The Pomp Letter

To investors,

I hope each of you had a great holiday weekend. This week is going to be a little different than our normal schedule. I am in the middle of reading a fascinating book, The Rise and Fall of American Growth by Robert J. Gordon. Although the book is a New York Times bestseller, there are very few people I know who have read it.

Gordon published the book in 2017 and it lays out a unique argument — he “challenges the view that economic growth will continue unabated, and demonstrates that the life-altering scale of innovations between 1870 and 1970 cannot be repeated.” This is an important topic given the current macro environment, coupled with the identified need for the United States to bring manufacturing and supply chains back home, as well as the missing GDP growth that has contributed to 140% debt-to-GDP domestically.

I’ll be writing a few times this week with thoughts about the book, lessons learned, interesting data points, and any “ah-ha” moments that relate to the present day. The book is more than 700 pages, so this will be somewhat of a personal challenge to see if I can read fast enough to have something to write each day :) If you would like to read alongside me, you can purchase the book from Amazon (note: I get nothing from this and am not affiliated with the book or the author - just a fan of the book so far).

Gordon’s main premise for the book is quite simple. Economic growth in the United States exploded between 1920 and 1970. The real output per US person during the 20th century doubled approximately every 32 years. This is in stark contrast to other times in history, including “no economic growth over the eight centuries between the fall of the Roman Empire and the Middle Ages” and “real output per person in Britain between 1300 and 1700 barely doubled in four centuries.”

According to Gordon:

“Scholars struggled for decades to identify the factors that caused productivity growth to decline significantly after 1970. What has been missing is a comprehensive and unified explanation of why productivity growth was so fast between 1920 and 1970 and so slow thereafter. This book contributes to resolving one of the most fundamental questions about American economic history.”

To answer the question of why productivity growth was so fast in the 50 years preceding 1970, we have to look at Gordon’s “central thesis” — some inventions are more important than others. If I was to mention that idea to a random stranger on the street, most people would likely agree. They may even look at me like I was crazy for suggesting it WAS NOT true. But the traditional economist’s view of the world does not hold this idea as an accepted idea.

Giorgos Kallis eloquently explained the widespread belief when he wrote:

“One argument of those who defend growth is that growth is the natural and inevitable course of the economy. Liberated from governmental or other restrictions, and left to their own powers, entrepreneurs will make an economy grow, as they are endlessly inventive in growing their own incomes. Growth is then seen as the natural product of a free, ‘self-regulated market’. The destiny of the economy, unless human institutions mess with it, is to grow, like the destiny of a newborn is to grow up, and of a small tree to grow taller and taller. The pursuit of growth according to this view is imprinted in our instincts, if not our genes. Humans, like other species, given the opportunity, expand their habitat and resource use as much as possible. It might have taken us centuries to find the word for it (‘growth’), but the desire and potential was always there.”

Surprisingly, both Gordon and Kallis agree that growth is not natural and inevitable.

This brings us to a key distinction in Gordon’s book. He acknowledges that growth has occurred since 1970, but highlights that it was mostly in “entertainment, communications, and the collection and processing of information.” This means, according to his analysis, that “the rest of what humans care about” has seen a slow down in growth, including “food, clothing, shelter, transportation, health, and working conditions inside and outside the home.”

The third distinction that Gordon makes is that the little growth that has occurred since 1970 has been captured unevenly by the US population as well. He states “the rise in inequality that since 1970 has steadily directed an ever larger share of the fruits of the American growth machine to the top of the income distribution.”

With all this said, Gordon understands that many people will disagree with him. They will point to standard of living improvements using real GDP per person, or a similar measurement. He claims that there are two major failures in this data point — “GDP omits many dimensions of the quality of life that matter to people” and “the growth of GDP is systemically understated” due to price indexes overstating price increases.

He suggests that a better measurement of the standard of living is to use Gary Becker’s theory of time allocation. Becker argued in his seminal paper:

“Throughout history the amount of time spent at work has never consistently been much greater than that spent at other activities. Even a work week of fourteen hours a day for six days still leaves half the total time for sleeping, eating and other activities. Economic development has led to a large secular decline in the work week, so that whatever .may have been true of the past, to-day it is below fifty hours in most countries, less than a third of the total time available. Consequently the allocation and efficiency of non-working time may now be more important to economic welfare than that of working time; yet the attention paid by economists to the latter dwarfs any paid to the former.”

This work allows for a categorization of time spent in the household and on non-work activities. The thought process is if you’re going to measure the standard of living, it may help to measure what people are doing with their time outside of working.

Made Me Think

There were a lot of arguments in the beginning of the book that made me think more critically, but Gordon used a simple example that reminded me that even the most complex topics can be boiled down to a few simple elements. He argued “just as the thousands of elevators installed in the building boom of the 1920s facilitated vertical travel and urban density, so the growing number of automobiles and trucks speeded horizontal movement on the farm and in the city.”

Moving up and down, and side-to-side, at a faster pace. Not exactly rocket science. But the elevators and cars created efficiency, innovation, and an economic boom that may be hard to recreate.

Facts About Inventors

My favorite section of the book so far was titled “Inventions and Inventors.” In it, Gordon makes two simple arguments. First, “the major inventions of the last nineteenth century were the creations of individual inventors rather than large corporations.” That seems like a significant difference from majority of the innovations that we hear about today.

The second argument was all about location and nationality.

“Although this book is about the United States, many of the inventions were made by foreigners in their own lands or by foreigners who had recently transplanted to America. Among the many foreigners who deserve credit for key elements of the Great Inventions are transplanted Scotsman Alexander Graham Bell for the telephone, Frenchmen Louis Pasteur for the germ theory of disease and Louis Lumière for the motion picture, Englishmen Joseph Lister for anti-septic surgery and David Hughes for early wireless experiments, and Germans Karl Benz for the internal combustion engine and Heinrich Hertz for key inventions that made possible the 1896 wireless patents of the recently Italian immigrant Guglielmo Marconi. The role of foreign inventors in the late nineteenth century was distinctly more important that it was one hundred years later, when the personal computer and Internet revolution was led almost uniformly by Americans, including Paul Allen, Bill Gates, Steve Jobs, Jeff Bezos, Larry Page, and Mark Zuckerberg. Among the pioneering giants of the Internet age, Sergei Brin is one of the few to have been born abroad.”

My Favorite Quote

“The past is a matter of record, the future a matter for speculation.” - Robert J. Gordon

Noteworthy data points

* “According to the great historian of economic growth, Angus Maddison, the annual rate of growth in the Western world from AD 1 to AD 1820 was a mere 0.06% per year, or 6% per century.”

* “Transportation among all the Great Inventions is noteworthy for achieving 100% of its potential increase in speed in little more than a century, from the first primitive railroads replacing the stagecoach in the 1830s to the Boeing 707 flying near the speed of sound in 1958.”

* “Though not a single household was wired for electricity in 1880, nearly 100% of US urban homes were wired by 1940 … In short, the 1870 house was isolated from the rest of the world, but 1940 houses were networked, most having the five connections of electricity, gas, telephone, water, and sewer.”

* “The percent of the nation classified as urban (defined as population of 2,500 or more) grew from 24.9% in 1870 to 73.7% in 1970.”

* “One of the most important product introductions was the Model T Ford, which went on sale in 1908 at an initial price of $950. Over the next fifteen years, Henry Ford’s introduction of the assembly-line method of manufacturing to the production of automobiles brought an astonishing reduction in price to $269 in 1923.”

* “There were only 8,000 registered motor vehicles in 1900, yet there were 26.8 million just three decades later.”

The Critics

The idea that economic growth is slower today than 1920-1970, and that it will stay that way moving forward, will obviously shake the foundational beliefs of a number of people. The largest portion of critics, which Gordon calls “techno-optimists,” allegedly “predict a future of spectacularly faster productivity growth based on an exponential increase in the capabilities of artificial intelligence.”

This explicit call out of critics is fascinating to me because I would generally put myself in the techno-optimist category, but I have found myself nodding along with Gordon’s arguments so far. I am excited to read the rest of the book to see where I fall as I learn more about his evidence and perspective.

One Surprise

The biggest surprise to me has been Gordon’s identification of lower productivity and economic growth post-1970, yet I haven’t seen a single mention of the United States monetary policy leaving the gold standard. Given how much attention economists have put on this historic decision, I would have expected to see an analysis of its impact, regardless of whether Gordon thought it was important or not.

