Byron Gilliam

Nathaniel Whittemore

The Breakdown

Bitcoin just notched a new all-time high, but this time, there’s no mania, no frenzy—just a shrug. NLW breaks down the weirdest ATH in Bitcoin’s history, why it happened without a clear catalyst, and what it says about BTC’s shifting role in the global financial system. Plus, a look at Japan’s spiraling bond market, rising U.S. fiscal fears, and what it all means for safe haven assets. Is Bitcoin finally decoupling—or are we just seeing the early signs of a bigger credit event?
 
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Bitcoin Hits All-Time High — But Nobody Seems to Care

Bitcoin hovers just below a new all-time high, with traders bracing for a potential liquidation cascade and analysts divided on what comes next. NLW explores whether upcoming catalysts—ranging from a Trump meme coin gala to SEC regulatory shifts—could break the stalemate. Plus: Robinhood’s big tokenization push, Kraken’s global derivatives expansion, and political fallout from meme coins in Washington and Buenos Aires.
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Bitcoin Inches Toward History as Politics, Policy, and Memecoins Collide

In a major breakthrough for crypto legislation, the U.S. Senate voted 66-32 to advance the Genius Act—marking the most significant step yet toward stablecoin regulation. NLW breaks down what flipped Democratic support, why Elizabeth Warren fought to the bitter end, and what’s next as the bill moves toward a final vote. Plus, Circle is reportedly exploring a $5B sale instead of going public, raising new questions about the future of USDC, its partnership with Coinbase, and the impact of looming regulation.
 
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Senate Clears Stablecoin Bill Hurdle 

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Missionaries build better products.”



— Jeff Bezos
</blockquote>



Q: Do we need a new internet?



The business model that populated the world wide web with information was straightforward: create content, attract traffic, sell ads.



Now, however, you can often get better, aggregated information from a large language model, which sends a bot to visit those same websites on your behalf.&nbsp;



Soon, most traffic on the web will be bots and therefore impervious to ads (and tragically uninterested in subscribing to newsletters).



This might break the web’s business model: The best search results now come from AI language models, but those AIs get their information from human-written content that may soon cease to exist if its creators can’t get paid.



(Side note: Please click the ads on this webpage.)



As more web traffic becomes &#8220;agentic&#8221; — i.e., automated, machine-based and impervious to monetization — the entire incentive structure for populating the web with information begins to unravel.



Ben Thompson, however, <a href="https://stratechery.com/2025/the-agentic-web-and-original-sin/">proposes</a> an ambitious solution: Create an all-new web economy in which AI agents pay for the information they retrieve — with crypto!



Thompson believes it’s possible to “build an entirely new marketplace for content” but that this would require a new protocol layer that includes “a mechanism for payments via digital currency, i.e., stablecoins.”&nbsp;



Unlike existing web protocols, this new protocol would allow language model providers like OpenAI to “build an auction mechanism that pays out content sources based on the frequency with which they are cited in AI answers.”



This, Thompson says, is the “best possible way to not only keep the web alive, but also in the process create better and more useful AI.”



Creating such an “agentic” version of the world wide web — with internet-native payments — is no small task, however.



Thompson is enthusiastic about “MCP as a protocol layer” (a kind of machine-to-machine version of HTTP) and “NLWeb as a markup layer” (a kind of HTML for language models).&nbsp;



It took years for HTTP and HTML to become the global standard for web traffic, so I’m not sure we’ll be seeing MCP and NLWeb anytime soon.



But if we do, crypto will have a new mission: saving the internet.



Q: Is crypto straying too far from things of value?&nbsp;



In a recent <a href="https://youtu.be/477qF6QNSvc?si=JC2qJNDr65oWrO2v&amp;t=9823">discussion</a> with Epic Games founder Tim Sweeney, Lex Fridman notes that crypto is a “really powerful technology,” but also “frustrating” because “so many people use it to try to make money — to create these bubbles, and the hype and the memecoins — [that it] drifts far away…from things that are of value.”&nbsp;



A lot of people, even within crypto, share his frustration — mostly because memecoins still account for such a high percentage of crypto activity and mindshare.&nbsp;



(Real Bitcoiners don’t even approve of Ethereum, let alone Fartcoin.)



But Fridman has a rather memecoin-y definition of value himself: “How your outfit looks in Fortnite provably holds value.”&nbsp;



Exactly! Part of crypto’s promise is that it allows you to own that outfit instead of just borrowing it from Epic Games.



But to own something digitally, it has to be tradeable and that invites speculation.&nbsp;



Fridman seems unhappy with this — he wants crypto to create “a standard definition of money” but not “let it become this hype thing.”



It’s a fine line to walk (and if you want the “thing” to be permissionless, an impossible one).



“People try to buy and sell to make money instead of staying close to the thing that actually has value,” Fridman, whose five-hour podcasts must make him quite a lot of money, complains.&nbsp;



“Forget the money,” he advises. “It’s more about exchanging valuable experiences.”&nbsp;&nbsp;



Buying and selling things is a time-honored way to earn money, of course.



But, that aside, how do you make “valuable experiences” exchangeable without allowing people to buy and sell them?



You probably can’t: Making everything tradeable makes everything speculative.



I think that’s a feature of crypto, but a lot of people understandably think it&#8217;s a flaw.



Q: Is Trump bad for crypto?



There have been pluses and minuses.



On the plus side, bitcoin made another all-time high today, the SEC has flipped from enemy to advocate, crypto industry legal fees must be down about 99%, stablecoins may soon be legally recognized and we might even get a market structure bill at some point.



But that doesn&#8217;t really capture the sea change of perception we’ve lived through: The Economist noted <a href="https://www.economist.com/briefing/2025/05/15/the-crypto-industry-is-suddenly-at-the-heart-of-american-politics">last week</a> that the crypto industry “suddenly finds itself at the heart of American public life” — kind of an astonishing thing to read.



Unfortunately, they didn’t mean that as a plus.



Instead, The Economist warns that “the Trump family’s crypto frenzy is making it harder for the industry to win sufficient support in Congress” and that “Mr. Trump’s enthusiasm for crypto may end up doing the industry more harm than good.”



I’m not sure how it’d quantify “more harm than good” because its argument is mostly about politics and there would be far less political support for crypto had Trump lost the election.



But I do wonder whether crypto might ultimately have been better off if it had been forced to develop in a hostile environment — we might have ended up with more censorship-resistance and fewer memecoins.



Counterfactuals are impossible to prove, of course, but it’s not inconceivable that The Economist is right — and that single-issue crypto voters may have voted the wrong way.



Q: Do ideals matter in crypto anymore?



It feels less mission-driven these days: Centralized exchanges, centralized stablecoins, bitcoin “treasury companies,” BlackRock ETFs — the biggest drivers of crypto have strayed a long way from Bitcoin’s cypherpunk roots.&nbsp;



“Bitcoin was supposed to be the rebellion,” one <a href="https://open.substack.com/pub/mensmercatus/p/the-great-bitcoin-copy-machine?utm_source=share&amp;utm_medium=android&amp;r=3qcul">blogger</a> sums up. “Instead, it&#8217;s being re-engineered by ‘The Empire.’”



But maybe the rebellion’s mission is just changing?



Crypto used to be more about building permissionless software and disintermediating dark-side middlemen like central banks and social media companies.&nbsp;



Now it&#8217;s more about permissionlessly building startups that make money.



Instead of the old emphasis on DeFi legos, where cooperative composability was the goal, we now have fierce competition — like pump.fun building an exchange to capture Raydium’s profits and Raydium building a launchpad to capture pump.fun’s profits.



This isn’t necessarily bad, it&#8217;s just different.



Or better, if you like startups. “Crypto is very different today,” <a href="https://youtu.be/61O5345QUgU?si=9iJ1za6ctCMYOU9_">Ryan Connor approvingly says</a>. “Crypto has legitimate builders who are commercially oriented, who are non-ideological.”



Non-ideological is good in his book: “In the past, you had people who had to maximally decentralize everything and didn’t have a history of building successful startups or did not have that Web2 orientation that really matters for winning markets.”



Web2 is supposed to be the bad guy, I know.



But this is the normal evolution of a nascent industry — like when Red Hat jumpstarted an industry of for-profit businesses built on top of open-source Linux.



In crypto, old school ideologues can continue building open-source, decentralized and censorship-resistant apps and blockchains — and newer startup types can build businesses on top of them.



(See yesterday’s <a href="https://blockworks-research.beehiiv.com/p/money-without-gatekeepers?_bhlid=6eefe643d0e92030153b124eb21795b271a45bc8&amp;utm_campaign=money-without-gatekeepers&amp;utm_medium=newsletter&amp;utm_source=blockworks-research.beehiiv.com">0xResearch newsletter</a> for an example of people still doing ideological things, like attempting to reinvent money.)



There might also be a happy medium to be found here because, as Jeff Bezos says, “missionaries build the best products.”&nbsp;



I’d argue that you don&#8217;t have to be a cypherpunk to build in crypto but that you do have to believe in something — even if that something is just a marketable product.



