RenMac Off-Script: Seeking Crypto Clarity

RenMac Offscript originated as a weekly internal research meeting designed to summarize and discuss what happened in Washington, the markets, and the economic data over the past week. It was always intended to be and remains a free-flowing conversation with no discernible objective other than to extract the wisdom and opinion of our analysts and their expertise. This is a conversation among colleagues.

Individual circumstances are unique and nuanced. Do not mistake these conversations for investment advice because it's not. Here we go.

All right, welcome to Red Mac OffScript, where we openly discuss markets, economics, policy, history, and life. It is Friday, May 22nd, 2026. I'm Steve Duttenhofer. I'm Jeffy Graff. I'm Steve Pavlic. And I'm Zach Pandell. Ah. Jeff, welcome back to the podcast from your uh your week off last week. Zach, welcome to the podcast this week. Thanks guys. Absolutely pumped uh to be here this uh Friday morning. Looking forward to the conversation.

So Zach Pandel, head of research at Grayscale Investments, a crypto focused asset management firm behind the one of the largest. spot Bitcoin ETF franchises, as well as a deep bench of digital asset investment products, which give investors exposure to cryptocurrencies without having to directly buy or store the tokens themselves.

He has a PhD in economics, is a Goldman Sachs alum, and spent time as a research economist at the Federal Reserve Board. So Zach, you're uh a timely guest given what's going on in the uh in the crypto space. You must be a pariah, Zach, amongst your traditional economic uh friends. Look everybody li I I I will just edit the the bio a very very slightly w uh uh but you know that's pretty pretty close to to my background.

Uh but look I would I would say everyone is coming around at their own uh speed. It is true that in kind of traditional uh macro, not everybody is uh uh as enthusiastic about um uh crypto digital assets a as I am, but uh I'm very confident they will get there and you know at at their own speed. Actually I don't think you want them to get there, Zach, because by the time they do, all the good news will be in the price and you know, maybe there won't be any upside. We know how that goes, right? Uh

Yeah, I think I think the skeptics, you know, give me confidence. You know, if uh if everyone was on board I wouldn't think that uh what I'm doing has uh so much uh upside. And every time I hear uh misinformed, uh skeptical of view. It just reminds me that we got a long way to go and uh you know, I think maybe I got ten, fifteen years uh more uh still to go in the Sid trade.

Well, we'll do our part to get those folks that are not well informed to be well informed. Let's start with the Clarity Act, if you will, because that's the big news I think in the last couple of weeks. It moved out of the Senate Banking Committee with a fifteen to nine uh vote last week. So maybe for th those that don't know Zach, just tell us what the Clarity Act is and why it's so important in the uh in the crypto space.

Yeah, uh absolutely. So crypto or blockchains are financial technology. So it's very important that we have a regulatory framework for this technology to protect consumers, protect investors, to protect the financial system uh itself. And now that the industry is growing up, it's integrating with big boy uh finance, this is becoming even more important.

Last year we got a bipartisan piece of legislation called the Genius Act, which focused on one element of the industry, stable coins, hugely important piece of the industry, a natural place uh to start. Now Congress is working on another, again, bipartisan piece of legislation that covers more or less everything else, all the other aspects of uh kind of crypto or digital assets.

capital markets related to issuers and intermediaries and the roles of insiders and all all that that type of thing, that kind of traditional capital markets rule book for crypto. And you know what it means is it'll really unlock the key use cases, things like tokenized assets, decentralized finance, all these types of things. And by doing it through Congress

On a bipartisan basis. It just makes sure that those rules are nailed down for many years to come. So it brings a lot of clarity to the industry. Hence the uh the name the Clarity Act. Those guys in D C are good. That's it. Thank good. Clever staffers. Cl clever staffers. Uh Pavlik, what's the what's the timeline here? So it passed the Senate banking committee, it's it's a version of it passed the House back, I guess, last summer, right? So what happens now?

Yeah, I think the thing, uh just to emphasize what Zach is saying is the Clarity Act's gonna be the version that's gonna become law. Uh so th you don't have to worry necessarily about like the the Genius Act and other things. I mean this is going to be the the version the House will take it up.

assuming it passes. And I just said there was some conditional support there. Did get support of two of the Democrats on the committee that had been most involved with the bill. They were very clear that there's some outstanding issues to be resolved. I think there's optimism that they will resolve them.

uh before the Senate adjourns in August. Uh so, you know, is it possible they could take it up in June? It's possible if I had to put my money on it, I'd probably put m again more likely on July. uh to get this done. And it's really important it gets done this year because if it doesn't get done before uh Congress adjourns for August, I don't think it's gonna get done because in September they really just come back to pass a stopgap.

really just raise some money here in D C. Uh and then you get through the election and I think that's important because if the Democrats win control of at least one chamber, which at least betting markets and polls suggest to at least win the House, uh I think that's bill is DOA. And so I think there's some real

sense of urgency here. And I guess one question I had for Zach about this week is we did see an executive order from the administration uh come out and sort of directing some federal regulators to I my interpretation was to try to uh make these rules to sort of incentivize FinTech adoption. Is that something that could benefit the uh crypto industry as well?

