Byron Gilliam

Nathaniel Whittemore

The Breakdown

NLW breaks down the newly signed Genius Act—the first major piece of U.S. crypto legislation. He unpacks what the law actually contains, from reserve requirements and audit rules to the “Libra clause” banning Big Tech stablecoins. With Circle and Tether taking center stage at the White House, what does this mean for the future of stablecoins, tokenization, and U.S. financial dominance? Plus, thoughts on DeFi tailwinds, CBDC fears, Schwab’s crypto plans, and the latest crypto IPO filings.
 
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Inside the Genius Act: Trump Signs Landmark Stablecoin Bill into Law

For this Long Read Sunday, NLW hands the mic to AI to read three of Byron Gilliam’s standout essays from the Breakdown newsletter. First, “Crypto’s Competitive Advantage” draws a bold parallel between 19th-century U.S. capital markets and the wild world of meme coin ICOs—arguing that pump.fun may be the Erie Railroad of Web3. Next, “Can the Genius Act Save Banks from Stablecoins?” explores how America’s newest crypto legislation recalls the era of Regulation Q, money market funds, and toaster giveaways. Finally, “Anarchy, Crime, and Stablecoins” reflects on how Timothy May might interpret Congress' surprising embrace of crypto—and where the fences still stand. A sweeping historical and philosophical ride through one of crypto's most pivotal weeks.
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The Eerie Railroad of Crypto, Stablecoin Regulation, and the Cypherpunk Legacy

NLW returns with a jam-packed Friday Five (or Friday 500) to break down the biggest crypto week of the summer. The Genius and Clarity Acts both pass the House with overwhelming bipartisan support—marking the first major crypto legislation on its way to becoming law. Trump floats a retirement-focused crypto investment EO, while the total crypto market cap tops $4 trillion and Ethereum ETFs begin to shine. Meanwhile, a dormant Bitcoin whale awakens, moving billions, raising speculation about Roger Ver or Adam Back. Plus: the U.S. Marshals' BTC holdings spark FOIA drama, and Trump fires up the Fed chaos machine with Powell threats. A defining week in crypto’s march to legitimacy.
 
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This Week's Top 5(00) Crypto Stories 

Bill Gross, the “Bond King” and co-founder of PIMCO, was one of the main characters in finance for nearly two decades.&nbsp;



He was also quite the character.&nbsp;



Gross, who oversaw $1.9 trillion in assets under management at PIMCO’s peak, wrote a <a href="https://williamhgross.com/investment-outlook-archive/">monthly investment letter</a> that touched on topics as diverse as his disdain for self-flushing toilets, how his cat liked to watch him on CNBC, the “half-erotic” pleasure of sneezing, how his youngest son was conceived, how his oldest son was a disappointment, and how he once gave a waitress a “negative tip” for poor service.



The letters often got philosophical, too: “Sand forms the foundation of my being,” he wrote in 2014, “and its porosity is at once my greatest strength and deepest wound.”



He liked to reason by analogy: Bond investors were “vampires of the investment world,” central bankers were monkeys throwing darts, financial markets were “hooked on a morphine drip,” credit markets were a supernova beginning to suffer from entropy.



His investing style was similarly unorthodox: He pioneered the “total return” investing strategy in bond markets, actively trading for capital gains instead of just passively collecting yield.



In short, he was the Warren Buffett of bonds, but quirkier.



In the 1990s, Gross’ monthly musings became a must-read in finance circles, where his quirky metaphors were widely shared and his macro trades were widely copied.



The quirkiness added to his mystique as an investing savant — Gross was not just the Bond King, but something of a philosopher king, too.



That attention helped make him the first bond investor that anyone outside of finance had ever heard of.



It also helped that he really was good at bond investing: In his 27 years at PIMCO, Gross <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3345604">achieved</a> an annual return of 7.52% a year, well in excess of the benchmark index at 6.44%.



Both institutional and retail investors started to take notice in the early 1990s, pouring billions into PIMCO’s flagship Total Return Fund.



Retail investors also rushed into the closed-end funds that Gross managed, causing the funds to trade at unprecedented premiums above their net asset value (NAV).



This was odd behavior: The PIMCO Total Return Fund was open-ended, so anyone could invest with Bill Gross exactly at NAV.



But retail investors were drawn to the closed-end funds because they seemed to promise more scope for Gross to outperform markets (by using leverage and more aggressive strategies).



Unfortunately, they paid prices that no feasible amount of outperformance could possibly justify.



The PIMCO High Income Fund (PHK), for example, traded 72% above NAV in 2011.



Even for a Bond King, that was a bar too high: 10 years later, the fund’s NAV was up a respectable 63%, but the price of the fund was up only 19% (both in terms of total return).&nbsp;



The difference was that the 72% premium to NAV that investors insisted on paying had slowly eroded to 0%.



Investors who thought they were betting on Bill Gross to outperform learned they were also betting on him maintaining his aura of investing invincibility.



That is hard, if not impossible, to do over an extended period of time.&nbsp;



Even Berkshire Hathaway, still run by the Oracle of Omaha, has long traded at a discount to the <a href="https://static.fmgsuite.com/media/documents/05891b95-b1aa-426b-af7e-525b971905f7.pdf">intrinsic value</a> of the assets it owns.



Could crypto markets prove different?



Investors in the mushrooming number of crypto treasury companies seem to think their respective Oracles and Crypto Kings will do better.



The companies themselves would argue that investors are betting on their unique ability to accumulate crypto faster than investors can on their own.



But there’s nothing unique about their strategies: They all do that primarily by selling shares at a multiple of their NAV (or mNAV, for short).



The example of Bill Gross suggests that mNAV is a function of investors’ belief in a person, and I don’t think it’s any different in crypto.



How else, for example, should investors differentiate between the bitcoin treasury companies BSTR Holdings and Twenty One Capital?



Both were created by merging with a SPAC, both of which were sponsored by Cantor Fitzgerald.



The press releases announcing their formations are effectively interchangeable, with both companies stressing their mission “to maximize bitcoin per share,” which they both acknowledge copying from MicroStrategy.



The primary way to do that is to sell shares at a high, perhaps irrational multiple of NAV — and the only way to do that is with a charismatic frontman who can inspire investors to pay it.



The premiums to NAV that BSTR Holdings and Twenty One Capital command will be a measure of investors’ belief in Adam Back and Jack Mallers.



It might be a little different for treasury companies holding Solana and Ethereum, where executives can promise to maximize the native yield that those assets offer.



The latest Ethereum treasury company, for example, claims to be differentiated by the skill of its executive team.



Announcing the launch of Ether Machine yesterday, co-founder Andrew Keys emphasized the company’s ability to maximize yield: &#8220;We have assembled a team of &#8216;Ethereum Avengers&#8217; to actively manage and unlock yields to levels we believe will be market-leading for investors.&#8221;&nbsp;



I have no doubt that these impressively credentialed executives are all Tony Stark-level geniuses.&nbsp;



But how much extra yield can even superheroes squeeze out of Ethereum?&nbsp;



Will it be enough to cover the salaries of a chai, CEO, vice chair, CTO, CFO and head of DeFi and still leave something for shareholders?&nbsp;



Bill Gross, the greatest bond investor of all time, heroically outperformed the index by one percentage point per year.



But that was nowhere near enough to justify that 1.7x multiple of NAV that his retail investor acolytes insisted on paying for his closed-end funds.



I imagine he’d be skeptical of crypto treasury companies doing much better.



“Picture perfection or fairy tale endings,” he wrote in 2014, “do not describe the global economy or even its financial markets.”



With crypto treasury companies, investors seem to be betting on a picture-perfect, fairy tale ending.



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The Breakdown Newsletter

Can belief be a business model?

This is a segment from The Breakdown newsletter. To read more 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">
“No member bank shall, directly or indirectly by any device whatsoever, pay any interest on any deposit which is payable on demand.”



— Section 11(b) of the Banking Act of 1933
</blockquote>



Money market funds — the world’s most boring financial product — terrified bankers as soon as they started to catch on in the 1970s.



When interest rates soared beyond what banks were legally allowed to pay on deposits, money market funds, which faced no such restrictions, suddenly looked like a threat to the entire banking system.



None other than Paul Volcker called money market funds a “regulatory arbitrage” that “weakens the financial system&#8221; because they “sucked deposits out of banks.”