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<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



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The Breakdown Newsletter

Thursday Mailbag: Micropayments, digital value and mission-driven crypto

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<hr class="wp-block-separator has-alpha-channel-opacity"/>



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved.”&nbsp;



— Robert Lucas, 2003
</blockquote>



I’m old enough to remember when people thought recessions might not be a thing anymore.&nbsp;



By the early 2000s, economists like Robert Lucas and Alan Greenspan argued that traditional recessions, in which a cyclical decline in demand led to a shrinking economy, were becoming an endangered species: less frequently seen and less dangerous when they were.



This was known as “The Great Moderation,” but just as the idea was catching on, it was seemingly discredited by the “Great Recession.”&nbsp;



There was nothing moderate about the 2008 recession: Peak to trough, US GDP fell 4.3%, the largest decline since World War II.



That should not have discredited the moderation thesis, however, because the Great Recession is more accurately known as the Great Financial Crisis — a financial own-goal that had little to do with macroeconomics.



Nearly two decades later, the US still hasn’t experienced a recession in “the original sense.”



The last traditional, business-cycle recession was way back in 1991, when Fed Chair Greenspan raised interest rates to 10.5% and unemployment rose to 7.8% — and even that was considered a mild downturn by the standards of the time.



In the 34 years since, we’ve only had three recessions and they were all triggered by non-cyclical shocks: the dotcom bust and 9/11 in 2001, the financial crisis in 2008, and the Covid pandemic in 2020.



As recently as last week it seemed like we were inevitably headed for a fourth.



But this week, markets rallied on a rising consensus that we’d avoid it yet again.



Which makes me wonder: If a sudden trade war can’t tip an aging expansion into recession, what can?



Is it only pandemics and banking accidents that cause recessions now?



Probably not.



But equally, Greenspan was probably right that the recessions we do have will be less frequent and less severe.&nbsp;



His <a href="https://www.federalreserve.gov/boarddocs/speeches/2004/20040220/default.htm">hypothesis</a> was based primarily on a belief in “better monetary policy,” and that seems to have been borne out: If Fed Chair Powell guides the US to a soft landing despite pandemic-induced inflation and tariff-induced uncertainty, I expect he’ll go down in history as the second greatest central banker of all time (behind only the patron saint of inflation fighting, Paul Volcker).



Another reason Greenspan cited for optimism was the ongoing “shift away from manufacturing toward services,” and that, too, might now be vindicated: This week’s market action seems to suggest that even a 10x increase in tariff rates won’t derail the US economy.&nbsp;



“The more flexible an economy,” Greenspan concluded, “the greater its ability to self-correct in response to inevitable, often unanticipated, disturbances and thus to contain the size and consequences of cyclical imbalances.”



The US economy, he explained, was getting more flexible thanks to automatic stabilizers, just-in-time logistics, deregulation and the “increased depth and sophistication of financial markets.”



More sophisticated markets give policymakers better information to work with — and the best information, of course, comes in the form of charts.



So let’s see what they’re saying.



It won’t be this quarter:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfMxzB_wOyEfVHWj9yzY3PvOix0pbZOgar9mrr-jTcBGEggUwM1W-sE2YI3gJwmhXBKY701c_vFv2aIakkE1sA92JiDhvx15zfKDBgGTharO6GMjb7uXUGygqbZlq5iOnSt2e_5?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



Suddenly, the next recession seems as far off as ever: The Atlanta Fed’s GDPNow model sees the US economy growing 2.4% in the current quarter.



It’s unlikely in Q3 or Q4, too:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcMseWSFUM-UGrtrOp-c1jmDZJ8gP5yzbG8pmIs1Aaj9w8OA2n8TnwyQuUWwsGIX4seTv1AVXlYbx4uAveBSdS1rtZ5EhLgtx2aFswxBRYKFvdW7MaWY-n0OcxZJBrvFHtsUwuD?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



Polymarket odds of a US recession in 2025 are down to 36%.



Are tariffs priced in now?



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcTuhGTM3ilSuipq0dFNbppJ-WyL18gjWZjtO02hFKuNbzR6xs8q_36bKIsUvbJt3mKKy4WxK7bBEv11JoPCtSIAwphJBhVeLlwoFtlCLYyRSz09gtEb1j9nnlErejCHfbeo9ppMg?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



Barclays Research (via the Odd Lots newsletter), estimates that the current trade-weighted US tariff rate is now around 14% and analysts at Goldman Sachs said it “would probably remain elevated for the foreseeable future.” That’s lower than expected just a couple of weeks ago, but we may not be out of the woods yet. President Trump <a href="https://www.politico.com/news/2025/05/16/trump-says-us-will-set-new-tariff-rates-for-countries-skirting-negotiations-00353370">said today</a> that, because there are too many countries to negotiate with, he will unilaterally decide tariff rates sometime in the next two or three weeks.



Wages &gt; inflation, still:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcTYNo9Y4O2BeZRJLF6BPsc4ZNoVORjl0FiYjzN-LSFh661RMJd1PAvoEQncmVRbOEpwiqt2NSe1-LtCJh5ZyICOJuoghk8LSBNKo5rk3Ht5W6vddUcBoJfymYjISB7AS0fHBFm?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



US wages are still growing at 4.3%, according to the Atlanta Fed — well in excess of CPI, which ticked down to just 2.3% in April. The top line above is wage growth for job switchers, which may have further to fall: The Wall Street Journal <a href="https://www.wsj.com/lifestyle/careers/job-market-overpaid-salary-9eeabbaa?mod=djem10point">noted</a> this week that two-thirds of US workers believe they are overpaid.



Apropos of nothing:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcVkmjeIzxnygDYiHL86eFZwzZCAuFYHb-6qbZ-4QEAME9obEu2I2Z1TO7rgC0VyIqUyTvEcRamR0wzifGqN8Z6IKLww-thCJ9TRjP1bklIlXub8lV5nEBI1dB9bITNzBRWeNjQFA?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



This is from 2024, but I only found it this week: An Ipsos survey found that Asian (and some Latin American) countries are “excited” about AI while Europe and the Anglosphere are “nervous.” Let’s check back in a decade or two and see if that’s correlated to growth rates. (I suspect it will be.)



Why Joe Rogan should be for free trade:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcOHB7aSF7zc2GJn30XrbhrDowS9gsAnY4RLdMAlAN64MuazH85MWU6_9k8K9sijjchB18EkPUuTQV1EPw34Pi3cTKw3z8PqOf7PsjWvlLGrcvZkpVbCgzgv6EcMzZlGyWVNCfIow?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



John Lettieri notes that the beginning of globalization (marked by NAFTA in 1994) was coincident with a trend change in male earnings: After two decades of decline, male wages began rising again.&nbsp;&nbsp;



Why everyone should be for free trade?



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcpAPh63mCcGhHx6tNMtq3R97tiwJIzm9d7I-_4LtSPEyTLRGxQ9VRMpQ2yIEZzRzQzixFMCsTJanu3x-ToKOoywzfm8fH1eayZAm5NS1Y8SFn2nOgWQpRwmpG_r5qajN4JvuA2PQ?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



Lettieri also finds that, starting with NAFTA, wages for the lowest quartile of earners rose faster than wages for the top quartile. If, like me, you enjoy these kinds of narrative violations, his <a href="https://x.com/LettieriDC/status/1922704137088577873">full thread</a> on trade is a must-read.



The other deficit problem:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcayiXEE18ElJk88KrsQYgL72jvMCn48ibhGrGwdWI0Sw0BQc7UoW8oYF_BnZam8_3LWkVEhJOpIoZALF_m1njFTyyd7BVTTGDjK79sWTFVUkdjstlLO0JNy25bK2b7mbDmcBWW3A?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



The current House budget proposal would add $3.3 trillion to federal debt through 2034. It probably wouldn’t pass the Senate, but it seems a safe bet that whatever eventually does will be only marginally more responsible.



In good times and bad: 



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="1224" height="630" src="https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=1024&amp;h=1024" alt="" class="wp-image-102609" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=1224 1224w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2025/05/unnamed.png?w=80 80w" sizes="auto, (max-width: 1224px) 100vw, 1224px" /></figure>



The really bad news about the US budget is not that it’s running a big deficit — it’s that it’s running a big deficit while the economy is booming. What’s this chart going to look like in the next recession? (If there ever is one.) Also, if your goal is to reduce the trade deficit, running a trillion dollar budget deficit year after year is, uh, not the way to do it.



Deficits are good for business, though:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcQlAPjbz4gJrhDoT8vI2zpiwuMC9cir_PqkzkfWrcUnNSoyGkOmw4zIPWzFB2R456zLE5jHQKjuD-LrJP1ikgDN7x-6K098zoVZpxkJZoEjGEeHWX-13G90-15m3weOBaoHLEwxw?key=zUftSAzS29kyOH4DvuNdQg" alt=""/></figure>



Global equities (orange) and a 60/40 portfolio of global stocks and bonds (purple) both made all-time highs today. Global equities ex-US (blue) made the highest highs.&nbsp;



Who said investing is hard?



If we don’t have to worry about traditional recessions anymore, it might not be.



Have a great weekend, moderate readers.



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Get the news in your inbox. Explore Blockworks newsletters:



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
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Friday Charts: What if there are no more recessions?