Yeah, this was an important piece of news here and just focusing on it's a slightly wonky issue but I think uh interesting and basically what what they're encouraging is that the Federal Reserve Board should give uh essentially checking account uh access to non banks. Uh so the Fed has something called uh master accounts. This is the way that a bank uh transacts with other banks through the Federal Reserve uh system.

and they're kinda nudging the Federal Reserve Board to in uh look at giving this uh access to uh certain types of uh fintech or non bank uh companies, including crypto companies. Today only one institution, Kraken Financial, one of the leading exchanges, has that type of access. And the idea is we want to bring this to to more institutions. What is the

kind of TLDR on my what what this means. It basically means things like frictionless stable coins and frictionless uh tokenization. You know t stable coins and tokenized assets, these are things that straddle blockchain finance and traditional finance. And by giving a master account or Fed sort of checking account to access to financial institutions, we can make all that process seamless, you know, have the cash

say in a tokenized asset uh trade uh move it just in the same way uh as something moves on a on a blockchain. So it's about creating efficiencies in this part of the market and hugely important for long run adoption.

Could could I just ask sort of one question? You know, sitting here in DC, there's usually like two sides to an issue and winners and losers, not all that dissimilar sometimes from a trade. Uh and I guess, you know, the way the uh D C media built up the issue with the Clarity Act was sort of the digital asset industry versus the banking industry. And I guess, you know, where you sit and given your background

Uh do you think there's some merits to the concerns from the banking industry uh in terms of potential disruption here? Do you think they're overblown? Uh and then does that sort of impact not only the bill but what we we're just talking about here with the executive order? On the collision in Washington around these issues, look, I think really this issue is

n actually not so much about clarity, but about the Genius Act and the banking industry feeling like they didn't get exactly everything they wanted uh in the Genius Act and re litigating it uh in the context of uh clarity. So the The kind of the clarity is an important piece of legislation. Lots of elements happy to get into that. But the kind of key thing that the banking system is upset about.

And I'm just going to use kind of straightforward language here. You know, bank banks have a monopoly on digital payments in the uh economy today and they do not want that taken away from them. Uh but there is another way to do it. There's another way to have digital payments uh that removes the central role of banks as an intermediary. And they they don't love that. Uh uh, you know, in kind of wearing my economists uh hat.

Society pays the banks a subsidy to give us digital money. I need a checking account balance to pay Neil in digital money. In the future, I'm not going to need uh that same uh infrastructure. And so that subsidy for the banks is going uh away. And of course they're they're battling uh that. So this is really about how the digital payment system uh works and a new way to make digital payments through stablecoins.

And the bank's kind of relitigating uh genius in the context of of new legislation. I I would say that's really the kind of core dispute uh in the last uh couple of months. It sounds like we got to in a good place, which is gonna help clarity move forward.

So the the banks then, to make it simple, are on the losing side of the ledger. Perhaps the rails are too, the visas and the master cards. I don't know if that's true or not, I'll leave that to you. But uh who the winners? They've got to be winners in your world. um that benefit from the Clarity Act.

Yeah, yeah. And again, like like uh let's talk about stable coins uh uh here, which is a little bit more kind of the in the wake of the the Genius Act. But I think how to think about it is just think about where the money is made. Right? It's in payments, there are two types of money. There's net interest margin, which is earned by banks, and there's transaction processing fees, which is earned by credit card companies and banks and fintechs essentially.

In stablecoin finance, it's the same two types of money. The net interest margin is earned by stablecoin issuers. And those are companies like Tether, that's uh one of the largest private companies uh in the world, offshore uh issuer. and Circle, uh a US based uh issuer trades uh he under ticker uh CRC L D. They're just like a bank in a sense. They earn a net interest margin by giving you digital money.

And then there's transaction processing fees. And in stablecoin finance, those are earned by blockchains like Ethereum and Salon. So what we are talking about essentially is replacing a network of intermediaries like banks and credit card companies with these computer networks, blockchains, that run open source uh software, and they capture those uh transaction fees. Now companies like the credit card companies, MasterCard, Visa, big banks like JP Morgan

Uh they understand this, you know, so they're playing both sides of the the game. You know, they are kind of trying to hold back competition, but they are also aggressively investing in this uh technology. So they they totally get it. And I don't think these institutions are gonna go away. I think that they will find a way to participate uh in uh a new type of digital uh payments. Uh and I think you see them making exactly those types of capital uh allocations today.

Well c can I just ask Zach, is that sort of the like investment thesis? Is that they're gonna capture some of these traditional market share or is it also maybe this gets into more of like a Bitcoin that um you know it's part of the debasement trade?

Yeah, so um there's a a lot going on in crypto the crypto asset class or or blockchain based uh finance. Um and uh you can maybe put it in two big buckets. One is uh the platforms for finance, uh you know, use cases like stable coins, tokenized assets. decentralized uh exchanges, uh that's sort of one type of application. And then there are just the kind of pure play currency uh applications, which you could say Bitcoin is is one of those uh two two things.

So it's a piece of technology. Blockchain is our type of technology that can do both. uh things. And what Grayscale tries to do is sort of educate people on that whole asset class and teach them about all the different use cases and how to allocate capital effectively across those different uh use cases. But I I think people should think of uh digital assets as a diverse space.

Uh just like the equity market, you know, companies do all kinds of things, blockchains uh do all kinds of different uh things and and people generally want to hold a portfolio of those different uh assets to make sure they are diversifying across the use cases of the technology.