The problem was that banks couldn’t compete with the higher interest rates on offer from money market funds because of Regulation Q — a 1933 rule explicitly designed to prevent banks from competing on interest.



In the 1920s, banks engaged in a ruinous “rate war,” offering ever-higher interest rates to attract deposits. To pay these rates, banks had to make increasingly risky loans, creating a dangerous cycle that ultimately destabilized the banking system.



Regulation Q sought to avert such competition by banning banks from paying any interest at all on checking accounts and capping what they could pay on savings accounts and CDs.



This is why banks became famous for giving out gifts in return for new deposits: They couldn’t offer a higher interest rate than their competitors, so they offered toaster ovens and televisions instead.



In 1979, <a href="https://tontinecoffeehouse.com/2021/04/26/toasters-televisions-and-regulation-q/">for example</a>, depositing $1,475 with the Republic National Bank for 3.5 years earned you a 17-inch color television, and the same amount deposited for 5.5 years earned a 25-inch one.



Want an even better deal? Depositing just $950 for 5.5 years earned you a stereo with built-in disco lights.



But even disco lights weren’t enough to keep bank depositors from fleeing to unregulated money market funds.



Money market funds were able to pay those higher interest rates because they didn’t pay “interest”: They got past Regulation Q by paying dividends instead.



This was (and remains) a distinction without a difference, but regulators chose to allow it in the name of financial innovation.



Banks warned that this regulatory arbitrage would siphon away their deposits and impair their ability to make loans.



They were right, too: In the decade or so after money market funds were introduced, retail savers moved hundreds of billions of dollars out of their local banks and into the new “shadow banking system” of money markets.



As forewarned, this impaired the regulated banking system’s ability to serve its core purpose of creating the money that the US economy needed to grow.



To their credit, regulators recognized the problem and, as early as 1970, began offering banks various exemptions to Regulation Q.



By 1986, interest rate caps had been almost entirely phased out; but it wasn’t until after the Great Financial Crisis — caused in part by a panic over unregulated money market funds — that lawmakers decided to fully repeal Regulation Q.



The bell could not be unrung, however.&nbsp;



For better and worse, the decision to allow money market funds to pay interest while banks could not shifted the foundation of the US financial system from bank loans to capital markets.



Now, the government’s decision to allow stablecoins into the US banking system might do something similar.



The Genius Act, expected to be signed into law any moment now, legalizes stablecoins as a new form of money.



Specifically, stablecoins become non-bank money that looks eerily similar to the money market funds that were de facto legalized in the 1970s over the objection of the banking industry.



Lawmakers, however, appear to have long memories: This time around, the new form of money they’re allowing will not be interest bearing.



The Genius Act prohibits issuers from paying interest on stablecoins, in the hope of protecting the banking system from the same kind of ruinous “rate war” that Regulation Q was designed to prevent.&nbsp;



Interest-bearing stablecoins, it’s feared, could further drain the banking system of demand deposits, making it even harder for your friendly neighborhood community bank to give you a loan.



It might happen anyway.



If money market funds were able to innovate their way around Regulation Q, is there any doubt that crypto will be able to innovate its way around the Genius Act?



Stablecoin issuers will likely figure out an equivalent of rewarding their users with toasters instead of interest.



And even if they don’t, DeFi protocols will figure out ever more ways to pay interest.



You can already get over 5% yield on stablecoins by taking a sliver of smart contract risk with a protocol like Compound.



Tellingly, that might represent less risk than what bank depositors were initially willing to take with money market funds — and stablecoin deposits are nearly as accessible, too.&nbsp;



Money market funds demonstrated that US savers were eager to accept a little counterparty risk and a slight delay to withdrawals in return for higher yields.



So much so that today, money market funds are effectively risk free because they’ve become too big to fail.



The Genius Act may prove to be stablecoins’ first step in the same direction.



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Can the Genius Act save banks from stablecoins?

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Capital goes where it’s treated best.” — Wall Street folk wisdom
</blockquote>



In this century full of Big Tech successes, Europe’s only big success is Spotify, whose shares are listed on the New York Stock Exchange.



I mention this because New York is not in Europe.



Spotify was founded in Sweden, incorporated in Luxembourg and keeps its accounts in euros.



At the time of its 2018 IPO, half of its workforce and more than half of its customers were in Europe.



But Spotify was one of 87 non-US companies that chose to list its shares primarily in the US that year.



It’s easy to see why: No market makes it easier to sell shares than the US does (no matter where the company’s from) and no market pays more for them.



This is not a recent development.



The US has been a magnet for international investment capital for at least 200 years, in part because it was always easier to both start a company here and sell shares in it.



In 19th century Europe, you needed a state or royal license to incorporate a company, for example.



In the US, you just filled out some paperwork and paid a processing fee.



The US had few restrictions on the issuance of stock at the time, so entrepreneurs could sell shares in those newly formed companies directly to the public with little, if any, regulatory oversight.



(Crypto-friendly readers may see where I’m going with this.)&nbsp;



The New York Stock Exchange required that companies be profitable and already have tradable shares, but there was an active over-the-counter market right outside the exchange where anyone could walk up and offer anything for sale to anyone.



In Europe, by contrast, public share offerings were viewed with suspicion and sometimes required ministerial approval.



Perhaps most importantly, the US developed a culture of small-scale shareholding far earlier than anywhere else did.



The Erie Railroad was one of the first to do so, selling shares directly to retail investors in the early 1830s. Its (relative) success helped develop a culture of public equity investing.



Retail enthusiasm for Erie shares inspired a wave of railroad IPOs, many of which were <a href="https://citeseerx.ist.psu.edu/document?repid=rep1&amp;type=pdf&amp;doi=c243875996dce14828dd4ca8243a0027288b0290">funded by European investors</a> who had more capital than domestic investment opportunities.



Europe also built railroads, of course, but these were mostly funded through government concessions or syndicates of banks.



As a result, the US finished the century with a much bigger railroad network than Europe did, despite having far fewer people.



Americans’ enthusiasm for buying stocks has been one of the country’s biggest competitive advantages ever since.



Automobiles, aerospace, electronics, the internet and AI: These capital-intensive industries all gravitated toward the place where it was easiest to raise capital — US stock exchanges.



But is there anywhere easier to raise capital than crypto exchanges?



On Saturday, it took the memecoin launchpad Pump.fun just 12 minutes to sell $500 million of tokens. (At a retail-friendly price of just $0.004 per token.)&nbsp;



Like the Erie Railroad — and unlike modern IPOs — much of this capital was raised from retail investors: Blockworks’ <a href="https://x.com/whosknave/status/1944182805883146712">Jack Kubinec reports</a> that the median order size for pump.fun tokens was just $400, and that 20,000 accounts KYC’d with exchanges to qualify.



US investors were excluded because of the still-uncertain regulatory regime here, but the pump.fun ICO is a reminder that crypto markets are theoretically open to anyone with an internet connection, at any time of day or night.



The pump.fun ICO alone raised more on a Saturday than the NYSE has raised on all Saturdays since at least 1952 (when it stopped trading on Saturdays).



This could prove to be a competitive advantage for the emerging digital economy: If crypto capital markets become the easiest place to raise money, that’s where companies will go to raise it.



And like non-US companies raising capital in the US, non-crypto companies may someday raise capital in crypto.



There are risks!



Crypto’s lack of regulation has attracted projects more interested in avoiding oversight than in doing anything genuinely innovative or productive.



(The jury’s still out on pump.fun, in my opinion.)



That might have to change: In the US, investing in equities didn’t go truly mainstream until the SEC was formed, giving retail investors confidence that the market wasn’t rigged against them.



There is no such confidence in crypto markets.



But 19th century capital markets were largely rigged against retail investors and productive industries — banks, railroads, canals — managed to get funded and built anyway.



Similarly, if the current crypto industry (for better and worse) was built by the Ethereum ICO of 2014, the pump.fun ICO of this weekend could be the start of the crypto industry’s next phase.



In a best-case scenario, crypto capital markets could become to the 21st century what the US equity market was to the 19th: a more flexible, more inclusive and more speculative system of capital formation that outcompetes the rigid incumbents of traditional finance.



If a tech company as important as Spotify ever chooses to raise capital in crypto markets, pump.fun will go down in history as the Erie Railroad of crypto.



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Crypto’s competitive advantage: Saturday ICOs

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The importation of gold and silver is not the principal, much less the sole benefit which a nation derives from its foreign trade.”&nbsp;



— Adam Smith
</blockquote>



Capitalism, it is sometimes said, is how we take care of people we don’t know.