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
&#8220;The value of all Wares arise from their Use; things of no use, have no value.&#8221;&nbsp;



— Nicholas Barbon (1690)
</blockquote>



Q: What did dinner with the president cost?



The final TRUMP holder to qualify for <a href="https://trumpdinner.gettrumpmemes.com/leaderboard">dinner with the president</a> held 4,196 tokens, which were worth about $60,000 at the cut-off.



But that’s not the cost of the invite, because holders were free to sell as soon as the period or record ended.



If they did, they would have taken about a 10% loss, making the real cost of dinner with the president (and 219 others) about $6,000.



This is a bargain!



For comparison, a Super PAC <a href="https://www.wired.com/story/people-paying-millions-donald-trump-mar-a-lago/?utm_source=chatgpt.com">sold tickets</a> in March to a “candlelight dinner” with the president for $1 million each — 166x more!



Donors were also offered a one-on-one meeting with the president for $5 million.



That, I think, seems roughly on par with the 25-person VIP meetup for TRUMP token holders, which cost at about $240,000 for those who sold immediately after qualifying.



Many did sell, including the last VIP qualifier, whose wallet now shows a balance of zero TRUMP.&nbsp;



Roughly 40 others also sold as soon as they had qualified — including several mature jokesters who reduced their holding to 69 tokens (the conversation at dinner will be riveting, I’m sure).



There might be consequences for gaming the contest like that — I’m guessing the zero and near-zero holders will be seated further away from POTUS, at the very least.&nbsp;



But the 220th holder appears to be a true believer: They <a href="https://solscan.io/account/8AovnumJUHq1hM8VUbFdbhPV26u5xqUxFVjK3QtzkD59">doubled</a> their TRUMP holdings after the contest ended.



Might that earn them a <a href="https://www.cnn.com/2017/05/11/politics/trump-time-magazine-ice-cream">second scoop</a> of ice cream?



Let’s hope they report back.



Q: Are memecoins making a comeback?



They’re less dead than I thought — forgotten pan flashes like Moo Deng are up as much as 600% over the past week or so.&nbsp;



There were also 63,000 new Solana-based tokens created on Tuesday alone (nearly all of which presumably qualify as memecoins):



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcU2TpA-FRRu9Ww7nVQePJRTYug2onyzDO86PkBmJPsFi0_aCAcfjTh04XXU19ijHttd_c8Wg73mAlXM4uRTXQOH2OrsEWmTCmyBGKpf0Nf59LZtJ34160Z3Ec0Px8WxizmamHpKA?key=ChJ4r-vpAeosRk-2Ltri8g" alt=""/></figure>



I couldn’t name a single one, however — in fact, I can’t recall the last time I heard about a new memecoin launch.&nbsp;



Memecoins don’t have nearly the mindshare they once did, and the <a href="https://x.com/Awawat_Trades/status/1922156537394389233">list</a> of memecoins that are up this week (Goat, Pnut, Fwog, Popcat…) feels as dated as a playlist of 1970s disco hits.&nbsp;



That’s probably a good sign.



With luck, none of the memecoins created yesterday will get traction — and with a little more luck, that will incentivize crypto investors and builders to reallocate their time and money toward projects that are useful to people.



We’re not there yet — Blockworks Research data shows that memecoins still trade 14x more volume than “project tokens:”



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXc1pvceLWaaP0UKRRfYa7nZXFzbgyg8Sn6nggJJEBPq1Jbflot2sD0v4ORqbvquegdxrV-SySUo6pDnjYD55WtWPxZoDLtevio79VLRKMTjF6J-V7xf73FFpMgm-LKbFGxbmDSoxw?key=ChJ4r-vpAeosRk-2Ltri8g" alt=""/></figure>



Q: Should memecoins be regulated?



They’re collectibles, not securities, so I guess not.



But the purpose of securities regulation is to encourage retail participation in stock markets by giving people the impression that the playing field is level.



So, if the crypto industry wants retail to participate in crypto markets, it might have to self-regulate in some way that gives people the impression that the playing field is level for crypto investors, too.



Memecoins give the opposite impression, as only insiders appear to be getting rich from them.



That’s a problem because you only need to watch kids on a playground argue over the rules of tag or kickball to know that a game that doesn’t seem fair won’t last very long.



Q: Would HYPE be 4x more valuable on the stock exchange?



It was fun to <a href="https://x.com/Keisan_Crypto/status/1922731410282189225">hear</a> David Balin, formerly the chief investment strategist at Citi, cite Hyperliquid as an example of how traditional investors might diversify their investment portfolios.



In response to the host’s typical question about the intangible value of crypto, he responded, “It’s true that memecoins and NFTs and stuff don’t generate revenue but there’s a handful of others that are online that literally generate revenue every day and you can see it.”&nbsp;



True!



He does unfortunately get -1 point for repeatedly saying “online” when he means “onchain.”&nbsp;



But I think that is good news, too — when investors who aren’t totally clear on the difference between online and onchain are interested in something as deep-cut as Hyperliquid is, we’re really making progress.



“This is a company that, were it to be Robinhood or were it to be Coinbase, it would probably be worth 4x what its market cap is in the digital world.”



4x!



I’d be curious to see the math on that, because Hyperliquid trades on about 17x revenue and Robinhood trades on…wait for it…17x revenue.



Hyperliquid probably has much higher margins — it somehow returns all revenue to token holders.



But Robinhood trades on 34x earnings, so even if Hyperliquid has 100% net margins (which is presumably impossible) it would only be 2x undervalued vs. Robinhood.



On the other hand, the stock market values bitcoin held by Strategy (née MicroStrategy) at 2x what it’s otherwise worth and bitcoin promised to a SPAC (Cantor Equity Partners) at 3x what it’s otherwise worth.



So maybe Balin’s right that the stock market would value Hyperliquid at 4x what the crypto market does, who knows.



Q: Is TRUMP a memecoin?



We can quantify this now.



The TRUMP token has not given back all of its gains from before the dinner contest was announced, which implies that holders believe it will continue to have utility above whatever value it previously had as a memecoin.



Specifically, the additional $700 million of market capitalization it’s retained might be seen as the present value of future TRUMP utility.



TRUMP’s market cap is $2.6 billion, so I’d argue it’s now 75% memecoin and 25% utility token.



If $700 million sounds like a lot, consider that Roger Ver paid a lobbyist <a href="https://www.wsj.com/politics/policy/the-wild-west-of-presidential-pardons-in-trumps-second-term-a250160f?mod=djem10point">$600,000</a> to try to get the president’s attention on his behalf; there’s a waiting list to pay $500,000 to get into Donald Trump Jr.’s new private club <a href="https://www.cnbc.com/2025/04/28/donald-trump-jr-private-members-club-executive-branch.html">“Executive Branch</a>” which promises access to lesser government officials; and Qatar has offered the president a $400 million airplane — presumably to stay in his good graces.



Relative to that, the TRUMP coin seems like a much cheaper way to get the president’s attention.



Could crypto disintermediate DC lobbyists?



It’s not the use case anyone was hoping for, but it has real value, for sure.



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<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



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<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Thursday Mailbag: Dinners, memecoins and lobbyists

This is a segment from The Breakdown newsletter. To read full editions, <a href="https://blockworks.co/brand/the-breakdown">subscribe</a>.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Sometimes the best investments are precisely the ones you cannot explain and probably make no sense.”  — Richard Toh
</blockquote>



When I started writing this newsletter nearly four years ago, I kept the subject matter high-level — mostly because I didn’t understand the low level.



That’s not what I expected it to be.



Instead, I expected it to be like the morning notes I sometimes wrote for clients in my previous job as an equities trader — notes that were mostly just a rundown of news taken from a Bloomberg terminal that the clients also had but were too lazy to look at (people used to get paid for doing some surprisingly basic things in TradFi).



I figured that’s what this newsletter would be, too, because what else is there to talk about every day other than that day’s news?



But when I sat down to write the first newsletter, I quickly realized I had no idea what counted as “news” in crypto.&nbsp;



At that point, I had only really heard of Bitcoin, Ethereum and a few others — and I had never once heard the term “DeFi.”



I might have pretended to know a little more than that when I applied for the job but I didn’t need to know a lot more because Blockworks was looking for someone who knew TradFi better than DeFi.



So the newsletter became, more or less, me taking readers along as I learned about crypto.



I started with high-level questions like, what makes a security a security? What makes money, money? What makes protocols different from companies? What makes tokens different from stocks?&nbsp;



These were the kinds of things I could research in the evening and write about the next day, no matter what the news happened to be.



And that’s what I still do now because the high-level stuff turned out to be what’s most interesting to me — crypto is an attempt to reinvent finance and that makes writing about crypto an opportunity to relearn it from first principles.



But I also had to learn what is and isn’t news in crypto, and one of my first go-to sources for that was <a href="https://www.youtube.com/@TheBreakdownBW">The Breakdown</a> with NLW.



His podcast (already popular enough that NLW could go just by his initials) curated the day’s crypto stories, interpreted them for me, and put them into the macro context that I was more familiar with — all in an efficient 15 minutes or so that fit neatly within my limited span of attention.



I learned a lot.