You might not know it, but Renmac has a free newsletter where we provide many of the charts we're discussing on today's pod. Go to the link in the show notes and subscribe. It's quick, free, and insightful. Now back to the show. Hey Neil, what does Zcash do? Yeah. Well uh o okay. I mean this I I'll tell I mean to me like um I'll give you my answer. Zcash. Buy Zcash. Is like buying Yahoo in nineteen ninety seven. And buying Bitcoin is like buying Yahoo in two thousand. And with that.

Субтитры сделал DimaTorzok I don't know. I just heard the word privacy and I felt like that was like a reason to own the coin. Yeah. No. There you go. For all the hookahs you're gonna uh be smoking, right? Exactly. It's a line that goes up. So Yeah. So Jeff, you should like it.

Speaking of exactly speaking of lines that go up, Jeff, uh what do we got this week? We had uh bonds doing a thing, right? Are they are they worrying us now? Well, you know, yeah, uh yields broke out. And you know, it's I mean it's it's funny, not ha ha, but uh funny, ironic. Um usually, you know, the end of of a cycle is punctuated by

either a Fed mistake or you know yields spiking, right? And maybe we're gonna have both here. Uh we'll see how that plays out. But I think, you know, importantly our yield impact model, which is really a combination of rate of change and level of yields. is in the uh top decile historically. And we've got the data back to the early nineteen sixties.

And, you know, if you look at forward returns for equities when we're in this hundredth percentile, it's a very nice linear relationship. Uh, you know, over time I think the T stat is like negative two point eight. So it's, you know, it's meaningful. It's certainly not just random.

Um, and you know, you look at softer equity returns. And so I worry about it because of, you know, where we are with some of these other assets, AI related and and and I'm old enough, unfortunately, to remember uh the 2000 vividly. And I'll give you a little story. There was um a sales guy, I was at Lehman at the time, a salesman comes in and uh this was January of 2000 uh and I was with uh uh working in a in an office with my mentor Steve Shobin.

And he comes in and he says, You know what? Uh the the whole problem with this idea that the Fed's gonna kill the the cycle is it's not relevant to tech. Tech doesn't have any debt and therefore it's d just doesn't matter. So they can raise rich all they want, but it's not it's not gonna matter. And we both kind of Steve and I just looked at each other and and uh I was much greener at the time. Uh he's probably my age now, uh at the time. And uh

uh you know, and just said, well, don't the companies that buy tech use debt and don't consumers use debt and everybody and they're just like, ah, you know, so it was like the kind of this one dimensional thinking. And I think the same thing is happening a little bit with AI, which is

These guys don't care. They don't need debt. It's like it just doesn't matter. And and one, that's not true because the hyperscalers are taking on a pretty tremendous amount of debt to to finance this stuff. Um, but you know, at the same time, this does have an impact broadly. Uh, and I think that's important and it gets lost a little bit. So uh I think yields are kind of underappreciated for their potential impact on the business cycle here.

Uh and in our work, they're in the, you know, uh top decile, which historically does push against equities. Now, that said, you know, the market is still acting okay. It's very narrow, by the way. I mean, if you look at New highs, the percentage of new highs versus the percentage of new lows. We're talking about 52 week highs, 52 week lows. They're both neck and neck.

Um and you know, usually when you're at a new high, you'd expect the the number of new highs or the percentage of new highs to be, you know, kind of trouncing the new lows. And that's just not happening here. So when we look at that, when we see this this convergence of uh of a similar number of

of fifty-two week highs and fifty-two week lows at a high, um, that's usually a place where you get a consolidation, if not a correction in equity. So, you know, I think you've got this underlying breadth issue and w we're not big breadth apologists. I know that, you know, people have complained about breadth for three years, right? Um they're doing it in the wrong way. If you if you look at it from uh from this vantage point.

um it becomes a lot more interesting uh because it's not about the relative game, it's about what's happening on an absolute basis. And, you know, I think that that gives you some uh some pause. And I would just add to this, I don't want to monologue here. But our market cycle clock is also in a vulnerable space, right? Where the inflation uh data input is in the elevated position.

with this kind of middling growth, which I know Neil's concerned about, and it's the worst spot for historical equity returns. So, you know, you've got a lot of things are kind of a dark cloud on this market, uh, other than the actual tape itself.

Um but underneath the surface of the tape there are there are are obviously some fissures as well, and that's uh you know kind of what we're we're focused on here. And Jeff, you you touched a little bit on that story with uh your sales guy and Steve Chauvin about, you know, the impact of rising yields wouldn't affect uh tech and how, you know, tech had, you know, tentacles that went well beyond just that space.

Neil, you had a report out this week uh or last Saturday, I guess, to clients about AI, right? The tentacles that AI has within the uh overall economy. You want to touch on that a little bit here? Yeah, sure. Thanks, uh Steve. No, I mean well, it seems to me like everyone is kind of singing from the same um You know, him, I guess, which is, well, you know, the effects of AI aren't that substantial because a lot of the growth leaks abroad in the form of imported chips.

