BITCOIN WILL EAT THE ENTIRE BOND MARKET

Summary

In this thought-provoking presentation, Adam Livingston delivers a post-mortem on the global bond market, highlighting its irreversible decline due to structural issues like inflation, rising yields, and unsustainable debt. He critiques bonds as 'return-free risk' and argues that Bitcoin is the ultimate alternative—offering a decentralized, reliable store of value. Livingston warns that traditional bond strategies are obsolete and suggests reallocating portfolios to Bitcoin for higher, more resilient returns. With a compelling analysis of monetary policy and financial markets, he positions Bitcoin as the future core reserve asset in a post-bond world.

Takeaways

• 😀 The global bond market, valued at $140 trillion, is in terminal decline and requires a reckoning.
• 😀 Long-duration treasuries, once considered safe, are no longer reliable investments and could result in capital loss.
• 😀 The era of low inflation and favorable bond durations for boomers is over, and bonds can no longer be used as a safe asset.
• 😀 The global fixed income market grew by 5.9% in 2023 due to increased government borrowing, not economic growth.
• 😀 The projected issuance of $17 trillion in sovereign debt by 2025 signals desperation and further damage to the bond market.
• 😀 Bond instruments have shifted from risk-free collateral to slow-motion default contracts, marking a significant structural change.
• 😀 Bitcoin is emerging as a zero-liability, global settlement asset that is anti-fragile and immune to central bank manipulation.
• 😀 The US bond market's negative real returns, evaporating foreign demand, and rising interest costs signal its dysfunction.
• 😀 The refinancing crisis looms, with significant sovereign debt maturing, and higher interest rates threatening both developed and emerging markets.
• 😀 Bitcoin’s compound annual growth rate of 1,100% over the past five years vastly outperforms the global bond market’s 0.9% return.
• 😀 Bitcoin is not just an asset; it operates as a global resettlement engine, securing capital and reducing risks compared to traditional bonds.

Q & A

What is the central thesis of the script?

The central thesis of the script is that the global bond market is in terminal decline due to structural issues, and Bitcoin is presented as a viable alternative that provides better returns, security, and scalability in the face of growing monetary and fiscal instability.

Why does the speaker consider bonds to be a dying asset?

The speaker argues that bonds are no longer risk-free or stable due to increasing debt issuance, negative real returns, loss of confidence from foreign investors, and rising yields. Bonds have become slow-motion default contracts rather than a store of value.

How has the global bond market's growth been driven?

The growth of the global bond market has largely been driven by governments borrowing more money to keep the system alive, rather than by genuine economic growth. This has led to an unsustainable increase in sovereign debt.

What is meant by 'negative real returns' in the context of the bond market?

Negative real returns occur when the return on bonds is lower than the rate of inflation. For example, if bonds offer a 1.25% return but inflation is running at 3%, the real value of bond returns is negative, meaning investors are losing purchasing power.

What role does Bitcoin play in the speaker’s argument?

Bitcoin is presented as a solution to the problems with the bond market. It is described as a global resettlement engine, offering zero credit risk, higher returns, and more security than bonds, especially in a world facing fiscal insolvency and monetary debasement.

How does Bitcoin's performance compare to bonds in terms of returns?

Over the past five years, Bitcoin has achieved a 1,100% compound annual growth rate, compared to just a 0.9% growth rate for global bonds. This stark contrast demonstrates Bitcoin's superior performance as an investment.

What is meant by 'convexity metastasis' in the script?

Convexity metastasis refers to the worsening negative duration dynamics in the bond market. As bonds become more sensitive to rising interest rates, the losses in capital value increase exponentially, making bonds increasingly fragile.

What does the speaker mean by bonds being 'priced by denial'?

The phrase 'priced by denial' suggests that the bond market's current valuation is based on an unrealistic assumption that debt will continue to be repaid without default. This denial ignores the underlying risks and growing fiscal instability.

Why is the bond market compared to a 'death spiral'?

The bond market is described as being in a death spiral because increasing yields and debt issuance are making it harder to function as a store of value or capital allocator. The bonds are losing value rapidly due to rising interest rates and market dynamics.

What investment strategy does the speaker suggest for replacing bonds?

The speaker suggests replacing bonds with Bitcoin in investment portfolios. This includes a shift from traditional bonds to Bitcoin and T-bills, with strategies like rebalancing portfolios and using Bitcoin to harvest convexity while preserving liquidity.