So, about a year into listening, when NLW unexpectedly read <a href="https://nlwcrypto.libsyn.com/bitcoin-prehistory-and-a-warren-buffett-ai-bot">two of my newsletters</a> for one of his Sunday podcasts, I felt like I had arrived.&nbsp;



If NLW thought my writing was worth sharing with his audience, maybe, I thought, I could stop feeling like I was faking it.



(Full disclosure: I still kind of feel like I’m faking it.)



For that reason, it’s very fun for me to share that this newsletter is being rebranded as <a href="https://blockworks.co/brand/the-breakdown">The Breakdown</a> and paired with NLW’s podcast as one of Blockworks’ expanding roster of media brands. 



Nothing much will change content-wise — I’ll still be taking you along for the ride as I try to make sense of crypto, markets and investing. 



But you can expect some thoughtful updates to both the podcast and the newsletter that reflect our shared mission to figure out the future of finance.



Should be fun.



<h2 class="wp-block-heading">Crypto pilled?</h2>



I&#8217;ve learned more about finance in my four years writing about crypto than I did in my 25 years working in finance.



When I was an equities trader and an analyst pitched me a stock idea, my first question wasn’t &#8220;Is this stock a security?” Nor was it my last question — before crypto forced me to think about what makes something a security, I had never even heard of the Howey test.



Now I can recite all four prongs of Howey from memory.



(Yes, I’m available to liven up your next dinner party conversation, thanks for asking!)&nbsp;



Nor had I given much thought to what makes something money before bitcoin forced me to think about that, too.



It’s pretty intuitive: Money is whatever you use to pay for things (just being a store of value doesn’t qualify, sorry).



But how money is created turns out to be a deep mystery.



When the economist <a href="https://www.sciencedirect.com/science/article/pii/S1057521914001070">Richard Werner</a> went to a one-branch bank where he could personally observe every step of the loan process in hopes of proving that banks create money “out of thin air,” he failed to identify the exact moment of creation.



Money, it turns out, is emergent, like consciousness.



I stumbled upon a similar mystery when trying to determine whether token holders own the protocols they believe they’re invested in.&nbsp;



I’m still unsure on that one: Protocols are just software, so maybe they can’t be “owned” in the traditional sense — but if token holders can vote to change the software, maybe they can.



More intriguingly, though, asking that question has made me unsure whether shareholders own the companies they’re invested in.



Shareholders think of themselves as owners, of course, but the corporate law scholar <a href="https://www.amazon.com/Shareholder-Value-Myth-Shareholders-Corporations-ebook/dp/B007PIZ8IO/ref=sr_1_1?crid=3QDPGQ1YLNWJI&amp;dib=eyJ2IjoiMSJ9.T6bT88qClDz57NOO66PSxexg6auowSCPKTwgedcHDw-eyhYO9Aj3Ogey2ZwKpGhs936XmuML4k8mC3bWVaXna_XshQWMXswxAdXjxFyLA-C_hLdLq7GtadlfNNsf-GjkrtNerqrE89XmgKFRbIMm1aJs1l0An4mhBLoZkO__prPef-DQk9zmGSG1Rb52T9lSx82aIuGLtZtdn5CsB7A0bhQUf_GDlUXhx-jjbqyZ6y8.sYQcr2BmQIXaX_cmYlCvjhZ_Wv-nNgjBQinPAlCmuqc&amp;dib_tag=se&amp;keywords=lynn+stout&amp;qid=1747237929&amp;sprefix=lynn+stout%2Caps%2C171&amp;sr=8-1">Lynn Stout</a> says they’re not (she convincingly argues that corporations own themselves).



Traditional investors may dismiss these questions as academic — the system works just fine for them, whatever its philosophical underpinnings.



But crypto might soon force them to start philosophizing.



Last week, Hester Peirce <a href="https://www.sec.gov/newsroom/speeches-statements/peirce-iismgd-050825">said</a> the SEC is considering an exemption that would allow securities to trade on blockchains; and this week her colleague, Mark Uyeda, <a href="https://www.sec.gov/newsroom/speeches-statements/uyeda-remarks-crypto-roundtable-tokenization-051225?utm_medium=email&amp;utm_source=govdelivery">said</a> that tokenization has “the potential to dramatically change how financial markets operate.”



If so, it might dramatically change how people think about financial markets, too.



It’s already happening, to some degree.



Matt Levine, for example, attributes the phenomenon of memestocks to the emergence of bitcoin, which “broke everyone’s brains” about why assets might have value.



More recently, The Economist’s <a href="https://x.com/Birdyword">Mike Bird</a> speculated that retail investors may have been such enthusiastic buyers of the crash in equities because they’ve been influenced by the HODL culture of crypto.



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<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

A new look, and the crypto-ization of finance

This is a segment from the Blockworks Daily newsletter. To read full editions, <a href="https://blockworks.co/newsletter/daily">subscribe</a>.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Half of the troubles of this life can be traced to saying yes too quickly and not saying no soon enough.”



— Josh Billings
</blockquote>



If you’ve ever tried meditation, you’ll know that doing nothing for more than about 10 seconds is weirdly difficult.



If you haven’t, you might not realize just how much the human mind rebels against inactivity — an evolutionary inheritance from when doing nothing meant starving on the savannah (or getting eaten), I guess.



These days, our bias for taking action is nowhere more evident than in financial markets, where the headlines are always imploring investors to take action: Something is happening, they tell us, and we’d better do something about it — now.



Only the most stoic among us can resist for long — traders, investors, gamblers and even business people are constantly reacting to events and placing bets on their consequences.



But events are rarely as consequential as we expect.



One measure of investors’ propensity to overreact to events is options pricing: An academic <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=375784">study</a> from 2003 found that traders so overpaid for put options on the S&amp;P 500 that they’d need equities to experience a 1987-sized crash once every nine months just to break even.



That hasn’t worked out so well: 22 years later, there has still only ever been one 1987-sized market crash.&nbsp;



(Mercifully, Black Monday’s vertiginous drop of 22.6% remains the biggest of all time.)



Another measure of our tendency to overestimate the probability of unlikely outcomes is found at the horse track.



Two researchers studying the “favorite-longshot bias” <a href="https://eriksnowberg.com/papers/Snowberg-Wolfers%20Risk%20Love%20or%20Decision%20Weights-NBER.pdf">concluded</a> that “longshots are overbet, while favorites are underbet.”



Betting on horses with odds of 100:1 or greater, they found, resulted in losses of 61% — far greater than the 23% loss that bettors would have incurred by placing their bets randomly.



A <a href="https://eprints.qut.edu.au/218538/1/EJ2012.pdf">study</a> of prediction markets similarly found a “long-shot bias” among bettors causes high-likelihood events to be underpriced and low-likelihood events to be overpriced.



The long shots do sometimes hit, of course.&nbsp;



When Leicester City won the English Premier League in 2016, for example, it turned <a href="https://www.espn.com/chalk/story/_/id/15447052/chalk-tales-bettors-bet-leicester-city-win-premier-league-season">one fan’s £5 bet</a> into a £25,000 payout — at 5:000:1, it was probably the longest-odds bet on a single sporting event ever to hit.



(Other 5,000:1 bets available at UK bookies implied that Leicester City winning the league was exactly as likely as Elvis being found alive or Barack Obama playing cricket for England.)



It’s fun to bet on something like that happening — it scratches our itch to believe that 1) extraordinary things happen more frequently than they do and 2) we have an ability to anticipate them.



Most of the time, though, you want to bet against things happening.



For example: One <a href="https://x.com/Polymarket/status/1911874780678009202?t=zN2GJ2pb0J3bupm5GnaFiA&amp;s=19">Polymarket bettor</a> recently made about $2.1 million betting “no” on seemingly everything.



When you look at some of the bets on offer, you can see why that might be a profitable strategy: Polymarket betting implies there’s a <a href="https://polymarket.com/event/will-canada-join-us-as-51st-state-in-2025?tid=1747153630203">4% chance</a> that Canada will be the 51st US state by the end of 2025 and that there’s a <a href="https://polymarket.com/event/what-will-happen-before-gta-vi?tid=1747153869987">13% chance</a> that Jesus will return before the release of Grand Theft Auto VI.



I imagine the people betting “yes” on those are doing it just for laughs (surely Grand Theft Auto won’t take that long).



But these “yes” bettors could be doing us a favor by illustrating the power of betting “no.”



Prediction markets show that people bet in anticipation of things happening far too often.



Horse racing shows that people anticipate extraordinary things far more frequently than they occur.



And financial markets show that, even when extraordinary things do occur, they’re typically less consequential than we expect — how else to explain US equities being unchanged on the year despite all the unprecedentedly dramatic news on tariffs?



Liberation Day turned out to be far less consequential than feared — not quite a nothing burger, but seemingly unimportant for long-term investors.



In the meantime, traders betting that the dramatic tariff headlines were inconsequential — betting as if nothing would happen — would have cleaned up.



This is not unique to tariffs — there have been enough such instances that “nothing ever happens” has become a modestly viral <a href="https://knowyourmeme.com/memes/nothing-ever-happens">meme</a>.&nbsp;



“Nothing ever happens” isn’t meant literally; it captures the idea that despite a non-stop drumbeat of headlines about dramatic events, markets (and life) often stay surprisingly stable.



