Byron Gilliam

Nathaniel Whittemore

The Breakdown

Bitcoin is sizzling this summer, surging back to $110,000 amid optimistic predictions from figures like Michael Saylor, who argues that crypto winter is permanently behind us. But is this bullish enthusiasm a sign of strength or a setup for disappointment? Meanwhile, the SEC hints at an upcoming wave of altcoin ETFs, led by Solana, suggesting a busy fall ahead. At the same time, Connecticut makes headlines by banning state-level crypto investments, signaling ongoing tension between crypto adopters and skeptics. Plus, updates on crypto-friendly legislation advancing in Washington, and insights from Brian Quintenz’s confirmation hearing as incoming CFTC Chair.
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Bitcoin’s Hot Summer, Solana ETF Momentum, and Connecticut's Crypto Ban

In a significant policy shift, SEC Chair Paul Atkins defends self-custody as a fundamental American right, marking a turning point for crypto regulation and DeFi innovation. NLW explores why this declaration is critical for crypto’s future, how it impacts the ongoing legislative battles in Washington, and what it means for asset tokenization and blockchain developers. Plus, the ripple effects from Circle’s blockbuster IPO continue, igniting a wave of crypto IPO filings as Wall Street scrambles to catch up.
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Why the SEC Chair Just Declared Self-Custody a Foundational American Value

Markets settle on the "taco trade," betting Trump won't push tariffs too far—but uncertainty reigns as China tensions linger, automakers scramble over rare earth metals, and CEO confidence plummets. Meanwhile, Trump's massive spending bill sparks bipartisan backlash, Elon Musk fumes over budget bloat, and discussions heat up about ditching the debt ceiling entirely. Plus, the weaponization of the dollar gains momentum as geopolitical conflicts put foreign reserves at risk. Is the financial system signaling distress, and does Bitcoin offer a way out?
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Trump's Taco Trade and the Dollar's Dangerous Game

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The man who despairs when others hope that is revered as a sage.”&nbsp;



— John Stuart Mill
</blockquote>



In her eviscerating review of Thomas Piketty’s Capital, <a href="https://ejpe.org/journal/article/view/170">Deirdre McCloskey</a> laments that “for reasons I have never understood, people like to hear that the world is going to hell, and become huffy and scornful when some idiotic optimist intrudes on their pleasure.”&nbsp;



“Pessimism sells,” she observes. “Yet pessimism has consistently been a poor guide to the modern economic world.”&nbsp;



It feels like that’s never been more true than in the age of the internet, where <a href="https://www.nature.com/articles/s41562-023-01538-4">negativity drives online news consumption</a>.



Bad news has always gotten the clicks, but Joseph Pulitzer was the first to make it a business model — Pulitzer made his newspaper fortune by buying and then dumbing down the New York World, filling the paper with urgent headlines of murder, crime, scandal and disaster.



It worked, of course; Pulitzer’s paper became wildly popular because it tapped into our evolutionary instinct to pay extra attention to bad news.



As Daniel Kahneman explains, “organisms that treat threats as more urgent than opportunities have a better chance to survive and reproduce.”



Today’s most advanced organisms are no exception: “People don’t want to read about how good things are,” Morgan Housel <a href="https://pca.st/episode/fd0ceea1-38bf-4258-8268-dad9661d35b5">says</a>, adding that we’re drawn to those who tell us how bad things are: “Optimism sounds like a sales pitch. Pessimism sounds like someone is trying to help you.”



By any reasonable measure, <a href="https://x.com/HumanProgress/status/1875168992215679072">2024 was the best year ever</a> and <a href="https://x.com/sapinker/status/1904312802992341267?t=FJGoIWn9oNRAJmXc7_5PXQ&amp;s=19">our lives are better than ever</a>.



But people don’t appreciate hearing it.



“Why is it controversial to say things are better than they used to be?” <a href="https://www.amazon.com/Not-End-World-Generation-Sustainable/dp/031653675X/ref=asc_df_031653675X?mcid=f77e49f20108370b89e6190faf4c1280&amp;tag=hyprod-20&amp;linkCode=df0&amp;hvadid=693463915385&amp;hvpos=&amp;hvnetw=g&amp;hvrand=15649262247609994965&amp;hvpone=&amp;hvptwo=&amp;hvqmt=&amp;hvdev=c&amp;hvdvcmdl=&amp;hvlocint=&amp;hvlocphy=9009671&amp;hvtargid=pla-2188547162525&amp;psc=1&amp;hvocijid=15649262247609994965-031653675X-&amp;hvexpln=0">Hannah Ritchie</a> asks.



“Better than they used to be” is not a high bar, because the truth is that our ancestors lived in a<a href="https://x.com/HumanProgress/status/1856407796092203332"> brutal and boring world</a>.



And yet, people persist in believing that things were <a href="https://www.infinitescroll.us/p/things-were-better-when-things-were">better when they were worse</a>.



There&#8217;s no guarantee that 2025 will be better than 2024, of course, or that 2026 will be better than 2025 — and our relentless pessimism is doing its best to see that it’s not.



By regarding people who despair as sages, we make their dire predictions more likely to come true.



How else to explain the renewed popularity of failed experiments like tariffs and statism?



These are debates that were decisively settled in favor of free trade and free markets decades ago, back when we were far worse off than we are now.



But that’s easy to forget when evolution has hardwired us to be drawn to bad news like moths to a flame.



I think we should follow McCloskey’s lead and be “idiotically optimistic” instead.



Let’s check the charts.



The economic news has been good:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfvHbl4-xQfyM-IAohewuh8bSCTX4PhV5V4BNn8lESgoaq2xmVeEeHwI0lAkaHw7p-0X8d-P5ODikodbws9ZRHSECUzuHVtjoCaVJMwEPYmManbV6rPOUcAcbsEOcm5qm_XGpWkWA?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



If this were the price chart of a stock, would you short it? Our standard of living, as measured by world GDP per capita, has been a nearly straight line up.



