Time To Buy Bitcoin? Wall Street Is Joining the ‘Debasement Trade’

Price of goods are inflating and so if you don't own them, then you're going to be left behind. Gold has taken off and historically bitcoin follows gold in its moves.

Short fiat currencies and buy scarce assets. That's the essence of the debasement trade. A simple narrative that bitcoin and gold supporters have talked about for years is now breaking into the mainstream.

Why is it happening now? Because the banks are recognizing this and guess who else has recognized it? All the credit agencies. I do expect that there's going to be liquidity coming into the markets in the not so distant future.

We sat down with macro expert and hedge fund manager James Lavish to understand why the debasement trade is accelerating and what it could mean for Bitcoin in the short and long term. Before we start, remember this video reflects one person's opinion and should not be taken as financial advice, just as educational content. I'm Giovanni. Let's get started. Crypto people and bitcoin people have been talking about this for several years already. The fact that scarce assets like bitcoin and gold are going to appreciate while fiat money that can be printed almost endlessly by central bank tends to depreciate. So why is this debasement trade becoming mainstream right now?

Yeah, it's a good question. You know, we live in a world just in a really high level, high view. We live in a world that is based on debt, it's based on leverage, it's based on borrowing. If we're looking at the United States, we're running two plus trillion dollar deficits annually. Our debt has exploded from just over $36 trillion to $38 trillion this year. This year alone, it's already over $38 trillion. We added $2 trillion of debt in less than a year. Mind boggling. And so why is that happening? Well, it's because we are running deficits. Why are we running deficits? Because our, the programs that we have that are signed into legislation are, they're, they're so expensive now that we soak up between that, between those social, social services, whether it's Social Security, Medicare, Medicaid, those programs, you know, things like unemployment and all that. Whether it's that or you add on the spending for defense. Once you put those together, we're already spending more than we take in on taxes. So you're already in deficit even if you cut back all the discretionary programs. And those are programs that are basically signed into legislation other than defense. So we're in. What's known as a debt spiral. The bottom line is you have, you have three choices. You can either cut spending, which we're seeing right now, that there's a major fight in Congress right now, and the Republicans are trying to stay. We'll just sign the same bill, clean resolution, that we'll continue spending as much as we're spending, and we'll just sign that. And the Democrats are saying, no, we want more money. We want more money for illegal aliens, for, for health care. We want more money to keep Obamacare going. And so the issue is that, you know, you can, you, you can cut spending theoretically, but neither, Neither party is incentivized to do it, so neither one is going to do it. It's just not going to happen. That's the first thing. It's just not going to happen. We're going to continue spending to oblivion. The second thing you could do is you could raise taxes. You know, raising taxes has some benefits up to a point, but, you know, most bitcoiners would agree taxes are not really productive. And so what happens is, if you start raising taxes, you raise taxes to a point where you, you force companies to stop investing what they would have invested in profitable business lines or new business lines, and so your productivity kind of ceases and you kind of tops out. Well, you get a higher tax rate on that. That's great. But then you're. What's terrible is that, you know, you kind of get the same spot, but then your, your base is declining. So now you've got a declining capital base for your. For your taxes. And so that's. That's bad. You got declining revenues. That's no good. So your GDP is not expanding anymore. So that's not really a good option. And again, that's not a great option for either party. And the third thing you can do is you can just default on your debt. If you're in this problem, you can default on it. You could pay pennies on the dollar for the debt that you owe. And, you know, you'll be put in the penalty box and be very difficult for you to issue more debt in your own currency. So nobody wants to do that. But then you've got 3B, so that's called a hard default. But 3B is a soft default, and that's just expanding the money supply, debasing the dollars that you have, paying down debt with cheaper dollars in the future. And it's called the debasement. And so it's inflation and it's insidious and it's structural and it's in our system. We're not going to get rid of it. And so what happens here is that as an investor, you understand that what is going on is assets are inflating, prices of everything, price of goods are inflating. And so if you don't own them, then you're going to be left behind. This is the debasement trade. You have to own assets that will appreciate in value. They're not really appreciating, though. It's just that the dollar's depreciating against them, and that's the issue. And so that's what we're watching happen right now. And that's, and, you know, it's kind of real time.