Polymarket even lets you bet on it: As it defines it, the probability of “nothing” happening in May has risen to <a href="https://polymarket.com/event/nothing-ever-happens-may?tid=1747154136094">78%</a>.



Even at those odds, it might still be a good bet because people so optimistically overestimate their ability to predict what will happen.&nbsp;&nbsp;&nbsp;



This “optimism bias” is a good thing for society — if founders correctly assessed their chances of success, no companies would ever be founded.



But their success rate might improve if they spent less time thinking about what’s going to happen and more time thinking about what won’t happen.&nbsp;



Jeff Bezos notes that he frequently gets the question, “What&#8217;s going to change in the next 10 years?” and “almost never” gets the question: “What&#8217;s not going to change in the next 10 years?”



That’s unfortunate because the second question, he says, “is actually the more important of the two.”



Bezos says founders and business executives should think more about what won’t change because it’s easier to build a business around “things that are stable in time” (like Amazon customers wanting low prices and fast delivery, for example) than it is around things that will be different in time.



But investors, too, should probably spend more time thinking about what’s not likely to change — effectively betting “no” on the constant drumbeat of predictions about what’s going to happen — and how that will change everything.



It’s a better bet than we’re hardwired to think.



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Get the news in your inbox. Explore Blockworks newsletters:



<ul class="wp-block-list">
<li><a href="https://blockworks.co/newsletter/thebreakdown">The Breakdown</a>: Decoding crypto and the markets. Daily.</li>



<li><a href="https://blockworks.co/newsletter/empire">Empire</a>: Crypto news and analysis to start your day.</li>



<li><a href="https://blockworks.co/newsletter/forwardguidance">Forward Guidance</a>: The intersection of crypto, macro and policy.</li>



<li><a href="https://blockworks.co/newsletter/0xresearch">0xResearch</a>: Alpha directly in your inbox.</li>



<li><a href="https://blockworks.co/newsletter/lightspeed">Lightspeed</a>: All things Solana.</li>



<li><a href="https://blockworks.co/newsletter/thedrop">The Drop</a>: Apps, games, memes and more.</li>



<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Bitcoin, bitcoin, bitcoin.</li>
</ul>

Why investors should say ‘no’ more often

This is a segment from the Blockworks Daily newsletter. To read full editions, <a href="https://blockworks.co/newsletter/daily">subscribe</a>.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Leaders get killed from below.&#8221;



— Clay Christensen
</blockquote>



In <a href="https://www.amazon.com/Innovators-Dilemma-Technologies-Management-Innovation/dp/142219602X?tag=googhydr-20&amp;hvsb=Media_d&amp;hvcampaign=dsadesk">The Innovator’s Dilemma</a>, Clay Christensen introduced the concept of disruptive innovation — when a product that initially looks like a cheap knockoff ends up rewriting the rules of an entire industry.



These products typically get their start in either low-end or entirely new markets that incumbents have ignored because they were either not profitable enough to serve or didn’t seem strategically important.



But that turns out to be a good starting point: “A disruptive technology is initially embraced by the least profitable customers in a market,” Christensen explained.



These customers are often eager to adopt a product that is initially inferior in terms of traditional performance metrics, but cheaper, simpler and more accessible to them.



Christensen cites the example of Toyota, which got its start in the US market by targeting budget-conscious customers that the Big Three US automakers had overlooked.



The incumbents’ focus on bigger, faster, more feature-rich cars had created “a vacuum underneath them,” in Christensen’s telling, and Toyota filled that vacuum with the slower, smaller, no-frills Corona, which cost just $2,000 when it was introduced in 1965.



Today, Toyota is the second-largest automaker in the US — and its Lexus LX 600 Luxury SUV starts at $115,850.



Toyota used the Corona to wedge its way into the US market and then steadily climbed the value chain, proving Christensen’s thesis that the best way to the top is to start from the bottom.



Stablecoins may be on a similar trajectory.



<h2 class="wp-block-heading">Disruption is coming</h2>



Christensen’s disruptors started in niche markets — and stablecoins started in emerging ones.



For people in the United States with access to bank deposits, stablecoins are essentially an inferior kind of dollar — not FDIC insured, not properly audited, not integrated into ACH or SWIFT and (despite the name) not always exchangeable for $1.&nbsp;



For people outside of the United States, however, they are a better kind of dollar — unlike $100 bills, you don’t have to hide them, they won’t get torn or defaced, and you don’t have to meet someone face-to-face to exchange them.



This has made US dollar stablecoins wildly popular in countries like Argentina — one-fifth of Argentines are <a href="https://cryptoforinnovation.org/will-argentina-become-the-first-crypto-economy/">said</a> to use them daily — even as few people in the US could tell you what they are.



Argentina is not the only place stablecoins are used, of course — stables are popular with DeFi traders, anyone who can’t pass a KYC check, emigrants sending remittances home, employers paying cross-border freelancers and savers escaping their local hyperinflating currency.



None of these are profitable enough as customers for incumbent banks to bother with, so it didn’t matter that stablecoins started out as inferior to bank-issued money.



For a while, people were so desperate for digital dollars that they didn’t even seem to care whether Tether’s USDT was fully backed.



They are much improved since: Circle offers a regulated alternative to USDT, Tether itself appears to be playing it by the book too, and some stablecoins even offer yield.&nbsp;



But is this innovation truly disruptive?



The <a href="https://www.christenseninstitute.org/theory/disruptive-innovation/#:~:text=Disruptive%20Innovations%20are%20NOT%20breakthrough,make%20products%20and%20services%20more">Christensen Institute</a> has a six-part test to determine whether an innovation qualifies as disruptive:



Does it target non-consumers or people who are overserved by an incumbent’s existing offering in a market?



Yes — DeFi traders and emerging market savers don’t need FDIC-backed US bank deposits (they’d be “overserved” by a full US bank account), but they do want digital dollars.



Is the offering not as good as an incumbent’s existing offering as judged by historical measures of performance?



Yes — stablecoins have deviated from their $1 peg, gone to zero (Luna/UST), can be expensive to on- and off-ramp, and can be frozen without recourse.



Is the innovation simpler to use, more convenient or more affordable than the incumbent’s existing offering?



Yes — sending stablecoins is easier than sending bank deposits, are more convenient for many, and more affordable for some.



Does the offering have a technological enabler that can carry it upmarket and allow it to improve?



Yes — blockchains!



Is the technology paired with a business model innovation that allows it to be sustainable?



Maybe? Tether may be the most profitable company in history on a per-employee basis, but if US regulators allow stablecoins to pay interest, issuing them might not provide any profits at all.&nbsp;



Are existing providers motivated to ignore the new innovation and are not threatened at the outset? No. Incumbents seem alert to the threat and aware of the opportunity. “Almost always, when low-end disruptions emerge, it creates a situation where the leaders in the industry actually are motivated to flee rather than fight you,” Christensen <a href="https://online.hbs.edu/blog/post/low-end-disruption">writes</a>. “That’s why low-end disruption is such an important tool to create new growth businesses: The competitors don’t want to compete against you; they just walk away.”



Stablecoins may be a rare exception: Instead of walking away from the low-cost innovation of stablecoins, incumbents appear to be racing toward it.



The payment incumbents Visa, Mastercard and Stripe have all announced new stablecoin offerings in recent weeks; BlackRock’s BUIDL fund (which looks like a yield-paying stablecoin) is rapidly attracting assets; the CEO of Bank of America says it’s likely to issue a stablecoin as soon as regulators allow it.&nbsp;&nbsp;



That might be because finance executives have all read The Innovator’s Dilemma.



Or it might be because stablecoins are so easy to issue.&nbsp;&nbsp;



Christensen frames disruptive innovation as company driven — where startups use low-end beachheads to claw their way into the mainstream before incumbents take them seriously.&nbsp;



And that might be how it works out for stablecoins, too: The <a href="https://www.businesswire.com/news/home/20250421041939/en/Circle-Announces-Payments-Network-to-Transform-Global-Money-Movement">Circle Payments Network</a> may be to Circle what Lexus was to Toyota.&nbsp;&nbsp;



But Circle’s competition isn’t as sleepy and slow moving as Toyota’s, so it’s entirely possible that stablecoins&#8217; early innovators will, in an inverse of Christensen’s theory, be killed from above.



The end result could be the same either way: A recent Citi report predicted that stablecoin AUM could hit $3.7 trillion by 2030, largely because of institutional adoption.



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Stablecoins are disruptive, but who will be the disruptors?

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”&nbsp;



— Warren Buffett
</blockquote>



Warren Buffett is the most quoted person in the history of this newsletter — a crowning achievement of his seven-decade career that must fill him with pride.



I’ve quoted him so often because he has a lot to say about investing and markets, of course, but also because he expresses himself in folksy, quippy, metaphorical sound bites that are universally accessible.



He’s not dumbing it down for us, though.



As best I can tell, that’s genuinely how he thinks about investing — and there’s a lesson in that: The greatest investor of all time invests mostly by common sense.



Investing is so common sense to him that he believes that anyone can do it: “It’s not necessary to do extraordinary things to get extraordinary results.”



