This episode unpacks the turbulent US-China trade dynamics and their ripple effects on global markets and crypto, alongside the critical legislative uncertainties shaping the digital asset landscape and its innovation potential.
Episode Introduction and Speaker Backgrounds
- The discussion kicks off with introductions: Stephen Erlic (host), Rahm Alawalia (Master of Wealth, Lumida), and special guests Peter Cheer (First Night of the Academy Securities Roundtable) and Zack Pandle (Truth Seeker of the Asset Realms at Grayscale).
- Peter Cheer shares his extensive background, starting in traditional Wall Street with structured products and CDOs (Collateralized Debt Obligations), which are complex financial products backed by pools of debt. He was involved in creating the CDX suite of indices, benchmarks for credit default swaps. Now at Academy Securities, he combines macro strategy, focusing on fixed income and credit, with geopolitical intelligence from a team of retired military and CIA personnel, offering unique insights, especially relevant given some team members served under the Trump 1.0 administration.
US-China Trade Tensions and Market Reactions
- The podcast dives into the recent announcement of a 90-day pause on new US tariffs against China, with existing tariffs reverting to baseline levels.
- Rahm Alawalia, with his wealth management expertise, notes markets are discounting a resolution to trade and geopolitical conflicts, interpreting the 10% tariff level as "extremely low" and below market expectations. He highlights Trump's stated intention to open China's markets, signaling a reduction in policy risk.
- Rahm suggests "American exceptionalism is back," with capital rotating into US markets (semiconductors, QQQ, Mag 7). He observes that hedge funds are "offsides," with low net exposure, potentially forcing them to cover shorts and buy into dips, a sentiment echoed by retail investors who bought the dip.
- Strategic Implication: Investors should watch for continued institutional chasing and buyback activity, which could sustain market momentum despite underlying geopolitical uncertainties.
Geopolitical Chess: Remaking Economies and Bitcoin's Resilience
- The discussion shifts to the broader geopolitical aims, with Stephen Erlic questioning if the US, under figures like Treasury Secretary Scott Bessant, is attempting to reshape the Chinese economy towards consumer focus and reorient manufacturing back to the US.
- Zack Pandle from Grayscale describes the market's "roller coaster" ride, from a "tariff tantrum" to a relief rally. He concurs with Rahm that the announced deal seems insufficient to fundamentally remake either the US or Chinese economies quickly.
- Zack highlights a key trend for crypto investors: "Bitcoin has been outperforming in both market phases, both in the draw down and the initial tariff tantrum in early April and in the recovery."
- Technical Term: Beta in finance measures an asset's volatility in relation to the overall market. Bitcoin showing beta but outperforming on both upswings and downswings is a positive sign.
- Actionable Insight: Bitcoin's resilience during these volatile periods strengthens its case as an asset that can perform well amid macroeconomic uncertainty, a crucial factor for investors diversifying portfolios.
US Grand Strategy and Crypto's Potential Political Role
- Peter Cheer, leveraging his geopolitical team's insights, opines that the US is "pivoting back away from kind of that grand strategy" of fundamentally altering global trade dynamics. He views the recent deals (e.g., with the UK and China) as achievable with less disruption, suggesting the US now appears "disorganized."
- Peter believes recession risks persist and sees the administration potentially pivoting to focus on the budget and areas where "national security equals national production."
- He identifies crypto as a potential "easy win" for the Trump administration, given figures like David Sacks and Howard Lutnick's involvement and its populist appeal, especially in red states.
- Strategic Implication: Crypto investors and researchers should monitor for increased political focus on crypto, as it could lead to favorable policy shifts or be used as a strategic tool by the administration.
The Shifting US-China Economic Relationship
- The conversation explores the complexities of the US-China relationship. Stephen Erlic recounts an anecdote about a Chinese official 20 years ago citing "8% growth" as their biggest concern, questioning what the US has achieved with recent tariff escalations beyond creating policy volatility.
- Rahm Alawalia notes the UK deal resulted in UK tariff reductions but US tariff increases to 10% on UK goods. He emphasizes the significance of the China deal, as China is the primary geopolitical foe according to the US national defense strategy. He also points to China suppressing economic data like youth unemployment while facing internal protests, suggesting both sides sought a "mutual face saving de-escalation."