Directionally correct:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfwdri2M6UXNAIkXoXcrtDCDr1xnOtjlAnL46P3HIZGyMrm1NLwnIH9ixIS817NgDJXMeZnVGafR7i7NQ8gFGi9vFLvj3V3eCzcQR9m0waEzGWd2wD1IQaERnRSlpoJ5j7PvxAV?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



One of the greatest economic success stories of recent decades is one of the least appreciated. Poland’s per capita GDP has more than tripled since 1990, but a <a href="https://polanddaily24.com/poles-worried-about-the-countrys-direction-new-survey-reveals-growing-pessimism/poland-today/54785?utm_source=chatgpt.com#google_vignette">recent survey</a> found that only 29% of Poles think their country is headed in the right direction.



Poverty is less common:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe_2LkDyqAnmRo_bmSNGWIcIlr4L2Q4IIGW2m3FfVYUrka-uvTPLNnFWKnBjCql_p1QlPZNrFGp2dW9ZIIOdF_18sqq6jVNMjvZjneHQkX8z40PqkcvQGGIc5buy2IdQ4YZ0NgPnQ?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



The global poverty rate, measured as the share of the world’s population living on less than $2.15 in 2017 dollars, fell to an all-time low of 8.5% in 2024 — down from 38% as recently as 1990.



India’s great escape:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXebC6k911gzjQX2goszixKfn6_vblKF4FnKgf6SbBLkEYy7k0K9SdwMlYrxIDlvgQR1cyRH0WFyZWMyGKwRuKwFSs-Mt_sg08iz5m0m2eLN6816h0pCw96aoGeDOkFwmlyS9SD0?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



The Economist <a href="https://x.com/TheEconomist/status/1895609959351562666?t=UEeZNeK-sg0CBlENq9OlWg&amp;s=19">reports</a> that “extreme poverty in India has dropped to negligible levels,” citing the most recent data from the World Bank — only 1% of India’s households fell below the international poverty line in 2024, down from nearly 50% in 1995. That is such good news, I think it’s worth repeating: Nearly half of India lived in extreme poverty as recently as 1995 and now, almost none do. Incredible — especially considering that 40% of India’s workforce is still employed on farms. (Note: The World Bank’s chart above only goes to 2021.)



Contra Piketty:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXd-61ndUhrDm6IBf4RAbnj4FCtfI338snKT7ukwRZXiqFmFFpdHKjWRgpFDANzk5Y0Kl3L9c8___8cFNVKCpclaFhfB1UDO3Ik7UylEXy3jJ9lEiW_1V35aOouIhtyfZVmdOA2fKA?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



The Cato Institute <a href="https://www.cato.org/policy-analysis/global-inequality-well-being-has-decreased-across-many-dimensions#inequality-human-progress-index">finds</a> that most measures of inequality have rapidly declined in recent decades, with infant mortality and air quality being two unfortunate exceptions. In the case of infant mortality, however, the news is <a href="https://x.com/robertwiblin/status/1923319267358892273">good overall</a>; it’s just that the developed world has continued to improve faster than the emerging world.



Make sure your retirement account is fully funded:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcqaKRBaGliH_bkxyBEp0BwZL17KT3BqaqHCZKt5SM3qo0qDOa7XE7WwwTC4Ud0oAROeW9MEhOKrxIkl7In7HFEZpiCGsaRBM50UmTM6pYrrq7wDNkvkIXcFjjFHocj9b_Dmprv8A?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



United Nations data shows that average life expectancy rose to an all-time high of 73.3 years in 2024 and is expected to keep rising. In the mythologized decade of the 1950s, global life expectancy was less than 50 years. Going further back, the historian <a href="https://www.amazon.com/Mysteries-Middle-Ages-Feminism-Catholic/dp/0385495552/ref=asc_df_0385495552?mcid=6992f3cc73a0346a9832a6d2cbd6fa3e&amp;tag=hyprod-20&amp;linkCode=df0&amp;hvadid=693367808565&amp;hvpos=&amp;hvnetw=g&amp;hvrand=3120444394369326437&amp;hvpone=&amp;hvptwo=&amp;hvqmt=&amp;hvdev=c&amp;hvdvcmdl=&amp;hvlocint=&amp;hvlocphy=9009671&amp;hvtargid=pla-617666925048&amp;psc=1&amp;hvocijid=3120444394369326437-0385495552-&amp;hvexpln=0">Thomas Cahill</a> estimates that in civilization’s golden era of Ancient Rome, only 4% of men lived past 50 (and “far fewer” women did).



Americans are upwardly mobile:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcwlrYqQZac6RVDUrbejnaOhF9X-7l4MgRP2mbEAr7SP8bpfOfLkSL_cdGe_xxjGLVnONn2rMtBgqzkc3b79TXdKdtpQKhPMH_jOT17ci4zSREO3u-zaqC23Co0UA8uIZynEJGMwA?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



Yes, the US middle class has been shrinking — but only because people are getting richer. <a href="https://x.com/Mark_J_Perry">Mark Perry</a> cites census data showing that the percentage of middle-income households is down because so many of them are now high-income households. Better yet: Low-income households have been moving up to the middle.&nbsp;&nbsp;



Contra Malthus: <img loading="lazy" decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeDm21m46N8_nxxQ-vtnfC6XTTu1XSTPJYE0-fCP43p95TW9rarKXeMAHd8IxwUa2oStTmZNkwkvvCeu4Mpw_w8FSvbz5PTk4KFkTEiOmTf4Mn_Mg7QFI3qIBCYedYuUzBXgH9H1w?key=KyfcwgcadGCR_sQ5fdWgMQ" width="624" height="385">



Thomas Malthus famously reasoned that agricultural production couldn’t possibly keep up with population growth, but the <a href="https://www.cato.org/publications/superabundance-free-exchange">Cato Institute</a> explains that “the more resources we consume, the more we have.” It&#8217;s not just about fold, though: “Humans, especially those living in the countries on the frontier of innovation, create knowledge that allows us to grow our resources well in excess of the resources that we consume.”



