Michael Howell on global liquidity and why Bitcoin is rising

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show where markets are so dry even tumble weeds are holding cash on the sidelines. I'm your host Jay Hamilton. It's Tuesday, April. Oh no, sorry. It's Wednesday, April the 30th. Gez, I'm slow this morning. We are live. What's up everybody? We're on X on YouTube. Great to see y'all. Today we are very excited to be joined once again by Michael Howell, CEO of Crossber Capital, a global research firm focused on monitoring credit liquidity and capital flows in over 90 countries around the world. When Michael speaks, everybody listens and for good reason, because Michael is able to explain what drives markets better than most. It's

not what you read in the textbook. It's not what you're taught in school. It is changing because over the last 30 years, Marxes have been driven much differently than they have in the past as a result of accumulating debt. And we're going to explain all of that. We're also going to talk about the current liquidity situation. Where does Michael see tensions in the financial system? What's the impact of the trade war? What's going on over in China? Investors are de-risking in the US. What does that mean? And how does this all line up for your investment portfolio? and what is the outlook for gold and Bitcoin, both of which Michael is quite bullish on right now. Before we jump in and hear from Michael, if you guys want to hang

out with myself and the Milkro team every day, join us on our Telegram group. You can hit the link in the show notes and chat with us on a daily basis. Today's episode is brought to you by Letin Get Cash without selling your Bitcoin. It's also brought to you by Coin Shift, powering top crypto treasuries with their yield bearing stable coin, CSUSDL. Michael, welcome back to the Milk Road Show. Jay, pleasure to be here. Looking forward to it. Always always a pleasure to have you. Uh thank you so much for your time today in advance. Uh let's start with um I want to start zoom out.

I want to start with your overall liquidity framework. You've been doing a lot of thinking, especially this year, but over your entire career about what moves markets and recently you've been doing a lot of talking about what's the endgame of this liquidity and debt cycle that we find ourselves in. Where does this all lead? Let's let's zoom out and start with in your view, what is the most important factor in capital markets right now? Well, I think without question, the most important factor is is liquidity. Um, and there's a whole host of reasons for that, but basically, uh, it really comes down fundamentally to the fact that we're living in a a debt driven world, uh, where economic growth increasingly

rests on, um, increments of debt um, fueling whether it be capital spending or more particularly consumer spending, but economies being driven by debt more and more and more. There's less underlying productivity growth as many of us are sort of realizing um, over time. Um and in a debt driven world the fact is that debt has to be refinanced. U debt is not there permanently. Uh it has a term and that term is probably on average about 5 to six years and it's that five to six year maturity term which really governs what we think of as the global equality cycle. Uh that cycle fluctuates with that uh that frequency uh which pretty much you know aligns

with the uh average maturity of world debt. Now, if you are going to tell me that world debt is suddenly going to reverse in uh in size, in other words, the pool of debt is going to shrink over the next 20 years, well, I come quietly and say, well, liquidity is going to disappear and we ought to be dumping all these assets like Bitcoin and gold. Uh I don't happen to believe that's true. Uh I think the fact is that um you know the pressures on mandatory spending, mandatory fiscal spending, whether it be Medicare, Social Security, increased defense spending or whatever, what whatever uh is going to push up the federal deficit uh over the long term.

It's going to increase the stock of debt and that debt basically needs to be um refinanced and you need balance sheet capacity to do that. Balance sheet capacity is my definition of liquidity or balance sheet capacity in the financial sector is a definition of liquidity and therefore that means that the debt liquidity ratio uh over time uh has got has got to remain stable for financial stability reasons and therefore as debt goes up liquidity goes up and if liquidity goes up that's monetary inflation and if you got monetary inflation you want monetary inflation hedges of which gold and bitcoin are pretty decent candidates.

