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Senior Analyst Discussion: Powell's Departure, Yellen's Succession - What Does It Mean for Crypto?

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「In history, market tops have often been triggered by a mega-sized IPO.」

Original Video Title: Powell Is Out, Warsh Is In: What It Means for Crypto

Original Video Source: Unchaind
Original Translation: DeepTech TechFlow

Editor's Note

Former IMF Chief Economist Gita Gopinath's "Bliss Trade" proposal outlined in the FT is replacing the "Taco Trade" as the underlying logic of the market. This is a structural, cross-party, cross-body fiscal backstop expectation that forms the true moat of current risk asset valuations and is a core reason for currency devaluation trades.

Crypto is Macro Now newsletter author Noelle Acheson provided three key insights in a podcast: first, the current stock-bond extreme deviation, with the bond market pricing in global tightening while the stock market is AI-driven speculation, resembling the deviation between equal-weighted and market-cap-weighted indices like the S&P 500 pre-1999 Internet bubble;

Second, within Powell's tenure, he must affirm his defense of the Fed's independence while not forgetting he oversaw the 2023 Silvergate bank exit and the banking of crypto companies;

Lastly, inflation will not quickly retreat, even if the Hormuz crisis were to end tomorrow, energy price pass-through and consumer expectations will take months to mend, and the inflation spike predates Trump's tariffs, driven by a long-term trend of deglobalization.

Key Quotes

Stock-Bond Divergence, "Bliss Trade," and Systemic Fragility

· "Global bond yields are all rising, indicating global tightening, which is not good for the markets. However, the stock market always follows a different beat, which is not new, but what is remarkable this time is the scale of this deviation."

· "The bond market has traditionally been referred to as 'smart money' because they only focus on macro data, narratives, and trends; whereas the stock market is influenced by various speculative cycles. The current situation is that the stock market follows speculation, and the bond market follows macro indicators, two beats telling completely different stories, but they don't necessarily need to align."

· "The essence of the Bliss Trade is structural, unlike the Taco Trade, which was limited to the Trump era. It means that no government today will choose not to spend money to rescue the public in times of distress, be it a market crash, a banking crisis, or high oil prices. It is not related to political parties, or even whether it is a body, we have seen this too many times below the equator."

· "The 'put' is now part of the system, which certainly adds another layer of vulnerability. This is also one of the reasons why risk appetite remains so strong in such an uncertain environment."

· "Historically, market tops have often been triggered by a mega IPO."

· "The reverse indicator I am most concerned about right now is that everyone is cheering for the S&P 500 hitting new highs, but ignoring the widening gap between the S&P 500 and the equal-weight index. The last time this gap widened at this pace was in 1999. Anything top-heavy, according to the laws of physics, will eventually tip over."

Inflation Will Not Retreat Quickly

· "I have to refute an assumption that inflation has not actually fallen back as many people thought. Since 2024, core CPI has been flat between 2.6% and 3%, without any decrease."

· "The real reason for the rise in inflation is deglobalization, a trend that began even before the Trump administration, starting during the Biden administration. Trump just accelerated and turbocharged it. Tariffs kept fluctuating, and then the Hormuz crisis lit a match under it all."

· "Even if the Hormuz crisis ends tomorrow, it will take time for energy prices to fall back, and even longer for it to transmit to the inflation index and expectations. So, regardless of how the Hormuz situation unfolds, the story of this round of inflation will not end in the short term."

· "A target rate of 3% was actually reasonable, and many Fed officials privately think so too. But they cannot change the target because a big part of what the Fed does is managing trust. Once the target is changed, it's telling the market: 'We can't reach our original target,' and that would damage the entire Fed trust system."

Powell's Achievements and Failures

· "Powell looks like the kind of grandfatherly uncle you'd want to go for a cotton candy latte with, but let's not forget, he's also the mastermind behind the crypto company to banking conversion, the orchestrator of the Silvergate shutdown and the events of March 2023, and he completely misjudged inflation."

