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this was how Bitcoin was going to work. And what's so interesting about this time period, just listen to Cloudflare's earnings report last night. He didn't use the word stablecoins, but he used agent commerce, agent payments everywhere. And we believe that stablecoins, which will be dollar-backed assets, and Bitcoin will be the two biggest beneficiaries of this movement.
And another thing worth listening to that came out this week is the latest "Bitcoin Brainstorm" we did with Bitcoin Park and Rod Rudy. It was dedicated to the convergence of Bitcoin and artificial intelligence. I always learn so much when we do these Bitcoin brainstorming sessions. Hello everyone, welcome to Everyday Finance.
Katie Wood argues that a fundamental shift is quietly taking place in the global monetary environment that could prove extremely powerful for Bitcoin and other risk assets. While acknowledging that her team initially underestimated the impact of Bitcoin’s recent weakness when on- chain metrics fell, Wood emphasizes that these metrics are now recovering, as evidenced by Bitcoin’s resurgence against gold amid a new digital infrastructure emerging through stablecoins, artificial intelligence, and automated commerce.
Importantly, she argues that accelerating money growth will not trigger another inflationary shock, as much of this new liquidity is absorbed by slowing economic activity, weaker labor force participation, and a decline in the velocity of money. Ultimately, as the broader dynamics involving the Japanese yen, Treasury bond markets, and money supply expansion continue, Wood believes that Bitcoin and leading tech stocks are uniquely positioned to be major beneficiaries of this evolving tech landscape.
The positive correlation between metals to gold and 10-year Treasury bonds has begun to recover. Since the Fed began tightening policy in February 2022, the most common pattern has been for 10- year Treasury yields to rise while metals like gold to fall. This is changing . You can see that the correlation has increased a little.
The price of metals relative to gold is rising, but this happened primarily because gold was falling. And you see at the top that the 10- year Treasury bond has gone up. And, as I described earlier, central banks have done a lot of selling, which both Japan and the US now want to stop. So, what could happen here?
Let's assume that the 10- year Treasury yield remains in this new range that it has found. In the range of 3.5% to 4.5%, we can imagine that this metals- to-gold ratio will continue to rise if gold continues to fall, all else being equal . And given Vorsh's hawkish stance and his determination to reduce inflation, combined with the fact that inflation rates are starting to decline, we may be able to.
It will be interesting to see if gold falls more than metals rise, because we believe that metals will rise during a boom. So stay with us. If we take the 1980s as a benchmark, again, Reaganomics, the dollar tended to rise, which became a very deflationary factor for emerging market countries, especially those that had dollar-denominated debt.
So let's see what happens. I remain impartial on this issue. Now, completing our review of market indicators, you can see that the S&P to oil ratio is “bullish.” You see, we have, at least for now, avoided what many strategists thought was inevitable, judging by the S&P to gold ratio. They believe that our US debt, which is now $ 40 trillion, has a GDP of only $30 trillion .
So many people are very concerned about this. We're not that worried, and if I didn't add this graph today, I'll show it next time. The correct indicator for assessing our debt is not GDP. GDP is a so-called flow statistic. The correct indicator is the “reserve” statistic, that is, the level, like the stocks themselves.
And based on this, there is very little reason for concern . But many thought the drop in the S&P-to- gold ratio earlier this year would turn into an S&P crash like it did in the 1970s. And they explained it all by debt. We are not worried about this . Although we are glad that others are concerned, because we believe that the government should step aside, except on issues of defense spending, national security, etc.
So those who work in government now, as staff numbers have shrunk, are likely becoming more productive thanks to AI tools. So, bravo. OK. Here is another point. This is new and we will keep an eye on it. I love tips like this. So, this is the ratio of gold to the total yield on Treasury bills. If you look at what happened in the 80s and 90s, this figure was decreasing.
This was a very bullish signal. Now, one of the main reasons for the decline was both factors. Gold prices have been steadily declining. And the overall yield on Treasury bills rose, which meant lower interest rates. So, it was a very favorable period for stocks. We can't wait for a better " bull" market .
But look what started in 2000. Looking back, when we start teaching history again, we will mark the year 2000 as a mistake by the Fed. The Fed was much more lenient than it should have been due to the 2000 problem, the Long-Term Capital crisis in 1998, and the tech crash in 2000. And that caused the inflation you see here.
Measured by this index. So it was a very unhealthy period, judging by the ratio of gold to T- bill yields. I think the worst is behind us if gold prices continue to fall. Although I don't think that the yield on bills will increase much, because I believe that we are in a boom and rates will go up with them.
But if we are right about a deflationary boom, I believe gold prices will fall. Therefore, we are closely monitoring this as well. Okay, it's worth mentioning Bitcoin. We get a lot of questions about him. Bitcoin is starting to stand firm against gold . And I think David Puel's on-chain indicators are looking increasingly positive.