Add in the fact that many in the bitcoin community would argue “fix the money, fix the world” and you can see where monetary policy could play an important role in future economic growth. Maybe we are just early in the book and this analysis will come later, but we’ll see.

One Ask

I would love to hear from each of you. If you have read the book, or you have thoughts about the information, data, and quotes above, please leave a comment on this post and I will do my best to respond to all of them. You can comment from the Substack app or you can click this email, view it in a browser, and scroll to the bottom of the page.

What do you agree with so far? What do you disagree with? Any surprises? Or any additional information that you think would be interesting to add?

Looking forward to everyone’s thoughts. Hope you have a great start to your day. I’ll talk to everyone tomorrow.

-Pomp

David Rubenstein is a well known entrepreneur and investor, the Co-Founder of The Carlyle Group, and hosts his own show through Bloomberg.

In this conversation, David gives a masterclass on his tips and lessons learned in the past 50 years of investing and entrepreneurship. We also discuss the current economic environment, the future of the United States, young people leading the next revolution through crypto, and how to become a better thinker and decision maker.

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

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To investors,

Zoltan Pozsar of Credit Suisse dropped a must-read piece last week entitled “War and Industrial Policy.” He starts off describing how global supply chains can only work efficiently during peacetime. Zoltan explains the three pillars of the recent low inflation world:

* Cheap immigrant labor keeping nominal wage growth “stagnant” in the US

* Cheap Chinese goods raising real wages amid stagnant nominal wages

* Cheap Russian natural gas fueling German industry and Europe more broadly

Notice how he starts each of these pillars with the word “cheap.” We’ll come back to that in a little.

Zoltan quickly moves to coin a new term to describe an important part of the economic strength over the last few decades. He states “implicit in this “trinity” were two giant geo-strategic and geo-economic blocks: Niall Ferguson called the first one “Chimerica”. I will call the other one “Eurussia.” This is an important distinction because the two alliances were separate, but similar. Zoltan describes how they work by writing:

“Both unions were a “heavenly match”: the EU paid euros for cheap Russian gas, the U.S. paid U.S. dollars for cheap Chinese imports, and Russia and China dutifully recycled their earnings into G7 claims. All sides were entangled commercially as well as financially, and as the old wisdom goes, if we trade, everyone benefits and so we won’t fight. But like in any marriage, that’s true only if there is harmony. Harmony is built on trust, and occasional disagreements can only be resolved peacefully provided there is trust. But when trust is gone, everything is gone, which is the scary conclusion from Dale Copeland’s book: Economic Interdependence and War”

The general idea is that peace between nations is built on trust. That trust can be based on the greed of future profits (economic trade) or the fear of future ruin (military strength). Sometimes it is one of these, but sometimes it is both.

When nations lose trust with each other, it creates an environment where they are likely to engage in conflict to accomplish their goals. This could be driven by the pursuit of raw materials, cheaper labor, strategic military positioning, or a host of other potential reasons.

Zoltan’s analysis of the end for the two global alliances is simple, yet eye-opening:

“China got very rich making cheap stuff, and then wanted to build 5G networks globally and make cutting -edge chips with cutting -edge lithography machines, but the U.S. said “no way”. As a result, Chimerica is going through a messy divorce. The two sides don’t talk anymore: “Pentagon chief’s calls to China go unanswered amid Taiwan crisis” (see here).

Russia got very rich selling cheap gas to Europe, and Germany got very rich selling expensive stuff produced with cheap gas. Current accounts swelled for both. Business was so good that Russia and Germany planned a vow renewal with Nord Stream 2. But the ceremony was called off abruptly and turned into divorce, as one side did something the other couldn’t tolerate. Events unfolded quickly and involved NATO, Ukraine, and the balance of power in continental Europe, and the result is another messy divorce, in which the two sides don’t talk anymore: “Olaf Scholz says partnership with Putin’s Russia is ‘inconceivable’” (see here).

Finally, the U.S. got very rich by doing QE. But the license for QE came from the “lowflation” regime enabled by cheap exports coming from Russia and China. Naturally, the top of the global economic food chain – the U.S. – doesn’t want the lowflation regime to end, but if Chimerica and Eurussia are over as unions, the lowflation regime will have to end, period.”

Translated into layman terms…the world is undergoing a seismic shift and the future will not look like the past. So what exactly would this new world look like? It is hard to tell, but Zoltan explicitly calls out the initial formation of US-sanctioned countries beginning to work together.

“If I step back, I see a fierce, geo-strategic game of chess in progress on the Eurasian landmass. Forget the BRICS…and try to focus instead on Turkey, Russia, Iran, China, and North Korea playing “TRICKs ” on the Eurasian landmass – an alliance of economies sanctioned by the U.S. getting ever closer economically and militarily. This Eurasian “alliance of the sanctioned” is forcing the friends of the U.S. to play pragmatically.”

Sounds less than ideal, right? Definitely. But what happens if this unlikely alliance continues to pick up steam? That is even less ideal. Zoltan explains how we could go from a low-inflation environment to a high-inflation crisis quickly.

“If Pax Americana enabled globalization and globalization underwrote lowflation, the TRICKs trying to poke holes in the Pax means that inflation is a big risk. To understand the path of inflation from here, we will have to read more history and think about trust, trade, and Dale Copeland’s theory of trade expectations: if trust drove globalization, and globalization drove “The Great Moderation”, distrust will drive de -globalization, and de -globalization “The Great Reflation ”

The ramifications of a multi-polar world, along with a move away from a low inflation world, are complex and hard to identify. It is easier to identify change underway, than successfully predict the end state of the change.

It is essential to understand that the world is changing. There is a geopolitical chess game being played. Average citizens, both in the United States and around the world, are caught in the crosshairs. Inflation is rising. Commodity prices are rising. The cost of living is rising. More and more people feel like they can’t get ahead.

The unfortunate part of the story is that your options are limited. You can ensure you are educated on what is happening. You can read history about transition periods. And you can try to position yourself financially to be as resilient as possible. Outside of those simple steps, the only other thing is to hope for the best.

The United States of America is undergoing a test. It is a test of our ethos. It is a test of capitalism. It is a test of our diplomacy skills. And it is a test of our military strength. The average citizen won’t be able to do much on those fronts. But the average citizen can take up the economic weapon of entrepreneurship. They can build businesses. Serve their local communities. Create GDP growth. Drive economic value.

Prepare for the worst, but be willing to solve problems you see. That is the whole game right now. Wish I had better news. But the story is not over. We have the ability to improve the future. It will take people with the courage to build though. Hopefully that will be each of you :)

Hope you have a great day. I’ll talk to everyone tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 225,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

There has been anticipation of Wall Street institutions joining the bitcoin and crypto industry for years. Fidelity started mining bitcoin back in 2014, which was followed in 2018 with the launch of their custody and trading platform. Cathie Wood’s ARK Invest became the first public fund to invest in bitcoin during the second half of 2015.

Since these two pioneers entered the industry, there has been speculation that their peers would quickly follow. While the peers did not follow quickly, we have seen a large increase in institutional investor adoption between 2018 - 2021. There were the first two public pension funds, from Fairfax County, Virginia, who invested in a dedicated crypto venture fund with the understanding that bitcoin would make up ~20% of the fund.

This was followed with the announcement from Paul Tudor Jones, and then Stanley Druckenmiller, that he was invested in bitcoin as part of an inflation hedge strategy. Things accelerated quickly once two of the best Wall Street investors in history publicly acknowledged their bitcoin allocations. The career risk had been removed for portfolio managers across hedge funds and various asset allocators. As long as the best in the business were in the trade, you couldn’t be fired for following their lead.

We saw bitcoin’s price rocket to a new all-time high and all seemed well in the world. But as the macro landscape changed, and the Fed began to implement tighter financial conditions, bitcoin suffered along with all other assets. While this was happening, there was one big question outstanding — why had the world’s largest asset manager not dove into the wild world of bitcoin and cryptocurrencies?

It appears we got more clarity this morning.

BlackRock announced a partnership with Coinbase to allow investors the ability “to manage their portfolios and conduct risk analysis on investment decisions.” The announcement states that this partnership will only pertain to bitcoin initially and the two companies will look for client demand to determine if it will expand to other crypto assets.

This partnership is a big deal, not because of what is happening, but rather because of what it signifies. The world’s largest asset manager is announcing a partnership with the largest publicly-traded crypto exchange after bitcoin has fallen approximately 70% from the all-time high of $69,000. Those who are bitcoin-native understand that the real value is captured during bear markets. It now appears that large institutions like BlackRock understand that as well.