· "The word 'independence' itself is worth questioning. When the US Department of Justice's subpoena arrived, he did stand up to fight back, which is commendable; but in the matter of shutting down crypto-related banking operations, there is no trace of independent thinking, it was politically influenced. Does independence mean not being accountable for any decision? Does it mean ignoring subpoenas?"

· "He wants to shrink the balance sheet, but the market will not let him. It's that simple. The bond market is the boss here, the Fed cannot allow the Treasury market to go haywire because that would affect the dollar and price stability. So he can make a wish, but it won't come true. I also wish I were a professional pianist, but that's not going to happen either."

The Cost of Bitcoin's Macro Assetization and the Future of the Clarity Act

· "Bitcoin is a hedge against currency devaluation. During the 2023 banking crisis, Bitcoin skyrocketed, and everyone said, 'Because people realized the banking system is corrupt and fragile.' At that time, I said that wasn't the case; it was because people expected the central bank to intervene. Bitcoin truly reflects this."

· "It is a good thing for Bitcoin to become a macro asset, but there is also a cost. It is now just one of many macro assets. Investors seeking volatility will choose targets with higher volatility, which is not currently Bitcoin. There are countless AI concepts to speculate on, as well as prediction markets; there are too many things to play with."

· "Even if the Clarity Act is passed this year, it will not have a significant impact on Bitcoin, which never lacked regulatory clarity. The real beneficiary is ETH, and when ETH rises, it often carries Bitcoin along because they frequently move in the same direction."

· "I am concerned about the details of the Innovation Exemption. If third parties are allowed to issue tokens wrapped around a company's stock without the company's knowledge or consent, it will purely be a market of derivative speculation rather than a market of capital formation. This goes against the fundamental purpose of the market's existence and is highly detrimental to the crypto industry's existing 'pure speculation' stigma."

Steve Ehrlich: Hello, everyone, and welcome to Bits and Bips, where we explore the intersection of macro and crypto. I'm Steve Ehrlich, Research Head at SharpLink and your host for this episode. Today's show is packed with excitement. The macro world is full of events, with stocks and bonds moving in opposite directions, and the crypto market is caught in between. Tomorrow, a new Fed chair takes office, and we have more topics to discuss.

Now, let me introduce our guest for today. She has served at Genesis, been the Research Head at CoinDesk, and is currently the influential author of the newsletter Crypto is Macro Now. Please welcome Noelle Acheson. Noelle, great to have you here.

Noelle Acheson: Hi, Steve. It's great to be chatting with you again.

Steve Ehrlich: How are you today?

Noelle Acheson: I'm still recovering from the nearly 35-degree heat in Philadelphia. It's so hot for May.

Steve Ehrlich: I see, you'll probably have to get used to this kind of weather in the future. Like many viewers today, I'm also trying to figure out what's going on in the market. As mentioned at the beginning, the stock market is still going strong.

Noelle Acheson: Yes, but some warning signs have emerged.

Steve Ehrlich: Right, Nvidia has once again delivered a very nice earnings report, but the market reaction has been quite muted. There is a significant level of panic in the bond market, with both the 10-year and 30-year yields on the rise, a direction you have been closely watching.

To make matters worse, we received the first inflation data after the Iran war broke out. No one is sure what will happen next. Powell is stepping down as Fed Chair on Thursday, although he will continue to vote on the Board for the foreseeable future. The crypto market is also caught up in this, with Bitcoin recently rising to the range of $80,000 to $83,000 and ETH briefly reaching the $2,400 range, but now both have fallen back.

So let's go through this one by one. Starting with the first question, how do you interpret the panic in the bond market? Yields are being pushed higher, both the 10-year and 30-year are on the rise, which in my view are all concerning signals, but the stock market seems unfazed.

Stock-Bond Divergence and the Bond Market's "Smart Money" Narrative

Noelle Acheson: You're right, these are indeed concerning signals, and they are global warning signs. Global bond yields are rising, indicating global tightening, which is not good for the market. But the stock market always dances to a different beat, which is not new, what's new is the scale of this divergence this time.

