The Fed Quietly Halted QT On Dec 1st - Lyn Alden Warns ‘The Gradual Print’ Begins

Summary

In this in-depth interview, Lynn Alden discusses key macroeconomic trends, including the future of the US dollar, Bitcoin, gold, Ethereum, and private credit. Alden highlights the challenges of fiscal dominance, the growing importance of gold as a reserve asset, and how Ethereum's scalability could hinder its long-term value capture. He also examines Bitcoin's volatility, the role of sovereign wealth funds, and risks in private credit markets. Looking ahead to 2026, Alden emphasizes the impact of AI capital expenditures on large tech firms, while positioning himself defensively in the face of macroeconomic uncertainties.

Takeaways

• 😀 The Federal Reserve's gradual balance sheet expansion is expected to continue, albeit not as a direct economic stimulus, but rather to support ongoing fiscal deficits and bank liquidity.
• 😀 The concept of 'gradual print' suggests that liquidity expansion will occur more slowly, in line with nominal GDP growth, rather than the large-scale stimulus seen in past crises.
• 😀 The idea of a structurally rising monetary base (such as through gradual Fed balance sheet expansion) aligns with a fiat currency system, differing from a gold-backed system where the money supply is more fixed.
• 😀 Gold's current rise above $4,000 is primarily driven by sovereign nations’ concerns about the safety of holding reserves in foreign currencies and the increasing desire for collateral-based assets like gold.
• 😀 Bitcoin is still seen as a volatile yet promising asset, and while short-term fluctuations are common, its long-term potential remains strong as a decentralized, portable store of value.
• 😀 The private credit market is experiencing stress, with lower margins and competition, but the risk of a broader financial crisis is mitigated by capital buffers within banks and the relatively small size of the private credit market compared to the broader economy.
• 😀 Ethereum’s value is being questioned as its utility increases; scaling may reduce its long-term value capture due to network efficiency improvements, and its valuation may be overblown compared to traditional financial rails.
• 😀 While Ethereum supports valuable on-chain activities like stablecoins and decentralized finance (DeFi), its market cap is still disproportionate to the value it secures, creating a speculative premium.
• 😀 The U.S. fiscal deficit remains a major challenge, with tariffs providing only a small reduction to the deficit, while the overall fiscal situation remains structurally problematic and requires a long-term solution.
• 😀 Large institutional players like sovereign wealth funds are accumulating Bitcoin during market dips, but long-term holders’ selling behavior, driven by profits, has contributed more to Bitcoin's price corrections than institutional buying.
• 😀 High-cap tech companies are under pressure from increased capital expenditures on AI, shifting away from software-driven growth to more hardware-based investments, impacting their stock buyback models and potentially causing a shift in equity market dynamics.

Q & A

What is the concept of 'gradual print' mentioned in the transcript?

The 'gradual print' refers to the idea that instead of massive liquidity injections (like large-scale quantitative easing), liquidity will expand slowly, in line with nominal GDP. This means central banks will gradually increase their balance sheets without explicitly calling it stimulus, typically to support financial plumbing and liquidity in the banking system.

How does Lynn Alden differentiate between a 'big print' and a 'gradual print'?

A 'big print' refers to large-scale stimulus measures (like quantitative easing) aimed at boosting the economy, whereas a 'gradual print' involves a more measured and steady expansion of the central bank’s balance sheet, often in response to technical issues in the financial system, like supporting bank liquidity, without directly stimulating economic growth.

Why is inflation expected to remain high even as the Fed adds liquidity?

Lynn suggests that as long as the Federal Reserve continues to add liquidity to support fiscal deficits and bank lending, it is unlikely to reset inflation back to target levels, especially if inflation remains above 3%. The U.S. has reached a point where fiscal dominance is at play, meaning inflation will likely persist as the Fed has limited options beyond inflating the money supply to manage financial stability.

What is the key difference between the gold standard and the fiat currency system discussed in the transcript?

In a gold-backed system, the monetary base is fixed, and any increase in money supply would lead to a reduction in the value of paper currency. In contrast, under the fiat system, central banks can adjust the monetary base as needed. This flexibility allows the system to function by expanding the money supply in response to economic pressures but also leads to inflation and debasement of the currency.

How is gold’s recent rise in price explained in the context of global economic conditions?

Gold’s rise is largely driven by concerns over sovereign risk, such as the potential freezing of reserves held in foreign currencies. Countries have been accumulating gold as a safer reserve asset, as it provides a hedge against the risks of holding assets like U.S. treasuries, which can be subject to sanctions or geopolitical risks. The shift towards gold has gained momentum since 2022.

What role do sovereign wealth funds play in the current Bitcoin market, according to Lynn Alden?

Sovereign wealth funds are accumulating Bitcoin, but their buying activity is not yet a significant driver of price. Alden points out that while there is some sovereign interest in Bitcoin, the market's volatility is more heavily influenced by long-term holders who are taking profits after Bitcoin's price increases significantly.

What does Lynn Alden think about Ethereum's long-term value proposition?

Lynn argues that Ethereum, like many other utility-based blockchains, faces a challenge in maintaining its valuation. As Ethereum becomes more efficient and scalable, the value capture for the token itself may decrease. He believes the speculative premium attached to Ethereum is overstated, as the network's actual utility may not justify its current market cap relative to the overall size of the global economy.

Why does Lynn Alden view Ethereum as overpriced relative to traditional financial rails?

Lynn Alden points out that Ethereum, although a significant technology in the blockchain space, has a market cap that exceeds that of many traditional financial rails, such as the world’s largest stock exchanges and ETFs. Despite running on-chain applications like stablecoins and tokenization, Ethereum's market cap is disproportionately high when compared to the value of transactions it supports.

How does the debate over U.S. tariffs relate to the broader fiscal deficit, according to Lynn Alden?

Lynn argues that tariffs, while they may marginally reduce the deficit, do not significantly address the underlying fiscal imbalance. He views the tariffs as a tax increase, which has limited impact on reducing the deficit in a meaningful way. The structural deficit remains, and while tariffs slow its growth, they do not resolve the broader fiscal challenges.

What is the outlook for private credit markets in 2026, based on Lynn Alden’s perspective?

Lynn Alden expresses concern about the growing risks in the private credit markets, especially as lending conditions tighten. While these markets have grown significantly, they still represent a small portion of the overall economy. However, Alden doesn't foresee a systemic crisis because private credit is largely insulated by collateral buffers and banks’ capital reserves. Still, there could be significant stresses in wealthier private credit investors or institutions.