Traveling is optimistic:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXezlqik7nirJpO_xs_Vf3_BNVV2dEbklY5jFT0KMCBJc8jizNs_2J8XHJswJTfLERc0_5Kt6agAk7TvvyJPMF2TE5pEgdGNGmJifHc6SlmOncKhSN_RQQYvJepdShRk9OpHcuCIWA?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



The US government may be turning its back on the world, but Americans are not — a record 21.8% of Americans say they plan to get out and see what the rest of the world is like.



Sustainability is more affordable:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfOJ2_HCquLN2l18mUCh6xhMboyVGew7E5e2NYR_jA4x0DZBmWbF-XcY4ORknpg9_Gx6TZ3HMORKRqeD2IxYShSw2CxmBf-v_V5AI_u4rvQSSezQPZSrWURYVu6Gk-OwuVaiSDYCg?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



Solar panels have gotten so cheap in Europe that they’re being used as <a href="https://www.ft.com/content/2ea6bf6d-04e9-453b-a35f-cd6431cfc7bf">garden fences</a> (simply because they’re cheaper than regular garden fences). In Spain, the electric grid recently recorded its first weekday of <a href="https://www.pv-magazine.com/2025/04/22/spain-hits-first-weekday-of-100-renewable-power-on-national-grid/">100% renewable energy</a>.



Stuff is getting cheaper too:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeZL5OjI3O2-GaxSfxU_EMMvIjuxpdJvu-MA8PTUvXOjfV3GS5_A4iBYLPsvS6LKju092Pn9lCvJavDWTrEv9kdPjm-UEIYLzpRHhvw0hy44Syt8YozsfydsAgUOj8jlnb8qhr7Jg?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



The “time price of goods” — i.e., how many hours of blue collar labor it takes to buy something — has fallen nearly 81% since 1971 (the year the US abandoned the gold standard). The time price of power drills, for example, has fallen 93.8%! The <a href="https://humanprogress.org/the-growing-abundance-of-finished-goods-1971-2024/">full list</a> includes many other garage and mancave necessities, like an 81% reduction in the cost of a mini-fridge (to keep your beers cold, of course). What a glorious time to be a man in this world.



Technology spreads quickly:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXefwgLd5r8r4FCmV2uZsbB0HuBBsup2J8wO37E1t51VKVLenpNfNcHht2P98n9u7irNOEXhTOjFUsWQj_DTq6jpFWG7z8rk_qenXwIpd2Og5-bZ8AqZRWjVXuGpCfjdRwEYbPZS?key=KyfcwgcadGCR_sQ5fdWgMQ" alt=""/></figure>



Recent US history shows that when big new things are invented, it’s not long before nearly everyone has them. (It&#8217;s only slightly longer until we start complaining about them.)



We don’t hear enough about these success stories because they tend to happen slowly — “there’s no equivalent of Pearl Harbor or 9/11 for good news,” as Morgan Housel puts it.



But the good news adds up over time.



Vaclav Smil <a href="https://www.amazon.com/How-World-Really-Works-Science/dp/0593297067/ref=asc_df_0593297067?mcid=f5a9359d69693b6d95107a4d4514bf0f&amp;tag=hyprod-20&amp;linkCode=df0&amp;hvadid=693363595110&amp;hvpos=&amp;hvnetw=g&amp;hvrand=6232242435547018016&amp;hvpone=&amp;hvptwo=&amp;hvqmt=&amp;hvdev=c&amp;hvdvcmdl=&amp;hvlocint=&amp;hvlocphy=1021047&amp;hvtargid=pla-1416429483010&amp;psc=1&amp;hvocijid=6232242435547018016-0593297067-&amp;hvexpln=0">notes</a>, for example, that in 1800 it took 10 minutes of human labor to produce one kilogram of wheat, and in 2021, it took only two seconds.



A decline of 99.7% in the time price of food is very good news, but it doesn’t make for very good headlines, because most of us won&#8217;t click on it.&nbsp;



But we don’t have to be slaves to our evolutionary instincts — next time you see some good news, give it a read.



We’ll all be better off for it.



Have a great weekend, optimistic readers.



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The Breakdown Newsletter

Friday Charts: Click here for good news

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The human mind is a story processor, not a logic processor.”&nbsp;



— Jonathan Haidt
</blockquote>



Is the bond market sentient?



You might think so after reading about how “bond vigilantes” pushed the 30-year Treasury yield above 5% this week.



It was a dramatic move and our impulse, as always, was to explain it by anthropomorphizing the market — projecting motives, desires and fears onto an amalgamation of prices.&nbsp;



CNN, for example, ran a <a href="https://www.cnn.com/2025/05/22/investing/bond-market-selloff">headline</a> promising to explain “Why the bond market is so worried about the ‘Big, Beautiful Bill.’”



The proximate cause appeared to be passage of a budget bill whose tax cuts, if enacted and extended for a full decade (as they usually are), would likely add at least $5.3 trillion to the national debt.



But the bond market is not a person, so it probably can’t “worry” about tax cuts or budget deficits.



Even more carefully worded reporting like Reuters’ assessment that “investors worried about the country&#8217;s increasing debt burden” might be overstated — because correlation and causation in markets is notoriously difficult to untangle.



At Jim Simons’ quantitative hedge fund, Renaissance Technologies, a data entry error once caused a trading algorithm to buy 5x as many wheat futures as it intended, making prices shoot artificially higher.



The next day, the Wall Street Journal reported that analysts attributed the move to “the market” anticipating a poor upcoming harvest.



It’s not an unusual occurrence: Every headline about what’s happening in markets is simply a guess at what may have caused it.