You might recall the days when the 60/40 investment portfolio was highly praised, theoretically with stocks and bonds moving in opposite directions. We are indeed seeing a reversal now, but the scale of this is stunning.

The stock market is currently being driven by some internal, temporary factors, mainly the enthusiasm for AI, just look at how the chip sector is performing; while the bond market is looking at the macro picture, looking to the future. The bond market has traditionally been dubbed the "smart money" because they only focus on macro data, narratives, and trends; whereas the stock market may get caught up in various speculative cycles, with the frequency increasing.

So the current situation is that the stock market is following the hype, which may have some fundamentals or may not, we can discuss that later; the bond market is following macro indicators, and the current macro indicators are not looking good. That's why we have two completely different stories playing out, but they don't necessarily have to align.

Steve Ehrlich: Let's talk about those macro indicators. Inflation data is on everyone's radar, and the PPI (Producer Price Index) is also starting to rise. What else are you seeing? How do you interpret these inflation signals? I don't want to use the word "transitory," but theoretically, if the strait reopens, there is any resolution to the Iran issue, the energy market should at least return to the levels before the February 28th attack, and things should calm down.

Noelle Acheson: Things will calm down, at least in terms of oil prices. But that doesn't mean inflation will immediately fall back, and there are two reasons for this. First, inflation transmission is very slow. We've already seen a slight uptick in the core index that the Fed watches, but it's not significant because while oil prices affect everything, transmission takes time.

Second, we will see increased volatility expectations. This is very interesting, especially in the U.S. economy, where gasoline prices have a huge impact on inflation expectations. When you see the numbers at the gas station ticking up one by one, it feels like money is being drawn from your bank account.

So even if gasoline prices don't feed into core inflation, consumers are already feeling the rise in inflation. This will affect their expectations, which will then affect behavior and ultimately real inflation.

So even if the Hormuz crisis were to end tomorrow, it would take quite a long time for energy prices to fall back, and even longer for this to be transmitted to the inflation index and expectations. In other words, the inflation story will not end in the short term, regardless of how the Hormuz situation plays out, because this is not a new issue; inflation was actually building up even before the Hormuz crisis.

Steve Ehrlich: Could you expand on that a bit more? I know you're in Spain, with a European perspective; I'm American. Since the peak of inflation after COVID, the Fed has been raising rates despite not reaching the 2% target, but it is indeed downward. What do you mean by "has been building up" that you mentioned?

Noelle Acheson: I must refute an assumption; it has not been falling as much as you think. Looking at the chart since 2024, core CPI has been ranging between 2.6% and 3%, not declining at all.

In fact, a year, or even a year and a half ago, many people said, "Okay, the inflation story is over, the anti-inflation process is over, we will range here for a while and then go up again." Why was it expected for inflation to keep going up? Because of the trend towards deglobalization, a trend that even predates the Trump administration, starting during Biden's term in office.

So this is a long-term trend, with Trump just accelerating it, turbocharging it. Tariffs have been bouncing around, the situation regarding tariff refunds is still unclear, but prices have already risen due to tariffs; the Hormuz Crisis has once again struck a match underneath. But honestly, if you look at the chart, you'll see that inflation hasn't been going down for a long time.

Steve Ehrlich: You're right. I remember there was also a discussion suggesting that the Fed's 2% target may need to be raised, to recalibrate the neutral rate.

Noelle Acheson: A 3% target is what's reasonable. Many people are discussing this, and even many Fed officials privately think so too, but they can't change the target. The reason is that the Fed's fundamental issue is credibility. A significant part of what the Fed does is managing trust. If suddenly they say, "We can't reach 2%, so we'll change the target," that would undermine market trust in the Fed's ability to achieve its own goals.

Steve Ehrlich: Got it. We'll probably revisit the Fed and trust issues in about ten minutes.

From Taco Trade to Structural Expectations

Steve Ehrlich: I'd like to delve further into this "irresistible force vs. immovable object" of stocks vs. bonds with you. In your newsletter this week, you highlighted a very interesting op-ed, written by a former IMF Deputy Managing Director, about the so-called "Bliss Trade," which may be a more sustainable extension of the Taco Trade and part of the same family as the Fed’s backstop expectations.