That was a good explanation of the debasement rate, but what I wanted to understand is why now? Because the process that you have been describing has been going on for a while. Money printing has been going on for a while, for many years. We saw what happened basically even like during the COVID pandemic. So there were a lot of signs pointing in that direction. Why have these institutions come to that conclusion just now and not long, long ago?

Yeah, that's a great, that's a good point. That's a good question. So you saw what happened in Covid. I mean, we printed $5 trillion to get out of this hole. So what's happening now is that investors are realizing that if and when we do have a downturn in the economy, right. So we're starting to see unemployment tick up a little bit. You're starting to see stress in the, in the lower demographics. Credit card debt is rising. Student loan, you know, payments are, people have just, just walked out on student loans. So you're starting to see smaller defaults. You've got this, you've got some, you've got some, some worries now. You've got the Fed who's, who's now lowering rates. We're lowering rates, Giovanni, into a period where we still have structural inflation. The inflation target's 2%. Inflation's been stuck above 3% for years, and we're now lowering rates right into it. So what is that telling you? It's telling you the central bank is scared that they're going to put the treasury in a very difficult position if they don't start lowering rates and allow for the economy to run a little hot rather than have it tumble on us. Because if it tumbles, then you're going to have what I described before those $2 trillion death is, will explode. All of your expenses will go Straight up, you know, you'll have, you'll have unemployment and other social benefits that'll go up by as much as 10 or 20% and then you'll have a decrease in revenues of 10 or 20%. And so you could get at the spot where you're not having $2 trillion deficits, but you're having three, $4 trillion deficits. And so the market and investors inherently know that that's what's happening is that the Fed's going to prevent us, they're trying to prevent us from tumbling into a recession. And in doing that, they're allowing inflation to run hot. So the fear is that inflation's going to run hot here and you're going to have long term inflation. In two, three, four, five years, we're going to have inflation that runs hot again. I don't know if it gets up to 8%, 9%, 12%, 15%, whatever it is, but it's not going to get down to, to 1%. I don't see the, the economy contracting unless we have some sort of massive financial or geopolitical event. Okay, so why is it happening now? Because the banks are recognizing this. And guess who else has recognized it? All the, all the credit agencies, all three agencies have downgraded US debt from AAA and so we no longer have pristine debt. Microsoft has better credit rating than us, than the US Government. And so again, this points to the structural problems that we have long term. If we really thought that inflation was coming in, you wouldn't see the 10 year trading around above 4% yield right now. But traders, investors expect that they need to get paid for the, the risk of having long term inflation. So they, they, they refuse to pay up above a certain percentage to buy those bonds. And so that's the bench, benchmark tragedy. And it gives you an idea that investors are worried about this. And so it's happening now, Giovanni, because the market's concerned that as we enter this period here of uncertainty and the Fed starts lowering rates, what's the next thing they're going to do? Well, they're going to stop qt. And QT is taking money out of the money out of the liquidity, out of the money supply, out of the markets. And so it's a contraction of liquidity by selling their own Treasuries into the market and taking dollars out. Right. So off of the Fed balance sheet. So what we're watching now is the market is recognizing this and saying, okay, bank balances, the reserves, the bank reserves are decreasing here. There's no more repo. There's no reverse repo facility for the treasury to draw from. The Fed's going to have to stop qt. And at some point, I believe in the not so distant future, they're going to start qe because you're going to get to a, a point where there's, there's such a need for more dollars in the banking system that they're going to start figuring out ways to get them in there. I do expect that there's going to be liquidity coming into the markets in the not so distant future and so does everybody else. And that's the debasement trade and that's why it's happening now.

Okay, and when you, when you talk about the not so distant future, what is the time frame you are looking at? More or less? Are we talking about months or years?

If we do start seeing a downturn in the economy and bank balances, the reserves continue to fall, then they may have to step in with some sort of program or just start QE very slowly. I would expect that to happen sometime in the beginning of next year. I mean, we're already bearing down on November here. So I would say in the next three to six months. Now remember, when we talk about these things, I'm a long term investor. We have people online and in the Twitter and bitcoin circles who expect things to happen overnight. And I just want to caution people, these things don't happen overnight unless there's some sort of event. You know, this stuff kind of, it worms its way through this insidious system. And so I'm watching for it, I'm waiting for it. But I do expect an expansion of liquidity to continue into next year because, because of all the things that we just discussed.