We should have paid more attention to them when they turned negative during the sudden collapse. We didn't do it. We didn't think it would lead to such consequences. I take full responsibility . In addition, I created a problem by stating that stablecoins were taking over one of the functions that Bitcoin was supposed to perform.
Interesting point: just listen to Cloudflare's earnings report last night. He didn't use the word " stablecoins," but he kept talking about agent commerce and agent payments. We believe that stablecoins, which will be positive for the dollar, and Bitcoin will be the two biggest beneficiaries of this movement.
Also worth listening to is the latest Bitcoin brainstorming session we had this week with Bitcoin Park and Rod Rudy. It was entirely dedicated to the convergence of Bitcoin and AI. I always learn a lot when we have these discussions. Katie links Japan's defense of the yen and management of domestic inflation to broader global liquidity dynamics, noting that Japanese monetary policy decisions have direct implications for demand for U.S.
Treasuries, global yields, and financial conditions worldwide. In addition to these macroeconomic liquidity drivers , Wood outlines a convergence thesis, where Bitcoin integrates with stablecoins, artificial intelligence, automated commerce, and a rapidly digitizing financial system. As these emerging technologies continually reinforce each other, Bitcoin is positioned to play a much larger and more fundamental role in the evolving financial architecture .
Here's a slightly more detailed breakdown. China, our imports from China and Hong Kong have halved in favor of Vietnam, Mexico, and other Asian and Latin American countries. Uh , China, you know, we're trying to figure out this metals to gold index, and we think China, and we'll get to that soon, is the reason or the explanation for this graph.
Before we get to that, here are the profits, the domestic profits of the United States before taxes. They are reaching peaks we haven't seen for many, many decades. And, uh, you can see that the yield growth during COVID, supported by massive monetary and fiscal stimulus, has been sustained. And the way it's being sustained is through artificial intelligence and productivity growth.
So it is possible that the margin will continue to grow. But we believe that productivity gains will go towards margins, paying employees a little better , and perhaps lowering prices to remain competitive . Here you can see on this graph what I was hinting at a little bit. Here too, for those interested in Michael Saylor, you can see that this gap is being repaired .
It was on the verge of collapse, although in reality it wasn't at all, but the hedge funds pushed, pushed, and pushed. That's what they do when they see a weak link, and Michael Saylor was that weak link. This idea that Bitcoin will continue to fall and he will be forced to sell Bitcoin to pay dividends of 10-11%.
So he tested the market by selling a little Bitcoin, just to let these hedge funds know, "Hey, stop it." This is not going to happen, I'm selling Bitcoin, and now what are you going to do with it ? So, we'll see. And here, in general, you don't see any problems in the banking system. So, no problems with private lending, and certainly no problems with cryptocurrency.
They are still barely touching cryptocurrencies. The same applies to junk bonds relative to 10- year Treasury bonds. No problems. So, no problem. So I leave you. Many possibilities. No problems, lots of opportunities. We are excited about what will happen in both the stock and cryptocurrency markets over the next few years.
This technological revolution is real. I think the fear of inflation that has been confusing the markets will disappear. And trust me, pay attention to the source. I know I've been saying this for a few years now. We believe we will see deflation. We don't see any hyperinflation that would worry the markets and we think that will happen within the next year or so.
And it will be fantastic for investors and companies that are on the right side of change and are really using all these technology tools. And it will be very difficult for those who don't . So at times it will seem quite confusing as some of the most trusted companies will not be able to handle it.
And it's up to us, who work in the stock markets, especially in active capital management, with the help of prediction markets, which, in my opinion, will bring back more active management . It is up to us, who are watching this technological revolution unfold from our perspective, to choose the right stocks.
And no, we won't always be right. You know, in our business they say: if you are right 60% of the time, you will have brilliant results. And now that we've gone through a very difficult time for innovation with fears about interest rates, inflation, wars, etc. We have overcome the wall of anxiety. I think this wall of worry will be much more interesting for those of us who are dedicated to helping clients find and invest in the companies that will lead us through this revolution.
Katie Wood’s comprehensive thesis argues that seemingly disparate macro forces— the stabilization of the yen in Japan, the acceleration of the money supply, changing labor dynamics, and the weakening velocity of circulation— are merging with the rapid expansion of AI, stablecoins, automated commerce, and Bitcoin into a single financial and technological transformation.
Deviating from the consensus, Wood predicts that current inflation fears will give way to technology-driven deflation as AI and automation exponentially increase productivity, widening the gap between adaptive forward-thinking companies and the market leaders of the past. After a deeper-than- expected downturn, she highlights improving on-chain metrics and Bitcoin’s growing strength relative to gold, arguing that as digital assets become intrinsically linked to next-generation financial infrastructure , Bitcoin is emerging as a major beneficiary of a much more powerful and less inflationary technological revolution than markets are currently pricing in.
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