I mean I've heard so many economists say that. Um, you know, I think even uh ja uh Zach's former colleagues at at Goldman have been talking about how it only adds like What, like a f half a point to GDP growth? I mean, it's it's one of these arguments that's Um that can only seduce someone with a PhD. Um Ha ha ha. I mean you're you're killing the guest here for God's sakes, Neil. No, Zach has already moved over to the dark side, so he's he's probably with me on this. But all I would say is that

You know, economists shouldn't cosplay as accountants, right? I mean you're getting a little bit too cute with these accounting gimmicks. Um I mean, as a technical matter, yes, it's true, the growth leaks abroad, but that also glosses over the fact that there are lots of areas that the AI boom hits the economy that aren't neatly captured by accounting identities and GDP. Like for example

Real disposable income is growing half the pace of consumer spending. Why do we think that is? So if you If you if you think about like a like a wealth effect channel, like a you know, if you do like a consumption function, like it's income and wealth, equity and housing, right? The equity piece of it explains a lot more of the growth in consumer spending over the last year. Or think about state government finances.

Right? Like the the California's uh legislative office talks about how over half of the growth or almost half of the growth in their income tax withholding is a function of the RSU vesting uh of the major tech companies. Right, is that being captured by these simple accounting identities? Um, and to me, the the fact that the growth leaks abroad is almost irrelevant. Obviously, it's juicing export activity in Korea and Taiwan. We know that the emerging markets.

You know, is there a lot of like uh discrimination among those countries? I mean, it's all one big trade, right? So if You know, if something happens bad in Korea, it probably affects other areas of emerging Asia, even if they're not big exporters of uh of chips and so forth. So uh to me it's it's it doesn't really matter that uh that it leaks abroad because that kind of circles back. uh to the US economy in the form of higher equity prices,

um, you know, profits for these companies, uh, and so forth. So, you know, just because the money leaks abroad doesn't mean that it doesn't vanish. And um, you know, there are other areas I think that people underappreciate. Um In terms of how the AI sort of boom hits the US economy. And, you know, just think about this.

Like take it out to its logical endpoint. Like if you assume that it's only going to hit the economy by half a percentage point, like that's the contribution, then the flip side of that is well, if the if the AI story Turn south, it's only gonna drag the economy down by half a percentage point. And so the rest of the economy will be fine. I mean, does anyone honestly believe that?

Right? No. It's like it's up come on. Like it's just sort of I mean, so in other words, I mean one of the ways I would put it is there's so much concern right now about what does AI working out mean for employment? Right? To me the bigger risk to employment is if it doesn't work out. Okay. Um, because the the pain will be so severe in terms of the wealth effect channel and the you know fact that

uh, you know, income withholdings and things like that dry up for places like California, New York, Texas, Florida, that it'll matter a lot more for employment in the short run. So let's worry about, I think that's the bigger concern, frankly. So that that's sort of what my piece was trying to get at.

Um, but I do think this kind of like myopic fixation on accounting identity sort of misses the broader point that it is a significant uh, you know, macroeconomic story. It's macro. So when it slows down, it'll have macro consequences.

Where are you on rates, Neil? You think rates are gonna go up? Well, I mean I think in terms of the Fed story, it does feel like a lot of what's going on in the consensus is sort of like economists as like momentum traders, right? So it's sort of The first step is

Well, they're gonna drop their easing bias. And then the next step is uh you know they're gonna talk about hikes and then well how many times are gonna hike? Well, well once or twice. Let me tell you something. Like there's no such thing as one or two hikes. That does not happen. Okay, so either the distribution of outcomes is either 100 basis points of rate hike. Nothing. An extended hold. Or you know, this current uh you know, situation fades.

Um, and we are maybe back to talking about rate cuts sometime later next year. That's the distribution. So to me, to the like the path of least resistance is for the market just to price nothing for the next year. Um, cause I don't think, I mean, if you look at a lot of the stuff that's coming out, the folks that are penciling in hikes.

Ethan Harris, um, are basically are basically saying that the Fed'll go once or twice. And like that to me doesn't pass the smell test because the Fed Fed never just goes once or twice. If they're going to go, they're gonna see a path to um You know, more than that. Uh so I think the path of path of least resistance is for the markets to basically price in nothing, let the storm pass. I mean, I will tell you that.

You look across the pond where they're flirting with hikes, I mean the markets are pricing in uh, you know, two to three hikes for the BOE, two to three hikes for the ECB. I I think there's probably some squ uh juice to squeeze out of those trades because it looks like the European economy is kind of hitting the skids, right? Like the The UK uh unemployment was worse than expected, inflation was lower than expected, retail sales was twice as bad as expected today, so

I mean is this really the sort of set of economic conditions where it makes sense to hike rates? Um I'm a little bit skeptical of that. And certainly the PMI data in Europe, um we're not good, particularly in France, where we know unemployment is already going up. So

Uh we know that this hits them worse than it does, but we also know that these central banks, particularly ECB, have much more of a laser focus on price stability uh than than growth. And Um, you know, they're probably thinking that we can hike once or twice, maybe clip the right tail on inflation without sacrificing growth all that much.

You know, we'll see. I mean, it's not like these economies have a lot of momentum behind them. So um I'm a little bit concerned. But to the extent that the you know the US has swept up in this global uh you know bond market sell-off.

If the market reprices, you know, the ECB and the BOE a little bit, that could filter back into our markets and, you know, create a little bit of a of a tailwind for the lower interest rate, uh for lower interest rates. So, which I think is kind of what's happening over the last couple of sessions, but you know, we'll see how it goes.