&#8220;If you can detach yourself….from the crowd, you&#8217;ll get very rich. You don&#8217;t have to be very bright.&#8221;&nbsp;



&#8220;It doesn&#8217;t take brains. It takes temperament.&#8221;



This all doubles as excellent life advice, as so many of his investing maxims do:



&#8220;It&#8217;s good to learn from your mistakes. It&#8217;s better to learn from other people&#8217;s mistakes.&#8221;



“What pond you jump in is more important than how well you swim.”&nbsp;



“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”



Buffett attributes his astounding investment returns to only about a dozen “truly good decisions” that he’s made — about one every five years, on average.



And he lived his life the same way: The sixth-richest man in the world still resides in the house he bought for $31,500 in 1958.



Conversely, his investing process was as simple as the life he led: He doesn’t build financial models, for example, he just reads a lot.



“I probably read five to six hours a day…I read five daily newspapers. I read a fair number of magazines. I read 10-Ks. I read annual reports.”



The compounding knowledge earned from all that reading, he’s explained, allowed him to pounce when an unusual opportunity came along.&nbsp;



“If somebody calls me about an investment…I usually know in two or three minutes whether I have an interest.”&nbsp;



In 2003, for example, he bought the homebuilder Clayton Homes (not just the stock, the whole company) for $1.7 billion after reading its SEC filings and talking to management on the phone (he didn’t visit the company until after he owned it).



In 2008, he turned down a request to rescue Lehman Brothers simply because its financial statements were too complex (a giant red flag for him).



At the height of the subsequent financial crisis, he poured $5 billion into Goldman Sachs after one phone call with its CEO and just a few hours of negotiating terms.



The results, of course, speak for themselves: From 1965 to 2024, Berkshire Hathaway shares rose by more than 5,500,000% — a gravity-defying annual return of almost 20% over 59 years.



By comparison, the total return of the S&amp;P 500 index over that period was “just” 39,000%.



“Buffett’s returns appear to be neither luck nor magic,” an <a href="https://marginalrevolution.com/marginalrevolution/2025/05/buffetts-alpha.html">academic study</a> found, “but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks.”



Lately, however, Buffett hasn’t found many stocks that are cheap, safe and quality enough to leverage into — for the first time in two decades, Berkshire Hathaway holds more cash than it does listed equities.



That’s not because Buffett is worried about what politics or tariffs might mean for the stock market: “I never try to profit from the stock market,” he’s said.&nbsp;



But his failure to find good businesses at reasonable prices probably does tell us something about his view of the market as a whole.



Buffett acolyte Chris Bloomstran <a href="https://www.semperaugustus.com/clientletter">estimates</a> that with valuations and profit margins currently elevated, investors in the S&amp;P 500 should expect returns of “no higher than 1.1% per year for the next decade.”



If so, going into retirement with a record amount of cash may go down in history as the thirteenth “truly good decision” that Warren Buffett has made — and an instructive one, at that.



&#8220;Investing is the greatest business in the world because you never have to swing,” Buffett explains in typical Buffett fashion. “All day you wait for the pitch you like; then, when the fielders are asleep, you step up and hit it.&#8221;



With the market rebound over the past month, it looks like he probably won’t see any more fat pitches before he retires at the end of the year — despite all the seemingly bad news on tariffs.&nbsp;



But I’m sure he’d tell younger investors that there will be plenty to look forward to: “Over the long term, the stock market news will be good.”



Let’s check the charts.



Stocks are up, but estimates are down:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXejjPkEcNflxiLEkJ1-0zu81cCofcDvLbkPYxbIYO9aEgjxq1KfYJKA4u-Ytf0zJS8lGkBALWSoubKSwC_MqEqyhWBP6ds7rWR4Ijsjf9oDP1vg0PYUgwDGU7ZIIESC9aAUy9c9Pw?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



It’s reassuring that stocks are back to where they were before “Liberation Day,” but that doesn’t mean nothing’s happened. Per Torsten Slok, earnings estimates are significantly lower, which means stocks are significantly more expensive.&nbsp;



Stock market vs. betting market:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcK0SgSc5rIOt7tcIChqHukRK9ZC2fv6dKsF6T7gpJvRzUAaJ6NwAFm_ebHefDS_-rvFIlvP4ie_oB5uTCjuwd4baEadc-o42MuUNAQczoXb5nyi6JGsgeMnTfquwlm-L7v7ISFKA?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Polymarket <a href="https://polymarket.com/event/us-recession-in-2025?tid=1746814142831">odds</a> suggest a US recession is still slightly more likely than not, but BCA Research estimates that the stock market is pricing in just a 25% probability now.



Economists are pricing in stagflation:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd3YstTe2wHXmUA_3HekQwIMWRNiTVP78wjP9edQ9ZpE8grphekJYSKg4AvDf4qkqzrAgWNvOF-JddwNTThJKg51ch2Bhc3CDVhOwyk6G-W2CSYwZiMf8pU_kd38TZ7Yem_dP-Y3A?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Torsten Slok <a href="https://www.apolloacademy.com/stagflation-coming/?utm_medium=email&amp;utm_source=pardot&amp;utm_id=701Dp00000017sOIAQ&amp;utm_campaign=EXT_Daily+Spark">notes</a> that rising inflation and falling GDP estimates indicate that stagflation is coming. At the FOMC <a href="https://marketspm.cmail19.com/t/d-l-shyllil-dtudkukduk-h/">presser</a> this week, Fed Chair Jerome Powell seemed to agree: “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.”



It might get worse than that:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcPxcTtPAHrgZhnj_fSFZZGBHRJbUBkRwVyxtYb4sfNDDCveyV1o8Zoa2lfwyp5OI_3bYlqU5vV77NNQVnZuW97WjnQJ7OwuTs66fLbCxbZ7gbf3t0SoefYqZuufydghV5n8_AIxA?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Analysts at Goldman Sachs estimate that tariffs will raise inflation by a whopping 2.25%.



Trade policy is less uncertain, I guess:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfu6-TXdBifjYdyzKvxQzyC9AdW252a4VH_EnH23AuCDxvvNOWPspzC0XJupr1aDCWNXokIwSiDeH5iuFnVmeeD-pSDdeXwB6GwjiE1BJFURnKlLQ9tys-tVMQyXT9zCak9uCFFKg?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Markets are said to hate uncertainty, and despite all the contradictory headlines, the <a href="https://www.matteoiacoviello.com/tpu.htm">Trade Policy Uncertainty index</a> is down — so maybe that’s why stocks are up?



Actual trade is down, too:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcxiPgV_NNT40_Lwe0Vagc5V2v0tWCOsjZLRDtYG03kLvrA2dGjF1JBz20e7AmLAdNpbIj6hjxOu-ip8yXAs_ME9H5dhMxszXN8C_52VsNK0P8VM84NcHzSHB2GoxwTCiCwx5DQwg?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Container bookings from China to the US are down 49% year over year. President Trump <a href="https://x.com/ABC/status/1920505719419211815">said</a> that’s a good thing because no trading means “we lose less money.” But he appears to want some level of trade with China — he <a href="https://truthsocial.com/@realDonaldTrump/posts/114477628854583525">posted</a> this morning that the current 145% tariff rate could fall to 80% and suggested that he’s leaving it up to Treasury Secretary Scott Bessent to negotiate a deal when he meets with China this weekend in Switzerland.



Trading with China has been good for us:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeZW11s17t3hmBjL-LlWdYpyd9znwgZ79vrdNmyIKuBejFfMv7Gjam_0u669UvHsmnX0vAb8W1f78yX3WMKzxzNevrU2PDMKYHkddR8v2oM8IvTPe4kxM3zkRm1JynKr0I0Lbmq5g?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Jason Furman <a href="https://x.com/jasonfurman/status/1920161566818800112?t=OdKPjYv-UJlj0Ocb0gSSbQ&amp;s=19">notes</a> that US wages grew faster in the 24 years after China joined the WTO (the orange bars) than in the 24 years before (the blue lines). Most surprisingly, wage growth has been far more equitable in those two decades of globalization than they were before.



Trading with China has been good for us (2):



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXc2hbVHEJJKyzOVmIm6KQvlsltaXTOyDMzLvsSuhDeReAgMgEHrx_MB85cmaPA_lSB10stb-Ic60osyGZWnx-gc3HTY3g-EGOOsEYssytdictOMzmqGiW8dEwYu1vX5SMb28lZo?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



<a href="https://economistwritingeveryday.com/2025/05/07/the-middle-working-class-has-not-been-hollowed-out/">Jeremy Horpedahl</a> digs a little deeper and finds that the real (i.e., inflation adjusted) earnings for high school graduates without a college degree are higher than they have been in at least 50 years (and I’m guessing probably ever, but the Fed data doesn’t go back any further than that). It seems to be getting even better, too: The Wall Street Journal this week <a href="https://www.wsj.com/lifestyle/careers/skilled-trades-high-school-recruitment-fd9f8257?mod=trending_now_news_1">reported</a> about a high school junior who’s received an annual $70,000 job offer because his school offers welding classes.