- Peter Cheer states Academy Securities is "not overly concerned about a military invasion of Taiwan by China," seeing maritime militia disruptions as more likely. He highlights China's technological advancements, such as in chip layering technology (an alternative path to Moore's Law, which posits chip capacity doubling roughly every two years) and their efforts to move from "made in China" to "made by China" with global brands like BYD and Huawei.
- Peter cautions: "I think pretending that they're these kind of cheap trinket makers makes for bad policy. We have to understand how sophisticated they become."
- Actionable Insight: Researchers should track China's indigenous tech development, particularly in semiconductors and AI-related hardware, as it impacts global tech supply chains and geopolitical leverage.
Scott Bessant's Influence and the "Economic Divorce"
- Zack Pandle affirms Treasury Secretary Scott Bessant's leading role in US trade policy, noting his deep traditional finance experience will likely prioritize protecting US market integrity and avoiding financial stability risks.
- Zack frames the US-China dynamic as a "slow motion economic divorce happening between these two countries," with both leaderships recognizing the unsustainability of the previous relationship due to high vulnerabilities. He views the recent tariff pullback as a "tactical retreat, not a laying down of arms."
- Rahm Alawalia counters that a 10% tariff "is not a divorce," though sensitive supply chains will still be moved. He points to China's technological edge in areas like fusion reactors, nuclear power, and battery technology.
- Strategic Implication: The ongoing "economic divorce" or recalibration will create persistent uncertainty but also opportunities for nations and companies that can navigate the shifting landscape. Crypto AI projects offering decentralized and resilient solutions may find increased relevance.
Global Trust and US-EU Tensions
- The discussion touches on Trump's comment that the "EU is nastier than China" regarding trade. Rahm Alawalia believes the "repatriation of capital back to Europe that coincided with the Zalinski ejection from office and the trade war... is done," and Europe faces a tough slog.
- Peter Cheer observes a critical shift: "I think every country in the world right now is trying to figure out how they do business away from the US. I think we've lost a lot of trust." He contrasts US multinational corporations with Chinese state-backed entities, where government and corporate interests are aligned.
- Actionable Insight: The erosion of US global trust could accelerate interest in decentralized systems and alternative financial rails, a core tenet of many crypto projects. AI researchers might also see shifts in international collaboration and data-sharing norms.
US Debt Ceiling, Budget Deficits, and Market Impact
- The focus shifts to domestic US fiscal issues, with Zack Pandle noting the recurring debt ceiling drama and the Treasury market's continuous production of debt. He sees "no political will for large budget cuts," leading to continued large deficits.
- Peter Cheer expresses concern that the government didn't lock in long-term debt during the ZERP (Zero Interest Rate Policy) era. He warns of potential "bond vigilantes" pushing yields higher if deficits appear uncontrolled.
- Rahm Alawalia points to rising CDS (Credit Default Swap) prices on American debt as an indicator of concern, alongside projected 8% deficits, which he views as bullish for the stock market in the short term due to fiscal stimulus, assuming disinflationary trends continue.
- Strategic Implication: Persistent large deficits and debt accumulation could eventually undermine confidence in sovereign currencies, potentially increasing the allure of non-sovereign assets like Bitcoin for investors and even for nation-state treasury diversification research.
Bitcoin as a Safe Haven and the MicroStrategy Playbook
- Zack Pandle reiterates Bitcoin's recent performance, acting more like a safe haven correlated with gold than with tech stocks.
- The conversation turns to companies adopting the MicroStrategy playbook of holding Bitcoin on their balance sheets, with new, heavily funded ventures emerging.
- Peter Cheer warns about leverage: "Bubbles only happen in safe assets." He sees risks if too many entities adopt leveraged Bitcoin strategies, potentially creating cascading triggers if the market turns.
- Zack Pandle believes there's a limit to direct copycats, especially with Bitcoin ETFs becoming more accessible. However, he anticipates more companies will add Bitcoin to their balance sheets for "natural reasons" like hedging currency or trade risks, not just as an access vehicle.
- Actionable Insight: While corporate Bitcoin adoption is a bullish narrative, investors should scrutinize the leverage and financial structures of companies employing this strategy. Researchers can study the game theory and systemic risks associated with concentrated, leveraged holdings.