If the institutions aren’t leaving during bear markets, then the market outlook for bitcoin over the medium to long-term is quite compelling. A BlackRock spokeswoman told the Wall Street Journal that the Coinbase partnership was part of their long-term cryptocurrency strategy. That isn’t exactly something that would have been expected 2-3 years ago.

BlackRock wasn’t the only institution with news this morning either. Fairfax County Retirement Systems CIO Katherine Molnar announced that the pension plan has received approval to invest $70 million in a pair of yield farming strategies. When asked why the team was leaning into the crypto opportunity now, Molnar told the Financial Times:

“Some of the yields that you’re able to achieve in a yield farming strategy are really attractive because some of the people have stepped back from that space.”

This translates to the classic theory of being greedy when others are fearful. With that said, there is immense risk still associated with the bitcoin and crypto industry. There are few other assets that can rise and fall with the level of volatility that is commonplace in crypto. There have been previous problems with a lack of disclosures or lack of regulation. And, of course, there are plenty of unknown risks that are difficult to identify.

But that isn’t stopping the institutions from participating.

The sophisticated investors understand that the short-term price movements are likely noise. They are continuing to invest capital, build products, and strike moat-building partnerships. These large institutions have the balance sheets to weather the bear market in crypto or the recession in the macro economy. They aren’t worried about what happens today, tomorrow, or next week. This is the 10+ year strategy being laid right before our eyes.

It is rare to live through the birth, and subsequent scaling, of a new multi-trillion dollar asset class, but that appears to be what we are doing now. Timing is everything in investing and we seem to be quite fortunate.

Hope each of you has a great day. I’ll talk to everyone tomorrow.

-Pomp

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THE RUNDOWN:

Robinhood CEO Shuts Down FTX M&A Chatter, Says He Has Money to Do His Own Deals: The chief executive officer of Robinhood Markets, the brokerage whose stock has lost about three-quarters of its value since its debut last year, tried to shut down speculation Wednesday that his firm might become a takeover target of crypto giant FTX. FTX's billionaire founder Sam Bankman-Fried took a 7.6% stake in Robinhood in May. Bloomberg reported in June that FTX was exploring whether it could purchase the company, bolstering FTX's nascent efforts to offer stock trading to customers. Read more.

US Senate Bill Will Give CFTC Crypto Market Oversight – but Doesn't Say How Much: The latest U.S. legislative effort to steer most crypto oversight to the Commodity Futures Trading Commission has bipartisan support but does little to answer the crypto industry's top question: What makes a token a security or a commodity? The legislation from the leaders of the Senate’s Agriculture Committee would require crypto firms involved in the trading of digital commodities – including bitcoin and ether – to register with the CFTC as their primary regulator, something industry leaders such as FTX co-founder and CEO Sam Bankman-Fried are cheering from the sidelines. Read more.

Ex-Coinbase Product Manager Pleads Not Guilty in Crypto Insider Trading Case: Former Coinbase product manager Ishan Wahi has pleaded not guilty to federal charges of insider trading, according to a Reuters report on Wednesday. Ishan Wahi is accused of sharing information about which crypto assets the exchange would be listing next with his brother Nikhil Wahi and Sameer Ramani prior to the actual listing. The U.S. Securities and Exchange Commission also brought charges against the three tied to the same insider trading allegations. Read more.

MicroStrategy Shares Surge as Michael Saylor Puts Full Focus on Bitcoin: MicroStrategy stock is up nearly 15% on Wednesday, helped by a modest rally in bitcoin and news late Tuesday that Michael Saylor is stepping down as CEO to become executive chairman. The software company's president, Phong Le, will become CEO. The management changes will allow for the company's enterprise business to have the full focus of the CEO, with Saylor devoting his energies to strategies for corporate bitcoin adoption. Read more.

Murad Mahmudov is the Founder of STFX, a brand new piece of technology that assists with short-term trades.

In this conversation. we discuss Bitcoin's rise to a global reserve currency and if the transition will be peaceful or not, building STFX, returning to Twitter, and storylines that will define the next crypto bull run.

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* Copper has been at the forefront of institutional digital asset development since 2018. From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world. Learn how Copper helps the world’s largest institutional investors secure their digital assets at copper.co

* Eight Sleep is the most advanced solution on the market for thermoregulation by pairing dynamic cooling and heating with biometric tracking. Click here to check out the Pod Pro Cover and save $150 at checkout. 

* Bullish is a powerful exchange for digital assets that offers deep liquidity, automated market making, and industry-leading security. Click here to learn more. 

* Valour represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. For more information visit valour.com

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

Today we are announcing a brand new business, Inflection Points Inc, that has been in stealth since the beginning of 2021. I co-founded the business with Colton Sakamoto and it has grown into one of the key pieces of infrastructure across the bitcoin and crypto industry. Below is more information about the business, our mission, and why we are coming out of stealth.

Inflection Points, Inc has quietly built the #1 corporate training and employment business in the bitcoin and crypto industry over the last 18 months. The business is coming out of stealth today and announcing a recent fundraise of $12.6 million from some of the best technology investors in the world. 

Investors in the round include Thiel Capital, Fifth Down Capital, XYZ Fund, Rose Park Advisors, Blockchange, Third Prime, former Palantir CFO Colin Anderson, Eight Sleep CEO Matteo Franceschetti, former Allergan CEO Brent Saunders, and real estate mogul Marc Roberts. Fifth Down Capital’s Andrew Spellman is joining the Board of Directors. 

Inflection Points, Inc, has been profitable since inception and raised outside capital only after it hit seven-figures in revenue. The founders of the business, Anthony Pompliano and Colton Sakamoto, are focused on building a durable business that can thrive over the long term. 

The Mission

One of the most pressing issues around the world is that global debt-to-GDP continues to rise at an alarming rate. The unsustainable debt levels force central banks to devalue their currencies, which in turn, punishes the billions of people who hold no investable assets. If you analyze this situation from first principles, there are two potential solutions to the problem:

* Create a currency that is not based on debt; or

* Stimulate economic growth to outpace increases in debt

The first potential solution is being addressed by bitcoin. The open-source, decentralized, digital currency is non-debt money that provides a neutral monetary network for anyone with an internet connection. 

The second potential solution is being addressed by Inflection Points, Inc. The company is relentless in its pursuit of creating a measurable inflection point in economic growth. 

“Stimulating global economic growth is the highest leverage opportunity outside of bitcoin development. This problem is incredibly difficult to solve, but we are committed to working on it for a very long time.” - Anthony Pompliano

Through its various products, Inflection Points, Inc ensures that every company in the bitcoin and crypto industry is able to hire the best talent, while simultaneously creating systems and programs to train existing employees on the technologies that make up the fastest growing economic vertical. 

Inflection Points Inc has helped nearly 1,000 people obtain a new job in the bitcoin and crypto industry over the last 18 months, or more than one person per day. Thousands of employees at companies including Coinbase, Gemini, Kraken, Strike, BTC Inc, Anchorage, OkCoin, TaxBit, and Reed Smith, have gone through the extensive training program as well. 

Inflection Points Acquires Proof of Talent

In addition to the fresh financing round, the company has also acquired Proof of Talent, the leading recruiting agency in the crypto industry. The acquisition will make it possible to help create a seamless process for identifying the right candidates for the hardest-to-fill roles. 

Proof of Talent's executive team, including founder Rob Paone, will join Inflection Points, Inc, to grow the business into the most dominant hiring and training platform in the industry.

“Over the past three years, Proof of Talent has worked to build the premier crypto-native recruiting firm. By combining Proof of Talent’s specialist recruitment experience and talent acquisition team with the scale of Inflection Points education and training programs, we’re poised to create the most comprehensive hiring solutions for talent and employers in the industry.” - Rob Paone 

With the addition of the 9-person Proof of Talent team, Inflection Points, Inc now covers three domains — employment, training, and recruiting — in an effort to ensure the best and brightest are working in the bitcoin and crypto industry.

If you are looking for a new job in the industry, or would like to have your team trained on the bitcoin and crypto industry, visit the website by clicking here.

Hope you all have a great start to your day. I’ll talk to everyone tomorrow.