Companies are still buying:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcYUhDhgzuKPqlGvxd6s7uPUK-W4c-JLPNFHKUzPaVvgINAZ0PsYUtTzw1cnLC601z4BpJQxAH_pieldHa6ZUWuDrE3e3AFvzsjl9gCUkoOlKvhbC9wGdf5rFn7SNgiHCSyswCjdA?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



The FT <a href="https://www.ft.com/content/8361835c-6955-4ee3-80a1-8e7e19127e6c">reports</a> that US companies are on track to buy over $1 trillion of their own stocks this year.



Retail investors are still buying:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe4cIR7RpGUaxxtsVWetn1fETF55TngeYhqpFlv80Dz5VfEuU3RhY0TXDj2wkVFgTMvGNMRbplR9DB-HHQbxTetqQ-wDE2OhyeTTQGv7u_3Yi75zFzVrLcsYt5c0cN-lalbLMVUng?key=u_gKGWHqMqXmT5Wah45p9sCL" alt=""/></figure>



Data from Bank of America shows that its private clients enthusiastically bought the tariff dip in equities.&nbsp;



Warren Buffett would applaud their long-term optimism, if not their short-term timing.&nbsp;



Have a great weekend, long-term readers.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The value of any stock, bond or business today is determined by the cash inflows and outflows … that can be expected to occur during the remaining life of the asset.”



— Warren Buffett
</blockquote>



When Warren Buffett explained that the value of every stock, bond or business is a function of its future cash flows, he was paraphrasing John William Burr, who formally articulated the “discounted cash flow” (DCF) method of valuation in his 1938 book The Theory of Investment Value.



Burr didn’t invent the ideas behind his calculations, however.



The <a href="https://www.ausimm.com/bulletin/bulletin-articles/some-surprising-facts-about-the-history-of-value-within-the-mining-industry/">first recorded instance</a> of discounting future cash flows to present value dates to 1773, when an engineer, Edward Smith, estimated the “present worth” of a coal mining operation based on its future stream of income.&nbsp;



In fact, the logic of present value has been used even longer than that.



With the publication of his Liber Abaci in 1202, Leonardo Pisano (better known as Fibonacci) is <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3473153">credited</a> as the “first to develop present value analysis for comparing the economic value of alternative contractual cash flows.”



823 years later, that’s still the best way to do it: Discounted cash flow is as close as you can get to a fundamental truth in the art of financial valuation.



It rarely feels that way, however, which is confusing — the best argument against DCF is that it doesn’t match our lived experience as investors.



Stocks, for example, trade up, down and all around for reasons that are entirely unrelated to future cash flows — even in hindsight, it’s impossible to discern any cash-flow logic in the price charts.



John Maynard Keynes is right to call stock market investing a “<a href="https://en.wikipedia.org/wiki/Keynesian_beauty_contest">beauty contest</a>” that’s unrelated to fundamentals — and there’s no disputing Robert Shiller’s <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=262076">findings</a> that stock prices are far more volatile than can be explained by subsequent changes in dividend payments.



But I draw the line at Austrian economist Carl Menger’s <a href="https://www.econlib.org/carl-menger-on-value/">conclusion</a> that “value does not exist outside the consciousness of men.”



Inferring value from price movements (and human behavior) is like concluding the stars revolve around Earth — it only looks that way from where we stand.



It’s true that DCF can’t be proven in a mathematical sense — it isn’t a physical law of the universe.



But it’s as close to a law as we can get in finance, however unrelated it is to how asset prices move in the real world.&nbsp;



We can pseudo-prove this with a thought experiment.



Imagine, for example, you were asked to bid for two assets: Asset A, which is guaranteed to pay holders $10 a year for the next 10 years, and Asset B, which may or may not pay you an unknowable amount of money at some unknowable time.



Which would you offer money for?



Asset A, of course, because you could calculate how much to offer by putting its predictable stream of future cash flows into an excel model and discounting them back to a present value.



You could do that for Asset B, too, except that you’d have to guess at all the model’s inputs, which makes it much less useful in practice.



In theory, however, it’s still the mental model to use for understanding why financial assets have value.



Asset A in the above example is a bond, of course, and Asset B is a stock — which is why people rarely use DCF models for stocks.



DCF models require too many guesses about things that will happen too far in the future (out to 10 years, typically, and even that’s too short to really know).&nbsp;



Instead, we like to look one, two or three years out, guess at just one thing — say, earnings — and pick a somewhat arbitrary multiple of that guess to arrive at a price target.



But a price target is a forecast of where a stock will trade, not what it’s worth.



Valuation metrics like price-to-earnings, price-to-sales, price-to-EBITDA — these are all stand-ins for the unknowable discounted cash flow valuation of a stock.



However you want to think about it, what any stock is worth remains the present value of its future cash flows, which are annoyingly unknowable.



This is why hardly anyone actually values stocks this way — not even Warren Buffett builds DCF models.



&#8220;Warren often talks about these discounted cash flows,” Charlie Munger once <a href="https://nvariant.substack.com/p/why-warren-buffett-never-calculates">noted</a>, “but I’ve never seen him do one.”&nbsp;



That’s because Munger and Buffett both worried that the “false precision” of a DCF model was likely to lead them astray — if the value of an investment &#8220;doesn’t just scream out at you,” Buffett says, you shouldn’t invest.



In other words, you should know that the value of a financial asset is a function of its future cash flows — but you shouldn’t try to calculate it.



For investors, DCF is less of a practical playbook and more of a state of mind.



<h2 class="wp-block-heading">But crypto is different, right?</h2>



On the most recent <a href="https://youtu.be/RzT7-3jAHyM?si=7uFKiqomkrNect37&amp;t=276">episode</a> of the Empire podcast, crypto investor Tom Dunleavy predicted that the fees people pay to use layer-1 blockchains like Ethereum “are effectively going to zero.”



That made me double-check the title of the podcast — “The Bull Case for Ethereum” — because that sounds like the ultimate bear case for a cash flow-minded investor like myself.



But Dunleavy thinks I’m doing it wrong: When valuing a layer-1 token like ETH, “revenue and cash flow is the exact wrong way to think about it.”



Instead, L1s should be valued “as a percentage of assets that will come onchain at some point in the future.” (“Theoretically,” he adds.)



He might be right about that, I don’t know — and he might also be right that the price of ETH will be correlated to the amount of assets Ethereum hosts (although that remains speculative).



But to argue that the value of ether is based on anything other than its future cash flows is to argue that ether is exempt from Buffett’s dictum about stocks, bonds and businesses.&nbsp;



Lots of people think it should be.



The “Ethereum investor” Ryan Berckmans, for example, <a href="https://youtu.be/RzT7-3jAHyM?si=tW7SQRkto5g82OKE&amp;t=707">argues</a> the case for ether by refuting the idea that it’s a business selling blockspace: “What Ethereum sells is freedom and global prosperity.”



Maybe so — but how else would you measure an investment in freedom and prosperity if not by forecasting how much people will pay to access it?



Berckmans may have implicitly conceded the point later in the podcast: “Value accrual will happen, yes, through fees in the long term.”



That about sums things up for me: Buy a crypto token for any reason, sure — freedom, prosperity, vibes — but the only way to invest in a token is on the assumption that its current price is justified by its future cash flows.



In the meantime, no one says the price of that token will be correlated to REV or any other financial metric — and crypto assets with no prospect of future revenue (like bitcoin) are free to be priced however people choose to price them.&nbsp;



But I’d argue that any asset that collects fees from users (as ETH does) is a financial asset and therefore subject to Buffett’s dictum that cash flows determine value.



If so, crypto investors might want to get into more of a DCF state of mind.



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Should crypto cash flows be discounted?

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Trust is one of the greatest economic forces on Earth.”



— Charlie Munger
</blockquote>



<h2 class="wp-block-heading">What money will the world trust next?</h2>



The Spanish dollar (a.k.a. pieces of eight, a.k.a. Spanish peso) was the first global currency.



From the 16th through 19th centuries, silver coins minted by the Spanish government circulated on all six of the world’s inhabited continents, and were legal tender on five of them (parts of Europe, Africa, Asia, and both Americas).



In many of those places, they were so welcome you could even cut them into halves, quarters, or eighths and spend the pieces as change (hence the name “pieces of eight” for a whole coin).



The Spanish dollar wasn’t quite a global reserve currency, but that’s only because central banks didn’t yet hold reserves.



But it served as a store-of-value reserve for private savers around the world — and that makes today’s US dollar the institutionalized, fiat-era successor of the Spanish dollar.&nbsp;



Both global currencies served the same function: to reduce friction in international trade by providing a near-universal medium of exchange, unit of account, and store of value.



Today’s global reserve currency pays homage to its predecessor in both name and symbol — the &#8220;$&#8221; dollar sign is thought to have evolved from the mark for the Spanish currency (the dollar sign is still also called “the peso sign” for that reason).



But the debt goes deeper.



The first US dollar, established as the basic currency unit of the United States in 1792, was a silver coin deliberately designed to have roughly the same metallic content as a Spanish dollar: ~24 grams of pure silver (plus about two grams of copper to make it more durable).



The US government did not mint nearly enough of them to go around, however, so Spanish dollars continued to circulate widely alongside US dollars — the two dollars were treated as interchangeable in daily transactions for many years, with the Spanish dollar even remaining legal currency in the US until 1857.