Crypto Treasury Management and Ethereum's Resurgence
- The discussion broadens to crypto treasury companies beyond Bitcoin, including those focused on Solana. Rahm Alawalia is skeptical about widespread corporate treasury adoption of Bitcoin due to dollar-denominated liabilities.
- Regarding Ethereum's recent price surge, Rahm attributes it primarily to a "massive short squeeze," where institutions shorting Ethereum as a funding leg for dollar-neutral strategies were forced to cover. He suggests the narrative often follows such technical moves.
- Peter Cheer adds that some investors, having missed Bitcoin's rally, might see Ethereum as relatively "cheap" with utility beyond scarcity, providing fuel for the squeeze.
- Zack Pandle sees Ethereum as attractive to institutions due to its security, neutrality, and resilience, making it suitable for "institutional-grade finance." He believes the recent Pectra upgrade (referred to in the discussion as the Petra PCRA upgrade), which combines changes from planned "Prague" and "Electra" upgrades to improve Ethereum's functionality, served as a reminder of its ongoing development, positioning it well for an evolving regulatory environment.
- Strategic Implication: Ethereum's potential as an institutional settlement layer ("trady chain") is significant. Crypto AI researchers should monitor its scaling solutions and institutional adoption, as it could become a key platform for decentralized AI applications requiring robust smart contract capabilities.
US Crypto Legislation: Uncertainty and Political Dynamics
- The panel addresses the disappointment over the "Genius Act" (the specific bill discussed under this name) not moving to a Senate vote, casting doubt on comprehensive crypto legislation passing before the August recess.
- Rahm Alawalia remains optimistic that legislation, particularly for stablecoins, will eventually pass, driven by politicians' rent-seeking opportunities and Scott Bessant's interest in stablecoins as a source of US deficit funding. He notes the irony of Fairshake PAC-backed politicians voting against crypto-friendly measures.
- Zack Pandle believes good legislation will eventually emerge but acknowledges risk. He suggests that a lack of regulatory clarity could reinforce Bitcoin's dominance, as it needs less specific regulatory approval than many altcoins.
- Peter Cheer highlights the crypto community's significant lobbying power and wealth concentration, suggesting they can push their agenda over time. He also notes the Treasury Department's flexibility to act within its existing authority.
- Actionable Insight: The uncertain US regulatory landscape remains a key risk and opportunity. Crypto AI projects, especially those involving novel tokenomics or decentralized governance, must navigate this ambiguity. Progress on stablecoin legislation could provide a foundational layer for broader crypto adoption.
Recession Risks and Broader Market Outlook
- Rahm Alawalia dismisses immediate recession fears, citing strong equity markets and the relatively low 10% China tariff as "noise."
- Zack Pandle emphasizes policy uncertainty, suggesting equities may be challenged while assets like Bitcoin benefit. He notes Bitcoin's significant outperformance (almost 50%) compared to the S&P 500's 1% gain since the election.
- Peter Cheer expresses more caution, citing potential damage to US corporate earnings from foreign sales due to backlash against US policies and questioning the accuracy of non-farm payroll data (specifically the birth/death model's contribution). He sees a risk of economic slowdown.
- Strategic Implication: Investors in the Crypto AI space should maintain a diversified approach, considering that broader market sentiment and economic health will influence venture funding and risk appetite for innovative, early-stage projects.
Concluding Thoughts and What to Watch
- Peter Cheer: Watching for a Trump administration pivot to budget and deregulation. His concern is lasting damage to the US global reputation, potentially benefiting competitors like China in tech and trade.
- Zack Pandle: Attending the Consensus conference, focusing on competition among smart contract platforms (Ethereum, Solana, etc.). His contrarian take: Ethereum is very well-placed.
- Rahm Alawalia: Believes "American exceptionalism is back," the dollar will remain strong, and Bitcoin dominance may see a local peak, potentially ushering in an "alt season." He sees potential in carefully selected small-cap names.
- Stephen Erlic: Watching the high-stakes meeting between Putin, Trump, and Zalinski concerning the Ukraine conflict, the outcome of which will have wide-ranging geopolitical and economic reverberations.
Reflective and Strategic Conclusion
The episode underscores how geopolitical maneuvers and domestic policy indecision create a volatile backdrop for crypto; investors and researchers must monitor these shifts for impacts on funding, innovation, and regulatory pathways for emerging technologies like Crypto AI.