And that's really the essence of the view. So the real question is is in an environment where you've got prospectively um debt growth uh of something like maybe 7 to 8% which is besting GDP growth by two or three percentage points a year. Uh you've got debt growth of that magnitude that's kind of writ large in stone because of as I say mandatory spending commitments by the federal government uh in the US. But I mean, let's extend this globally. It's true worldwide as well. Uh, if you've got that situation, you're going to have to have similar rates of expansion of liquidity. So, if you've got monetary inflation running at rates of 7 to 8% peranom, you've really got to ask which

asset should I own which are going to basically keep pace. And I think the, you know, the short answer is the ones that have done well over the last 20 years, they're going to keep going. uh you don't want to get a lot of mileage out of fixed income markets unless yields suddenly spike higher uh to that sort of 7 to 8% level. But that would be uh disastrous for economic growth. Uh and governments couldn't let that happen. So uh rule that one out. You don't want to be in bonds. You want to be in monetary hedge, monetary inflation hedges. That means gold, that means Bitcoin, that means prime residential real estate, that means good quality equities. uh those are the ones that typically perform and you know as I've long said I mean just take a very very

simple benchmark uh in from year 2000 to date uh the stock of uh US federal government debt marketable debt has increased by almost 10fold uh so you know it's now 28 trillion marketable debt that is um back in um back in year 2000 it was about 2.8 8 trillion. So we've seen a huge increase. But over that time span, the value of gold has gone up by about 12 times. So gold has easily matched that expansion in debt.

And Bitcoin's gone up even more, but clearly from a from a tiny base. Uh but we know that historically Bitcoin is a very good u you know uh follower of the trending global liquidity. Okay. So much to unpack and dive into uh there and I want to chat about Bitcoin, but we'll get to that later in the show. First, I I want to take a look at your outlook for the rest of 2025. It has been a tumultuous year for markets and there is headline risk and uh risk uh geopolitical risk and macro risk that we have not seen uh in a while which brings into question where things will lead uh

which I know is a difficult question to answer right now. Uh but if you were to step back and give us an overview of what you are most paying attention to and what your outlook is for the rest of 2025, can you walk us through that? Yeah, it's not like it's not inconceivable that the second quarter could see a continuing rebound of markets. That that's possible. Um because they basically got into a situation uh about a month ago when they were seriously oversold. I think that that's fairly clear. So you would expect some reaction, some bounce and that that may continue. Um liquidity conditions right now are not too bad. Um I fully accept that although one's got to

recognize that that's kind of coming through for technical reasons. Uh US Fed liquidity has been quite buoyant of late but that's largely because of the debt ceiling and the fact that the Fed has run down uh the Treasury General accounts. So there's been uh liquidity which has been pumped into into markets uh temporarily uh to pay the government bill uh you know where they couldn't use fix the fixed income markets to do that. So that's a fairly artificial and short-lived uh feature. However, you've got on the other side which we can dig into later. China is actually opening the money taps pretty hard right now.

There's a lot of liquidity being thrown at the system by China. And you know it it's our view that there's a deliberate devaluation of the Chinese yuan going on in the background. Uh and that is being reflected in particular in the gold market you know as we speak or has been. So I think that there you know there are uh there are sort of pros and cons about the liquidity outlook uh you know over the over the short term but probably you know more positive um short term than not. uh if you go beyond the second quarter and you start delving into third quarter, fourth quarter, I think there's much bigger problems of foot and those problems really rest on two things. One is that the Federal Reserve itself seems very stubborn um in terms of what it

intends to do about its balance sheet. Federal Reserve is still talking about shrinking its balance sheet further which in my view is madness. Uh because uh basically balance sheet policy or concern over the financial plumbing is now a really key element of of central bank policy has to be uh they've got to keep the system intact and keep it flowing. Uh so that's that's you know something we learned very clearly after 2008. We learned that again in 2019 with the repo crisis. We learned that again in the 2020 COVID emergency. So, you know, central banks have got to be there and QE uh is an essential part of their toolkit and we think we're running out of uh you know, liquidity in or

prospectively in US money markets come the second half of the year because the TGA, the Treasury General account will have to be in all likelihood rebuilt to its target levels which probably sit something like 3 to 400 billion above where we are now. So that's yeah clearly something to to bear in mind. Uh the other issue which is looming um is the prospect of recession in the US uh or more particularly let's say recession in the world economy in which the US will also be a casualty and that is something that ought not to be dismissed. It may not transpire that we actually get a recession but we're certainly getting a very sharp slowdown in growth and the even if we avoid the recession or skirt

recession the fact is that that big growth slowdown uh is going to be something which affects the credit markets adversely and already you're starting to see credit spreads blowing up. Now the reason that this is an issue and I can demonstrate with a with a slide that you can maybe slip up which I'll put up which is uh a slide which is a little bit further in the presentation about number seven I think I sent you which looks at the structure of here the world financial system. Now, this is getting a little bit in the weeds, I admit, but it may be illustrative or educational to look at this to basically see how the world financial system has evolved uh in the last 20 years since the global financial crisis. And what it