A few months ago, I read a book on the rise of arbitrage trading, the argument being that there will always be a backstop in the market, and this expectation was turbocharged during COVID as global central banks had to aggressively support a stalled economy. Could you explain this Bliss Trade? Which side do you think will give in first?

Noelle Acheson: The Bliss Trade comes from a very interesting comment in the FT a couple of weeks ago by Gita Gopinath, a former IMF Chief Economist and Deputy Managing Director, who is now a Harvard professor. You have to read this article from the perspective of her IMF background, but she made a very interesting point: the market's expectation of a "backstop" or a "safety net" is no longer just the Taco Trade.

The Taco Trade is certainly part of it, with Trump indeed providing numerous events that led many to believe "he will eventually step back," but her point is that this is broader.

The Taco Trade is temporary, limited to Trump's term; but the Bliss Trade stands for "big, large and lasting stimulus or support," and is structural. Her argument is that no government today will sit back as the public suffers, whether it be during a market crash, a banking crisis, or high oil prices.

In 2020 we saw it, in 2022 due to energy prices we saw it again, and now in Europe due to the Hormuz crisis, it is happening again. Governments will not be voted out of office for failing to bail people out.

It is not about political parties, or even about types of government; we have seen far too many coups south of the equator. But the outlook for currency devaluation is crucial, where does the stimulus money come from? There is always a way, and they have many tools in their toolbox.

In the long run, this does indeed increase moral hazard, adding a speculative froth to the market. This is also why in such an uncertain environment we can still see such a strong risk appetite. But it is structural, the "safety net" is now part of the system, which of course adds another layer of vulnerability.

Steve Ehrlich: I am curious about when this systemic fragility will come to a head. Because as long as anyone dares to short the "doomsday loop," they will eventually be hit back by the market, which always bounces back, usually in the form of a K-shaped, V-shaped, or other letter-shaped recovery.

Before we move on to the next topic, I want to ask you about the situation with AI stocks. OpenAI is rumored to confidentially file for an IPO as soon as tomorrow, and Anthropic is rumored to go public later this year. These companies are looking to raise billions to build infrastructure and buy NVIDIA chips.

I heard Anthropic achieved quite an impressive operating profit this quarter; but OpenAI is still burning through a lot of cash, relying on debt to build the future. Yet, this segment is what is driving the stock market up. How do you see this?

Noelle Acheson: Many reports in the market insist that today's P/E ratios and forward P/E ratios are actually quite reasonable. What drives me crazy is that everyone assumes earnings expectations will be met or exceeded.

It has often been the case in history, but we cannot assume it will always be so. Because what are the earnings expectations based on? Many times it's the company's own guidance, many times it's just a simple extrapolation of demand. We are assuming there will be a huge demand for chips and AI infrastructure, but this may not necessarily materialize.

Possible capitulation – I don't profess to be an AI expert. But historically, technological innovations have had their own hype cycles, with expectations surpassing reality, eventually undergoing a pullback. Will this time be the first exception in history? It's possible, but going all-in on this exception is reckless. Yet the current market has everything staked on this, highlighting a severely overlooked underlying fragility.

You just mentioned NVIDIA had a great earnings report but the stock price fell. In fact, over the past eight quarters, every time NVIDIA released its earnings, this same pattern occurred. Each time, everyone said, "The AI story is over." In reality, it's not. This is a classic case of the "shoe dropping" effect, with expectations driven up before earnings, then a sell-off post-earnings.

So, I wouldn't read too much into this reaction now, but your point is valid – there will be a moment of reckoning. I'd like to add that historically, market tops have often been triggered by a massive IPO.

Steve Ehrlich: This point is very worth noting. NVIDIA is also an interesting case. I read they have beaten analyst expectations for 14 or 15 consecutive quarters. But analyst expectations should ideally have a basis in reality, whereas the hype machine on Twitter can push anything, and those are the funds of momentum traders.