People you don’t know grow the food you eat, build the house you live in and sew the clothes you wear.



For Americans, many of those people live in Vietnam, although we don’t seem very thankful for them — this week, the chair of the White House Council of Economic Advisors, Stephen Miran, <a href="https://thehill.com/blogs/blog-briefing-room/5386853-miran-us-vietnam-deal-fantastic-extremely-one-sided/">said</a> a new trade deal with Vietnam is “fantastic” because it&#8217;s “extremely one-sided.”



This is a Hunger Games worldview that I wish I could talk him out of.



Dear Mr. Miran: Vietnam doesn&#8217;t have to suffer for Americans to prosper!



Just the opposite, in fact. The entire point of free-market capitalism is that exchanging goods and services is a positive-sum activity.



We learned this from Adam Smith, who explained that every voluntary exchange makes both parties better off — or it wouldn’t happen.



People have an innate “propensity to truck, barter and exchange one thing for another,” he wrote, and the more we do it, the wealthier we all are.



Extracting “extremely one-sided” trade deals, by contrast, makes both sides poorer.



The deal Miran touted is so one-sided that it literally has one side; Vietnam hasn’t even agreed to it, Bloomberg <a href="https://www.bloomberg.com/news/articles/2025-07-11/vietnam-surprised-by-trump-tariff-announcement-seeks-lower-rate?cmpid=071125_morningamer&amp;utm_medium=email&amp;utm_source=newsletter&amp;utm_term=250711&amp;utm_campaign=morningamer&amp;embedded-checkout=true">reports</a>.



The president imposed similarly one-sided deals on Japan and Brazil this week, in letters that revive the 18th-century practice of capitalizing random nouns:&nbsp; “We invite you to participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.”



The letter to Japan complained that the relationship between the two countries has been “far from Reciprocal&#8221; (again with the capitalization!), because the US sends more money to Japan than it receives.



But Smith would explain that the primary purpose of trade is not “the importation of gold and silver,” but the increased availability of goods and services for all. To judge trade relationships solely by the flow of money is to assume that trade is a zero-sum activity.



Sadly, this Hunger Games outlook appears to be one of the few areas of bipartisan agreement.



“Zero-sum thinking doesn’t fall neatly along party lines and is not a clearly left-wing or right-wing mindset,” Stefanie Stantcheva <a href="https://www.economist.com/by-invitation/2025/07/07/to-understand-america-today-study-the-zero-sum-mindset-writes-stefanie-stantcheva">wrote</a> for The Economist.



Instead, a <a href="https://scholar.harvard.edu/files/stantcheva/files/zero_sum_political_divides.pdf">study</a> she co-authored found that urban dwellers, PhDs and young people are most likely to have a zero-sum view of the world.



Even PhDs don’t read Adam Smith anymore, I guess.



The stock market doesn’t seem very troubled by this troubling trend. It’s up nearly 7% year to date, as if nothing much has happened.



But I’m sure Adam Smith would tell you that if we insist on making world trade a competition, we’re all going to lose.



Hunger Games had a happy ending, after all, but only because they stopped playing the game.



Let’s check the charts.



Something is happening:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXft1eDSaFN6QJcfQT6ErmiBrwxevq91lVZZ2r7qAfuXfR4kv_737TePe1u4Y9UPzTQp2XIGBIslQ4zcRuAgcsDnG82BjMcnMB7DwGLkp3W9aPGm0KGCL0TKgGRpvj6dRq7p5YS2ig?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



The euro-dollar exchange rate is usually a function of the difference in interest rates between the US and EU. These two things have decoupled since the start of the trade war, which suggests that currency markets (unlike stock markets) think that tariffs do matter.&nbsp;



Try to keep up:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcsp9ibZiTouQ6W2XtCLR7daXbpgBLqfsrESy-AgvMS-I1kcnXkWKJR2wR5gkaDsjyd-ouRUmFny2ns2KKWdHVj9fluC8YxzSDfNiN2AAE6P9YeUjRuRBOBF7kMNVWnAMVFnUUuIA?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



Economists at Yale’s <a href="https://budgetlab.yale.edu/research/state-tariffs-july-11-2025">Budget Lab</a> calculate that the announced tariffs — as of today! — amount to an effective rate of 16.3% (pre-substitution). It’ll probably be different tomorrow. And probably higher.



Tariff cheat sheet:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdTIHGScqHNcock1plmKNZFT3Zn47bwNtTDI07zzW5r3mnYFuCG5CeofW-o37XHfpGndTly2pdK931jQFHpSzWvZYDb4l3tTWcP2_d3WKnEEjbTRbglWziGwX8ojq6X2FHKd3V_Fg?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



Yale also keeps a running calculation of how tariffs will impact GDP, inflation and our purchasing power. It currently estimates that the annual disposable income of American households will fall by an average of $2,480. (It seems to have read its Adam Smith.)



Is inflation due for a trend change?



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcasJPGYu8bmxDP32O1iie8BG3PoinR7WQcmXYyVfMj94eLFc131sgvzbBz0g89BOMyuVfCeiuoY6pZQJpuvcQL6wGpnBBVj5A7P_IQaO3MRNL3bVfLQjROED7meFGbgQPDVfep_g?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



<a href="https://x.com/hashtag/CPI?src=hashtag_click">CPI</a> has surprised to the downside four months in a row, but the Cleveland Fed sees inflation nearly 0.8% higher in Q3 vs. Q2. Next week’s CPI report will be scrutinized for a change in the recent trend.



Shrinking the economy:



<img loading="lazy" decoding="async" width="624" height="321" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcrPgj0Cx-ZnUqWHTuwirKvNiTk8V8Qf37GT-2JKJ5SbW-gpPzCILuzH_YXPgKu4TQ5UWOcLPa0FAmf0vyfCcbNVWUKAbx29lH1qNLMU8yoAu6XuDVENnDmjaE1VctL1dM_jmXrIQ?key=gmQcsukBToMu7GJ4dl8UAQ">



The Budget Lab estimates that tariffs will take about 0.8% off GDP in 2026 and that the US economy, growing from a smaller base, will remain 0.4% smaller than it otherwise would have been, in perpetuity.



Shrinking the economy, part two:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcjO4-zOuwfwfqQpGFYnDxnKZ51fbNa0grwtcwpbKzQFaoWwxdLq9Bkua4EpMzYLHVjumYtUkPJzocjD_uyH22s-maD6L_XzVzIF80smiSB-ANyJIN3Mopx-_G6zl_eDW9tMLYh?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



<a href="https://www.economist.com/graphic-detail/2025/07/01/ten-charts-to-explain-trumps-big-beautiful-bill">The Economist</a> (using Yale data again) charts the effect of the big beautiful bill, which is expected to have made the US economy 2% smaller in 2050 than it otherwise would have been. Two percentage points in 2050 may not sound like much, but it will happen faster than you might think. I did the math and found out 2050 is less than 25 years away. (Weird, but true.)



In case you missed it:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdkws_PS8lCp84KyIVi2VW6DekmKb5AdfmvoUIrXt5U3IYOBB-6h8slGixUhUzj_KBro7iX-Jg7IaUBkloD_SVjzkGOnBD3r7o_mRFzBO2GprLkZWWbK9h7q-FJLWDnITPBYJKd?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



“It” being the stock market. Data from @ryandetrick shows that when stocks are up as much as they are now, they are always higher three, six and 12 months later. That is a mathematical fact…but with a sample size of just four, unfortunately, so maybe don’t bet the house on it.



My favorite chart:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXc2ZRnk8J3KAXmnOGfo-fTujAZTKLMgdl1zArgFG1dr0Cp-UJCznsMTsHG606XoTgm9RtlYU-XQh6INRXF32IQ0vgiHBpZUIkPw-V8zmFDTUWZCcEFL1aGPWvKFo-mA_zRxPMGJiA?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



I am excellent at buying high, so I always enjoy seeing the counterintuitive data <a href="https://x.com/MikeZaccardi/status/1940144800902303949">Mike Zaccardi</a> reprises above. Somehow, buying the S&amp;P 500 only at its all-time highs is better than buying randomly. There’s hope for us all.