really says is at the heart of the system, right in the center of that diagram, uh is a pool of collateral. And between the pool of collateral and global liquidity is the repo markets. And the repo markets are basically a form of lending, securitized lending, uh that is really the creator of most credit in the world economy. Something like 80% of all lending now is collateral based in some form. Whether that's home mortgages in the traditional sense of uh you know backing a loan with a with real estate collateral or whether it's a loan in financial markets where hedge fund is doing a basis trade where they're posting collateral in the form of uh US treasury bonds. uh collateral is a critical element. Now the point

about that diagram is that number one the repo market is kind of the heart of the system or the heartbeat of the system and you need a functioning repo market and as I've indicated kind of just to the right of that. Uh who oversees that is increasingly the Fed or central banks operating as what you might say is dealer of the last resort. they've got to act in markets now rather than going through the channels of normal discount window lending to uh regulated banks, high street banks. And the other point is that if you look at the collateral pool that is shown there is the box in the middle of that diagram the collateral pool traditionally has been very skewed towards public debt instruments like US treasuries which were always deemed pristine collateral

and they've started to shift increasingly into private debt instruments like collateralized loan obligations and that's been done for reasons of regulatory arbitrage because the bank or the treasury market or whatever has been more tightly regulated and so you get the seepage outside of the system. And what that means is quite uh you know in straightforward terms is that the system is a lot more procyclical now than it really ever has been. And so if you get a recession, private credit will sour, in other words, it will potentially default. Um the value will will start to deteriorate. uh market volatility may jump which causes haircuts on a

diminished pool of liquidity to shrink or sorry the haircuts to increase. So the effective collateral shrinks even faster and so what you start to see is the collateral base of the system basically starting to tumble and repo market starting to get feel a lot of tensions. Now if you start to look at what is going on and I think the maybe the uh the next slide uh may do that or the next two slides will do that. What they show is number one this is an indication of bond market volatility.

Now that slide shows a lot of elevation in volatility. So you can see from the chart that I've drawn, the normal zone uh is shown as that gray shaded area and we've broken out of that very clearly and we're now in a heightened uh period of volatility and we're dancing around what I've illustrated there as a danger zone when you know the system starts to break down when it gets significantly above about 150. Now for ease of interpretation you can treat that 150 as being basically 15% uh annualized volatility in the bond markets across the term structure um you know on an annual basis uh whereas the normal range

is nearer or normal level is normally about 7% or 70 on the index. So you can see we're at sort of double levels of volatility which is unhelpful and that will mean bigger collateral haircuts. The other problem which is uh shown on the following slide is that you're already starting to see tensions as a result in the collap in the repo markets and this chart is monitoring the sofa fed fund spread which is giving you an idea of growing tensions. Now the point is that that spread should be within the tram lines uh or somewhere near the lower tram line. uh it's basically been trading since the middle of last year towards the upper end of the trend line and has frequently

breached that trend line uh which is showing that you've got refinancing difficulties because sofa rates uh system overnight funding rate is above fed funds targets and the sofa rate is the key market rate in the system. Um, so you can see there are problems emerging and this looks to me like a trend. Uh, and therefore the Fed has got to do something about it. Uh, I want to I want to continue down this conversation of the the Fed and what we think they might do. But first, I just want to take a step back for a second because I really want to make sure that everybody understands your view on how liquidity impacts financial crisis. And uh you wrote a

post recently on your Substack. Everybody should go read it. We'll link to you in the show notes because it'll really help you understand this in great detail. Uh but you quoted your your argument here is the ultimate cause of all financial crisis always remains the lack of liquidity as compared to the tendency of modern credit systems to overaccumulate debt. Crisises are always and everywhere debt refinancing crisises. In other words, they concern the inability to roll over huge piles of debt. And if I go to uh let me find the slide here. This slide really explains this. Well, can you walk us through this so we all understand this concept clearly? Sure Jay um let me do that. Uh and also say there is a substack another

sub subsequent substack which is actually um uh in front of the pay wall. So it's free. It's a free view which gives an outline of this whole global liquidity philosophy and it goes into some of those things in a little bit more detail. Uh but that's like a one-off to educate people that are interested in liquidity. This uh chart is basically saying uh it's measuring the debt liquidity ratio in the world economy. Now, what we're really arguing here is that basically debt needs to be refinanced. And if you're refinancing debt, you need liquidity, balance sheet capacity, in other words, in the financial sector to do it. And the debt

