Bitcoin Is Winning As Treasury Takes Power From The Fed | Caitlin Long

Caitlin Long discusses the rising importance of tokenized deposits, predicting they will eventually surpass stablecoins in both velocity and volume due to their superior liquidity. She believes the entire securities market, including derivatives and commodities, is transitioning towards tokenization, with the banking sector increasingly adopting a tokenized dollar framework.

Long argues that the Federal Reserve should have prioritized the development of tokenized deposits over the FedNow system, despite acknowledging that tokenized deposits are not available 24/7 like FedNow. She highlights the evolving terminology around stablecoins and tokenized deposits, mentioning the Hazel network's token, which serves as a tokenized deposit for interbank transactions.

She notes that many large corporations are reluctant to move from private to public blockchains and emphasizes the significance of the Genius Act for establishing tokenized dollars. Long expresses skepticism about the Clarity Act's likelihood of passing and predicts that tokenized deposits will ultimately overshadow stablecoins, with most transactions occurring on tokenized platforms.

Long reveals that Visa processes $20 billion daily in stablecoin transactions globally, yet stablecoins still outpace FedNow in terms of volume and value. She discusses the rapid development of infrastructure for wallet integration into the banking system, while also acknowledging the negative perception of crypto despite compliance records.

She claims the Fed has not proposed rules for the Genius Act, indicating a lack of support for necessary changes, and suggests the Fed is trying to revert to traditional banking systems while exerting control over the crypto industry. Long describes the circumstances surrounding Silvergate Bank's voluntary liquidation, attributing it to the Fed's actions, which contributed to a bank run affecting Silicon Valley Bank and Signature Bank.

An ongoing investigation into the Fed's actions during the spring 2023 bank runs may reveal illegal behavior, although she doubts accountability for any misconduct. Long notes that the Fed must establish rules for the Genius Act before its implementation in January 2027 and predicts that the Fed will eventually publish its proposed rules, despite having missed previous deadlines.

She comments on the Fed's self-perception as a super regulator above the FDIC and OCC, coupled with its anti-crypto stance, suggesting the Fed hopes for a political shift to reduce momentum for crypto regulation. Long warns that the timeline for crypto regulation remains uncertain and highlights the influence of bond market vigilantes on the Fed's actions, linking Bitcoin's recent rise to a debasement trade.

The episode also addresses the increasing power of the Treasury over the Federal Reserve, particularly regarding the recognition of foreign stablecoins. The Fed's anti-crypto position has allowed the Treasury to exert more influence in the financial landscape.

Long predicts a significant rise in Bitcoin's value, although she acknowledges ongoing concerns about the stability of various sectors of the U.S. economy. While an imminent collapse of the financial system is not expected, it remains a possibility.

The current financial system is characterized as inherently unstable, with the U.S. maintaining a strong balance sheet marked by positive equity. However, a reduction in the Fed's balance sheet is not anticipated. The importance of self-custody in cryptocurrency is emphasized, especially in light of recent hacks, while Web 2.0 technologies are noted for their security shortcomings.

The return of bond market vigilantes is highlighted, along with the increasing burdens of the U.S. government's refinancing schedule. The natural state of interest rates is identified as an upwardly sloping yield curve, contrasting with the U.S. focus on short-term debt compared to the UK's issuance of long-term debt. Long suggests that interventions by the Fed and Treasury have been ineffective for some time.

The dollar system is expected to endure as long as $1.5 to $2 trillion of new money is printed annually, with the current financial environment being cyclical. Long emphasizes the necessity for individuals to invest in their own knowledge and self-custody practices.