily the things that I would want backing my stable coin but maybe it'll and let's

just be clear the reason they're the reason they're backing their reserves with Bitcoin and gold is because they want the profit from that correct like is that a is that a selfish reason they're doing that for the yeah yeah they don't want to just clip coupons yeah yeah I mean I mean to some extent this is what banks do too like they invest in slightly risk rier assets but the difference is you know tether doesn't get audited first of all so you don't even necessarily know for sure that there're they're solving I hope they hope they are I don't have specific reason to think that they're not um but it's just not great risk management perspective from the user perspective if I have a choice between you know tether and you know some better version where I

have I actually really think that the stable coins that are regulated by the New York Department of Financial Services these are the paxos coins you know like the uh usdp previously B USD which I think is only in Redemption mode now you can't mint anymore uh the you know the Gemini dollar like these are all the the PayPal dollar these are all like I think pretty good products unfortunately we we do have there is like a something in economics called gresham's law are you familiar with it for those who aren't it's the short version is bad money chases out the good right so it goes back to the days of when there were uh circulating at the same time gold coins and paper dollars

right so let's say I have a paper dollar and a gold dollar you know I I know that I have a dollar's worth of gold I don't know for sure that this paper dollar can for sure be turned in for a gold dollar so if I have a have to spend uh my money and both of them are accepted which one am I going to spend I'm G to spend the one I have less Faith them right I mean this is tether is a big beneficiary of this right but you know I you know USD even usdc I don't necessarily find their user protections especially compelling I mean I think it's a fine product I use it it's it's kind of the staple coin I probably use the most because it's accepted a lot of places it's integrated it's relatively safe but I do think

there are improvements that could be made for one thing tether and usdc don't forward much yield to people that's no yields do do you get any right yeah it's because they've got that moneyness right like you can transact them um do you think go ahead with dy I was gonna say Dy is kind of like in the middle it has some level of moneyness people don't demand super high yields it had uh it survived at one basis point savings rate for a long time I think even it's Peak Supply may have been back when it only had one basis point yield on it um and then everything else is basically a savings product right they're early in that adoption cycle they have to pay

people to hold it yeah do you think that H how much does US regulation will have how much will it have an impact on stable coins like the the big red herring to me here is like is it possible that a lot of people really say that xrp is going to be like the choice of America for the stable coin and there's this like bet that like okay that's the reason to invest in xrp is their Ripple stable coin you know I don't know Trump or somebody's gonna pick it and say yeah that's that's the one like is that I don't think that would happen is that is there a chance that that that's where this goes I mean I'm sure they would like that um I would

be really disappointed if we picked the winner uh yeah rather than establishing certain guidelines to get favorable treatment yeah I I would be very disappointed and remember that's what I I warned about for when we were talking about legislative risks and reward is that be careful nobody gets entrenched as is the incumbent pulls the ladder up behind them I mean that's why we're here because Banks did that um yes yeah we don't want that no okay let's hope that doesn't happen again uh paper just a pleasure to get you back on the show really appreciate your time as always and all of the work that you do in the space you're one of those guys that's doing so much work behind the scenes

that you know I feel like a lot of us crypto investors should uh maybe I don't know maybe send you send you some flowers or chocolates or you know some beer I don't know I don't know whatever you like we should all send that to you send me a muffin a muffin basket okay we'll send you a muffin basket with some milk to go along with it because milk goes great with muffins thanks so much for joining us again today everybody listening in really appreciate you guys we'll see you next Monday for Trump's inauguration get ready for that one it's going to be a big episode have a wicked awesome weekend as always if you liked today's episode please hit subscribe and make sure you follow us so you don't miss out on the next one there's also a link in the description to our free 5 minute

daily newsletter where we simplify crypto for you while making you laugh and if you're willing to step up your crypto investing game we're going to also leave a link for milk Road Pro you get access to our portfolio where you can see exactly what we are buying this is your number one resource to help you invest successfully in crypto one final note this show is for educational purposes only and nothing we say is financial if investing in crypto or any asset is risky and you should never invest more than you can afford to lose thanks so much for listening in my friends have a wicked awesome day