liquidity ratio is really something you need to pay attention to. Now, uh those that want to drill into this data, we do adjust the debt data for flow. So we're actually looking at the effective amount of debt that is being uh posted each year to be refinanced in this case. So in other words, it takes into account changing maturity. It's it's normalized for that. Now if you get a very high debt liquidity ratio um such as occurred in 9798 or occurred during the time of the Leman crisis or the Euroan banking crisis what you find is that you get refinancing tensions and those refinancing tensions have their vent in the crisis. So every one of those past crises that occurred high levels of the

debt liquidity ratio. So in other words refinancing is difficult. So that tries to make the case that every financial crisis is a refinancing crisis. And then if you look at the other side of that dotted line which is the mean value, what you find there is that uh you get um asset bubbles uh when liquidity is way above required uh liquidity for debt rollovers. So a very low debt liquidity ratio means you get an asset bubble. And you can see where we've just come out of uh the cryptocurrency boom or what you might get the everything bubble where you had a very very low ratio. And that low ratio was because number one central banks used liquidity as a as a policy tool uh particularly after 2008 and

certainly after COVID they injected lots of liquidity and the other factor was that zero interest rates which were employed uh again uh through these crisis periods encouraged uh many borrowers to term out their debt. Um so they pushed the debt they refinanced the debt and termed it out to basically five years five to six years on. So we're talking about late 2025 uh 26 27 maybe 28. Uh that window is when a lot of this debt is going to come back into the system to need refinancing and that will absorb liquidity and that's the reason that line in the projection period starts to go from uh bottom the bottom of the page to the middle of the page.

Okay, I want to jump to let me find it quickly. Uh the liquidity cycle and where we are right now and then I want to talk about is is it up if the Fed is going to save us. Uh oh, I actually don't know if Oh, there. No, no. Oh, there it is. There it is. Um, so you've you've you've found that we follow this 65month liquidity cycle. This has been backed up by external research as well from cycles.org. So it is it has been fairly proven that we are in this 65 months liquidity cycle and that markets move according to this liquidity cycle. Where are we right now

in liquidity cycle? Is liquidity drying up? And then I think that will naturally lead to this conversation of what is what is the Fed going to do or are they handcuffed? What are their options and how will they react? Okay. Well, the the current reading um is about 50 or there or thereabouts. U there's been a lot of volatility over the last uh few months. That volatility is caused entirely by China. So if you took China out of the data, there'd be a much smoother incline in that line. The reason that China has been uh volatile is that they've been operating a stopgo policy uh in terms of their monetary accommodation and that stopgo policy has really been dictated

by strength or weakness in the Chinese UR. So when the dollar was very strong in the fourth quarter, they had to take a lot of liquidity out of the system. Now the dollar has weakened, they can put a lot more back and we can evidence a little bit later in the slide the amount of liquidity that China is injecting. What we've also done on that chart is to project forward um that liquidity cycle. Now there are two things to say about that. Number one is that um our projections would uh suggest that it peaks at a lower level than the peak that we saw in 202122. Okay. Uh in the last cycle and there are reasons for that. Um but the main reason is that the world economy

in that period the COVID emergency basically ab absolutely crashed and central banks had to come come in with elacrity and with size to actually inject all of liquidity back into the system and a very very slow economy basically uh doesn't need liquidity so it throws it back to financial markets. So you kind of got a double whammy. Uh lower demand for liquidity and much increased supply and that causes that liquidity cycle there to spike upwards. The um we factored in uh a recession uh in the world economy uh a mild recession I'd have to say. We've factored in u an assumption that says that oil prices which are another u drag

on liquidity basically drift up slightly. uh we've put in the fact that we uh we also assume that you've got a slightly weaker dollar but you got to remember that the dollar is still fairly robust over a two or three year view. though you know we're not looking at a radically weak dollar uh in looking forward. Uh and the other factor which sort of impinges on this is that bond volatility or the value of collateral which is another input into this system is actually elevated and doesn't seem like at the moment it's going to come down. So that's negative. So you got a number of positives and negatives. Uh the main big positive uh is the people's bank of China. The main big negative at