-Pomp

THE RUNDOWN:

Musk Scraps $42B Deal to Buy Twitter, Prompting Board to Threaten Suit: Tesla CEO Elon Musk scrapped his $42 billion takeover deal to buy Twitter, claiming the information provided by the social media giant was false and misleading, prompting the company to threaten to sue to enforce the agreement. Musk, in a filing with the U.S. Securities and Exchange Commission, claimed Twitter was in material breach of multiple provisions of the deal and had apparently made false and misleading representations that Musk had relied upon. Read more.

US Job Growth Remains Historically Strong, Exceeding Economists' Expectations: U.S. job growth cooled in June, but still vastly exceeded economists' expectations, a U.S. government report Friday showed. Employers added 372,000 jobs last month, a minimal slowdown from the revised 384,000 added in May and the lowest since the coronavirus pandemic recovery, a report by the Labor Department on Friday showed. But the figure is still higher than the 275,000 increase predicted by economists, based on a FactSet survey. Read more.

GameStop CFO Fired Amid Cost-Cutting Drive: GameStop Chief Financial Officer Mike Recupero was fired from the video-game retailer amid a cost-cutting drive that has followed a hiring spree in the last 18 months. Recupero had served as CFO since June 2021 and will be replaced by Chief Accounting Officer Diana Jajeh. In a letter to employees, CEO Matt Furlong said GameStop is focused on "eliminating excess costs and operating with an intense owner's mentality." Read more.

Hong Kong Regulator Ashley Alder to Head UK Financial Supervisor: Ashley Alder, the CEO of Hong Kong’s Securities and Futures Commission (SFC), has been appointed to head the U.K.’s Financial Conduct Authority (FCA) and is expected to start in January 2023. Alder, a former lawyer, has been the head of the SFC since October 2011, overseeing the introduction of the territory’s digital assets rules. Read more.

Russell Starr is the Executive Chairman & CEO of Valour (formerly DeFi Technologies)

In this conversation, we talk about regulation needed for the Crypto industry, why Crypto companies should be hiring right now, and why this bear market presents so many opportunities for builders.

Listen on iTunes: Click here

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Bitcoin Humbles Everyone | Dylan LeClair

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

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To investors,

The unemployment rate in the United States is sitting near historic lows. This is impressive, especially post-COVID chaos, because it took nearly a decade to reach the ~3.5% unemployment rate after the Global Financial Crisis in 2008-2009.

My concern at the moment is there is a strong probability that the unemployment rate will push higher over the coming weeks and months. The Federal Reserve is being forced to tighten financial conditions in an attempt to bring down the 40-year high inflation that Americans are experiencing. As they pursue this strategy, the stated goal is to destroy demand from consumers.

That demand destruction will ultimately lead to lower revenues for businesses, which will apply financial pressure and likely lead to layoffs. But the market doesn’t always act in a perfect, sequential manner. Many business owners are anticipating the demand destruction, and potential economic downturn, so they are implementing hiring freezes or cutting material percentages of their workforce.

Layoffs have been reported across industries, including companies like Tesla, Unity, Coinbase, and Tencent in recent days. This comes at a time where there are more than 11 million open jobs in America. No one said understanding the economy would be easy.

But that isn’t even the most interesting part of the labor force analysis in my opinion.

There are hundreds of jobs available to job candidates where they can drastically increase their salary. Take Walmart for example — they are now paying truck drivers more than $100,000 in their first year on the job. If you walked down the street and polled the general public, not many people would assume that you could make 6-figures driving for Walmart.

Not everyone wants to take the time to get CDL certified and have the life of a truck driver though. It can be long hours, many nights spent away from family, and it doesn’t exactly scream “active lifestyle!” Truck drivers are essential to our economy. Not everyone is cut out for it though.

So where will the people flow after they are laid off?

In my opinion, many of them will start companies and others will gravitate to the fastest growing industries. We have historically seen an explosion in new business formation during times of economic uncertainty. We saw it around the Global Financial Crisis. We saw it during 2020. And I think we are going to see it again over the next 12-18 months.

Not everyone wants to start and operate a business though. A large percentage of the population wants to work at a great company, with great compensation, and an important mission. This is why I anticipate that a material number of people who are laid off, especially from the technology and finance industries, will ultimately transition into the bitcoin and crypto industry. The technology is intellectually stimulating, the mission is important, and the compensation/benefits is attractive.

There is one problem though. A good portion of people who will try to transition into the bitcoin and crypto industry are good at their respective roles (marketing, operations, customer service, accounting, etc), but they don’t have the industry-specific knowledge to get through the interview process. Similar to how the truck driver has to acquire the knowledge and skills included in the CDL certification, there is a need for upskilling among the new individuals coming into the bitcoin and crypto industry.

This is why my team created a 3-week training program to upskill and place job candidates. We have helped everyone from mortgage loan officers to new college graduates to former public defenders find work in a matter of weeks. The program has more than 60 events packed into the 3 weeks, including lectures, discussion groups, interview prep, resume review, and much more.

People who go through the program will leave with a basic understanding of every aspect of the industry, know how to run their own node, successfully execute self-custody, and make memes (no, seriously 😂). If we successfully do our job, we will drastically increase the quality of the workforce across bitcoin and crypto. As we get more and more highly skilled and knowledgable workers, we can accelerate our progress as an industry.

If you’ve been laid off or know someone who has been laid off, you can check out the training program here: Get upskilled to work in bitcoin and crypto [Next cohort starts in July]

As I continue to look at the macro environment, I am worried that most of the attention has been captured by the inflation conversation. Inflation is out of control in the United States. We should be watching it closely. But if the Federal Reserve is successful in their demand destruction goals, we are about to see many more unemployed individuals. Don’t take my word for it — former Treasury Secretary Larry Summers believes we will need 5 years of unemployment over 5% to quell inflation.

If Summers’ diagnosis is remotely accurate, we are going to need all hands on deck. The inflation problem is going to turn into a recession problem, which will turn into an unemployment problem. Brace yourself. Hope for the best, but be prepared for the worst.

Hope everyone has a great weekend. I’ll talk to you on Tuesday.

-Pomp

If you are not a subscriber of The Pomp Letter, join 225,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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THE RUNDOWN:

VanEck Files New Application for Spot Bitcoin ETF: Investment giant VanEck has filed a new application for a spot bitcoin ETF with the Securities and Exchange Commission. VanEck’s filing for its VanEck Bitcoin Trust comes just eight months after the SEC rejected its previous application and just a day after it denied the spot bitcoin ETF applications of Grayscale Investments and Bitwise. Grayscale Investments is a subsidiary of CoinDesk parent Digital Currency Group. Read more.

Biden Official Says US Government Could Pass Stablecoin Rules by End of Year: EmailIcon The U.S. federal government is working on stablecoin legislation with Congress that could become law by the end of the year, an administration official told CoinDesk. The President’s Working Group on Financial Markets, an intergovernmental group composed of the heads of several financial regulators, met Thursday to discuss recent stablecoin activities and future legislation. This legislation would be introduced by the House Financial Services Committee, the official said. Read more.

EU Agrees on Landmark Crypto Authorization Law, MiCA: European Union policymakers have struck a deal on landmark legislation to regulate crypto assets and service providers throughout the bloc's 27 member nations. The policymakers, who represent the world’s third-largest economy, have been haggling for nearly two years over the Markets in Crypto Assets (MiCA) framework. As it stood on Thursday, the legislative package sets up requirements for crypto issuers to publish a kind of technical manifesto called a "white paper," to register with the authorities and to keep proper bank-style reserves for stablecoins (cryptocurrencies pegged to the value of an asset such as sovereign currencies like the euro). Read more.

Internal Facebook Memo Warns Company Must Be Disciplined, Prioritize Ruthlessly: Facebook-parent Meta has warned employees to expect a tough second half of the year as the company continues to weather challenges related to its core online advertising business amid a weakening economy. Meta chief product officer Chris Cox detailed the company’s financial dilemma in an internal memo that detailed key areas where the social media giant plans to invest, a spokesperson confirmed to CNBC. Read more.

Alyse Killeen is a Founding Managing Partner at Stillmark, A Bitcoin focused Venture Capital fund.

In this conversation, we discuss investing in Bitcoin, innovation currently being built on top of Bitcoin, Taro, the expansion of the Lightning Network, Stablecoins coming to the Bitcoin network, and how Bitcoin is helping millions of people globally.

Listen on iTunes: Click here

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The US Economy Is Much Worse Than We Thought

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* Coinchange is an automated wealth management platform. Register now at coinchange.io/pomp and get a welcome bonus of 40 USDC when you fund your account.