Doing more with more:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfBTj-jSLXDw2D9NGqKGdgdysjJsYDXNNE1xhh6S3xPn-nOA-Ts3OtpECEEL7ww4xQVOW3nQScizincr1FOgKJFRZ4P7X8fONtv40N5_30qaxAaoKO8m17Apeia2ycdftuTKZPlVA?key=gmQcsukBToMu7GJ4dl8UAQ" alt=""/></figure>



The unsung hero of this longer-than-expected economic expansion has been a surge in productivity, as measured by output per hour. Economists are not yet sure why we’re getting more productive, but Timothy Taylor’s <a href="https://conversableeconomist.com/2025/07/03/the-weird-and-lovely-surge-of-us-productivity-growth/">best guess</a> is that we have the Covid-induced adoption of technology to thank.



They’d all agree, however, that the way to be even more productive is to keep trading with each other.



Have a great weekend, positive-sum readers.



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Friday charts: The rise of zero-sum thinking

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Your future is whatever you make it. So make it a good one.”



— Doc Brown
</blockquote>



<a href="https://open.spotify.com/episode/3fs6Zdaudo5imtc03z0zfE?si=ecd1e486993b4fe1">Capitalism is time travel</a>



In the latest EconTalk podcast, Russ Roberts and Mike Munger ask some basic questions — What are markets? What is capitalism? Why do they matter? — with some surprising results.



Munger defines markets as “a set of institutions for reducing the transactions cost of impersonal exchange.”



To help us understand why that matters, Munger starts with the most basic possible example: If I have a banana and you have an apple, but I like apples better than bananas and you like bananas better than apples, we trade.



This leaves the amount of apples and bananas unchanged, but makes us both better off.&nbsp;



Every voluntary exchange, therefore, makes the world a better place — and markets enable more voluntary exchanges.



But not just that.



The next step in people becoming better off is the division of labor: Instead of everyone trying to grow the food they want, everyone grows only what they’re best at and then trades for everything else.



This “puts the production process on steroids,” creating more apples, bananas and everything else.&nbsp;



The only limit to that process is how many people are involved, and that is why we need markets. The “impersonal exchange” of markets allows people who don’t know each other to participate in the division and specialization of labor.



This is to everyone’s benefit: “We want to find more and more people to exchange with,” Munger explains, “not because it makes them wealthier, but because it makes us wealthier.&#8221;



This first-principles explainer sets up Munger’s unconventional definition of capitalism: “A set of market institutions that allow time travel.”



It’s a surprisingly intuitive thought.



You might, for example, have an idea for a product that you’re sure people will want to buy; but you probably don’t have the money required to build a factory to start making it for them.&nbsp;



“What capitalism does is solve that problem through time travel,” Munger explains. “We’re going to travel forward into the future to a time when this factory is operating and is producing substantial profits. I’m going to take some of those profits and get in my time machine and go back in time and invest it in the resources that create the capital that now allows me to [build the factory].”



Selling equity is the time machine that empowers you to do that.



Buying equity, by that logic, is what enables all new things to come into the world.&nbsp;



To recap, the three functions of markets are exchange (things go where they’re most wanted), specialization (the production of things increases) and time travel (all new things are created).



People tend to think of markets primarily as a place to make money, but that is their real purpose — and their benefits are limited only by their size. “The division of labor,” Adam Smith wrote, “is limited by the extent of the market.”



Crypto did not get a mention in the podcast, but I think it offers a good way to look at it: The highest purpose of permissionless crypto markets, open to everyone, is to make markets better by making them bigger.



<a href="https://www.ft.com/content/475ca245-bd04-4a56-b848-b88ea3b4ef13">Crypto treasury companies are anti-capitalism</a>



The CEO of Metaplanet has an interesting explanation for why it chose to become a bitcoin treasury company: “We’ll get cash that we can use to buy profitable businesses, cash-flowing businesses,” he told the FT.



This is a departure from competitors like MicroStrategy, whose stated purpose is simply to stack crypto as fast as it can.



I think it’s a telling departure, because holding a non-productive asset now so that you can buy productive assets later is the opposite of how capitalism is supposed to work.



Per Mike Munger, capitalism is meant to pull investment out of the future and into the present.



Metaplanet is doing the opposite, hoovering up investment capital now so that it can do something productive with it later.



This is anti-capitalism.



Surprisingly, the capitalist stock market seems happy with this: Metaplanet trades at nearly <a href="https://metaplanet.jp/en/analytics">11x</a> the value of its bitcoin holdings.



<a href="https://vitalik.eth.limo/general/2025/07/07/copyleft.html">Vitalik says Ethereum is important to the world</a>



Listening to Vitalik is always a welcome reminder that crypto can be more than memecoins and treasury companies — it could help make the future a good one, even.&nbsp;



“The Ethereum ecosystem going well is a very important thing to particular parts of the world going in the right direction,” he told Epicenter this week.



Specifically, the Ethereum co-founder cites finance, identity and governance as areas that can benefit from the “neutral layers” only crypto can create.



For that to happen, though, he thinks the industry needs to be more mission-driven: “The thing we need to shift gears on is from saying something is by default worth building because it uses blockchains.”



Instead, he says, the industry should be “properties first,” not &#8220;technology first.”



I’d offer the <a href="https://www.theverge.com/news/701272/jack-dorsey-bitchat-bluetooth-messaging-app">bluetooth messaging app</a> that Jack Dorsey announced this week as a prime example — it hasn’t gotten a lot of attention because there’s no crypto involved, but it embodies crypto’s original cypherpunk values.



Vitalik noted that the Ethereum Foundation has shifted its focus toward applications in order to better promote crypto’s original intentions: “We think that building is a much healthier way of achieving those goals than just complaining.”



Some of that complaining has been about ether’s underperformance vs. Solana’s and he seems to have heard it: “If Ethereum gets sucked into directly playing the HFT game as an L1, to me, that will just fundamentally destroy Ethereum’s soul.” Ethereum’s competitors, he implies, are over-optimizing for the wrong things (like speed of execution), and to illustrate the risk that entails, he asked a rhetorical question: “Should we destroy humanity in exchange for a 1% chance of giving really good lives to 500 trillion shrimp?”



Only a correctly optimized Ethereum can prevent it.



<a href="https://blockworks.co/news/pump-revenue-sharing-token-holders">The pump.fun token launches on Saturday</a>



This weekend, the memecoin launchpad pump.fun will pull $1.3 billion of its future profits into the present with an initial coin offering.



You might, like me, be thinking that the present has quite enough memecoins as is. But pump.fun <a href="https://x.com/pumpdotfun/status/1942947267436056740">says</a> it’s not just about that: “Anyone can use pump to build whatever they want. It’s more than memes.”



What pump says it is building is “a global network of instant money &amp; attention” that will disrupt the big social media platforms: “Our plan is to Kill Facebook, TikTok, and Twitch.”



That is a worthy goal, I guess, although I shudder to think what pump will replace them with.



Whatever the odds of that happening may be, the ICO at $0.004 per token does not appear to be pricing it in.&nbsp;



In a <a href="https://x.com/_ryanrconnor/status/1943348190381543769">note</a> for Blockworks Research, Ryan Connor says the token’s $4 billion valuation is “very reasonable,” based strictly on the outlook for memecoins. “With Pump.fun annualizing at $750m revenue for 2025, and 25% going back to the token, this puts the token valuation at ~5x 2025 annualized revenue and ~20x 2025 annualized token buybacks.”&nbsp;



Valuation is a bit less reasonable in <a href="https://app.hyperliquid.xyz/trade/PUMP">pre-market trading</a> on Hyperliquid, where the token was already changing hands 30% above the ICO price this afternoon.



(It’s also traded an incredible $130 million of volume over the last 24 hours, which might go a long way in explaining the giant valuation of Hyperliquid.)



Connor cites several risks to the investment case, including the risk that it’s not a traditional investment: “Buyers should keep in mind that the equity entity ultimately governs this project’s value flows today.”



Translation: Token holders will just have to hope that pump will choose to share its future profits with them.



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Thursday links: Time travel, anti-capitalism, ETH, pump.fun

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“I wish upon you ample doses of pain and suffering.”



— Jensen Huang, on building resiliency
</blockquote>



The history of the world’s most valuable company is a study in how improbable its survival was, let alone its success.



In <a href="https://www.amazon.com/s?k=the+nvidia+way&amp;crid=N16XBIMZV1DG&amp;sprefix=the+nvidia+way%2Caps%2C179&amp;ref=nb_sb_noss_1">The Nvidia Way</a>, Tae Kim tells the story of how Nvidia, founded in 1993, emerged from the small and volatile market for graphics chips — an industry in which everyone was always &#8220;thirty days from going out of business,&#8221; as Jensen Huang constantly reminded his employees.