Simons didn’t bother to try.



“Our entire premise,” he explained, “was that human actors would act the same way humans did in the past.”



It worked out pretty well for him: Over 30 years, Simons’ flagship Medallion Fund returned 66% per year (before fees).



66%! Per year!



Instructively, Simons achieved those astonishing returns by letting his algorithms make all the decisions — algorithms that were able to spot patterns of human behavior in markets without reimagining the market as a person.&nbsp;



I take that as a reminder that the bond market cannot coordinate to punish fiscal irresponsibility or enact monetary justice, as the term “vigilante” implies.



Instead, its movements simply reflect the expectations of countless investors who are constantly making all kinds of decisions for all kinds of different reasons.



Still, metaphors like “bond vigilantes” can be a helpful shorthand when we’re trying to discern patterns in the noise — which, being humans, we can’t help doing.



The collective decision making of all those investors pushed 30-year yields to 5.15%, presumably on tax-cut fears — and then back down to 5.03%, presumably on tariff fears.



I guess.



Let’s check the charts to see what other patterns we can make out.



Inflation is not the story:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcOFyqZCn5pdRCSCnAniZ380kqz2NSevk3QRDOoqYrxV_ZuvgpWe3MYyjZNwR-BNveHy1qCw71_so_xccVOEsSzJ1XvxIgCbDjECs6FhwGNI9NMgShTXyt1pCqqkv6FGI-Du-vS?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



The Cleveland Fed’s Nowcast model sees US CPI rising 0.12% in May. That works out to just 1.44% annualized, so I think we can rule out “inflation worries” as the reason bond yields are up.&nbsp;



Bonds may be decoupling from GDP:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcPSSHh6QxBA1lpcHxQxGxF9obT76J36J8LPVeOtMBjIx5EE59WbWa8RkrCCq_QldNyl4GhEVAJMxKnFtd9Ae7tbf92dxsVYnE8gSGD85TsEWBQ63xd3jJbpO8q8B9SZTR8pxVDgA?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



Juliette Declercq highlights the unusual divergence between Treasury yields and the ISM’s survey of manufacturing activity — higher yields and lower GDP is, um, not what we want.&nbsp;



The reverse Laffer Curve:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdKeCuZ1mjUVnnxnslOhDPLnBekHRvByYUbyAtR6wHZ9YeAhl0r00im1Qhe4fGhWhewUYhuifW0F6rIpWaaOjsYyiwYbs1dX4c8AapEb54vmHsE_1T3mADqRId7KF7r5u606utrew?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



On the campaign trail, President Trump said that his proposed tax cuts would “be revenue-neutral when you add growth because we’re going to have magnificent growth.”&nbsp;



But history shows that rising deficit spending is correlated to slower GDP growth. &#8220;Stimulus does not stimulate,&#8221; <a href="https://x.com/RA_Insights">Research Affiliates</a> concludes.



A listicle for the US economy:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcyLVBE7514HAg2qIU-rCEiGQkuL2NzPNBqHAfDrZ4lLpeFRJumKXdtTqfwYr4feJCH1JvyB4TaWlKYolHIA960R5BSpkV3dJn9ZLHmKQ4-8sdwqH1D8muOrescNGT0U9LIMcYs?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



The Atlanta Fed has Q2 growth tracking at 2.4%, but Torsten Slok lists 10 reasons why things are likely to get worse thereafter.&nbsp;



Annoyingly, they are all self-imposed. Analysts at Deutsche Bank have an even longer list — they <a href="https://fortune.com/2025/05/20/us-economy-experiencing-death-by-thousand-cuts-deutsche-bank/">warn</a> it will be “death by a thousand cuts” for the US economy.



Europe’s self-imposed tariffs:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdKC-_VrQqu7wGbcWZW2_oeHcz3Y0FxOy4jXawLurjAXzdJqA-YKephwd9E0VKxF1W9t0LdJvoCrKibf8LhOu4Y8wcnlrZgvIJnDkLE0WlRARwVVB0A-p1oIxgvIjkN-fVEDPyAnw?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



President Trump threatened the EU with a 50% tariff on goods this morning, which is disappointing after things had seemed to have settled down. But the EU imposes similar tariffs on itself — Luis Garicano <a href="https://www.siliconcontinent.com/p/the-myth-of-the-single-market">estimates</a> that the internal barriers to trade (country-specific rules and regulations, mostly) between EU countries are equivalent to an internal tariff of 45% on goods and 110% on services. Ouch.



The EU stock market does not seem worried, however:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcFo3ADtmnYUCQVh36xhc2frCdQKut666K0mf8_rkMZVbzq3lNQ59roW5eaGOEBRqUCIfPcAZWKVWA12J35EjtEB0C59WvA7Vc568G0c-kPYlkOrftkwXFo3DXcFBE0v7ucIAuhrg?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



Bitcoin (in purple above) is up 17% over the past month, but it still hasn’t quite caught up with European equities — they’re up 21% on the year.



The vigilantes visit Japan:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeDElx0pSvNXKB7FHdTFCUz8iK-D0b4w7gOKXY_2MC7Pu1IhN0Dfyl7NwX9zmWYi9XihdSZAVM6K4FUz8CM7fTte4m1w6raK05NP9-PSms1HPmrGBnZzYGa4f3DriLU5WKV_Nx_EA?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



The bond vigilantes have always been conspicuously absent in Japan despite the country’s world’s leading debt-to-GDP ratio of 250%.&nbsp;



But they may finally have arrived. This week, yields on 30-year Japanese government bonds rose above 3% for the first time on record (which dates back to only 1999 when the 30-year tenor was first issued).&nbsp;



Fun Japan fact: The four longest-operating companies in the world are all in Japan, led by the construction company <a href="https://en.wikipedia.org/wiki/Kong%C5%8D_Gumi">Kongō Gumi</a>, which was founded in the year 578! Not fun Japan fact: This morning&#8217;s inflation data showed the price of rice is up <a href="https://www.rte.ie/news/business/2025/0523/1514511-why-rice-prices-are-soaring-in-japan/">98% year over year</a>.&nbsp;



Foreigners are a little worried about the US:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfes4tJkWzRFyfeJBvjxHmrjJ1Zz6pggtH-THDys5eLZLn9einb2B4MepUQegOVsf0euJSnNUd0OPas_hLf4bNPjq5gYWdIYR2mKIGKgAKgwZcL_LMYgb3_C2g3aXha5Pz0t4psQw?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



Torsten Slok shows that foreign participation in 30-year Treasury auctions is at a multi-year low. But the y-axis on his chart starts at 57.5% so I guess they’re not that worried.