* Copper has been at the forefront of institutional digital asset development since 2018. From award winning custody solutions, to creating the first truly off-exchange settlement function, Copper pioneers technology, products, and services, in lock-step with a rapidly changing world. Learn how Copper helps the world’s largest institutional investors secure their digital assets at copper.co

* Eight Sleep is the most advanced solution on the market for thermoregulation by pairing dynamic cooling and heating with biometric tracking. Click here to check out the Pod Pro Cover and save $150 at checkout. 

* Bullish is a powerful exchange for digital assets that offers deep liquidity, automated market making, and industry-leading security. Click here to learn more. 

* Valour represents what’s next in the digital economy -- providing simplified, trusted access to crypto, decentralized finance and Web 3.0 investment opportunities. For more information visit valour.com

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* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visithttp://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

*Pomp is an advisor to Valour

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

Most people’s attention has been on the accelerating inflation and reactive monetary policy decisions in the United States. This is the problem that we can see when we go to the store and it is the problem we feel in our wallets. The problem is complex though. It can’t be attributed to any one issue, so it is important to continue to zoom out and see the entire playing field.

One of the developments on that global playing field in the last few days has been the G7 decision to ban imports of Russian gold. I don’t spend a lot of time personally analyzing the gold markets, but feel this is another major milestone in the decades-long trend of attempted weaponization of currencies by developed nations leading to degrading trust in those very same currencies.

I went looking for someone who had more informed opinions about this development and came across Danny Diekroeger. Here is a quick summary of Danny’s thoughts in his own words:

This past weekend, news broke that the G7 will be banning imports of Russian gold. This could be the start of some big moves that goldbugs have been anticipating for years…

Many believe the price of gold in US dollars has been held down for years by the fractional reserve systems implemented by the LBMA and COMEX. There are something like 100 paper claims to every gold ounce in existence.

But fractional reserve systems are vulnerable to bank runs. If a lot of "paper gold" holders request to take possession of their gold, there simply isn't enough physical gold to match these claims. A supply/demand imbalance and a rush to obtain gold could pressure this system and cause these failures. Goldbugs have been talking about this situation for years.

And the cracks are starting to show. We saw something similar earlier this year in the nickel market, where the price went vertical and the London Metals Exchange canceled a bunch of trades.

Macro analyst Luke Gromen has theorized that destabilizing the western gold financial markets could be a key part of Russia's strategy to weaken the US dollar. We saw the beginnings of this when Russia tied the ruble to gold earlier this year.

And now the G7 has banned gold imports from Russia.

If people can't source their gold from Russia anymore, they may look to take delivery from the western fractional exchanges, putting pressure on the system as described above.

So what would that look like in a gold-bug's wet dream? Here's one way it could play out:

Increased friction of sourcing gold leads to a consistent rise in the price of gold, bringing it to new highs, etc. Then at one point on a delivery date in the futures market, one of the big western exchanges fails to deliver physical gold to a big paper holder who is requesting delivery.

This would be major news - a major western gold exchange unable to deliver. At this point we'd see a separation of the physical price of gold from the paper price. The paper claims would get cashed out at yesterday's price (you get cash, not gold). Meanwhile the price of actual physical gold shoots up vertically. And paper claims like $GLD etf holdings won't be worth the same as the gold bars under your bed. This would be madness for financial markets, but something that goldbugs have been long predicting.

Even a bitcoin maxi like myself can see this potential shock coming to the gold markets, and I can’t resist riding the wave. Got some physical gold coins secured in storage, hoping to sell for bitcoin when the panic hits.

This is a fascinating situation and one that is worth following over the coming weeks and months. As I stated before, I am not an expert on the gold market. The interesting part of this story is the continued attempts to weaponizing currencies on the geopolitical stage. If Danny’s theory plays out, there will be ramifications to gold, bitcoin, and various fiat currencies.

As with anything that you read in these letters, there is a risk that this situation does not play out. We would simply be watching an acceleration of the financial sanctions against Russia by G7 nations. It begs the question — what else is left for them to go after? How much more damage can they inflict?

We may find out sooner rather than later. If you enjoyed this piece, make sure to give Danny a follow on Twitter: @dannydiekroeger

Hope you all have a great start to your week. I’ll talk to everyone tomorrow.

-Pomp

If you are not a subscriber of The Pomp Letter, join 225,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

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THE RUNDOWN:

Goldman Sachs Leading Investor Group to Buy Celsius Assets: Sources: Goldman Sachs is looking to raise $2 billion from investors to buy up distressed assets from troubled crypto lender Celsius, according to CoinDesk. The proposed deal would allow investors to buy up Celsius’ assets at potentially big discounts in the event of a bankruptcy filing, the people said. Goldman Sachs appears to be gauging interest and soliciting commitments from Web3 crypto funds, funds specializing in distressed assets and traditional financial institutions with ample cash on hand, according to a person familiar with the situation. The assets, most likely cryptocurrencies having to be sold on the cheap, would then likely be managed by participants in the fundraising push. Read more.

With Bitwise and Grayscale Decisions Looming, Spot Bitcoin ETF Approval Hopes Are Running Low: Expectations for the U.S. Securities and Exchange Commission's approval of two upcoming spot bitcoin ETF applications are low, and have faded since the approval of Teucrium’s futures-based product that initially provided some optimism. The two applications currently on investors’ radar are those of the Bitwise Bitcoin ETP Trust, with a decision deadline of June 29, and the Grayscale Bitcoin Trust, with a deadline of July 6. Read more.

European Crypto Exchange Bitpanda Cuts Staff by Hundreds: Austria-based crypto trading platform Bitpanda is slashing its headcount to ensure sustainability, the company said in a Friday blog post. Bitpanda’s founders said the firm needs to let employees go as it scales down due to market conditions. The company said it is aiming for a target headcount of 730. It has just over 1,000 employees, according to LinkedIn. Read more.

Flowdesk Raises $30M to Expand Market-Making Services: French crypto financial services firm Flowdesk raised $30 million in a Series A funding round that was led by Eurazeo, Aglaé Ventures and ISAI and included the participation of Coinbase, Ledger, Speedinvest, Fabric.vc and a handful of angel investors, the company announced Friday. Flowdesk plans to use the funding to build out its trading infrastructure for its market-making services. The product connects 60 cryptocurrency exchanges and can support 10,000 cryptocurrency issuers in providing liquidity and managing their own funds. Read more.

Caitlin Long is the Founder & CEO of Custodia Bank.

In this conversation, we talk about all the liquidation in the crypto market, other factors that caused Bitcoin's price drop, the macro economy. Fed interest rates, and how long the bear market may last. We also break down Caitlin's company that is attempting to change the way banks are operated.

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Bitcoin Is Potentially Going To Take Over The Bond Market?

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You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

The best companies create categories. They are able to identify new technology and apply it to solve large problems globally. These category creators are able to disrupt legacy companies, even if those legacy companies have significant scale, because the new technology allows for use cases that were previously unavailable.

Take Uber as an example. The ride-sharing company was not possible until the invention of the iPhone. It was necessary for both the rider and driver to have GPS-enabled devices on them so the two parties could effectively and efficiently find each other for pickup or drop-off. Could someone have tried to build Uber with Garmin GPS devices? Sure, but the average citizen was not going to walk around with a large brick GPS device in their pocket just in case they may need to hail a cab.

The iPhone created the foundation for Uber. The founders of Uber took that technology and applied it to the global problem of transportation. Billions of dollars in economic value followed.

Today I am announcing a new investment in Fountain — a podcast player that is using new technology to disrupt Apple and Spotify.

Apple Podcasts has long been the dominant podcast player because they were the default pre-installed podcast player on all Apple devices. The billions of devices that have been sold to customers created a significant distribution advantage for the podcast application. At one point, it was estimated that Apple Podcasts had more than 70% market share.

Spotify, which began as a music streaming service, realized that podcasts and music were both audio files. They tried to find an entry point into the market, which eventually led them to pursue an intellectual property strategy. As Spotify spent hundreds of millions of dollars on exclusive deals with The Joe Rogan Experience or Call Her Daddy, the company saw listeners increase and they began to steal market share from Apple.

In order for a new player to enter this market, you will have to do something different. This new entrant will have to use new technology, while pursuing a strategy that would be difficult for the incumbents to pursue due to the innovator’s dilemma.