You don't think that the bitcoin and the gold market, for example, have already priced in this process that you are talking about?

No, they're beginning to. But by and large, the vast majority of investors don't understand Bitcoin. For one, you have seen a gold spike up. Now most of that's due to, I think, two things. It's central bank buying because of what we just discussed. And they're doing their own debasement trade. They don't want to be holding dollars, they don't want to be holding treasuries. They want to be holding something that won't, can't be debased like those. So they're going to hold gold. You can turn in, you can turn gold in for dollars. You know, the same way you can Treasuries, not quite as easily, but it's, you know, it's an instrument that's. That's readily accepted. So you've got. You've got that going on. The second thing you've got going, it's kind of a little bit of a euphoria that, oh, my God, gold is suddenly taking off. It got ahead of itself. Do I think it's over? No, I don't think it's over. I think gold's going to continue to go higher. How much higher? I don't know. But I also. I said this last week or the week before, I said, don't. Don't start selling bitcoin and buying gold here. I don't think that that's the right. I don't think that's the right move personally. You know, of course, it's different for everybody. I can't make individual investment advice, blah, blah, blah. You know, it's. Everybody's got their own situation, but I'm not doing it. And the reason I'm not doing it is because gold has taken off. And historically, bitcoin follows gold in its moves, and it's because of this very situation. It's the debasement. It's the continuation of liquidity. And bitcoin benefits from liquidity in an inverse way, meaning dollars get cheaper, dollars get worth less. Meaning it ca. It. It requires more of them to buy something like bitcoin that can't be debased like the dollar.

That was actually my following question regarding whether someone should prefer gold to bitcoin, since gold in 2025 has outperformed Bitcoin. But I guess you.

I don't think so, but that's me. Yeah, I. Look, gold has been around as money for thousands and thousands of years, has been a tremendous store of value. So you can't knock it for that. But bitcoin is, in my. In my opinion, is superior in every single facet. You know, the only thing you can't do with bitcoin is make jewelry out of it. Okay, that's fine. So gold does. Absolutely has its uses, and it does have industrial uses. So we're not going to, you know, ignore that. But as store of value, just as a store of value, bitcoin is so much easier to transport. You know, it's immutable. It can't be seized from you just physically at the border. You know, it's easily identifiable. It's all those things. And for me. But the biggest thing here, Giovanni, is that it's not well understood yet. It's not widely understood. And it's beginning a tremendous institutional adoption phase. And so that's what you're, you're kind of experiencing here, is that institutions are starting to get wise to say, like, this is a little bit different than the other stuff. This is a, this is different from all the other cryptocurrencies. And it's not just because it's older. This really does look like digital gold. It really, in, in the future, as this becomes adopted, it's, it's going to, in my mind, it's going to outpace the returns in gold for a while and it's going to start taking market share away from it in earnest. It's taken some, but as gold rises in value, it creates more market share.

There are a lot of analysts that are looking at the AI market and they are seeing a bubble growing and potentially a blow of top coming soon. So this sort of unsustainable growth of AI related stocks and the potential effect that a bubble bursting could have on the broader markets and on the bitcoin and crypto as well. You're not concerned that something like this is on the horizon?

Well, yeah, I am concerned that this could happen. The problem here in, in my opinion is, look, AI is not going away. It's going to, we're going to continue to see tremendous investment and growth in that, in that area. That's just obvious. Whether it's gotten ahead of itself short term. It's up to debate. Of course. I think the issue here, Giovanni, is that there's tremendous concentration in those seven stocks. The MAG7 stocks is just so much concentration there. And so the issue here is that twofold, you've got tremendous concentration at the same time that you have a lot of people. Now you've seen this insane growth in ETFs. I'm not talking about Bitcoin ETFs. I'm talking about market ETFs, S&P ETF spiders, those things. Because this is kind of like passive investing. You're just buying this thing. You're buying what you think is the whole market, but you've got a very large percentage of your holdings in just a few names. And so the issue is that if, if you need liquidity, the market starts turning down, you sell your etf, those stocks are going to get hit very hard. And so that could have a snowball effect, kind of a domino effect, right, where you've got some selling ETFs that beget selling ETFs, beget selling in some of these names and then you've got a quick set of margin calls or drawdowns. Is that possible? Absolutely. My hedge fund, you know, we're, I don't expect that, but we, we do have some hedges on against something like that because we've seen it before. It's not, this wouldn't be anything, you know, outlandish. And so does it concern me? Sure. And do I think bitcoin would fall with it? Absolutely. Because bitcoin is not yet understood. It's still in the adoption phase and it's still treated like a risk asset for many of these investors and hedge funds.