For when markets are closed:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcbxE7X2MlVMA4kG0WZTB-cOSaVdlW53dpwbFB4sELOUmTr0pHF8MsYWcI3i6xkhmUqipxHYAx6syQqzAB6JJXAZOX4lbaj8a6vCK00Z_JIBETzVPzoFL_b_WT--fTP3-pln5dpvQ?key=VdXUh_ZRVepkaPU5ITsCOg" alt=""/></figure>



Americans subscribe to nearly five streaming services per household now — because we love stories, of course.



Have a great weekend, storied readers.



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Friday Charts: The market is a story

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

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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’

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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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regulation

Breaking the law can be productive (for everyone)

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<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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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
&#8220;A chain is no stronger than its weakest link, and life is after all a chain.”



— William James
</blockquote>



<h2 class="wp-block-heading"><a href="https://www.vaneck.com/us/en/blogs/digital-assets/matthew-sigel-deconstructing-strategy-mstr-premium-leverage-and-capital-structure/?utm_source=veg-m&amp;utm_medium=email&amp;utm_campaign=US-Digital-Assets-2025-05-23&amp;cid=24469807/A46B358&amp;mkt_tok=NDEwLVhPUi02NzMAAAGanDVa73q2T8yThoPQBzlGGzfgKo1b1BH9KMN26h48DSGWs8ZtAO5DwtE99Pxg8j69Zy1AfXLK0KBU4r3iNl_3pxKdY3dcO7ZIqtGkX7DKH1bTAQTl#strategy">VanEck explains Strategy</a></h2>



The investment case for bitcoin treasury companies can be confusing, so VanEck has done us a service by writing the definitive explainer on the various ways to invest in Strategy (MSTR, STRF, converts).



The main vehicle, MSTR, is generally viewed as a leveraged bet on bitcoin, but VanEck details why that’s not exactly correct.



Instead, MSTR is a “convexity” bet on the price of bitcoin — because investors are not just exposed to BTC, but to an “increasing BTC position as the price of BTC increases.”



I wonder how many MSTR holders realize that&#8217;s the bet they&#8217;re making.



VanEck is unusually brave about putting price targets on crypto assets, but it declined to do so here and it’s easy to see why: MSTR’s value is driven by the “circular relationship between Strategy’s Premium and its ability to finance more BTC purchases.”



Circular logic doesn’t work well in valuation models, so that should be a red flag to anyone who thinks valuation matters.



MSTR’s raison d&#8217;être is to increase its “bitcoin per share” and the primary way it does that is to sell shares above NAV.



So MSTR’s value is ultimately a function of the valuation that investors assign it.



The result is that MSTR investors are “buying an option on the continued existence of The Premium.”



VanEck’s capitalization of “The Premium” seems to reflect how central it is to the Strategy investment case, which Michael Saylor acknowledges.



But Saylor believes The Premium can persist — Strategy, he says, is a “crypto reactor that can run for a long, long period of time.”



But you can’t model a crypto reactor in a spreadsheet, so how long it might run is anyone’s guess.



<h2 class="wp-block-heading"><a href="https://www.wsj.com/finance/currencies/trumps-media-company-to-raise-2-5-billion-to-buy-bitcoin-75420822">Trump Media &amp; Technology Group to buy bitcoin</a></h2>



President Trump’s exchange-listed media group announced plans this week to raise $2.5 billion from investors to buy bitcoin.



This prompted the Wall Street Journal to warn that “Trump’s policies toward bitcoin…could potentially affect the value of Trump Media’s bitcoin stash.”



But I’d like to add that Trump’s policies toward the dollar could potentially affect the value of his bitcoin stash.



After the capital raise, I’m guessing the president will end up with roughly a 25% stake in Trump Media’s $2.5 billion worth of bitcoin.



This creates a bizarre situation in which the president would personally profit by debauching the currency that his government issues.&nbsp;



I’m not cynical enough to think he’d deliberately do that — but could it make him a little less concerned about running giant deficits?



Show me the incentives and I’ll show you the outcome.



<h2 class="wp-block-heading"><a href="https://www.youtube.com/watch?v=OWecczwSG04">The MicroStrategy of Solana</a></h2>



When Jack Kubinec asked DeFi Development Corp’s Dan Kang what problem his Solana treasury company is solving, Kang said it’s that investors “can’t accumulate SOL fast enough.”



I’m not convinced how pressing a problem that really is, but like Strategy, DeFi Development Corp offers to solve it for you by selling you stock above NAV and investing the proceeds into SOL on your behalf.



The higher you pay above NAV, the faster they will be able to accumulate SOL.



Depending on how willing subsequent investors are to pay above NAV, this might work out as a faster way to get exposure to SOL.&nbsp;



But either way, the investing logic illustrates the circular conundrum of crypto treasury companies.



As with any asset, you don’t want to pay too high of a valuation multiple for treasury companies — surely 100x NAV, for example, would be too much.



But unlike any other asset, you don’t want to pay too low of one, either.



A Treasury company trading at or below 1x NAV won’t be able to grow its crypto holdings on a per share basis at all.