the moment is the federal or the main big question mark is the Federal Reserve. But on paper, the Federal Reserve is slated to withdraw liquidity out of the system uh in the second half of the year. So that explains a lot of the durations that you're getting in that in that system. But you know, basically we originally envisioned that the um cycle would peak in the second half of 2025. We think the peak may come a little bit later now because there may well be easing by central banks over the rest of this year or over the latter part of the year um you know to try and uh revive uh stagnant or slowing economies and that's maybe the change now what do you want to do in terms of

risk assets uh well my view is that yeah I wouldn't want to be too exposed to risk assets now because there is so much uncertainty about the credit markets and about uh the state of the economy and therefore I'd prefer to keep my powder dry. But as soon as the central banks start to ease liquidity, um what you would uh what you should be doing is moving back again. And I think the long-term picture is crystal clear here is that the only thing they can really or realistically do is to expand liquidity again to revive the system, which is monitor inflation, which basically lends itself to pushing out gold and bitcoin in the medium term.

What would the Fed need to I mean one of the one of the challenges as you mentioned is uh a I wouldn't necessarily say unclear policy from the Fed but as you said right now their policy is saying no QE in the near term. So do you think they will change their policy or what would they need to see in order to expand or do you think it's just inevitable and they're playing the political game and holding their their cards close to their chest right now? Well, I think if you look at I mean I I'll say two things. I mean um if you there's a chart um I think about three or four slides on from that which actually looks at the the Fed balance

sheet and more strictly the growth of Fed liquidity. The Fed liquidity was a concept that we came up with a few years ago uh which is trying to look at the active parts of the Fed balance sheet and this really comes back to uh a lot of the work that was done at Salomon Brothers back in the 80s and 90s on Fed watching and it looks at the active parts of what the Fed balance sheet was is really doing. So in other words, the balance sheet per se is not necessarily all liquidity creating. Only certain elements of it actually add liquidity to money markets. Uh some of them withdraw liquidity uh such as the TGA will withdraw liquidity. The reverse repo account will withdraw liquidity if they're rising. And so we need to take

that into account. So an expanding balance sheet isn't necessarily uh positive or not always positive liquidity. What this shows is the active part of the balance sheet, the liquidity creating part. This is showing the growth rate, the volatility in that chart is in the projection period is all about the run the debt ceiling, the rundown, the rebuild of the TGA, uh the April 15th tax, uh you know tax day, uh all these things come into it, uh additional seasonality in terms of spending uh by the federal government, uh etc. But it basically shows that you know in the second half of this year the Federal Reserve is slated on current policies and uh announcements to actually withdraw liquidity from the

system. That doesn't look realistic. Uh what I've shown in the little window there is a chart from the TBACK publication, the Treasury Borrowing Advisory Committee publication for Q4, which is basically illustrating what um TA Bank members are assuming happens to the Fed balance sheet uh over the medium term. And as you can see there, that looks remarkably different, very different again. Uh and that has to be the most realistic option out there. Now, I don't think this is really necessarily intended as a forecast, but it gives certainly a working assumption.

That's what they're expecting will happen. That's what I expect to happen, but it's not happening yet. And it may be politics. I mean, why would JPAL now stand up and say he's going to expand liquidity? U yeah. Yeah. It's it certainly feels it feels very much like it's a Trump verse battle that's happening right now behind the scenes. Uh let's talk about China. So, as you said, China is the biggest injector of liquidity right now. There's also before we actually talk about liquidity in China. Um, you you mentioned at the beginning of the show that China has been purposely devaluing the Juan uh against real assets like gold.

Uh, are they do you believe that they are doing this on purpose? Can you explain this to us and what the implications are for the trade war right now? Yeah. Um if you take a look a little bit later the slide around n uh slide 18 that one uses flipped past. There we go. Yeah. Which is looking at a rolling um six month sum of uh liquidity injections into Chinese money markets.