What I find interesting is that Jensen Huang and NVIDIA itself are emphasizing concerns about the "inbreeding" among AI companies, the complex relationships between chip factories and their customers. They are trying to say that roughly half of the customers are not large cloud providers, in an attempt to alleviate worries about excessive concentration.

Noelle Acheson: The issue of highly concentrated customers does indeed exist, and these customers themselves are facing rising costs and debt rates. How can we be sure that the health of these customers can sustain the profit expectations being sold to the market by these cloud providers and chip manufacturers?

Well, I admit I may be wrong. I've been expecting a market downturn for a while now, and I've been consistently wrong on timing. So take that with a grain of salt.

Powell's Legacy: Cryptos and Central Bank Controversy

Steve Ehrlich: Powell's tenure as Fed Chair has almost spanned the entire evolution of the crypto industry from its early days to maturity. Bitcoin and crypto were initially designed to act as a counterforce to everything the Fed does. Could we talk about what his tenure means for this industry?

Noelle Acheson: The adulation surrounding Powell's personal charm can easily sweep one off their feet. He indeed comes across as the kind of grandpa-uncle you'd happily go for a cotton candy latte with. But let's not forget, he has also been a driving force behind the crypto-to-bank exodus, with Silvergate's shutdown and the events in March 2023 (referring to the Silvergate, SVB, Signature Bank chain collapse). He has done a lot of damage to the U.S. banking regulatory reputation. He also completely misread inflation.

While I admit to having a personal affinity for him, I watched the FOMC press conference, and he did a great job in communicating the Fed's goals and internal operations. However, many things were either known or supported by him, which ended up harming the crypto industry and the overall reputation of the U.S. banking sector;

Some other things he was completely unaware of, which is also his problem. And this is not even taking into account the credibility of the U.S. Department of Justice case itself.

He did not respond or react to those subpoenas, implying a certain arrogance and non-cooperation. Even if you disagree with the premise behind these White House actions, for the sake of precedent and due process, you need to at least go through the motions. So overall, it's a mixed review. He indeed has a lot to deal with, such as the repo crisis, the pandemic, and inflation.

Steve Ehrlich: Yeah, I forgot he was also the Fed Chair during the repo crisis in 2019.

Noelle Acheson: He does have a lot on his plate. But for me, having an affinity does not mean absolution.

Steve Ehrlich: I probably see it the same way. I am an institutionalist; friends who have listened to my show know I used to work in the U.S. government and the U.S. military.

I have a strong belief in the objectivity and non-partisanship of key government institutions. Powell's insistence on defending the Fed's independence is something I commend; he has clearly been under immense pressure. And I feel this pressure does not solely come from the White House; Congress has to some extent in recent years abdicated its responsibility for fiscal policy, leaving the Fed to pick up the slack. Kevin Warsh actually wanted to push back on this; he wanted to shrink the Fed's balance sheet, refocusing the Fed on monetary policy. So, I can understand.

However, if Powell's first line in the obituary as Chair is "he defended independence," the second line has to be "he misjudged inflation." In 2021 and 2022, we have all grown weary of the word "transitory". At the time, it made some sense; COVID looked like a one-off tail event that would naturally revert once the market reopened.

But it did not; as you've said, factors like deglobalization changed the supply chain. He missed that, leading to the highest inflation in decades, which now has to be tamed again; this then led to the banking crisis you mentioned, with some banks getting caught in this interest rate cycle due to the government bonds they held, leading to an unprecedented round of bailouts. These two things are hard to reconcile.

Noelle Acheson: Even his "independence" reputation itself is worth questioning. When the subpoena from the Department of Justice arrived, he did indeed come out fighting, which was a remarkable and necessary moment — a significant part of his job is to convey information and foster trust in the institution, and he does that well here. But we must also remember that when it comes to shutting down crypto-related banking, there was no sign of independent thought at all; it was politically motivated.