So, for the investment case to make sense, you have to believe there&#8217;s some Goldilocks multiple of NAV — not too hot and not too cold, but just right.



Sounds like a fairy tale to me.



<h2 class="wp-block-heading"><a href="https://www.the-independent.com/tech/bitcoin-mining-pakistan-crypto-energy-b2758316.html">Pakistan to mine bitcoin with surplus energy</a></h2>



Pakistan announced this week that it plans to mine as many as 17,000 bitcoin per year using surplus energy from underused coal-powered plants.



I imagine many in Pakistan would be surprised to hear that there’s all this extra energy going unused because the country’s electrical grid is notoriously unreliable.&nbsp;



But I guess it’s possible because the thing about electricity is that it’s not generated on demand.



When you flick a light switch on at home, the reason the room is immediately filled with light is that the electricity had already been generated and was in the grid waiting for you (metaphorically speaking).



Utilities are always guessing how much power they need to generate, so it’s helpful for them to deliver some of it to bitcoin miners that can be turned off when they’ve generated too little.



This is the core argument for why bitcoin mining isn’t as environmentally damaging as it seems.



But that’s probably not what’s happening here — the reference to “underused” power plants suggests that Pakistan will be burning more coal than it otherwise would have.



This makes the term “surplus” a bit misleading; it’s probably not surplus energy that’s being used to mine bitcoin, but surplus capacity to generate energy.



Either way, Pakistan says the bitcoin will be kept in a strategic reserve, which is also kind of weird because the Pakistani government runs persistent budget deficits.



So, the country will effectively be borrowing money to buy the coal required to use its spare power plant capacity to mine bitcoin, which it will HODL.



Just like Strategy!



I imagine Michael Saylor would advise Pakistan that the real play here is to rebrand its Strategic Bitcoin Reserve as a bitcoin Treasury company and list it on the stock exchange where its bitcoin will magically be worth twice as much.&nbsp;



<h2 class="wp-block-heading"><a href="https://nymag.com/intelligencer/article/trumps-hyped-meme-coin-dinner-might-have-been-a-bust.html">New York Magazine on the Trump dinner</a></h2>



Matt Steib reported that last weekend’s “‘Dinner With President Trump’ didn’t even include a dinner with President Trump.”



Instead, the famously loquacious president reportedly spoke for an uncharacteristically efficient 15 to 20 minutes before departing.



“As diners tucked into their meals,” Steib wrote, “they heard the helicopter taking off back to the White House.”



I doubt anyone was too disappointed, as a 220-person dinner hardly promises to be an intimate affair.



Also, it was pretty cheap.



One attendee told Steib that the cost to attend was only about $1,200 — the fees they paid to buy TRUMP tokens in a digital wallet and short a matching number of tokens on an exchange.&nbsp;



“Most people I spoke to had hedge positions,” the attendee added.



No wonder the president didn’t hang around to chat.&nbsp;



<h2 class="wp-block-heading"><a href="https://time.com/7288387/sam-altman-orb-tools-for-humanity/?utm_source=twitter&amp;utm_medium=social&amp;utm_campaign=editorial&amp;utm_term=_&amp;linkId=825316705">Time magazine on OpenAI and the Orb</a></h2>



Sam Altman’s blockchain-based project to <a href="https://blockworks.co/news/worldcoin-biometric-identity-vision">save the internet from AI bots</a> (a problem largely of his own making) is even more ambitious than I thought.



Altman is the chair of Tools for Humanity, which is developing the World project, which aims to “verify” the humanity of every person on Earth.



For Time, Billy Perrigo reported that Tools for Humanity also hopes World will become “the world’s largest financial network, through which it believes ‘double-digit percentages of the global economy’ will eventually flow.”



“If this really works,” Altman said, “it’s like a fundamental piece of infrastructure for the world.”



I’m sold on the need for such infrastructure: “In a best-case scenario,” Perrigo writes, “World ID could be a privacy-preserving way to fortify the internet against an AI-driven deluge of fake or deceptive content.”



Perrigo explains how in helpfully accessible terms: “If I were to use my World ID to access a website, that site would learn nothing about me except that I’m human.”



The way to prove you’re human is to prove you have eyeballs, as an Orb attendant explains: “We need a way to verify that we’re human and not AI. So how do we do that? Well, humans have irises, but AI doesn’t.”



(Irises are not the only thing that separates us from AIs, but they’re the only thing that’s provably unique.)



World has signed up about 12 million users so far, which is probably not fast enough.



“The internet will change very drastically sometime in the next 12 to 24 months,” Tools for Humanity CEO Alex Blania told Time. “So we have to succeed, or I’m not sure what else would happen.”



What would probably happen first is that the internet will be overrun by AIs.



But Altman now says that’s not his focus: “It’s not like, ‘Oh, we’ve got to avoid the bot overrun’ or whatever. It’s just that we can do a lot of special things for humans.”



Perrigo suspects that Altman is changing the narrative on World to better fit the narrative on OpenAI: “Tools for Humanity’s mission may be shifting beyond simply proving humanity, and toward becoming the infrastructure that enables AI agents to proliferate with human authorization.”



Lots of those AI agents will be created by Sam Altman’s OpenAI.



I find that a little disappointing because it muddies the narrative, but World still seems like a worthy cause to me, because what’s the alternative?



One way to contribute to the cause is to buy the World token, which has to have value so that Tools for Humanity can incentivize sign-ups, attract investors and motivate employees.



Time quotes Tools for Humanity CEO Blania as saying that he’s “really excited to make a lot of money.”



That strikes a discordant note for an ostensibly mission-driven company, but if World works, he’ll have earned it.



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Thursday links: Treasury companies and dinner without Trump

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Money and banking, in the end, is a confidence game, and our job at the Federal Reserve is to preserve confidence.”