This scenario that you're describing could happen in a shorter time frame than the debasement trade we were discussing earlier, which is a much more long term sort of play, right?

Absolutely. But look, if you, if we have a drawdown in the markets, gold's going to go down with it too. Because you, again, you sell what you can and gold is something that's up and people will sell that to get some access to liquidity. That's just what it is. Investors will do that. It's the nature of the so called game. But I do expect that gold will snap back quickly, especially if we have an injection of liquidity. And guess what else will snap back? Bitcoin. It'll snap back really hard and we saw that in 2020 and I would expect that to happen again. So it's really difficult to time these things and that's why I remain long term invested with some hedges around them in order to make sure that I keep my exposure. Because you just don't know what's going to happen.

What is the end game of all these? Do you have any sort of price outlook for bitcoin when the debasement trade will have played out fully?

Oh man. If the debasement trade plays out fully, according to, you know, people like Michael Saylor, it's gonna, and Safedine, it's gonna take over the whole system, you know, and Jeff Booth and that, that is, I think at this point that's a scenario that I can see over the very long term. I don't think I'll see it in my lifetime, but maybe you'll see it in yours, but not mine. But I think it happens in steps here. And so the first step is for bitcoin to be seen as something more akin to digital gold, widely and accepted like that as the ultimate store of value. Well, once that happens and once you continue to see these, these higher rates of inflation that Whether or not they admit to it, people feel the inflation. They feel it. You feel it every single day. Whether it's your, in your groceries, your gas, gas is down now, but groceries or your insurance bills, you know, your health insurance, your car insurance, your house insurance, like all that stuff is just, is getting more and more and more expensive. And so people feel it. But investors, especially institutions, and this is where it's key for me is that you've seen that chart from Jesse Myers of all the assets, the investable assets of the world, about $1,000,000,000 of investable assets. Well, 300 some odd trillion of that is in bonds and $300 trillion of that is in real estate. So when you start seeing bitcoin, Bitcoin's gonna start eating into things like real estate where people are like, I wanna have a store of value. I'm not so concerned about having cash flow. It's not worth it to me to have the risk of holding some sort of property and having to deal with the management company or all of the taxes or the maintenance and get finding tenants and all that stuff. You're gonna start seeing people spend, they're going to be investing in bitcoin instead. And that's one thing. And then the second thing is, and this is a really big thing is eventually bitcoin will start drawing money out of, out of portfolios or invested in bonds. Because investors will realize that Bitcoin is a better store of value than this treasury that I'm holding. Why am I holding this treasury when it's giving me a negative real rate of return? What do I mean by that? Well, unless the Treasury's giving you a high enough yield to where you bought it then, and it, if it, meaning if it's not higher than, than inflation, the expansion of the money supply, then you're losing money on that trade. And these are companies that have obligations, long term obligations, whether it's pension funds or whatever it is. And they need to have, you know, endowments, whatever, they have obligations. And so they need to have a rate of return that makes sense for their portfolio. But I think eventually they'll start buying bitcoin as a separate allocation and draw money out of the bond portfolio to do that. And when that happens, that's going to be, that's going to be a monumental shift in the way that bitcoin is seen and traded and invested in. And so what does it mean for the bitcoin price? Well, I mean short term, meaning in the next five to seven years, I can see bitcoin cresting a million dollars when it gets to 2 million, 5 million, 10 million per coin? Well, that's going to depend on just how fast we're, we're debasing the currency and how fast this is being adopted in, in the institutional world. So. But regardless, I'm, I'm super optimistic and excited for the opportunities in the space, and that's why we're investing in it.

Yeah, totally. That's, that makes total sense. It's very, it's very logical argument. So, yeah, thanks. Thanks a lot, James, for coming on our show. It was a super interesting conversation, and I'm super excited to see how everything will play out in the coming years. And I hope to see you soon on our show.

Likewise, Giovanni, thank you for having me. I hope I helped share some insight into how we're thinking about it. At least. It.