We also have to ask ourselves, does independence mean that no decision should be subject to accountability? Does it mean that a subpoena can be outright ignored? So what does "independence" itself really mean? Has this Fed actually demonstrated that kind of independence? These are all open to discussion. And this opens up a fascinating topic: What are we really talking about when we talk about "central bank independence"? When does it become a flaw rather than a virtue?

Steve Ehrlich: To me, he's more like Paul Volcker (known for raising interest rates to curb inflation in the late '70s and '80s), less like Arthur Burns (Fed chair in the '70s who was accused of succumbing to political pressure). However, there are indeed multiple definitions of independence.

Kevin Warsh Takes Office: Balance Sheet Reduction, Forward Guidance, and Rate Cut Expectations

Steve Ehrlich: Let's talk about his successor. Kevin Warsh has also undergone his own evolution between the "dove vs. hawk" debate. He made it clear in a hearing that he hopes the Fed stays away from fiscal policy, stating something along the lines of "fiscal policy is more about picking winners and losers, while monetary policy is more democratic and can impact the entire economy" — that's where the Fed chair should be.

He also wants to create a new way of measuring inflation to make the Fed more precise and forward-looking. Powell has provided a lot of forward guidance, but Warsh does not want to do that. What are your expectations for him?

Noelle Acheson: He can say he wants a smaller balance sheet all he wants, but the market will not let him do that. It's that simple. The bond market is the boss here, and this is closely linked to price stability. The Fed can't let the Treasury market get out of control because that would affect the dollar and price stability. So, this is a wish — I also wish I were a professional pianist, but that's not happening either.

As for forward guidance, there will be fewer FOMC press conferences and fewer dot plots; I wouldn't be surprised. There will be a big discussion around whether this is good or bad. This is related to what the SEC is doing; they are also discussing reducing the frequency of annual disclosures. Will the market accept less information? Or will it increase volatility?

Does this mean analysts will actually have to put on their thinking caps and work, rather than being spoon-fed data on a schedule? I don't know. It's a significant shift. We've been used to a certain rhythm, used to being spoon-fed data, so once that's taken away, will it disrupt the market to the point where it has to be put back, or will it be a healthy transformation, reducing costs, reintroducing original thinking?

I don't know. I wouldn't be surprised if he tries, but whether the market will let him succeed, I can't say. That's probably all he can do. He certainly can't change the inflation metric; that's not under his purview. He can influence what everyone focuses on, but people will judge for themselves what's important. And he definitely won't have the power to cut rates either.

Steve Ehrlich: On that note, the Fed released the minutes from the April meeting yesterday. One revelation was that there were actually more hawkish voices in the meeting than the final vote (to keep rates unchanged). This is the environment he is about to face, with higher inflation, but the President wanting lower rates, believing AI productivity will tamp down inflation. And then Warsh still has to prove he is "independent of the President." What are your expectations for the upcoming Fed meetings?

Noelle Acheson: It all depends on what Trump will say next. He publicly stated, "Warsh can do whatever he wants, I have full confidence in him." Given the environment into which Warsh is walking, this statement is quite amazing. We know Warsh can't cut rates; first, he only has one vote, and hardly anyone will join him; second, Trump can't start slamming him so quickly after nominating him. So there will be a truce period.

One thing the market seems to have misread now is the rate hike expectations. I've been saying for a long time, "There won't be a rate cut," and seeing this consensus form has been comforting, but now it has swung to the other extreme, expecting a rate hike this year. I think this is going too far.

He can't cut rates, but there aren't many people brave enough to vote for a rate hike in a situation where the debate between "transitory vs. persistent" inflation is still inconclusive. So it will be a "no change" situation.

This will make Trump comfortable; maybe not entirely happy, but he'll keep quiet. This gives the Fed some breathing room, gives Warsh time to build his relationships because ultimately, it depends on the trust of the FOMC members in the Chair, whether they will follow his advice, which will affect the next monetary policy steps.

Steve Ehrlich: I'm actually feeling a bit more reassured. It's been decades since dissenting votes began appearing before last year.