That was more or less true for much of Nvidia’s existence, not only because money was tight for most of its existence, but because graphics chips were so interchangeable that one poorly designed product could sink the company.



After Nvidia’s first two chips were poorly designed, the company really was just weeks away from insolvency.



“We were just bad at our jobs,” Jensen told Kim, who refers to Huang by his adopted first name throughout.



(Born in Taiwan, Jen-Hsun Huang anglicized his first name because his parents sent him to a reform school for juvenile delinquents in Kentucky under the mistaken impression it was a boarding school for high achievers.)



Nvidia’s third chip only happened because Jensen took what little venture capital the company had left and gambled it all on an accelerated production process to get it done while he could still make payroll.



It was a hit and the company survived another cycle.



No one was more surprised than the industry leader at the time, 3dfx, which was forming plans to buy Nvidia out of bankruptcy.&nbsp;



But shortly thereafter, Nvidia was the industry leader and 3dfx was bankrupt.&nbsp;



(Nvidia bought 3dfx’s patents out of bankruptcy and hired 100 of their engineers.)



Nvidia would continue to &#8220;oscillate between near-death experiences and market-defining success,” Kim writes, which does much to explain the company’s culture — the world’s largest company still operates as if it’s 30 days from going out of business.



Much of that is a reflection of Jensen’s personality.



As Kim documents, the billionaire tech founder spends nearly all of his waking hours working, including weekends and holidays.



“Work is how I relax,” he explained to employees who asked why he was bombarding them with emails from a beach.&nbsp;&nbsp;



He expected his employees to do the same and they mostly did: Local competitors took notice that the employee parking lot at Nvidia’s Santa Clara headquarters was typically full on nights and weekends.



Even so, Jensen was tough on them.



His method of managing people, in his own words, was to &#8220;torture them into greatness.&#8221;



That wasn’t always appreciated.



Jensen used to save his most scathing performance reviews for all-company meetings, believing that a public dressing-down was an opportunity for everyone to learn from someone’s mistake.



(“Feedback is learning. For what reason should you be the only person to learn from this?”)



Many talented engineers left the company because of that kind of treatment: “It was the most embarrassing, humiliating thing I’ve ever seen,” an executive told Kim of one such incident.&nbsp;



But Jensen was equally hard on himself: &#8220;I look in the mirror every morning and say, ‘You suck.’&#8221;



Nvidia adopted that harsh personality — the “Nvidia way” of Kim’s title is essentially the mindmeld between Jensen and the company he co-founded with two friends.



(One co-founder quit the company in 2000 and sold his entire stake for about $30 million. His 3.5% of the company would be worth about $140 billion today.)



That may have made Nvidia the most unpleasant place to work in Silicon Valley, but it’s made it a survivor.



Even when Nvidia had survived long enough to IPO in 1999, people doubted its chances of holding on much longer.



“Why would we invest in a graphics company?” one investor asked. “You would be the 40th we’ve backed, and all the others have gone out of business. Why would we do this?” The reason, Kim’s story makes clear, was Jensen.



His maniacal work habits, adopted by the whole company, kept Nvidia alive in the early years, and his uncanny ability to see around corners kept Nvidia at the cutting edge of technology.



Jensen was among the first to recognize that PC gaming would be a bigger market for graphics chips than business workstations.



He was among the first to recognize that graphics chips, like CPUs, could become programmable “general processing units” by running software, which Nvidia went on to invent.



(Nvidia contracted Mythbusters to create a <a href="https://youtu.be/Ge-g3xZ5bb8?si=SPTyEY68TD6unfYd">fun explainer</a> on the difference between GPUs and CPUs.)



Most importantly, he was among the first to recognize that GPUs would become the enabling technology of AI.



The same GPUs that Nvidia had optimized to do the math behind the arc of an arrow in Zelda turned out to be uncannily well-suited for the matrix math that powers today’s AI models.



From afar, it seems like Nvidia lucked into it: GPUs just happened to be good for AI and Nvidia just happened to make them.



But Kim&#8217;s account shows that Jensen spotted the breakthrough progress in deep-learning AI while it was still an academic curiosity.



It’s hard to imagine any other CEO being that early to such a deeply technical trend — and impossible to imagine any of them betting their company on it.



“Deep learning is going to be really big,” he told Nvidia executives in 2013, nine years before the release of ChatGPT. “We should go all in.”



Only with hindsight was that an obvious thing to do.



At the time, Nvidia sales were stagnant, its market capitalization was just $8 billion and its shares traded on 10x P/E, net of cash.



Nvidia’s own investors were so low on the company’s prospects that they badgered Jensen into spending $1 billion of the company’s cash buying back shares; they thought there was nothing else to do with it.&nbsp;



Fortunately, Jensen was simultaneously investing billions in getting Nvidia ready for the AI moment that hardly anyone else saw coming.



In many ways, Jensen created that moment.



Without the billions that Nvidia invested in optimizing its chips and software for AI (years before they could show investors any return on it), the ChatGPT phenomenon would not have happened how and when it did.



Nvidia’s GPUs made large-scale deep learning feasible and they wouldn’t have made them with any other CEO.



“Jensen Huang is surely the only person who could have gotten Nvidia to where it is today,” Kim concludes.



There was a lot of pain and suffering along the way.



But there’s no other way a graphics chip startup becomes the world’s most valuable company.



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The first $4T company

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Since health, well-being, and security are proper concerns of Government, scientific progress is, and must be, of vital interest to Government.”



— Vannevar Bush, godfather of government research spending
</blockquote>



Should the US government spend money on scientific research? It’s a fair question to ask: Critics worry that government-funded R&amp;D may crowd out private-sector investment and that we’ll never truly know to what extent because the government, unrestrained by profit-and-loss statements, is not accountable for its results.



So let’s look at some results.



A 2015 <a href="https://www.nber.org/system/files/working_papers/w20889/w20889.pdf">study</a> of NIH grants found that virtually every new drug the FDA approved between 2010 and 2016 benefited either directly or indirectly from NIH support — and that every $10 million of NIH funding resulted in a net increase of two to three private-sector patents.



You might not care about drug patents, sure.&nbsp;



Maybe you think <a href="https://www.technologyreview.com/2021/09/04/1034364/altos-labs-silicon-valleys-jeff-bezos-milner-bet-living-forever/">Jeff Bezos</a> or <a href="https://techcrunch.com/2025/01/24/retro-biosciences-backed-by-sam-altman-is-raising-1-billion-to-extend-human-lifespan/">Sam Altman</a> will single-handedly solve longevity for all of us, or that AI will do <a href="https://www.fastcompany.com/91363911/googles-ai-drug-company-says-human-trials-are-very-close">drug discovery</a> now.



Those are reasonable opinions to have.



But what if I told you the government earns a high and quantifiable return on those grants?



A congressional committee <a href="https://www.ott.nih.gov/sites/default/files/documents/policy/wydenrpt.pdf">report</a> once estimated that the government earns an annual rate of return of 25% to 40% on the money it spends on NIH grants, because they reduce the economic cost of illness in the US.



It’s not just about being healthier, though. It’s about being wealthier, too.



A recent <a href="https://www.dallasfed.org/%7E/media/documents/research/papers/2023/wp2305r2.pdf">study</a> published by the Dallas Fed found that non-defense government R&amp;D spending has accounted for at least one-fifth of business-sector productivity growth since 1945.



Productivity is the most important driver of long-term economic growth, so that’s a significant return on investment.



Another <a href="https://www.dallasfed.org/~/media/documents/research/papers/2025/wp2519.pdf">Fed study</a> found that the R&amp;D increases authorized under the CHIPS Act, if fully appropriated, would raise US productivity by as much as 0.4%.



That seems underappreciated because even the proponents of the CHIPS Act pitched it mostly for the investments it would make in physical infrastructure.&nbsp;



But the innovation policy expert Heidi Williams <a href="https://www.ft.com/content/d5fe0bfb-4c3f-4aa2-b57f-51295f4a30e2?utm_source=chatgpt.com">cites studies</a> estimating that the return on government R&amp;D spending (in terms of economic growth) is 20x greater than the return on infrastructure spending.



Pretty much everyone is in favor of infrastructure spending, so why wouldn’t they be in favor of research spending too?