Um it's seasonally adjusted. The rolling sum uh is trying to smooth the data because it can be highly volatile. But it basically shows what the Chinese have been doing um basically through the back end of 2024 when they took a lot of liquidity out and more recently with them injecting liquidity back in again. Now the sharpness of the policy change is probably evident from that but if it's not evident the following chart gives you a real uh you know a clearer heads up to that and what it basically shows is uh daily operations by the people's bank and I think you've got some indication of a change since the beginning of the year. Uh this is daily

data and what it shows is a couple of big spikes but the latest spike is happening around the end of end of April. I mean this is latest data as of today and what you can see is a lot of liquidity being thrown back at the system. Now why is China doing this? It could easily be because the economy is skiing. I mean the export numbers were clearly pretty terrible the latest set of set of reports. Um and that's understandable and the economy is clearly going to suffer in that regard and China needs to offset that. But I think the other thing is shown by the following slide which is looking at the debt liquidity ratio of China and this is putting it into a longerterm perspective. Now the debt liquidity

ratio of China contrary to what you're seeing on average in the world is actually elevated. In other words, there's too much debt relative to liquidity. uh the debt we know the story full well that China has taken on a huge amount of debt uh in terms of its uh economic growth in the last uh two decades the liquidity story has already been impaired by the fact that the Chinese authorities have been withdrawing liquidity because of the weakness in the Chinese yuan and they've been trying to maintain at least a stable yuan against the dollar seemingly um our view was that to get out of the debt problems uh that China had they need to get that debt liquidity ratio at

least back to an equilibrium level the dotted line which would require an expansion of liquidity of about 30%. So the entire Chinese liquidity stock has to go up by 30%. Uh they're beginning that journey uh or they're maybe well into that journey. Um the uh consequence of that has got to be a weaker currency uh in some form. But what we were trying to argue is if you look at the following slide, what that illustrates is the yuan, the Chinese currency, Chinese yuan against the US dollar in black and against the gold price uh in yuan terms in orange. Now, um we think that what China really needs

to do is not necessarily devalue the yuan against the US dollar because it's obviously pretty competitive. uh that must be self-evident given the huge trade surplus. Uh it wouldn't help if they uh if they weaken the yuan against the dollar. Um but they may need to weaken it against other currencies and certainly they need to weaken it against real assets. Now real assets are really the uh the bane of the or the overvaluation of real assets. uh it's the bane of China not least because uh debt is uh held against that uh uh those real assets and uh you know people fully realize that a lot of that real those real assets are worthless because of the

debt uh the debt burden they they face. So what China needs to do is to devalue paper money against those real assets and gold is a real asset. So gold may well be a decent benchmark of what is going on, maybe a lead indicator, but it shows what they're trying to do. Now um back in um 2022, the beginning, sorry, beginning of 23, I think actually uh the gold price in yuan was about 11,000 yuan per ounce of gold. Uh it's currently uh around 25,000. So the yuan gold price has more than doubled over this period. And maybe China is doing this, you know, uh,

through devaluation through a backdoor means via the gold market. But, you know, it it tells us something is going on. Now, the Shanghai gold exchange has really come from nowhere to be the dominant market worldwide. Since the 19th century, the London gold market has really been the main price setter, but that is no longer true. Uh, the Shanghai exchange now trades at a consistent premium to London, showing there is an ongoing bid. uh for uh gold from Asia and that is likely to persist in my view. But if you triangulate these two numbers and you say well okay let's assume you stick at 7.3 yuan US dollar cross and and of course by the way there are capital controls which mean that

it's not really a a true exchange rate paper the cross rate is not really a true exchange rate very much managed but human stays at 7.3 and you keep that 25 26,000 target for the gold price uh which is what we originally which we envisioned originally uh you get back to a level of uh US dollar gold of about 3,600 and that's we're not far away from that. Uh in fact we've almost tested that level. So, you know, while I would suggest that gold is not going to keep its current pace up, you know, on a day-to-day or week-toeek basis, I mean, clearly there'll be a pullback. The fact is the trend is higher and you've got to think about what China is doing and

China's monetization of actually driving that gold price upwards. Now, if the gold price goes up over the long term, um, Bitcoin is going to go up. And that's exactly where I want to get into next is your outlook for Bitcoin. Before we do, we just need to take a quick minute to hear from our sponsors who make this show possible. Selling your Bitcoin should be a last resort when you need cash. That's why there's Lein, the trusted platform for Bitcoin backed loans. You can unlock cash in as little as 18 hours with no monthly interest payments and no pen prepayment penalties. They've issued over 9 billion in loans and have ever lost a single Satoshi of client funds