Zach, you mentioned uh circle uh in your uh in your opening remarks. Is that a a play just on interest rates? I mean, with rates going up, that's a easy way for their net interest margins to expand and for for it to be a good investment, correct? Yeah, I think that's exactly right. Um, you know, you can think of Circle uh as kind of a crypto beta.

and a rates beta uh trade at the same uh time. Of course it's central to the crypto ecosystem and so a lot of that trade is about stablecoin adoption, blockchain adoption, uh, et cetera. But it's a it's a net interest margin business. So the higher that rates uh go, uh the better it is uh for circle. The the big round numbers is that every twenty five basis point uh increase

uh in the say the one year uh rate is a hundred and ninety million dollars of revenue uh for a circle. So uh they they earn a lot of interest on short dated treasury bills and repo and stuff like that. They pay an interest of zero. on the stable coins. So it's a it's a good business when when rates are going up. So if you think that this is a good spot for crypto and we're in a generally higher rates, no cuts uh environment, uh you know, probably a good uh a package uh in that uh single stock.

Okay, as the chief compliance officer, let me just reiterate that this is not investment advice. But thanks for that. But that's how the company works. That's what I want to know, how the company works. They went public, I think, last year. You guys filed your S one, right? To go to go public? We we did uh file last year. I I can't say anything further about it because of the the rules around this uh type of thing, but uh that is uh that is correct. Mm-hmm. Congrat. Congratulations.

Well done. Way to stay within the garbage. Thank you. Thank you for that. That's good.

Uh in other news around the world, uh Steve Pavlik, uh Iran, it's a long weekend. Are we pushing off attacks? Are we getting attacks? What what's happening? I mean if I knew that I wouldn't be sitting here talking to you. But um look I think it's clear that Trump has a preference for peace. Uh but that said, I think you're right to point out that when he's taken military action before, it typically comes during the weekend after the markets close. So one

could reasonably conclude that, well, if you have a longer weekend you have a longer time horizon if you actually want to pursue something. Uh you know, I think you know Trump's tried a few different things right now. Uh he tried sort of the regime change approach.

Uh he's put in this blockade, he tried talks with she and so far the still mate persists. Now while there's expressed optimism for talks, it's important to remember this leaf publicly reported that the two sides remain very far apart on two very key issues with respect to access to Iran's enriched uranium.

uh as well as the Tehran toll, uh their ability to sort of charge a shipping there. And so it's really difficult, I think, for Trump to walk away without a resolution in the strait. Uh so y there's probably some merit to looking to maybe go up that military escalatory ladder, uh at least a rung or two, uh, to try to deploy sort of an escalate to de escalate strategy. I know some people in the administration are pushing for that.

uh but I just don't know that he's there. It it seems like, you know, he he doesn't really want to to do that. I think that's still the hope, at least from many in the market, is that they don't really think it's in either the US or Iranian interest to Yeah.

return to kinetic activity. Uh but, you know, neither side really wants to overpay for a bad deal. Uh but they're hoping that maybe over time they'll eventually sort of get there. Uh but time has a cost. And I think maybe you saw that this week. as you think about, you know, just this prolonged closure of the street remaining far apart. You know, the idea if you do return to military activity, that's gonna probably

pro lead to more damage to energy infrastructure, uh, not only in Iran but in the Gulf region. So, um Can I ask a dumb question? I mean, they're they remain far apart on uranium and on the strait. What what else is there? Like I mean we're so close. How are you close when those are like the only two things I can think about? Like what uh what else are we talking about here? Yeah, no, I mean it's like other than the core issues we're We're so close, other than the two most important things.

I mean the only thing that I would I would say and I don't know, maybe they just did this I mean there are a couple of theories, there always are as to why they're doing what they're doing. I mean, you know, you know better than I that, you know, bond yields were rising this week and maybe, you know, Trump felt more pressure to try to talk them down in some way in response to that. Maybe that's why he put Rubio out there to try to deliver that message.

uh because he hasn't really been put out there before. Um is that a sort of a sign that Trump's maybe losing his ability to to influence the market uh terms of credibility on that too. You know, I I'm not sure. Uh but those were two things that jumped out at me. Does Cuba sneak in as the um the candidate this weekend? I Cuba if you had to put m odd on military action maybe higher there. I th I think the administration would prefer not to do it, but it looks like they're

Again, deploying this Venezuela playbook. I think they tried to do that in Iran. Kindly that wasn't working, but this may be a little more uh similar to the apples to apples as opposed to the apples and oranges that we see with Iran. Um, you know, trying to maybe find uh a Cuban equivalent to the Del C model there in in Venezuela. I don't think it's a coincidence because I live in DC, I don't believe in coincidence.

that they sort of had these indictments going after Castro. We have carriers now through the Caribbean. Um so, you know, I think There's a lot of economic pressure in Cuba. I think one of the differences is there that economic pressure applies political pressure. I think that's one of the things with

Iran is you know, the people say, Well, is the I Iranian economy really hurting? I think they are. I think the problem is is that the IRG C doesn't care. Um and I I think there's probably a different uh again political and economic incentive there in Cuba. So

Hope Springs eternal, but again, big picture we talked at the beginning of the year, going back to Venezuela, this idea of the Donro Doctrine wanting to have sort of these uh territorial influence and clearly that's been a priority for the Trump administration looking at the Western hemisphere. Let's move to the uh the mailbag. Harry Chen, good morning. Bye. Hello, good morning.