In Williams’ own <a href="https://www.aeaweb.org/articles?id=10.1257%2Fjep.33.3.163&amp;utm_source=chatgpt.com">study</a>, she finds that R&amp;D is probably the most impactful policy the government has to raise both innovation and productivity in the US economy.&nbsp;



Still, you might be a de-growther, and unmoved by the prospect of the US government growing its deficit problem.&nbsp;



Or uninterested in people living longer, wealthier lives.



But what if I told you that government research grants helped develop something really important? Like Bitcoin.



Cryptocurrency didn’t spring fully formed from Satoshi’s white paper; instead, it built on decades of academic work in cryptography and distributed systems, much of which was funded by the US government.



Foundational things like public-key cryptography, cryptographic hash trees and tamper-proof time-stamping were developed at university research labs with funding from government agencies like the National Science Foundation and DARPA.



If that sounds like ancient history to you and therefore irrelevant, I get it — now that we have crypto, what else could we possibly need from the government?&nbsp;



But consider that a government agency — the National Institute of Standards and Technology (NIST) — is leading a multi-agency effort to encourage the development of the quantum-resistant algorithms that will soon be necessary to protect Bitcoin from a quantum-enabled hacker.



It’s not an immediate risk: Dr. Michele Mosca, CEO of the quantum software security firm <a href="https://www.evolutionq.com/company/about">evolution q</a>, assured me in a call that quantum computers are currently too small and error-prone to break Bitcoin’s cryptographic defenses.



But a <a href="https://globalriskinstitute.org/publication/2024-quantum-threat-timeline-report/">survey</a> Dr. Mosca conducted among fellow cryptographers found they estimate a 10% chance that quantum computers will be powerful enough to threaten Bitcoin within five years, rising to a 27% chance within 10 years and an 85% chance within 30.



Fortunately, the NIST is on the job — evaluating, vetting and standardizing the quantum-proof algorithms that will hopefully make Bitcoin quantum-resistant.



(Not to mention the global financial system, everyone’s emails and all of our login passwords.) Unfortunately, the NIST is facing a <a href="https://fedscoop.com/quantum-industry-leaders-voice-support-for-nist-other-science-agencies-following-trumps-requested-budget-cuts/">$325 million</a> cut to its annual budget.&nbsp;&nbsp;&nbsp;



The cuts, part of the president’s <a href="https://www.whitehouse.gov/wp-content/uploads/2025/05/Fiscal-Year-2026-Discretionary-Budget-Request.pdf">proposals</a> for discretionary spending, haven’t been passed by Congress just yet, so perhaps the White House will be dissuaded — possibly by its many Bitcoiner friends.



Or maybe the NIST’s quantum efforts will be spared (the White House <a href="https://www.whitehouse.gov/wp-content/uploads/2025/05/Fiscal-Year-2026-Discretionary-Budget-Request.pdf">says</a> the cuts are punishment for the NIST pursuing “a radical climate agenda”).



But I’m not sure why we’re risking it because government research appears to pay for itself.&nbsp;



Especially for a government that’s long bitcoin.



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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“The value of a business is the present value of its cash flows from today to judgement day, discounted at a proper discount rate. Period.”



— Warren Buffett
</blockquote>



The world&#8217;s first publicly traded company tried to rug its shareholders.



When the Dutch East India Company sold shares to investors in 1602, it promised to liquidate the entire concern and return all capital to shareholders in 1612.



That was standard practice at the time: Shareholders invested for a set amount of time, after which they expected to have their capital returned, plus some additional yield.



By 1609, however, it was clear that the company — known locally by its Dutch initials, VOC — had no intention of returning investors’ money, mostly because they didn’t have it.



In addition to trading in spices, the company acted as a de facto navy for the Dutch Republic, tasked with projecting power in the Far East.



But building forts and projecting naval power abroad required long-term investments; so rather than return investors’ money as promised, the company simply kept it.



Shareholders, accustomed to financing single ships for a single voyage, were understandably unhappy.



Protests against the decision to unilaterally convert temporary capital into permanent capital were led by Isaac Le Maire, a former director of the VOC, who publicly campaigned against company management and petitioned the government to force the company’s liquidation in 1612, as scheduled.



It was a long shot: The government was never likely to compel the company building its navy to liquidate.&nbsp;



But the company recognized that Le Maire’s campaign would impede its ability to raise capital in the future.



To placate investors, it offered dividends.



This was not easily done, because while the VOC was doing a brisk trade in spices, its high investment needs meant that it was chronically short of cash.



So it paid the dividends in spices instead.



Between 1610 and 1612, the VOC awarded dividends totaling 163% of equity, according to <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2116137">one study</a>, but mostly in spices like mace and nutmeg.



Shareholders were skeptical.&nbsp;



Many refused these in-kind dividends, holding out for cash instead — spices were hard to sell and impossible to sell at anything like what the company said they were worth.



But, if nothing else, it was a gesture to reassure shareholders that they had a claim on the company’s earnings.



It was a long while before shareholders were convinced.



In 1616, some of the company’s unpaid dividends were converted into interest-bearing loans.&nbsp;



In 1620, the company was flush enough to pay a 37.5% dividend in cash.



But in 1623, short of money again, the company paid a 25% dividend in cloves.



Dividends continued to be paid partly in spices until at least 1643, after which they were paid in cash and, when the company was short of cash, bonds.



Shareholders continued to grumble, but it did work out for them in the long run: One historian <a href="https://www.businessinsider.com/rise-and-fall-of-united-east-india-2013-11">estimates</a> that the VOC’s annual dividends averaged out to 18% of its paid-in capital over 200 years.



200 years!&nbsp;



VOC’s original investors did not value the shares as a function of 200-year cash flows; they thought they’d have their money back in 10 years.



But the company’s early dividends — paid while it was still a money-losing venture — helped convince investors that shares can have value even if the paid-in capital is never intended to be paid back.



On this point, crypto still has some convincing to do.



<h2 class="wp-block-heading">Spicy buybacks</h2>



In the debate over what percentage of revenue, if any, crypto projects should pay out to token holders, Tom Towbridge, co-founder of <a href="https://www.fluence.network">Fluence</a>, takes an extreme view: 100%.



Towbridge <a href="https://youtu.be/6hRqrJjePRo?si=85XBcsvpC4lrmfL3">reasons</a> that the portion of revenue used for buybacks is a measure of a team’s trust and alignment with token holders, so a team that pays out 100% of revenue is perfectly aligned and presumably trustworthy. 



80% of revenue is still pretty good: “Not a lot of misalignment, but there might be some.”&nbsp;



But when a team pays only, say, 20% of revenue to token holders, “now trust and alignment is very different because management is taking 80% of revenue to do something else with it.”



By that logic, there should be a lot of distrust and misalignment between the owners of pump.fun and the owners of its new token, PUMP.&nbsp;



Unlike in equities, these two groups are not the same because PUMP holders have no legal claim on pump.fun’s earnings or assets.



Still, investors value the token at $4 billion, presumably because pump.fun’s owners have <a href="https://blockworks.co/news/pump-ico-dex-blockworks-research">promised</a> to use 25% of the platform’s revenue to buy PUMP.



It’s possible, of course, that the 75% of revenue retained by pump.fun’s owners will be invested in a manner that ultimately benefits token holders.&nbsp;



But it might also be invested in a new business line that the owners decide is unrelated to the PUMP token. Or in houses and yachts for the management team.&nbsp;



There’s no telling.&nbsp;



It’s therefore probably best to value the PUMP as a multiple of its current cash return — much like the VOC’s pioneering investors did.



From the VOC in 1602 until about US Steel in 1901, investors tended to value stocks only by the dividends they received, assigning no value to a company’s retained earnings.



Ignoring retained earnings made sense because before US Steel set a new standard of disclosure by releasing full financial statements; investors had no idea what companies were doing with them.



Today, token investors are not much better informed, so it similarly makes sense to value many tokens by the rate of their current buybacks and nothing else.



That’s not exactly what people are doing.&nbsp;



Based on revenue for the month of June, PUMP is trading at 40x its annualized buyback.



That equates to a 2.5% yield at the current token price — not crazy by crypto standards, but also seemingly pricing in something more than the current rate of cash return.