That was natural enough, since both dollars had the same metallic content.



But the lesson of the Spanish dollar is that it wasn’t just about the metal.



Instead, the Spanish dollar became the first world currency because people trusted its issuer.



Dozens of countries issued silver coins in the 17th century, but the Spanish dollar found favor because it came from highly standardized royal mints in the Spanish colonies — and because it was backed by a powerful empire that enforced quality control and valued the integrity of its currency.



People didn’t weigh every Spanish dollar they received, for example, or inspect its purity — if it came from a Spanish mint, they trusted that it had both the quantity and the quality of silver that the Spanish government said it did.



After Latin American countries won independence, however, Spain lost control of the silver mines and nearby minting facilities that had supplied the world with Spanish currency.



The newly independent countries of Latin America continued to mint nearly identical silver dollars — but political instability led to inconsistent minting, intentional debasement, and even counterfeiting at poorly supervised provincial mints.



Partly as a result, merchants and bankers around the world began favoring money from more reliable issuers like Britain and the US — not because they had more silver, but because they had more trust.



There’s a lesson in that.&nbsp;



The British pound sterling became the next global currency, backed by its convertibility into gold and also the trust in British institutions — you couldn&#8217;t melt down a pound note, but people trusted the Bank of England to exchange it for about 7.3 grams of gold on demand.



But global currencies came to be valued for more than their metal — trust in a government’s credit, a central bank’s stability, and the liquidity of its financial markets soon became equally as important.



In the 19th century, the British pound sterling — backed by gold, sensible British governance, and London’s advanced banking system — overtook the Spanish dollar as the preferred medium for large-scale finance and reserves.



The next global currency, of course, did away with the metallic backing altogether: the US dollar is backed only by our faith in the Federal Reserve, the US government, and US financial markets.



But maybe not for long.



The US still has the world’s largest economy, deepest financial markets, and strongest property rights — but erratic government policy and heated rhetoric is making people question how much they should trust the US dollar.&nbsp;



So much so that many are rethinking where to place their trust next.



Ken Rogoff thinks it could be China’s renminbi.



“There are a lot of countries,” he told the <a href="https://www.youtube.com/watch?v=6ZiZpi6AEko">Monetary Matters podcast</a>, that “don&#8217;t trust the United States. They would just rather deal with China. They understand China&#8217;s business, they know what China wants … They&#8217;d rather China had [their information] than Donald Trump.”&nbsp;



The consequence, he says, is that you might soon find yourself in “some African city” that used to love US dollars and “you&#8217;ll pull out your dollars and they’ll go, ‘What are those? Where are the renminbi?’”



That will be quite a change.



Others think the change will be even bigger — that the next global currency won’t be issued by a government at all: Bitcoin is a “trustless” form of money that many believe will transcend the trust issues that undid the Spanish dollar and British pound, and now bedevil the US dollar.



It would make for a natural evolution: Spain was trusted to mint silver money &gt; the US was trusted to issue fiat money &gt; bitcoin will be trusted to create magic internet money.



It would still have to be trusted, though, because “blockchain applications are never fully trustless,” as Vitalik once commented in a <a href="https://link.mail.beehiiv.com/ss/c/u001.5yMUnFGBFiy9jJgiqJ8glTwYwDK1WrHmNhjzb73bFcyN3Wug4KKcSaB61qXlbbgU673lKFNaG8UyC9r-cmdBqxpVQmZIp4VJ36wmCQea6ZUVbbGm21Wc3P23kznR7qdZ-YFKglKGhzmF-gJFnPxj6G8Jjh1oTyhPZHuHcCTfr9PLQ1xjfkBV9HNPIV7IwBlfV503InqTPw0_fApLYjyeji9B2BrDKcfDsOLOzMH6C2_Pum3aG3FOy-hq0Vom8hxACgn15jBK2vVeFJzCyC4udw/4b0/VM7QRPOfTCSvaniBjUngSg/h2/h001.WV4G0zgA_PACYHj6wO3r1-jWSHmWkvRuwjcogx_6EL8">blog post</a>.&nbsp;



Bitcoin’s $2 trillion market cap is evidence that it’s already trusted by an astonishing number of people — but I’m not sure it will ever be trusted by the much greater numbers required to make it a global reserve currency.



Because history shows that people trust governments to issue their money.



But it also shows that the US dollar wasn’t the first global currency — and probably won’t be the last, either.



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Dollar

An uneasy world may soon look for its next ‘global money’

This is a segment from The Breakdown newsletter. To read full editions,&nbsp;<a href="https://blockworks.co/brand/the-breakdown" target="_blank" rel="noreferrer noopener">subscribe</a>.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Public service is my motto. Ninety-nine percent of the people in Chicago drink and gamble. I’ve tried to serve them decent liquor and square games. But I’m not appreciated.”&nbsp;



— Al Capone
</blockquote>



<h2 class="wp-block-heading">Breaking the law can be productive (for everyone)</h2>



Here are two things I believe: Tipping in cash so your server doesn’t owe taxes is good — but officially making income earned from tips tax-free is bad.



Let me explain.



Paying tips in cash is good because it helps low-margin businesses like restaurants hire staff they might not otherwise be able to afford.



More broadly, cash payments for off-the-books work enable quick hiring and firing, which benefits both high-risk businesses and workers in informal or gig-style jobs.



This makes the economy more efficient, to everyone’s benefit.



But officially making tips tax-free is bad because it would unfairly favor one industry over others and distort incentives by making income earned in tips more valuable than income earned in salary.



Also, it’s regressive.



Consider the case of the exotic dancer in Miami who made <a href="https://x.com/baldridgecpa/status/1922386539218194813?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1922386539218194813%7Ctwgr%5Ed50b8cf2378b2c2fd06884a66e56e9ea6b1ddcb2%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fwww.totalprosports.com%2Fgeneral%2Fsocial-media-is-freaking-out-over-mind-blowing-video-of-exotic-dancer-explaining-how-she-does-her-taxes%2F">$710,635 last year</a>, including $297,385 of “self-reported cash.”&nbsp;



(That’s 14,869 $20 bills, in case you’re wondering.)



As detailed in her very revealing TikTok video, she chose to report that cash to the IRS only because she wouldn’t otherwise be able to explain where her substantial investment income comes from.



But if that cash income was made tax free, high-income dancers in Miami would pay a lower marginal tax rate than, say, medium-income newsletter writers in Chapel Hill.



I know what you’re thinking, and, in this particular example, it’s hard to argue — some professions contribute more to society than others, so maybe her tips should be tax free.



But the tax code shouldn’t be making judgment calls like that.



Ideally, the IRS would treat all forms of earned income equally — if the goal is to help low-income workers, then just lower taxes for all low-income workers, not just for those who get tips.



But tax-free tips is good politics and politics is what has turned the tax code into an incomprehensible labyrinth of counterproductivity.&nbsp;&nbsp;&nbsp;



To escape that labyrinth, you sometimes have to do something “productively illegal” — like tipping your waiter in cash, paying someone to clean your house without reporting it on your taxes, or hiring an undocumented migrant to harvest crops that would otherwise wither in the fields.



This is one of the benefits of physical cash: “You want to have ways you can evade the law up to a point,” Ken Rogoff, an otherwise law-abiding economist, recently <a href="https://www.youtube.com/watch?v=u1bqpyqLn0A">told</a> Tyler Cowen.



Cowen agreed: &#8220;You’re lowering output by not enabling them to pay the nanny with cash.”&nbsp;



In other words, people probably wouldn’t bother hiring a nanny if it meant complying with the full suite of employment bureaucracy, so the economy would be less productive if physical cash didn’t enable them to break a few laws.



But what about breaking laws with crypto?



Stablecoins, for example, enable people to hold and send money without being KYC’d in the same way physical cash does.



But cash allows people to evade the law “up to a point.” With stablecoins, there is no stopping point — cash enables law evasion at a small scale and crypto enables it on a large scale.



That might still be a net positive, though, assuming there are some forms of socially desirable economic activity that are precluded by KYC — like using stablecoins to avoid banking rules in countries with hyperinflating currencies or autocratic governments, for example.



The places where stablecoins have most caught on are also the places most likely to benefit from the “productive illegality” of informal economies, as scholars like <a href="https://hir.harvard.edu/an-economists-view-of-the-informal-economy-interview-with-friedrich-schneider/">Friedrich Schneider</a> and <a href="https://www.elibrary.imf.org/view/journals/023/0029/021/article-A005-en.xml">Hernando de Soto</a> have documented.&nbsp;



In the relatively sensible US economy, by contrast, stablecoins have so far mostly been used to trade crypto tokens, many of which are functionally equivalent to equity, but with no investor protection, no rights, and no rules.&nbsp;



I’d argue that makes them illegal under current US law.



But that, too, may be productive.



If unregulated crypto equity is used to fund useful new services that would not have been funded otherwise, then it could well be a net positive that regulators are currently leaving crypto unregulated.



Not for much longer, of course — both stablecoins and equity-like crypto tokens are on the verge of being legally recognized in the US.&nbsp;



But if they go on to be truly productive, their few years of illegality will be equally to thank.



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