This is exactly what Fountain is doing.

The team at Fountain has created a new category called “Listen-to-Earn.” Any mobile device user in the world can download the Fountain app and start listening to podcasts today. As you listen to your favorite podcast, you will earn money. Yes, read that again. Fountain has invented a way for people to get paid to listen to their favorite podcasts.

Here is how it works.

Fountain is using the bitcoin payment rails to allow for their users to receive economic value from podcasters or advertisers. When a user downloads Fountain, the mobile app creates a bitcoin Lightning wallet for them. The podcasts on the platform have a Lightning wallet enabled as well. Now that Fountain knows the wallet address of the podcast and the user, they can help to facilitate payments between these two parties.

I got excited about this because I understand the problem.

As someone with a large podcast, I spend a lot of time and effort to create great content. We would love for more people to discover the podcast and listen. I’ve experimented in the past with sharing ad revenue with the audience, but there is no good way to do it. Do listeners tweet at me and then I use Venmo to send them money? Do I have people leave a review in the app and then I email them for wire instructions? It is too cumbersome and not viable.

This is where Fountain comes in.

I can simply set a budget for every episode and the people who listen are paid a portion of that budget. The listener’s exact payout is determined by how long they listen to the episode. This not only gives me the ability to share in the economic success of the podcast with my audience, but it also ensures that the audience is listening to the entire podcast episode.

There is one catch to this whole approach though — Fountain did not create their own token.

The team at Fountain intimately understands bitcoin. They realized that there is no need for a new token. They can simply use the bitcoin payment rails to send economic value to anyone in the world. While a few dollars of bitcoin may not seem life-changing in the United States, this could replace someone’s salary in other parts of the world. And for US listeners, earning a few extra dollars of bitcoin every day for doing something you were already going to do is nice as well.

The time and attention we give to tech platforms is incredibly valuable. Every minute that you spend consuming content, creating content, or viewing ads, increases the value of the platform you’re using. Most free apps we use every day don’t recognize or reward this - but Fountain is different. Not only can you earn for listing to your favorite shows, you can also earn by creating clips, and commenting on episodes, which provides signal to Fountain to surface the best content.

There is always risk with early-stage startups. Maybe it will scale to global dominance or maybe it won’t. But the idea of taking this new technology (bitcoin payment rails) and applying it to the novel use case of content creators sharing their economic success is worth pursuing. Fountain has created a new category — “Listen-to-Earn.”

They are doing it with bitcoin. I am excited to see what is possible here. If you listen to podcasts, I highly suggest downloading the app and start earning free bitcoin today.

* Download Fountain: Click here

* Turn on Lightning Payments for your Podcast: Click here

Hope each of you has a great day. I’ll talk to everyone tomorrow.

-Pomp

Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system.

In this conversation, we discuss Bitcoin, on-chain metrics, the bond market, inflation, all of the leverage that has been liquidated in the Crypto market, and when we might see a bottom in this bear market.

Listen on iTunes: Click here

Listen on Spotify: Click here

Wall Street Now Has A New Way To Short Bitcoin

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* BetOnline allows you to use Bitcoin and other altcoins to bet on sports, casino games, horse racing, poker and more. Click here and use PROMO CODE: POMP100 to receive a 100% matching bonus on your first crypto deposit. 

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

Below is a guest post from Nik Bhatia, financial researcher and Adjunct Professor at the University of Southern California Marshall School of Business and author of the Substack newsletter The Bitcoin Layer, providing a preview ahead of today’s Fed meeting. Enjoy!

“Markets take the stairs up and the elevator down.” I’ve always loved this old trader adage because of how true it is, and nothing proved it like what happened this week to Treasuries, and to a lesser extent, equities and bitcoin. Today’s post is an overview of the recent chaos across asset classes and a preview of this afternoon’s Federal Reserve interest rate hike.On Friday, official inflation data remained at a 40-year high, not necessarily a surprise to economic observers. What did surprise was the lack of any slowdown in core and headline inflation, which sent markets into a flurry of repricing. Why did some traders expect for a marginal slowdown in inflation? Interest rates have skyrocketed across the economy over the past several months, and financial conditions have broadly tightened in a significant way. But the counter effects of trillions in monetary stimulus, trillions in fiscal stimulus, supply chain disruptions, and commodity price increases have been impossible to overcome with only a few rate hikes. In fact, it can be argued that inflation is stickier than ever as our post-pandemic world is going through generational adjustments and the rejiggering of how goods move around the world, not to mention a disruptive zero-COVID policy in China.All of this inflation, and the statistical strength of the trend, gave markets a shake Sunday evening. The Fed, which announces another rate hike this afternoon, was expected to raise rates by 50 basis points at its June and July meetings, and short-term interest rate markets reflected the same. But as markets opened in Asia and Europe on Sunday evening, a rapid adjustment ensued in Treasury yields, spilling over to risk markets. By Monday afternoon, the Fed leaked (via the Wall Street Journal) that it would be hiking rates by 75 basis points instead of 50, and the market understood that backdoor communication as a sign that July’s meeting would also see a hike of 75.A net increase of 50 basis points in Fed hikes over the coming six weeks was enough to send risk markets into freefall. Stocks entered a formal bear market, and bitcoin fell all the way back down to $20,000, nearing its 2017 highs and lowest level since December 2020. But the real move was in Treasury yields.The entire Treasury yield curve ratcheted higher by 50 to 75 basis points as prices went into a brief freefall (bond prices and yields move inversely), confirming the good ol’ elevator thesis. Two-year Treasury yields, which respond directly to monetary policy expectations, reached levels last seen in 2007, and 10-year Treasury yields, which trade off general growth and inflation expectations across the world economy, broke out to 2011 levels and surpassed a previously major barrier of resistance at 3.25%. The entire yield curve sits around 3.5% as of this writing. The main takeaway from all this chaos in the Treasury market and rapid adjustment in Fed hike expectations is the tightening of financial conditions.How can the Fed slow down inflation? By slamming the breaks on the economy via tightening policy and thereby financial conditions. And the tightening trends are certainly gaining steam. First, we have mortgage rates now topping 6% which is sure to slow down the housing sector as affordability plummets due to higher borrowing costs. Elsewhere in the economy, higher Treasury yields feed directly into higher corporate borrowing costs—making credit more expensive and causing companies to slow or stop expansionary plans and hiring. To make matters worse, credit spreads, or the borrowing premium above Treasury yields that companies pay their lenders, are widening. Higher rates are already impacting economic activity, and recessionary fears have increased as the Fed seems committed to its plan of attack on inflation. And its plan of attack appears more and more like causing a recession. A mild one, or so it hopes.Tightening financial conditions are also present in the level of the dollar versus other currencies—the dollar index is now at 20-year highs, making trillions of dollars borrowed abroad more burdensome to pay back when revenues are locally denominated. Add to that oil prices and other commodity prices at multi-year highs, and countries around the world are beginning to feel choked. Whether or not the Fed is to blame for commodity prices is besides the point—a strong dollar, expensive energy, and the reversal of hot-money trends spell disaster for emerging markets and their asset prices.We see the decline in equities as a result from this myriad of financial tightening, and bitcoin’s correlation to the stock market has made its price collateral damage. Bitcoin has its own fundamentals, but it has been unable to escape this wave of weakness in risk markets due to global macroeconomic conditions.Looking forward, the main question to ask is how fast the Fed’s tightening of monetary policy will bring down inflation, as every risk asset is caught in the crossfire along the way. Expect volatility to remain with us until more clarity is achieved on the path of inflation. I do believe inflation will cool down as the economy faces recessionary pressures. For now, however, it remains stubbornly high, which in turn will make the Fed stubborn on the magnitude and pace of tightening its policy rate.

Hope you enjoyed this guest post from Nik Bhatia, financial researcher and Adjunct Professor at the University of Southern California Marshall School of Business and author of the Substack newsletter The Bitcoin Layer. Highly suggest signing up here.

-Pomp

If you are not a subscriber of The Pomp Letter, join 225,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSOR: Brave Wallet is the first secure wallet built natively in a web3 crypto browser. No extension required.

With Brave Wallet, you can buy, store, send, and swap assets. Manage your portfolio & NFTs. View real-time market data with an integrated CoinGecko dashboard. Even connect other wallets and DApps. All from the security of the best privacy browser on the market.

Protect your crypto. Whether you’re new to crypto, or a seasoned pro, it’s time to ditch those risky extensions. It’s time to switch to Brave Wallet.