By contrast, VOC’s early shareholders effectively demanded all of the company’s cash flow, because they were rightly suspicious of what management was using them for (self-dealing and empire-building, as it turned out).&nbsp;



Even in those early, money-losing years, the company paid as much as it could possibly manage (albeit in mace, nutmeg and cloves), because it had to prove that VOC shares had value.



It’s since been established that shareholders have a claim on earnings, so valuation is easy: Every stock is worth the discounted value of its future cash flows.



Until that’s established in crypto as well, token holders should probably demand bigger buybacks.



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Should token holders demand all the revenue?

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“What the market expects is almost never what happens.”



— Jamie Dimon
</blockquote>



US equities hit all-time highs again this week, and it’s hard to know what that means.



Consider that this is also the week that the president of the United States <a href="https://truthsocial.com/@realDonaldTrump/114873827864802531">called</a> the chair of the Federal Reserve a “numbskull.”



Worse than name-calling, the president went on to say that the FOMC should lower interest rates to 1%, expressly so the government could save “One Trillion Dollars a year in Interest Costs.”



That is the definition of “fiscal dominance”: When a central bank keeps interest rates artificially low to accommodate a government’s deficit spending, with unthinkable consequences presumably to follow.



Fortunately, we’re not quite there yet.



Chair Powell still has 10 months on the job and the president hasn’t figured out how to fire him, although he appears to still be trying.



(We live in a bizarre timeline where the <a href="https://x.com/NickTimiraos/status/1946241807563592044">amount of marble</a> included in the facade of the Federal Reserve building is relevant to monetary policy.)



But the leading candidate to take Powell’s place, Kevin Warsh, is openly offering to subjugate the Fed to the White House in return for the appointment — a Faustian bargain for which we would all pay the price.



This seems like something that markets would worry about: Economists have long warned that fiscal dominance is guaranteed to undermine faith in the dollar, government debt and the entire US economy.



But US stocks continue to levitate and Treasury bonds seem generally unperturbed.



The legendary hedge fund manager Stanley Druckenmiller once said that the best economist he knew was the stock market, so maybe that means we can rest easy?



Can we take the market’s sanguine price action as an endorsement of steep tariffs and Fed bullying? Or is it a prediction that he won’t do what he says he’ll do?



Alternatively, could the market have conceded that tariff and monetary policy are currently too volatile to bother predicting?&nbsp;



Or is it a sign that policy doesn’t matter as much as we thought?



I’m probably overthinking it.



Fed Governor Christopher Waller, who doesn’t seem to be campaigning to be Powell’s replacement, said this week that &#8220;with inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.&#8221;



The market loves rate cuts, so maybe that’s all that matters.



Or could it be that none of this matters because AI is on the verge of changing everything anyway?



This week, Mark Zuckerberg <a href="https://x.com/TheTranscript_/status/1945528949867794624">said</a> that Meta is “starting to see early glimpses of self-improvement with [AI] models” and that “superintelligence is now in sight.”



Specifically, he thinks we could be as little as two or three years away from artificial intelligence surpassing human intelligence — not just in coding or newsletter writing, but in all fields.&nbsp;



If a world of superintelligent AIs with the capacity to self-improve is less than three years away, should we care whether Fed funds is 1% or 5%? Or whether tariffs are 0% or 50%?



That will be a whole new world, presumably, and the best economist Stanley Druckenmiller knows seems to think it will be a good one.



Let’s hope it’s right. 



Imports are inflating:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfbzl-dhBz2dBBL6yFcGb0TMvr7_-JL7thN8Jr9sFnJBGFJ8Z2N7N15EtSjOvk4aJKhkMgMvTGRNIJ7EUD_7nD7kQaef0qiA9tR4K9wYzfPGjUiX7HVbW58oCtwlvvBiF8QksYI3Q?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



An academic <a href="https://www.pricinglab.org/files/TrackingTariffs_Cavallo_Llamas_Vazquez.pdf">study</a> finds that tariffs have caused the price of imports to rise faster than the price of domestic goods. It hasn’t affected the US economy much as of yet, but Ben Cassleman <a href="https://x.com/bencasselman/status/1945472944534151660?t=m9WO7HaG2grZwkEoLWzmjw&amp;s=19">explains</a> why that doesn’t mean it won’t. <a href="https://pca.st/episode/3a6399a4-8292-4064-8e25-e0509d6df36e">Analysts at Morgan Stanley</a> think the economy should start showing the negative impact of tariffs in the third quarter (which is now).



For now, things are pretty good:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfspY14iokgTv64CipDBb6NQeKPUjvsAJatCVwhS071KsibdZZFmyNirzcEJiAfuo5STYs5ZKKpHBPgmgPjdYhQafAQy7jFIpDQhALcV5Wn3NswpongE1T3bAKkJM9clcHp_zdBdw?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



Ed Yardeni highlights that the “misery index” — the sum of the unemployment and inflation rates — remains well below the long-term average.



Economists have been too worried lately:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfy464vL48HPvEwD8p1q9X5yga3h_5mxUlb_Z1PnzLl0ge5AwXir7tXyyxQjb6C4ufRTFj9C2CAOVh_IU2lEM9SZ-UbcjbaB5bR8_NEQ_HjIZ7jiXAsLYLCbZyqSpiP63a005YdBw?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



<a href="https://x.com/AnnaEconomist">Anna Wong</a> notes that US growth and inflation data have both been better than consensus expectations recently.



It’s been worse than expected for male college grads:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXcrZvH3GbEp8fgK8Myb2ipL8ZwLM4dS3iGdUcc9ynmZuFWMx33BN97N68YRKvCzK3PGvdMQ-wJu7WYlsiuVz1wreYN7GBtewV-2g1Sqw_WnH5kZRCPQZrGQIuIXaSk3JjONdfXr4w?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



The FT columnist John Burn-Murdoch <a href="https://x.com/jburnmurdoch/status/1946220407725384136">notes</a> that young men with college degrees are just as likely to be unemployed as young men without degrees. Women college graduates continue to fare better, probably because they&#8217;re more likely to work in health care.&nbsp;



Don’t blame comp sci:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdA4a-gJvvtMqF3ar8kcI4m-Df9Ve4fFiXEX8BBC-Gtylrwe6Y0PTriHKx5lB0vIai41yMwCKN0rCnzfv8Xw2vvVaCaS0qvlfBqNRtFPWf-mrCvx3ddiv4-WXitdv4ms897OWX08w?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



Contrary to popular belief, Burn-Murdoch notes as well that “relative to the pre-generative AI era, recent grads have secured coding jobs at the same rate as they’ve found any job, if not slightly higher.”&nbsp;



US companies are still the best:&nbsp;



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe7uilBti9UtrLXhe6bkUsaKHim9-b0e0gYiIsEAZvn0cdO0ePSX2ncnFOV1Nrn33CILEhcLKryrNOB7Ze-rDf257XozO6uOjZsbh_oAsL-BS_4dF6vQspyfBWprFqxZalTley9RQ?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



Goldman Sachs reminds us that big US companies are far more profitable than companies in the rest of the world. They might get even more so: Amazon and Microsoft were both said to be reducing their payrolls by thousands of employees this week, reportedly because they believe they can ask AI to do more of the work.



On the other hand…



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXdlLYeoaQ8Zb9YMghhUF8itsTm5v-vmqVS2zc0IiE5z4HgFDOvwUAV9N-NvflGVAmXPeIrr6VNA2AW2WWKWqUGfyFMLLKonBfcyii0mOrMaEW_0U5xURrLBtI8VWRUdkqCmNu1EXA?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



By <a href="https://x.com/avtarsehra/status/1941530489363275957?t=uxKm0hWf7HqBW3lJrIU6IQ&amp;s=19">multiple measures</a>, China has pulled ahead of the US in scientific research. Maybe US mega tech companies will make up the difference. But if we’re in a two-country race to superintelligence, now seems like a bad time for the government to be cutting research grants.



New highs are normal:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXeERm154AGQwFF8DeSwyRa575XX0FIuqYC_8rxRksJ2q32kyEdAidpwxCMIfyQBV_vPai-5iVAjsUieZzSy088FG2qBxoBfzpko_3yL44K4vV1MSNa7DQIXe9SFt4BDqUTzwYX6Bg?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



This graphic from @ryandetrick is a reminder that making new highs is the norm for US equities. This year’s total of nine is still pretty modest.