I actually think having dissenting votes is a good thing because in a room with so many people from different backgrounds and regulatory jurisdictions, there should naturally be different opinions on economic matters. We should stay away from groupthink. I'm actually looking forward to Season 52 of "Saturday Night Live" doing a skit on an FOMC meeting; these characters have such distinct personalities, they would be recognizable.

Noelle Acheson: Oh, that would be epic. Looking at it from another angle: What if the next dissenting vote comes from the Chair himself?

Steve Ehrlich: That would be interesting. I'm not sure if there's any precedent for that in history.

Noelle Acheson: I also doubt he would do that; his top priority right now is to gain the trust of the FOMC members.

Steve Ehrlich: Right, at least not at the first meeting. But who knows after that.

The Cost of Bitcoin's Macro Assetization

Steve Ehrlich: We've talked a lot about macro. Let's talk about crypto. Bitcoin and ETH were dragged down again last weekend; Sunday there were rumors of Iran possibly being attacked again, and on Tuesday Trump mentioned a few Gulf countries asking for more negotiation time, so things were put on hold. But crypto hasn't bounced back. I heard a few Chinese tankers passed through the Strait, reports say they paid some kind of "fee" to Iran.

I don't know if this will become a pattern. But crypto is stuck again. Is it truly a high-beta risk asset, or in a world of higher inflation, will currency devaluation trades bring Bitcoin and crypto back to the fore? Or will it once again lose to gold? How do you see the performance of mainstream crypto assets now?

Noelle Acheson: It could be all of the above, honestly. I haven't seen any catalyst that could push it out of its current range, at least not a positive catalyst. Negative risks, however, always exist; a stock market crash would drag down major crypto assets, even if the correlation has weakened in the short term, gravity still plays a role. But will the stock market really crash? That's hard to say.

The currency devaluation trade has always been there. Bitcoin is a hedge against currency devaluation. When people are worried about currency devaluation, Bitcoin often performs better. During the 2023 banking crisis, Bitcoin skyrocketed, and everyone said, "Because people realized the banking system was corrupt and fragile." I said at the time that it was not true; it was because people expected the central bank to step in with liquidity.

Bitcoin truly reflects this. If there is a real deterioration in the market and a signal of stimulus measures (what we previously referred to as the Bliss Trade), it could wake crypto up from its slumber.

But in terms of current risk appetite, Bitcoin isn't really making moves because there are too many other options.

Countless AI concepts, prediction markets, there are just too many things to explore. This is the cost of Bitcoin becoming a macro asset. I've been watching this for a long time. It's a good thing for Bitcoin to become a macro asset, finding its place in macro portfolios more and more; but the cost is that it's now just one of many macro assets.

Investors seeking high volatility will choose assets with higher volatility, and currently, that's not Bitcoin. So, in summary, there's no catalyst right now to push it out of its range until it breaks out on its own and momentum takes over.

Steve Ehrlich: One possible future catalyst is the Clarity Act (market structure legislation). We don't have time to delve into it today, but this topic has been discussed to death, can you briefly talk about it? Both about the bill itself and the likelihood of it being signed into law?

Noelle Acheson: I hope the Clarity Act will pass this year. But the likelihood is not high, maybe it's just wishful thinking on my part. I don't think it would have much impact on Bitcoin, as Bitcoin is not lacking regulatory clarity.

What truly lacks clarity is ETH, which could benefit; and when ETH rises, it often takes Bitcoin along. Overall, regulatory clarity may make some investors more comfortable allocating Bitcoin, but Bitcoin itself is not lacking regulatory clarity today.

Steve Ehrlich: Right. I've tweeted a few times, Bitcoin, ETH, they pretty much have clarity now. The SEC even issued guidance saying many staking activities are not securities, which is completely opposite to the SEC's stance during Gary Gensler's tenure.

For DeFi, this could be a breakthrough because it gives some TradFi companies more certainty to participate; DAOs will not be treated as general partnerships, or there will be a huge liability risk; FinCEN and AML compliance boundaries will also be clearer. These are all potential breakthroughs that Clarity could bring.