Download Brave at brave.com/Pomp, and click the wallet icon to get started.

THE RUNDOWN:

Words With Friends Co-Founder Raises $46M for Web 3 Game Studio: Playful Studios, an independent game studio from Words with Friends co-founder Paul Bettner, has launched a new Web 3 subsidiary called The Wildcard Alliance and raised $46 million in Series A funding led by crypto native investment giant Paradigm. Other participants in the funding round included Griffin Gaming Partners, Polygon and venture capitalist Sabrina Hahn. Read more.

SEC Chair Gensler Suggests Lummis-Gillibrand Bill May ‘Undermine’ Market Protections: A bill intended to specify the rules and roles for crypto regulation could inadvertently "undermine" other market protections, U.S. Securities and Exchange Commission Chair Gary Gensler said Tuesday. Speaking at The Wall Street Journal's CFO Network Summit, Gensler suggested many crypto companies are already engaging in behaviors overseen by his agency, pointing to companies that offer yield for staking as one example. Read more.

EU Finance Commissioner Calls for Speedy Passage of Crypto Law: European Commissioner for Financial Services Mairead McGuinness encouraged the European Union's lawmakers to find a political compromise and speed up passage of its crypto-asset regulatory framework, currently in the last leg of the bloc's legislative process. Read more.

SEC Launches Inquiry Into Insider Trading at Crypto Exchanges: The U.S. Securities and Exchange Commission has begun an investigation into whether crypto exchanges have sufficient protections against insider trading, according to Fox Business, which cited a source with direct knowledge of the inquiry. The source said the SEC had sent a letter to a major crypto exchange asking about the kinds of protections it has in place against insider trading. The inquiry is meant to cover additional exchanges as well, according to the source. Read more.

Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system. 

In this conversation, we why Celsius crashed this past week and how long will Bitcoin price continue to fall.

Listen on iTunes: Click here

Listen on Spotify: Click here

Pomp’s Fox Business Appearance This Week

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* BetOnline allows you to use Bitcoin and other altcoins to bet on sports, casino games, horse racing, poker and more. Click here and use PROMO CODE: POMP100 to receive a 100% matching bonus on your first crypto deposit. 

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

Bitcoin’s price has been falling for months and now sits under $25,000. Although these price drawdowns never get easier, they have happened numerous times over the years. It is always a good reminder to re-evaluate the bitcoin thesis and check the underlying fundamental data.

First, the bitcoin thesis is simple — an open-source, decentralized, digital currency that boasts a programmatic monetary policy and finite supply will be valuable in a digital world. Everyone still agrees that we are headed towards a digital world, so the question shifts towards the ideas of decentralization, programmatic monetary policy, and finite supply. In my opinion, people aren’t necessarily adopting bitcoin because of these features, but rather because of what the features empower (prevent currency debasement, censorship-resistance, seizure-resistance, etc).

The thesis is equivalent to perceived long-term value. Price and value are different. But to ensure that value is not also falling as aggressively as price, we must take a look at the underlying fundamentals of bitcoin.

The bitcoin network hash rate has more than quadrupled in the last three years. It continues to hit all-time high levels today, proving that the network has never been more secure.

The average transaction fee paid on bitcoin is currently under $1.50 and we didn’t see a spike in fees when bitcoin was hitting all-time highs for the second time in 2021. This is a big improvement from the spike in fees when bitcoin hit the 2017 all-time high and Q1 of 2021. Much of the improvement in fees that started in the second half of 2021 can be attributed to layer-one technology innovation and the continued rise of the Lightning Network.

If we look at the on-chain distribution of bitcoin, we see that wallet addresses with 0.01 bitcoin, 0.1 bitcoin, and 1 bitcoin continue to hit all-time high levels. This is different than the major whale wallet sizes, so you can infer that large wallets have been selling and small wallets have been buying.

Another way to look at this is the cost basis for the long-term and short-term holders (measured by 155 days of holding). You can see here that Will Clemente pointed out that these two metrics are getting close to crossing, which signals the long-term holders are in the dominant position — “Long-term holder cost basis is rising as short-term holder cost basis declines. If this persists and STH crosses below LTH, historically has marked generational Bitcoin buying opportunities. We are getting close.”

Transaction metrics continue to look healthy as well. We see active addresses and total successful transaction count remaining in line with their historical ranges.

The percent of bitcoin in circulating supply that is in profit is now under 52%, which has historically been close to marking bear market bottoms (usually sub-50%).

Lastly, the Lightning Network capacity continues to reach all-time high levels as well.

It is important to understand that bitcoin’s current drawdown in price is largely driven by changes in the macro economy. Increases in interest rates, coupled with quantitative tightening, has driven correlations across assets towards 1 and we are seeing asset price sell-offs across the financial market.

It is important to re-visit your thesis in these moments. Do the inputs still hold true? Do you reach the same conclusion when new information is included? Are the underlying fundamentals still attractive? Is price merely disconnected from value or has the value changed?

After conducting the re-evaluation of bitcoin over the weekend, I come to the same conclusion. Bitcoin continues to be an attractive store of value for the long-term. The current price drawdown is in direct contradiction to many of the underlying fundamental metrics, which are near or at all-time high levels. The network is healthy. Adoption is continuing. The undisciplined monetary and fiscal policy backdrop is becoming more obvious to the average citizen.

Bitcoin’s price falling is not fun. But value measurements of bitcoin are telling a different story. The best investors understand that controlling their emotions in these moments is important. They make decisions based on value, not price. The big variable here is the Federal Reserve — they are in control and assets generally are one big trade right now.

Keep your head on a swivel. Constantly re-visit and re-evaluate your investment thesis. Think critically. Ensure you are willing to change your mind when the information changes. Your mind and wallet will thank you over the long-run.

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

-Pomp

If you are not a subscriber of The Pomp Letter, join 220,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSOR: Brave Wallet is the first secure wallet built natively in a web3 crypto browser. No extension required.

With Brave Wallet, you can buy, store, send, and swap assets. Manage your portfolio & NFTs. View real-time market data with an integrated CoinGecko dashboard. Even connect other wallets and DApps. All from the security of the best privacy browser on the market.

Protect your crypto. Whether you’re new to crypto, or a seasoned pro, it’s time to ditch those risky extensions. It’s time to switch to Brave Wallet.

Download Brave at brave.com/Pomp, and click the wallet icon to get started.

THE RUNDOWN:

PayPal's Move to Allow Crypto Transfers to External Wallets the First Step Away From Fiat World, CEO Says: PayPal’s  move this week to allow customers to transfer crypto out of PayPal's cryptocurrency walled garden to external wallets is the opening step from a fiat-orientated world to a digital currency one, according to CEO Dan Schulman. Read more.

Tesla Board Member Kimbal Musk Says Most DAOs Are Not Actually Decentralized: Kimbal Musk, the billionaire philanthropist and brother of fellow entrepreneur Elon Musk who is now an avid creator of decentralized autonomous organizations (DAOs), says most of these trustless structures are controlled by a few founder members. Read more.

JPMorgan Wants to Bring Trillions of Dollars of Tokenized Assets to DeFi: JPMorgan (JPM) hopes it has found a way for decentralized finance (DeFi) developers to leverage the yield-generating potential of non-crypto assets. Speaking to CoinDesk at Consensus 2022 in Austin, Texas, Tyrone Lobban, head of Onyx Digital Assets at JPMorgan, described in detail the bank’s institutional-grade DeFi plans and highlighted how much value in tokenized assets is waiting in the wings. Read more.

Binance CEO Changpeng Zhao Questions SEC Investigation into BNB: Binance founder and CEO Changpeng "CZ" Zhao said the Securities and Exchange Commission (SEC) has been “asking questions” about the BNB exchange token but the exchange hasn’t yet been subpoenaed. Earlier this month, Bloomberg reported that the SEC is investigating if the BNB token constitutes an unregistered security. Read more.

Uncle Rockstar is a Core Contributor at BTCPay Server and the VP of Engineering at Strike.

In this conversation, we talk about the cypherpunk movement that lead to Bitcoin's creation, developing on the Bitcoin network, and building towards the future.

Listen on iTunes: Click here

Listen on Spotify: Click here

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe

To investors,

Inflation in the United States was reported at 8.6% this morning. This is the fastest year-over-year growth in over 40 years. The most concerning part of this report is that economists and market analysts believed that inflation had peaked in March at 8.5% and was going to start trending downward in April and May.