Zimbabwe stocks made a lot of new highs, too:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXe74H2ba8WCkzQiH5sqnUVSQa02Yh0-17qyS8g5Wq_tLVB7KzaT8nmMahnlJetP6HhYO9MJj2FCd1OXXgpeLeHUsu0s_WiSYwEFFDZnkZvLY4X5MnkAr82mcah7aTXzqoMc08lg?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



Zimbabwean stock prices boomed during the bout of hyperinflation that started in 2019 — simply because stocks are denominated in the local currency. When the currency was revalued in March, stocks were revalued, too.



Not Zimbabwe yet:



<figure class="wp-block-image"><img decoding="async" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXfqKO-ffZwElxlYWuHOJ2_sZukQ3NWHJuW6DloJPHfFqhnS-D3LxJ3G_GIikOzpNox6KGRbAHTkZhqpQ5HbQxl37_G1EpqjX85tYc5g-2gumW0DsmdhLrQFKNjIfIMdUuxlUwtl?key=IIs-8ktBLMjMZqvCmeXjXQ" alt=""/></figure>



Despite the rising risk of fiscal dominance, the market for forward inflation expectations implies that US inflation will be just 2.3% in five years’ time — which would be great news for the world.&nbsp;



If the market is keeping its faith in the Fed, shouldn’t we all? Jamie Dimon would tell you that’s not how it works, but let’s hope he’s wrong.



Have a great weekend, predictive readers.



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Friday charts: Fiscal dominance and super intelligence

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<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Arise, you have nothing to lose but your barbed wire fences!”



— Timothy May, 1988
</blockquote>



<a href="https://nakamotoinstitute.org/library/crypto-anarchist-manifesto/">The Crypto Anarchist Manifesto</a>



What would Timothy May think of “Crypto Week”?



If the OG cypherpunk and author of The Crypto Anarchist Manifesto were here to read the <a href="https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=410793">statement</a> from the House of Representatives — itself a kind of manifesto — declaring this to be Crypto Week, I expect he’d have mixed feelings about it.



He’d certainly object to the idea of a “Crypto Czar,” appointed by the president of the very government whose authority he hoped to undermine.



(“Cryptologic methods,” he believed, would undermine “government interference in economic transactions.”)



On the other hand, he’d be pleasantly surprised, if not shocked, to learn that the US government is banning itself from issuing a central bank digital currency.



But he’d be most surprised to learn that the US government’s stated aim is to accelerate the adoption of cryptocurrency.



“The State will of course try to slow or halt the spread of this technology,” he wrote in the manifesto.



I guess not!



He’d have reservations, sure.&nbsp;



Markets, he thought, should self-police via mathematics, not laws, and that’s not what’s being promoted this week.



The CLARITY Act, for example, applies the Bank Secrecy Act (public enemy No. 1 for financial cypherpunks) and other KYC/AML rules to most intermediaries.



But “intermediaries” is the key word there: The Act also preserves the right to hold and use digital assets in personal wallets.&nbsp;



May’s vision was that “two persons may exchange messages, conduct business, and negotiate electronic contracts without ever knowing the True Name, or legal identity, of the other.”&nbsp;



Insert an intermediary, though, and even May might think the government is right to regulate.



What might shock him most, though, is some of the rhetoric.



“Ensuring the future of the digital economy,” Representative Tom Emmer says in the official House statement, “reflects our values of privacy, individual sovereignty and free-market competitiveness.”&nbsp;



Privacy and individual sovereignty are cryptoanarchist values, too.



In that sense, Crypto Week feels like a surprising vindication for May and the community of cypherpunks he inspired (Bitcoiners included).



He would, however, take note of the multiple mentions of “protecting consumers” in the House statement and see that as evidence that the State is not surrendering its surveillance powers anytime soon.&nbsp;



May ends his manifesto with a vivid image: governments fencing in citizens like livestock on a barbed-wire ranch.



Even after Crypto Week, I’m sure he’d say the fences remain up.



<a href="https://www.elliptic.co/resources/the-state-of-cross-chain-crime-2025">Crypto remains popular with criminals</a>



In its latest report on crypto crime, onchain analytics firm Elliptic reports that the crypto ecosystem is “increasingly being exploited by illicit actors.”



Specifically, it estimates that the all-time total of “cross-chain criminal and high-risk” crypto transactions has risen to $21.8 billion, including over $2.17 billion in the first half of 2025.



Elliptic attributes 12% of the total to North Korean hackers (which, I imagine, is how Kim Jong Un paid for his new <a href="https://www.npr.org/2025/07/05/g-s1-75663/north-korea-beach-resort-wonsan-tourism">beach resort</a>).



Blockchains remain transparent, but the report suggests that following crypto money trails may be getting harder: 20% of money laundering actions, it notes, move crypto across more than 10 blockchains.



The result is that crypto continues to play its role in the disturbing rise of “industrial-scale fraud.”



The most recent example came this week, when the DEA <a href="https://www.cbsnews.com/news/u-s-drug-raids-net-10-million-in-crypto-linked-to-notorious-mexican-sinaloa-cartel-officials-say/">announced</a> that it had seized more than $10 million in cryptocurrency from Mexico&#8217;s Sinaloa cartel, in raids that also netted massive quantities of fentanyl.



(Tariffs on fentanyl still aren’t high enough, I guess.)



Timothy May would be unperturbed. “Various criminal and foreign elements will be active users of CryptoNet,” he wrote. “But this will not halt the spread of crypto anarchy.”



But the crypto industry still needs to do more to police itself.



After researching the ByBit hack in March, the onchain sleuth <a href="https://x.com/zachxbt">ZachXBT</a> wrote in his Telegram channel that the industry “is unbelievably cooked when it comes to exploits/hacks.”



Attempting to retrieve funds from the ByBit hack was “eye-opening,” he wrote, noting that “several ‘decentralized’ protocols have recently had nearly 100% of their monthly volume/fees derived from [North Korea] and refuse to take any accountability.”&nbsp;&nbsp;



Centralized exchanges, he added, are even worse because they take “multiple hours” to respond to his inquiries, which is far too slow: “It only takes minutes to launder.”&nbsp;&nbsp;



The industry, he warned, is so negligent in policing itself that it risks inviting much tighter government regulation.



Maybe not this week, though.



<a href="https://x.com/leereiners/status/1944528985712394729">Stablecoins won’t save the US dollar</a>



<a href="https://x.com/leereiners">Lee Reiners</a> takes exception to all of the “techno-utopian soundbites” DC politicians have been using to promote stablecoins recently.



The idea that stablecoins will extend the reign of the US dollar as the world’s reserve currency has been repeated so often that it’s become received wisdom both in and out of crypto circles.



But Reiners takes the opposite view, arguing that stablecoins will have “no impact on the dollar’s status as a global reserve currency.”



“By imposing stricter requirements,” he argues, the GENIUS Act “could actually diminish dollar dominance if it drives stablecoin users and issuers toward non-USD alternatives that remain unregulated or offshore.”



In other words, he thinks stablecoins will lose their appeal for “bad actors” once they’ve been regulated.



(I doubt it, though. They’ll still be dollars that are not subject to KYC checks.)



But even if dollar-pegged stablecoins are used more frequently, he continues, “that growth would likely cannibalize existing dollar instruments…rather than expand the overall footprint of the dollar.”



I still think stablecoins could help at the margin by encouraging more international transactions to be done in dollars, basically.



But if the US government so debases the dollar that people question its value, stablecoins won’t be nearly enough to save it.



<a href="https://x.com/TheOneandOmsy/status/1945280399946420527?t=70HVVyNl5C_s6YE993EFdQ&amp;s=19">Citi stablecoin plans</a>



The one thing that Citi is truly good at is global payments: Its Trade and Treasury Services business, which moves money around for large customers, is the world’s biggest.



So I think it’s telling that Citi has advanced plans to issue a stablecoin and integrate it into its global payments offering.



CEO Jane Fraser noted that only 6% of stablecoin volume is related to payments, which she attributes to the high cost of on- and off-ramping them into and out of fiat — costs that add up to 7%, she says.



Citi expects to change all that, offering to move stablecoins across borders and in and out of fiat at near-zero cost, she implied (“without incurring that transaction cost”).



She also suggested, however, that it&#8217;s more likely to use tokenized deposits than stablecoins.



Tokenized deposits might prove difficult for the crypto industry to compete with.



The GENIUS Act, Fraser added, levels the playing field for banks to get involved in digital assets and Citi is enthusiastic about it.



Of that, I’m certain Timothy May would not approve.



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