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treasuries on chain, including A, Gitcoin, and hundreds of leading institutions, CYCSUL is gaining traction at milkroad.com/coinshift. All right, we're back. Uh, Michael, let's shift to to Bitcoin. What's what's your outlook on Bitcoin in this current market? I think if you shift to the very last slide that probably you know nails our view in terms of what what's going on and there's a pie chart there which is basically a uh aical analysis of what goes into driving Bitcoin. This is looking at the systematic influences on Bitcoin. It basically is uh it derives from uh uh a

vector auto regression model analysis of weekly data since 2015. It isolates systematic influences. It shows that global liquidity is the dominant slice of that pie. Uh I mean clearly there are random elements which are coming on top but these are the systematic influences. Uh that would say that if liquidity is rising over the medium term that's that's a key element. Then you've got investor risk appetite at just over 20%. Now what that really is in straightforward terms is to say well that's something like you know Bitcoin correlates with NASDAQ. So risk appetite is moving upwards. Bitcoin is going to get a further uh impetus if risk appetite is going down as it has done uh

marketkedly you know since January 1 or since certainly since uh uh middle of the first quarter uh you get a big downdraft in uh in NASDAQ and Bitcoin. So that's a negative influence. By the way, that risk appetite element is not does not feature uh in the influences on gold. So gold is a pure liquidity play. And then you've got two other elements at the bottom uh which look a little bit complicated at first first sight uh which is the gold to bitcoin ratio and the gold price itself. Now why is there that sort of rather odd mixture of those two factors? uh mathematically those two slices make up what is called uh mathematically at least an error

correction model. What that error correction system is uh defining in straightforward terms is the fact that Bitcoin and gold correlate positively and strongly over the long term, but they could negatively correlate in the short term. And that's exactly what's been going on lately. So if you look at what happened in Q4, Bitcoin was very strong, gold was weak. Q1 gold was very strong, Bitcoin was weak. Uh and now you're sitting on reversal again. Bitcoin's catching up. So it's a little bit like, you know, um somebody, you know, uh leading uh having a dog on a leash and the dog runs off and you race after it and then you have to start pulling the dog uh when it decides it wants to go in another direction. And

that's pretty much what happens. But in the long term, um the the owner and the and the pet move in the same direction. Uh and that's pretty much what's going on there. So all those influence are going to tell me that number one if you think the risk appetite mean reverse which it will do uh that's clearly a tick over the medium term. If global liquidity is going up which it is that's a tick over the medium term. If you think the gold uh the gold uh relationship is going to be positive long term which I do uh that's going up and we know that gold is a very good monetary inflation hedge. Uh and what's more, gold is being purchased uh by Asian central banks. People's Bank of China bought bought again last month. Uh

and this is a long-term trend. In the short term, you know, what's going to happen to global liquidity? Well, it may muscle on a bit more in the short term, but we're near a peak. Um, the gold market's run on a long way, but it could pull back, but that isn't necessarily a negative in the short term for Bitcoin. And risk appetite, well, you know, who knows? A recession may force that down again. So, you've got a choppy market. And as we say, I mean, we think that uh this is a trader market, not really an investment market right now, but you know, if I look forward 12 months, u I think you can definitely buy on weakness.

Would you expect to see Bitcoin back down in the 70s or at all-time highs first? Well, I think the answer is uh I would I would doubt if you're going to get to all-time highs this run. Um I may be proved wrong what I would doubt. I think the risk of pull a pull back towards the 70,000s is real but I think that's much more uh I would venture a sort of midyear maybe Q33 event depending on the depth of of US recession if it transpires. I we don't really don't know. We never been down this this track before. Um, you know, the the fact is that the tariff uncertainty is, you know, it's certainly affecting demand in

China, but the real fact is it's affecting supply in the US economy. It's easier to change your your demand uh back uh than it is to change your supply, your suppliers, and that may mean that the US economy is disrupted um you know, in a way that we can't really envision at the moment. Michael, truly greatly appreciate your time and you breaking this all down for us. It's uh nice to get such a uh such a wellressearched and well thoughtout approach to markets uh that is very insightful and different than most people who tell us to look at interest rates and think about it in the old ways. Thanks for joining us today, Michael. Great pleasure. Thanks, J.

Thanks for listening in everybody. Have yourselves a wicked awesome day. I need to remind you nothing in today's show was financial advice. You should do your own research and invest with your own risk appetite. Remember that investing in Bitcoin, gold, or any asset is risky and you should take on only the risk you are willing to take on. With that being said, we hope to see you guys back again tomorrow on the Milk Road Show. Thanks for tuning in everybody. Have yourselves a wicked awesome day.