Today we have the question come from Trent Smith. His question is What do traditional economists miss on the intrinsic value of cryptocurrencies? Thank you. Look at that. Well I I leave that to both Neil and uh Zach to battle that one out. I'm I'm happy to take a first uh crack at at that. Uh look, I th I'd say two two things. You know, one is um

It's exactly the same set of things uh that they miss about gold. I mean the conversations that I've had over the years about gold are very similar to the conversations that you can have about uh Bitcoin. These are non sovereign money system or s or commodities that can be used as money. Gold provides those features in a unique way that people prov uh find valuable. Bitcoin provides uh features of money uh in a unique way that people find valuable. B Bitcoin is a

a money system that has uh no intermediary uh and uh payments have a high settlement assurance. So I can make a payment uh to Neil. of a billion dollars worth of Bitcoin and no one's gonna stand in the way of that transaction, I don't have to ask anybody's permission. So that that has value, especially in a world of low trust.

And Bitcoin also has a kind of scarcity. So so it it has features of money uh that people find uh valuable, uh even though it's not issued by a state, just like uh gold. So that it's as simple as that, I think, at at some level. The the other part of the story that I think people are coming up to speed on is just to understand that what's happening in

say quote unquote cryptocurrencies is way beyond uh Bitcoin. You know, you have a whole diverse asset class of of lots of different uh use cases and value accrues to these assets in lots of different uh ways. And so um you know we're I think uh mainstream economists are maybe a little bit behind the curve of where kind of mainstream investors are on this uh An evergreen statement.

Yeah. But everybody's gonna come up the curve uh, you know, uh in their in their own way and uh you know, we are here to help. I mean, yeah, try telling my wife there's no intrinsic value to Birkenbags. I mean it's sort of Okay. I mean I guess m Zach, my question is what problem Does cryptocurrency solve? Like let's just boil it down to the most simplistic, like um What problem is it solving?

'Cause you talk to Bernanke and he'll say like Bernanke I think he said something like the use case is fraud. Yeah. Well l leaving aside the other use cases that happened in our space, let's just on the currency use case or or what Bitcoin or Zcash uh, for example, are are trying to solve. Look, I would say they are solving the The failures of the uh fiat digital money uh system. And what are those uh failures? One is uh the risk of inflation.

uh caused by uh look out outrageous and completely out of control and completely unstoppable deficit and debt growth. Uh, you know, and I think e every mainstream economist looks at these uh numbers and uh and wonders what Bitcoin is is for. Uh you know, we have uh uh we have uh a a uh uh an enormous imbalance that is completely unsolvable in our political uh system. Uh you know, all all the tax revenue that the US government takes in is spent on interest payments and entitlements.

You know, there's you're gonna have a problem at some point in the future. And so so n uh scarce uh com currencies, scarce commodities that can be used as money, gold or bitcoin, uh solve uh you know th solve for the risk of inflation and debasement uh of uh fiat currencies.

And then the other thing is all the frictions in the payments system. So, you know, some a a digital payment that I can make uh without an intermediary is important in a world where we create all kinds of barriers for people to make those uh payments, and we create those barriers through things like sanctions.

uh and other other things. But you know, financial sanctions by the US are are dividing up the world into places that can transact into the dollar and cannot uh transact uh in the dollar. And as the world is fragmenting further, those f frictions are going to go up. And so Bitcoin is solving for these uh uh problems, solving for the the weaknesses in in fiat currency in our digital payments, a system that are patently obvious uh to me.

Uh and I think uh you know we we will I think people will appreciate that further and further as debt growth continues uh and as our kind of geop these geopolitical fractures make even more uh frictions in the in the digital payments system. Well Z Zach, can I just ask a question since I'm sitting here in D C

Uh if you do see widespread global adoption of crypto, is that gonna reduce the efficacy of US sanctions and what would that do to the dollars sort of status as the reserve currencies? I mean, I would think that's probably something that people around me are probably concerned with.

It it seems obvious to me that sanctions are something that can be overused and then become counterproductive. Uh because if you uh use financial sanctions to such a degree that people move away from the dollar system. and find out other ways to transact uh in mediums or through intermediaries that don't include the dollar, don't include US domiciled financial institutions, then you have weakened your ability to use those sanctions. And I think we have crossed that line already. Uh personally.

Uh and we are can continue on that uh path. And maybe I'll just s maybe remind everybody that uh Hong Kong uh is the kind of key financial center for for uh China and continues to use uh a dollar peg. Uh and so th this is something that will go away uh over over time. I I don't think anybody believes that this is going to last a hundred years. Uh

And that'll just be another kind of key uh example of how the system is uh changing. There'll be lots of milestones on this path, but the currency system is changing in a way that I think will weaken uh the ability to use financial sanctions as a uh foreign policy uh instrument for the US.

What what are the risks, Zach, uh of quantum computing and breaking the blockchain? How do you how do you see those? Are they are they existential or is that uh is that too an oversimplification of that? Yeah, this is like my favorite topic uh now. Uh I have a teenage daughter uh that's taking high school uh physics and and we joke that uh dad and daughter are both working on kind of quantum mechanics to together, you know, trying to get uh smart again on on these uh to topics.

Look, without getting into the whole thing about, you know, particles and different uh dimensions and that sort of a thing, um it's basically a question of digital security that'll affect all kinds of different uh things in the in the financial system uh and on the internet.

