To investors,

There is one phrase that has been seared into my brain over the last few months — “Depression or dog coins to a trillion.”

This sentence was shared with me by Asymmetric’s Joe McCann during an interview where we discussed the current economic situation in America. Joe’s comment was meant to highlight the difficulty that the Federal Reserve is facing.

The central bank can keep interest rates at the current level in an attempt to cool off some of the craziness in financial markets, especially since stocks and crypto are at all-time highs, but that would risk pushing the larger economy into a recession (note: depression sounds scarier for the shock effect of his comment).

No one wants a recession.

The alternative option is for the Fed to cut interest rates and stimulate the economy. Under this scenario, dog coins go to a trillion dollar market cap. In Joe’s phrase, dog coins are a proxy for the insanity that is playing out in the edges of financial markets.

If you scroll Twitter/X for a few minutes, you see numerous people talking about how much money they made by buying some stupid name cryptocurrency coin.

As Avi Felman points out here, the market makes no sense. Serious investors know that these assets have zero real world utility, nor do they have any fundamental value. The only reason that the memecoins are going up-and-down in value is because humans love to gamble. They love the promise of getting rich quickly.

But the history of finance has taught us how this ends — it is fun in the short-term and disastrous in the long-term. That won’t stop people from speculating on these new coins.

To put the velocity of this trend in context, Ram Ahluwalia highlighted that 2,500 memecoins were created on Solana in a single hour. Think of how insane that number is.

This is exactly what Travis Kling means when he talks about financial nihilism. Here is how he defined that phrase in a recent article:

“financial nihilism – the idea that cost of living is strangling most Americans; that upward mobility opportunity is out of reach for increasingly more people; that the American Dream is mostly a thing of the past; and that median home prices divided by median income is at a completely untenable level…Financial Nihilism goes hand in hand with Populism – a political approach that strives to appeal to ordinary people who feel that their concerns are disregarded by established elite groups.”

That sounds about right. People feel like there is no other option than to speculate in markets, regardless of how small the probability of this strategy working. Hope is not a math equation, but it sure feels good if you are desperate.

Speaking of desperation, remember the Fed is in a similar situation as individual Americans. They have a $34 trillion debt hanging over their head and no clear path to solving problem. If the dollar continues to be debased, the insanity of financial markets continues. If the Fed stops debasing the dollar, the US possibly defaults on the debt.

Heads you lose, tails you lose. Gamblers run the casino in either scenario.

So what is going to happen moving forward? This may shock you, but the central banks and governments are going to have to enter the corners of financial markets. The Fed is not going to buy dog coins, but we are starting to see larger governments become interested in bitcoin.

This morning a report surfaced from Arjun Kharpal with the following information:

“Japan’s government pension fund on Tuesday said it is requesting information on “illiquidity assets” such as bitcoin, as part of research into potential new investments.

The Government Pension Investment Fund (GPIF) of Japan, the world’s largest pension fund by assets under management on several different rankings, said it is looking for “basic information” on illiquid assets other than those in which it already invests.

GPIF said it currently puts funds in domestic and foreign bonds and stocks, real estate, infrastructure and private equity. It is now looking for information about other assets such as forests, farmland, gold and bitcoin and how these might be incorporated into the portfolio of pension funds.”

This doesn’t mean that GPIF is going to buy bitcoin, but it does mean that it is at least willing to evaluate the prospects of doing so. Remember, depression or dog coins to a trillion.

The game has changed. Asset allocators now have to consider a range of possibilities that they previously would have only laughed at. You can either stand in the way of the macro problems and get steamrolled, or you can join the insanity and position yourself to benefit from the macro tailwinds.

Slowly, but surely, more organizations are realizing that they may have no choice.

To conclude, the story of the crypto market right now is bitcoin and memecoins. They live at opposite ends of the risk spectrum, but that is what everyone is focused on. The natural barbell separates the logical capital allocators from the speculators and gamblers. But both groups seem to be winning at the moment, so we shouldn’t be surprised that this degree of success is attracting more people.

Let’s just hope the memecoins don’t end in misery, because then there will be a lot of people who wish they had simply stuck with bitcoin.

Have a great day. I’ll talk to everyone tomorrow.

-Anthony Pompliano

Arthur Hayes is the Co-Founder of BitMEX and CIO of Maelstrom Fund.

In this conversation, we talk about bitcoin, macro environment, banks, Microstrategy, Altcoin ETFs, stablecoins, various playbooks different nations are using, bull market predictions, portfolio construction, and more.

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Arthur Hayes: Bitcoin Is Going To $1 Million

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