— Richard Fisher, President, Federal Reserve Bank of Dallas (2005-2015)
</blockquote>



In Michael Lewis’ Wall Street classic Liar’s Poker, the phrase “equities in Dallas” is wielded as an epithet — a catch-all term for the least competent people at Salomon Brothers doing the firm’s least desirable jobs.



The young investment bankers in Lewis’ class of Salomon trainees lived in fear of being assigned to the equities division in Dallas — a fate considered only marginally better than being fired.



In their eyes, Dallas, TX — an incomprehensible 1,547 miles removed from Salomon’s New York City headquarters — was a financial backwater of provincial irrelevance.



But Dallas was a financial center in its own right — and its distance from New York is what made it an important one.&nbsp;



Dallas is home to one of the 12 regional banks of the Federal Reserve, many of which were strategically placed in financial backwaters as a means to decentralize the US banking system.&nbsp;



The idea was to distribute the Fed’s power across regions — not just to reflect economic diversity, but also to insulate monetary policy from concentrated political or financial influence.



That may seem like an anachronism in today’s world of megabanks and seemingly all-powerful Fed chairs.&nbsp;



But the threat of centralized power is neither theoretical nor historical, as has been illustrated by the president’s recent threats to fire Chair Powell for failing to cut interest rates.



Last week, however, the Supreme Court <a href="https://www.supremecourt.gov/opinions/24pdf/24a966_1b8e.pdf">ruled</a> that the president does not have the power to remove the Fed chair or any other board members of the Federal Reserve.&nbsp;&nbsp;



Instructively, the same ruling found that the president likely does have the authority to fire appointees at federal agencies like the NLRB and MSPB.



But the Federal Reserve is exempt, the majority reasoned, because the central bank is “a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.”



This was always the plan.



What makes the structure of the Federal Reserve “unique” is that it&#8217;s not one bank, but many — and with several in places like Dallas.



The Federal Reserve was designed as a group of semi-independent regional banks to better resist the centralization of financial power, be it in New York or DC.



Putting some of those banks in economic backwaters like Dallas wasn’t an accident; it was a way to hardwire decentralization into the system.



In 1914, when Dallas was chosen as a site for a regional Federal Reserve bank, its population of 131,278 made it the 58th-largest city in the US.



The <a href="https://www.dallasfed.org/news/speeches/fisher/2012/fs120626?utm_source=chatgpt.com">lobbying pitch</a> for why Dallas should be chosen ahead of larger cities included the proud statement that it “leads the world in the manufacture of cotton gin machinery and in the manufacture of harness and saddlery.”&nbsp;



If that helped its cause, I can only imagine it was because the pitch illustrated just how different Dallas is from New York.



Once established, the Dallas Fed hired a staff of 27 (at an average pay of $30 a month) whose primary task was to provide centralized check-clearing for the region — bundles of checks would arrive at the bank during the day and Dallas Fed employees would spend the night sorting them by hand.



The bank also supplied currency and coins to the region — to this day, banknotes ordered and circulated by the Dallas Fed prominently feature the letter “K” on the front (K being the 11th letter of the alphabet and Dallas being the 11th of 12 regional Fed banks).



More consequentially, the Dallas Fed also set local interest rates.



In the beginning, regional Federal Reserve banks were so independent that they each set their own lending rates for banks in their region.



Imagine 12 Fed banks…all setting their own monetary policy!&nbsp;



Fun, I imagine, but it didn’t last long.



Regional interest rates proved unwieldy and the practice ended in 1935 when the Banking Act of 1935 granted the Board of Governors in Washington DC the authority to set a single interest rate for the entire country.



But regional banks retained a say in rate decisions.



All 12 Federal Reserve bank presidents attend FOMC meetings to represent their region’s interests, and a rotating group of four regional presidents (New York excluded) have a vote on the FOMC.



In short, even though it often seems like Chair Powell is setting interest rates himself because he’s the face of the Fed, his is only one of 12 votes in FOMC decisions.



Importantly, this semi-decentralized structure limits the ability of a president to bully the Fed.&nbsp;



It’s true that seven of the 12 FOMC members are presidential appointees, but their staggered, 14-year terms are explicitly designed to limit the influence of any single president over monetary policy.



This has never been more relevant.



Last week, the president bullied the House into passing a “big, beautiful bill” that the Congressional Budget Office <a href="https://www.cbo.gov/publication/61187">estimates</a> would put the US on the path to adding $56 trillion of federal debt over the next 30 years.



Perhaps the Senate will impose some fiscal responsibility before the bill becomes law, but the political will to rein in deficits appears to have evaporated in recent years.&nbsp;



If so, that leaves the Federal Reserve as the last bastion of economic sanity and the last line of defense for the US dollar.&nbsp;



It might not hold.



Last week’s Supreme Court ruling demonstrates the power of the Federal Reserve’s decentralized structure.



But the Fed ultimately reports to Congress, which could rewrite the law that grants it independent control over monetary policy — and even the most responsible monetary policy may be overwhelmed by today’s increasingly irresponsible fiscal policy.



Hence the recent strength in gold and bitcoin — if the semi-decentralized Fed isn’t able to hold the line on dollar devaluation, a fully decentralized currency might take its place.



In the meantime, though, the House budget and Supreme Court ruling are reminders that we should all be thankful that there is, in fact, “banking in Dallas.”



New York’s young investment bankers most of all.



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The monetary power of the periphery: How Dallas defends the dollar

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The chief business of the American people is business.”



— Calvin Coolidge
</blockquote>



When Ross Perot’s “computer facilities management” startup Electronic Data Systems was listed on the stock exchange in 1968, the shares were offered at 118x earnings.



It was an eye-popping valuation at the time — especially given the risks.&nbsp;



EDS “is in a precarious position,” Fortune noted shortly after its IPO. “It has only a few customers, and three of them accounted for a total of 64% of revenues during fiscal 1968.”