Everybody uses the same uh digital security tools or the same uh cryptography. Uh Uh blockchains will need to update for a future where we have uh high powered quantum computers that can essentially break the mathematic assumptions that underpin cryptography. Um and uh I ha really have no kind of bigger uh concern about this. It's an engineering challenge that uh that blockchains and all the different communities in crypto will solve.

That being said, there are some interesting kind of investment themes that fall out of this uh topic. Uh one of which is the thing that uh Neil touched on uh before, which is Zcash and uh without getting too too far into the weeds here, um, you know, how Bitcoin prepares itself to uh solve uh the quantum uh challenge is a kind of open question that we'll be dealing with for the next you know five years or so. And it is sort of opening, I think, the um

you know, the window for competitors uh to emerge in the kind of currency uh play uh uh for crypto. And Zcash is maybe one of those competitors that can take up some of the market share that's currently occupied by So blockchains are gonna be fine, uh, but there are some kind of questions on how this all plays out over the next uh several years, and I think it is changing some market dynamics and opening some space for new competition, including against Bitcoin with things like Zcash.

So so just to summarize, is the cat in the box alive or is it dead? Uh T V D, yeah, exactly. I mean it's a f it's a super fun uh topic. You know, if you're interested in uh

uh, you know, technology and uh you know, pure pure science, physics and th mathematics and these types of things. So quite nothing quite as interesting as uh post quantum cryptography, you know, i uh using uh You know, the fact that we can use computers and put uh particles uh in multiple dimensions to create uh you know to solve mathematical problems and then we're trying to build defense against those things with new types of mathematical tools to

to create digital security. I mean what a fascinating and tough uh uh topic. I look forward to spending a ton of time on this in the next half decade. It is crazy and it's fascinating. And you know, I always relate it to our business, just quantum computing or just uh quantum mechanics.

You know, because people people in our business just have this kind of r uh not everybody, but there's this kind of the rigidity that, oh, things must be this way because this is it and it's always intrinsic value and you know, all these kind of bullshit formulas that come out. And look there there's

There's something to'em, right? But that is one hundred percent Newtonian physic uh you know, it that's Newtonian physics at the core, right? And they sit there and you start reading about Quantum physics and quantum mechanics, and you're like, holy shit, man, everything I ever thought was true is absolutely just, you know.

It just blows your mind. So uh I mean I always relate it to the same thing in this business. Like right when you think you know everything, you're you're kind of walking the line of Newtonian physics and we're living in a quantum world. So um yeah, I appreciate that. Uh working in markets definitely drives home the point that uh the world is probabilistic. And I think markets people maybe understand that and and I I totally agree with that that point that uh

You know, quantum mechanics is a reminder that at the core level the universe is not black and white. It's a spectrum of uh of things.

Well it's a lot of great Trent Smith. Thanks for that question. We'll get you a uh a trucker hat or golf balls to uh start the summer. This is the official start of the summer with Memorial Day here, or the unofficial start I should say, with Memorial Day. Uh let's go around the horn, think about what's uh up for the next week. Uh Steve Padlick, we'll start with you. What are you watching? Sure. Well Congress is out this week uh and I think it's important. They are.

I know. But it looked like uh that what Republicans were hoping to pass this immigration enforcement focused reconciliation package and they weren't able to do that. Uh and One of the reasons for that, aside from some concerns over a compensation fund administration sort of dumped on Congress's plate this week. I think has to do with this I think what the Wall Street Journal has dubbed the YOLO conference uh there within the Republican Senate that sense for you only live once.

And that's really this group and now it's expanding of GOP senators that are either retiring or believe it's in their political interest to oppose President Trump. And that's important because majorities are small and to me the struggle to get this smaller package, again focused on immigration enforcement with a few other complications done, uh to me just makes it very unlikely, seem very unlikely that Republicans are gonna be able to pass a potential third reconciliation package.

uh or if they do it that it would be of much substance. And I think that's important potentially because that would be the other package that may be more market relevant as a c consider uh compared to this one that uh they're con debating right now.

And the thing I'm watching next week related to that is Tuesday. There's gonna be a Texas Senate primary and President Trump endorsed the Texas state attorney general, not the sitting Senator John Cornyn. And so will Cornyn join this conference, uh well, Republican senators are sort of sad to see him go.

uh because President Trump endorsed uh as primary opponent, uh again look for retribution there, similar to what we saw this past week, which is when Senator Cassidy, who had been a pretty reliable vote uh for Republicans, uh started voting against them. uh after President Trump endorsed his GOP primary opponent and he lost his seat. So that's something to watch next week and beyond I would say. YOLO, Nacho, Taco. We got some good ones down there. We try. Yeah. Neil, what are you watching?

I'll be watching the Knicks Bing Bong. It might be it might be quick. It might be over by next week. Let's hope so. Um yeah. Anyway. Um in terms of the data, uh You know, it's uh a lot of second tier uh economic news. Um, you know, the conference board, consumer confidence number comes out. Uh we pay attention to that only because of the labor uh component. I mean, so I'm curious to see.