We saw 8.3% in the April report, but the May numbers surprised these “experts” to the upside. Inflation hasn’t peaked and is continuing to accelerate higher. There is plenty of debate on why inflation is occurring. Is it undisciplined monetary and fiscal policy? Is it supply chain disruptions? Is it the Russia-Ukraine conflict? The economy is a complex machine, so each of these situations likely plays a role.

Rather than debate how we got here, we need to be focused on what can we do moving forward. The average American family is getting decimated financially right now. The cost of eating food at home has increased 11.9% over the last 12 months. Gasoline is up nearly 50% in the same time frame. That is almost impossible for a family to withstand, especially when wages aren’t growing at the same rate.

But this data is not telling the full story. Take gasoline as an example — prices have doubled in the last 18 months.

If you look at shelter, it is being reported at a 5.5% annual increase. That doesn’t make a lot of sense though. Rents are up more than 15% nationally and real estate is up more than 20%. The lower official number is the result of methodology that doesn’t accurately reflect reality.

Speaking of methodology, many people may not realize that the last time inflation was this high in America, the methodology and calculation of the CPI metric was changed.

In layman’s terms, CPI was historically calculated by simply measuring the increase in price of various goods over time. If an item cost $1.00 a year ago, and now it costs $1.10, the inflation reading would be 10%. Starting in 1980, and numerous times afterwards, the CPI metric began to change as the Bureau of Labor Statistics attempted to more “accurately” measure inflation.

These changes included an assumption that people would stop buying expensive items during high inflation and swap them out for lower cost items. There is also a focus on incorporating changes in quality into the calculation. Regardless of whether you think these changes are good or bad, it is hard to see a world where the average American family is only experiencing the numbers that are being reported officially.

There are other measurements of inflation that we can look at. Truflation is a private market attempt to more accurately measure inflation and they are reporting just under 11% over the last 12 months. This doesn’t mean they are right, but it does mean that they are showing different numbers than the official metrics.

This brings me to my last point. Wages in America have failed to keep up with the historic levels of inflation. In fact, the inflation-adjusted average hourly earnings of American workers has been negative for more than a year.

The cost of goods and services are increasing, while wages are not keeping pace. This is disastrous for millions of families. These folks don’t want to take over the world. They simply want to build a life of happiness and financial security for their loved ones. Without the right education, the bottom 45% of Americans get financially damaged during these high inflation times. They have no investable assets and then live with 100% of their life savings in US dollars.

The Federal Reserve is backed into a corner now. You have Q1 GDP contracting. Inflation hasn’t subsided even though the Fed has been increasing interest rates and conducting quantitative tightening. They don’t have many more options other than to simply put their foot on the gas. The Fed could try to accelerate the interest rate increases, both in speed and severity, along with accelerate QT. I’m not sure that they will do it, but there aren’t many other avenues to pursue.

If the Fed does nothing, the real situation on the ground is not going to get any better for the average American. Inflation reports may start to look like numbers are falling, but much of that will be due to the base effect of increasing inflation starting last summer. People need help. Undisciplined monetary and fiscal policy created this mess. We just have to be careful that a continuation of bad decision-making doesn’t create an even worse situation.

Hope each of you has a great day. I’ll talk to everyone on Monday.

-Pomp

If you are not a subscriber of The Pomp Letter, join 220,000 other investors who read my personal opinion on finance, technology, and bitcoin each morning.

SPONSOR: Brave Wallet is the first secure wallet built natively in a web3 crypto browser. No extension required.

With Brave Wallet, you can buy, store, send, and swap assets. Manage your portfolio & NFTs. View real-time market data with an integrated CoinGecko dashboard. Even connect other wallets and DApps. All from the security of the best privacy browser on the market.

Protect your crypto. Whether you’re new to crypto, or a seasoned pro, it’s time to ditch those risky extensions. It’s time to switch to Brave Wallet.

Download Brave at brave.com/Pomp, and click the wallet icon to get started.

THE RUNDOWN:

Key US Senators Introduce Crypto Bill Outlining Sweeping Plan for Future Rules: A wide-reaching, bipartisan crypto bill emerged Tuesday from U.S. Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.), who are seeking to extend a comprehensive set of regulations across digital assets in the U.S. and have given industry lobbyists something meaty to debate. Their bill would liberate small-scale purchases of goods and services from the mire of tax implications by making transactions of less than $200 tax-free – potentially clearing a path for a cryptocurrency that acts more like a currency. And, as expected, the legislation would grant new powers and a commanding presence to the Commodity Futures Trading Commission. Read more.

CFTC Chairman 'Encouraged' by Bill in Congress to Give the Agency More Crypto Oversight: Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), said Thursday that he is “very encouraged” that Congress is making moves to grant his agency more authority over digital asset markets. “It’s just a positive momentum, I think, for the technology, for the industry, for the economy,” Behnam said at CoinDesk’s Consensus 2022 in Austin, Texas,. “There are unique coalitions getting together on this issue, which is very rare in Washington.” Read more.

Marathon Digital Bitcoin Production Weaker Than Hoped in May: Bitcoin miner Marathon Digital in May experienced energization delays in Texas and ongoing maintenance issues at its Hardin, Montana, facility, leading to the production of about 47% fewer bitcoins than initially expected based on the company’s hashrate last month. Read more.

Circle’s Disparte Calls CBDCs ‘a Preposterous Idea’ in Digital Dollar Debate: You know it’s going to be a fiery conversation when one of the panelists says “F**k the Fed” in his opening statement. And no, it wasn’t a bitcoin bro saying it; it was Rohan Grey, a law professor at Willamette University and strident critic of the crypto industry, who shares its enmity for the legacy banking system but has very different ideas about how to replace it in the digital age. Read more.

Darius Dale is the Founder & CEO of 42 Macro, the leading macro risk manager adviser.

In this conversation, we discuss the macro economy, what's happening in the financial markets, how Darius is looking at various metrics, and what you should be considering as you're investing your capital.

Listen on iTunes: Click here

Listen on Spotify: Click here

USC Professor: The US Dollar Is Broken

Podcast Sponsors

These companies make the podcast possible, so go check them out and thank them for their support!

* Fundrise is largest direct-to-investor real estate investment platform. Go to Fundrise.com/Pomp today and get $10 when you place your first investment. 

* Unstoppable Domains’ 10 NFT domain endings are now fully integrated with Trust Wallet. Claim your Unstoppable Domain here today.

* Brave Wallet is the first secure crypto wallet built natively in a web3 crypto browser. Download the Brave privacy browser at brave.com/Pomp today.

* BetOnline allows you to use Bitcoin and other altcoins to bet on sports, casino games, horse racing, poker and more. Click here and use PROMO CODE: POMP100 to receive a 100% matching bonus on your first crypto deposit. 

* Abra lets you trade, borrow, and earn interest on crypto. Earn up to 13% interest on USD stablecoins or crypto, borrow USD stablecoins, and trade in 110+ cryptocurrencies in a simple, secure app. Download Abra and get $15 in free crypto when you fund your account.

* FTX US is the safe, regulated way to buy digital assets. Trade crypto with up to 85% lower fees than top competitors by signing up at FTX.US today.

* Compass Mining is the world's first online marketplace for bitcoin mining hardware and hosting. Visit compassmining.io to start mining bitcoin today!

* Choice is rebuilding the way bitcoiners approach retirement by making it possible to invest in digital assets inside your IRA. Visit choiceapp.io/pomp 

* BlockFi provides financial products for crypto investors. Those products include BlockFi Wallet, no fee Trading, crypto collateralized Loans and the World's First Crypto Rewards Credit Card. To get $75 back on the first swipe of your BlockFi Rewards Credit Card, sign up today at http://www.blockfi.com/Pompcc 

* LMAX Digital is the market-leading solution for institutional crypto trading & custodial services. Learn more at LMAXdigital.com/pomp

* Okcoin is the first licensed exchange to bring new cryptos to market. To get started, and go to okcoin.com/pomp 

* Exodus is the world’s leading desktop, mobile, and hardware crypto wallets, with over 150 assets. Founded in 2015 to empower people to control their wealth. Visit http://exodus.com/pomp today.

You are receiving The Pomp Letter because you either signed up or you attended one of the events that I spoke at. Feel free to unsubscribe if you aren’t finding this valuable. Nothing in this email is intended to serve as financial advice. Do your own research.

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit pomp.substack.com/subscribe