But as you said, Bitcoin, ETH, including XRP, Solana, even without formal legislation stating they are commodities, have enough traditional precedents, not to mention the SEC has already approved ETFs under 33 Acts, essentially wrapping commodities into ETFs.

Noelle Acheson: Indeed very complex. Let me ask you a question: has the market already priced in the Clarity Act? In other words, if it doesn't pass, will crypto crash? Or has everyone stopped caring?

Steve Ehrlich: It's hard to say, it may depend on the specific asset. I tend to think it has not been fully priced in yet, as crypto has been in a slump for several months now. If there is indeed momentum to push it through in the coming weeks, it has to happen before early summer, otherwise I don't think it will happen.

Even if it passes, it doesn't necessarily mean Bitcoin will immediately shoot up to $140,000 and ETH to $5,000. It will take longer. But I also don't think it has been fully priced in yet, because everyone understands that to cross so many hurdles in a short time, such as reconciling the Senate version with the House version, then reconciling with what the White House will accept in terms of ethics clauses, and finally signing the bill. I heard the target is July 4th, which leaves about six weeks, quite tight.

Noelle Acheson: The devil is in the details. Legislation is one thing, rule-making is another. But I have been thinking, if it doesn't pass, it's not the end of the world for crypto. The SEC is already on board, most financial regulators are on board too, they can keep making rules until the end of Trump's term. Even if the anti-crypto party wins the White House in 2028, by then crypto is probably too big to break down.

Steve Ehrlich: Right. Crypto has proven itself to be a very powerful lobbying group, an interest group. I believe any successor is also unlikely to be as hostile as during the Gensler era, because that stance actually didn't bring much political gain.

Tokenization Innovation Exemption, Focus Metrics, and Contrarian Views

Steve Ehrlich: One last small topic, about the Tokenization Innovation Exemption, how do you see its interaction between the crypto and traditional markets?

Noelle Acheson: The devil is in the details again. One thing I'm worried about is, rumors say it will allow third-party issuance. In other words, anyone can issue a tokenized package of a stock, and they have no relation to that company, rumors even say no need for company consent, which I think is crazy.

In my view, the essence of the market is capital formation. Derivatives support capital formation by creating a more liquid market, providing comfort to investors putting money into a stock. But if you create a market purely for speculative derivatives, such as tokenized stocks, it undermines the fundamental concept of the market.

This is also not helpful for crypto, as crypto has been labeled as "only suitable for speculation" too many times. It's not how you and I see it, of course, but that perception does exist.

So, this is my concern. But if the details turn out not to be so bad, the tokenization innovation exemption is actually good news as it has encouraged some experimentation. Regulators will be cautious, not letting just anyone in and not allowing for unlimited scale.

But it will encourage entrepreneurs, market participants, and innovators to experiment with this new market structure. We know that in five or ten years, tokenization will become a significant part of the market. Regulators providing the confidence that "you won't be penalized for trying a new asset form" is a big step forward.

Steve Ehrlich: Final question, a choice between two: In the coming weeks or months, what is one chart/indicator you are most focused on? Or, is there a contrarian view you'd like to share?

Noelle Acheson: I like your question because you're not just playing to the gallery; you go for the untold stories. The indicator I choose is "inflation." If we don't keep our eyes on it, there's a pretty nasty script ahead. Inflation will drive the bond markets, dominate monetary policy, and have a huge impact on fiscal policy globally.

So inflation is unavoidable; you can change the index calculation algorithm, as the new chairman says, but it's no use, inflation is unavoidable.

The contrarian view I choose is something that's being overlooked. Everyone is cheering for the S&P 500 hitting new highs, but they're ignoring the growing gap between the S&P 500 and the equal-weighted index. We're all watching the market-cap-weighted index hitting new highs, but the equal-weighted index is not. This gap is widening. The last time it widened at this speed was in 1999.

Steve Ehrlich: Followed by the bursting of the dot-com bubble.

Noelle Acheson: Right. Anything top-heavy, by the laws of physics, will eventually topple.

Steve Ehrlich: Absolutely agree. Noelle, we'll have you back next time. Thank you all for watching.