Uh what consumers are saying about the job market, obviously there's a bit of enthusiasm on the street for, you know, reacceleration in the labor market. Uh certainly things look a lot stable more stable than they did. um you know, to start the year. Uh so that's encouraging. And then we bookend the uh the week with uh core PCE inflation, which is expected to come in at three tenths of one percent. Um

You know, that to me it's it doesn't really matter at this point. I mean, uh, inflation, core inflation has moved away from the Fed's uh estimates for this year. So if you think about What's gonna happen in June, you probably see we'll we'll see no matter what, an upward revision to their core inflation forecast and

that probably means that whatever cut is currently baked into the median FOMC estimate uh probably goes away, just as a mark-to-market exercise. I don't think that necessarily means that there'll be Um, you know, hiking, uh, but certainly uh their SCP will show them moving further away from cuts. And um

you know, the uh the core inflation number for April uh probably cements that uh call. Um and we'll also get data on durable goods. Uh so obviously the one thing in the economy that's really doing uh well right now is uh Core capital goods, business investment, equipment, right? Tech. Um, and so we'll see how that works out for April. Um, in terms of the Fed, uh, we will have uh speech from Christopher Waller coming up, uh, and that'll be an interesting one to look at because.

He's kind of, you know, uh changing his views a little bit and uh, you know, sort of the lone dovish holdout uh Post Myron, so if he's making more of a capitulation in his views, I think that'll be interesting, particularly with Walsh getting sworn in later today. Zach, what are you watching uh over the next week or two?

Lo I'll plug one other uh thing from our uh space. I'm gonna uh talk about hyperliquid. Uh so this is just a a crypto idea that you know if you haven't heard about, maybe something to explore uh briefly. But this is uh sort of this cycles breakout success story uh in crypto. It's a platform that specializes in something called perpetual futures, a type of product that uh grew up in uh crypto but will be coming to traditional markets.

uh pretty soon with uh with regulatory clarity. In a sense you could think of this platform as competing with things like the CME and other uh TradFi uh futures uh exchanges. Uh if you haven't Study the the hyperliquid, maybe take a look at that. I'm gonna be spending a lot of time on that one uh in the next couple of weeks. that's a good one good on that one Jeff What do you want? I'll tell you what, who would be disappointed if the Nick sweep is my wife?'Cause she says that Harden has

Soulful and earnest eyes. I'm like, what? Yeah. He's also he's also absolutely horrendous in the playoffs, so Yeah. Much to our fortune. Like I'm sure he appreciates that. Soulful and earnest eyes as he's putting up a twenty foot uh twenty-five foot jumper in you know in your face.

Um, what am I watching? I am watching well, one, you've got uh Salesforce next week, right? CRM. So kind of the epicenter of what's happening in software and kind of this idea that, you know, we're gonna vibe code our way into, you know, kind of personalized software. Um, maybe that happens, but that's not gonna happen in a quarter or two, so we'll see.

Um, you know, so be interested in seeing those results. The software names have uh have certainly bounced and we've seen that reflect itself in the momentum trade, particularly in tech, as that compression between high momentum and low momentum has uh started to uh to revert. Um we're not overbought yet in tech, but we are getting close. And I would just say the IGV, which is the software ETF, um has shown excessive inflows, which is not really what you want to see.

um as a as a durable move. So I I think we'll get an overbought condition in software. And I think that's gonna be one uh that we probably wanna fade. From a macro perspective, that's not there yet, by the way, but you know that's what we'll be watching. Uh from a macro perspective, I think yields are still obviously

Top of mind. But uh more important than that is really what's happening to real yields, right? Is this an inflation driven uh breakout in yields or is this a real yield story? And so far it's been a real yield story. And I think the r the reason that that's important and um

you know, if if you look, the difference between real yields is kinda what's your hurdle rate for risk and inflation is what are the expectations of inflation going forward. And those are really kind of the two competing forces in uh in government yields. Um but the You're seeing you're seeing that play out with the weakness in gold, the weakness in crypto, which is good news, right?'Cause crypto is not kinda pricing itself as a legitimate financial asset, not just a speculative

um a speculative asset. So it's responding kind of fundamentally to links in in you know real yields, which is risk and um and the difference between that and and inflation. But importantly that is

uh really in stark contrast to where we were in the nineteen seventies. And we had a nineteen seventies playbook that, you know, we released uh about two months ago. Um and that'll be important for the differentiator, right? Are we on that path, which is, you know, uh obviously debt and deficits and inflation and and the malaise and the misery index and everything else.

uh or is it a different path? And right now um that path is really being defined by uh the difference between real yields today um and inflation expectations then, right? And so I think that's gonna be important as we go. Um the the general warning is if real yields are rising, that's deflationary, uh, that is um financial conditions tightening.

Uh and then obviously that links to private credit and what we're seeing there, which is, you know, kind of this ongoing slow roll of deterioration. So uh we'll see and you know, we'll see what kind of impact the yield impact model has. uh on uh on equities and valuations as we go. A lot to chew on. Zach Pandel, Grayscale Investments. Thank you so much for uh joining us today. Uh I'll remind the uh the listeners that you can follow us on all the socials, X, LinkedIn, even on TikTok.

Become a client if you'd like. We'd love to have you. We will be back next Friday, the Friday after Memorial Day, hopefully a little tanner. And until then, I am I'm Steve Duttenhofer. I'm Jeff DeGraff. I'm Steve Pavlett. And I'm Zach Pandel. Thanks for having me. Yeah. Absolutely. Thanks guys. Have a great weekend. Have a happy holiday. You too. Yeah.

Hey, it's Steve. Thanks for listening to the show. Small slice of what we do here at Renmac, so if you liked it and aren't already a client, go to renmac.com and request a free trial. You get access to all the political, all the macro, all the technical, and all the economic work we do here, plus screens, alert lists.

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