But those were the kinds of risks that investors were keen to take.



“As every ladies’ investing club knows,” Fortune explained, “the public these days is wildly receptive to new stock issues, particularly from companies involved in the computer industry.”&nbsp;



It’s unlikely that many of those ladies had ever even seen a computer, let alone used one.



But they were nonetheless eager to bet on them, however aggressive the valuation.



Ken Langone, the investment banker who promised Perot he’d IPO EDS at “the highest possible price,” acknowledged that the price was indeed high.



At 118x earnings, the stock “would be way overvalued,” Langone later <a href="https://www.amazon.com/I-Love-Capitalism-American-Story/dp/073521624X">wrote</a>.



“But it would only be overvalued until it grew, and then it wouldn’t be.”



The investment club ladies — intrepid pioneers of growth investing — agreed with him.



EDS closed its first day of trading 40% above the “overvalued” IPO price.



With that, Perot has achieved “perhaps the most spectacular personal coup in the history of American business,” Fortune assessed.



The article dubbed Ross Perot “the fastest richest Texan ever,” which was no small feat in the state renowned for overnight oil fortunes.&nbsp;



Soon, Perot was also historically rich.



With EDS shares soaring into the end of the year, the 39-year-old Perot became history’s first tech billionaire.



It was a uniquely American story.



No other country could have produced an entrepreneur quite like Ross Perot, who spoke in Texas colloquialisms, got his hair cut Marine short every week at the same Dallas barber for 30 years straight, was a devout family man but also ruthlessly hypercompetitive in business — and won 18.9% of the popular vote in the 1992 presidential election.



But what made Perot’s fortune even more uniquely American is that investors in no other country would have enabled it.



EDS was just one of 368 companies to list its shares on American stock exchanges that year in an era when companies in other developed countries got most of their funding from bank loans.



While the US was averaging more than one IPO per calendar day, Germany, for example, <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=231231">averaged</a> fewer than one IPO per year.



​After the EDS IPO, Fortune speculated that “probably no other man made so much money so fast.”



But the author also cautioned that “most of Perot’s wealth can be attributed to the enthusiasm of investors.”



That enthusiasm for risk-taking did more than just make founders like Perot wealthy, however — it made America wealthy, too.



The United States “had a public stock market that was willing to absorb risk at much earlier stages than European and Asian markets,” Bhu Srinivasan <a href="https://www.amazon.com/americana-400-year-history-american-capitalism-Books/s?k=americana+a+400-year+history+of+american+capitalism&amp;rh=n%3A283155&amp;hvbmt=%7BBidMatchType%7D&amp;hvdev=c&amp;tag=googhydr-20&amp;ref=pd_sl_5drh44zcl3_e">wrote</a> in his history of American capitalism.



This gave the US “the unique capability to finance ideas at the earliest stages,” — and later “an ecosystem in Silicon Valley that allowed embryonic companies in nascent markets to develop quickly.”



Some of those embryos have developed into giants: The United States is now home to 21 of the 25 largest companies in the world. Americans don’t always celebrate this incredible success.



Occupy Wall Street types actively bemoan it, of course — but even the treasury secretary of the United States seems ambivalent.



“It’s Main Street’s turn,” Secretary Bessent has said repeatedly, as if the economy is a zero-sum contest between Main Street and Wall Street.



It’s not.



“Increases in stock market capitalization and the number of listed companies are closely correlated with real GDP growth,” one <a href="https://www.researchgate.net/publication/361086455_The_Influence_of_the_Capital_Market_on_Economic_Growth_in_the_USA">study</a> found, “supporting the argument that capital markets have played a key role in driving US prosperity.”



Another <a href="https://www.sciencedirect.com/science/article/pii/S0304405X00000702">study</a> detailed why: “Across 65 countries, those with developed financial sectors increase investment more in their growing industries, and decrease investment more in their declining industries.”



It doesn’t always feel that way, of course.



The popularity of things like meme stocks, zero-days-to-expiration options, and crypto “treasury companies” can make the stock market look like a giant misallocation of resources — not much more than a casino.



But a third <a href="https://www.sciencedirect.com/science/article/abs/pii/S0378426602004089">study</a> found “strong evidence that greater stock market liquidity, as measured by trading volume relative to market size, causally contributes to long-run GDP growth.”



In other words, even day trading might be economically productive.



Could crypto trading be too?



Solana co-founder Anatoly Yakovenko <a href="https://x.com/aeyakovenko/status/1925705058785644978">thinks so</a>: “What makes American capital markets great is their depth and liquidity and broad array of participants,” he says, adding that “the whole pitch of Solana [is] lowering the barrier to entry to participate in capital markets.”



It&#8217;s a good pitch, I think, because opening markets to more traders makes markets better — and crypto opens markets to everyone.



America’s capital markets are the world’s best because they’ve always connected the best founders (like Ross Perot) to the most enthusiastic investors (like the ladies’ investing clubs).



Now, crypto capital markets — newly <a href="https://multicoin.capital/2025/01/22/the-solana-thesis-internet-capital-markets/">rebranded</a> “internet capital markets” — might be the next place where risk-taking founders meet risk-taking investors.



The hope is that this happy, permissionless meeting will result in the creation of “<a href="https://x.com/_ryanrconnor/status/1924876335777734950">net new assets</a>” that could only ever be funded by crypto enthusiasts.&nbsp;



Such optimism is easy to dismiss, because for all the extraordinary enthusiasm that crypto investors have shown, the results so far have been underwhelming: Non-sovereign money was an immaculate conception, stablecoins aren’t really crypto and the rest of crypto seems highly self-refential — not much more than new ways to trade crypto.



But trading is important — and if crypto turns out to be where a new generation of enthusiastic traders fund new kinds of assets, it’s worth taking a chance on.



History shows that America’s enthusiastic investors didn&#8217;t just make fortunes for founders — they made fortunes for America, too.



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