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This week’s and next week’s letters will be shorter than usual because I am away with my family. I will stick to a few charts and metrics on my watchlist in the meantime, so I will not try to introduce new research or frameworks.

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Dear Readers,

Greetings from the spectacular once-dominant maritime republic Venice, Italy! My family and I are enjoying some time out of the country before the whirlwind of the school year begins in a few weeks. On this trip, and all trips to Europe, I stuff as much history as I can without boring our daughter (thankfully, my wife enjoys the historical walking tours and museums almost as much as I do).

Extremely loyal and long-time readers might remember that a few years ago I was able to see the original site of the Bank of Amsterdam where second-layer money was monopolized by the state for the first time and visit the site of the original Antwerp Bourse where money markets found a life and second-layer money such as bills of exchange and promissory notes started trading as a hybrid currency-asset.

A few days ago, I was lucky to experience yet another aspect of Layered Money in the flesh. We visited the Bode Museum, which plays host to one of the world’s greatest coin collections. There, we saw the Fiorino d’Oro (gold Florin) as well as coins from the beginning of the Byzantine Empire during Justinian’s rule, the Roman Empire, Ancient Greece, and some dating all the way back to the 5th century BC.

I will admit that I was disappointed to learn that 7th century BC coins from Ancient Lydia, largely believed to the the first coinage ever for humanity, were or were not being held underground and not on display. I say “were or were not” because while the internet suggested those coins did exist somewhere in the museum, a language barrier and staff who were generally less enthusiastic ancient coin fanatics (albeit friendly!) prevented me from that historical Holy Grail.

Nevertheless, the Egyptian tablets within the Neues Museum and the array of coins on display in the Bode Museum combined to thrill my historical senses and reinforced the credit system thesis I have been building on for the past three years or so:

• Precious metals serve as monetary assets, while credit allows those who seek power to seize it, amass it, and exercise it.

• If we strip the word “monetary” from the “monetary assets” descriptor for gold, we view gold simply as an asset.

• Despite gold’s tremendous run over the past couple of years, the preferred asset, globally, remains shares in S&P 500 companies. In other words, stocks have been and still are much more popular than gold as the chosen asset by large money. Global portfolio allocations between these two aren’t comparable, with the market cap of all equities a transparent and wholly owned sum in portfolios (approaching $100 trillion in the US), while the market cap of gold remains more of a translucent figure. Estimates are in the $30-40 trillion range, but who really knows how much above-ground gold is held in vaults? Only $5 trillion of gold is held by central banks, and under $1 trillion is held via ETFs.

• Bitcoin’s comps are $100 trillion in equities and let’s call it somewhere between $5-$15 trillion of gold that could be considered a portfolio asset, even though I can argue that the figure is drastically lower, per the previous bullet point. That means that global fixed income (well north of $100 trillion) and global real estate (in the hundreds of trillions, let’s call it $400 trillion) are not really comps, but context.

• Bitcoin’s age of 17 versus gold’s age of 3,000 years in coin form (much longer when thought of in jewelry terms) is the true delta we love to ponder at The Bitcoin Layer. Bitcoin reached $1 trillion in market cap a few years ago, and in some ways I can even say that as a portfolio asset it is approaching gold, since gold is mostly held outside of the traditional portfolio context. A lot of this becomes semantics, but I hope you can see the delta that truly matters here and why that delta closing underpins everything I have thought about bitcoin since I first truly became orange pilled during 2016, up until the writing of Layered Money, and beyond.

In today’s letter, I’ll discuss the current bitcoin market balance, a crucial TBL Liquidity update, and some global macro context for my views.

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Dear Readers,

Before we get into our latest TBL Liquidity analysis at the end of this article, let’s start with what happened in markets this past week.

US Treasury Department

Treasury Secretary Scott Bessent has taken the market spotlight once again after his involvement in FX markets last week. This week, we had the Quarterly Refunding Announcement (QRA). US rates analysts were closely watching for three things: (1) Changes in Treasury’s forward guidance language, (2) revisions on spending for Q3 given net negative tariff collections + higher defense spending, and (3) borrowing expectations for Q4.

First, on forward guidance matters, many were closely watching for changes in the language of coupon issuance. Specifically, in recent QRA announcements, the Treasury has maintained that it will keep nominal coupon and FRN auction sizes as they are “for the next several quarters.” The sentence did not change this time around. Per the QRA, the Treasury “anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.” Given current market conditions, I don’t necessarily believe this surprised anyone. There’s still plenty of T-Bill demand out there (from money market funds as well as the Fed’s own MBS reinvestment into Bills), and coupon yields aren’t looking too pretty right now:

There was, however, one sentence that changed. Back in May’s QRA, the Treasury wrote:

Looking ahead, Treasury continues to evaluate potential future increases to nominal coupon and FRN auction sizes, with a focus on trends in structural demand and potential costs and risks of various issuance profiles.

This time around, it wrote:

Looking ahead, Treasury continues to evaluate potential future increases changes to nominal coupon and FRN auction sizes, with a focus on trends in structural demand and potential costs and risks of various issuance profiles.

A slight wording change from “increases” to “changes” is dovish forward guidance. Taming volatility and fears of higher rates.

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Second, the Treasury raised its borrowing expectations for Q3 from $671B to $739B (+$68B from their May Q3 estimate), assuming an end-of-September cash balance of some $950B. This increase was “due to lower projected cash flows.” Third, it expects to borrow $628B during Q4 this year.

The takeaways here are that none of this is all that surprising; from the US Treasury side, we shouldn’t expect market-moving events any time soon. Their forward guidance made this clear. Incoming midterm elections warrant more caution around Treasury markets. “T-Bill and chill” is the adage going around right now. The one thing to look out for is, of course, the fact that leaning so heavily on the Bill market raises the sensitivity of financing costs to short-term rates; this, in a time where everyone is screaming that the Fed will go (hike) at some point this year given inflation worries.

The Fed and The US Economy

As I wrote last week, I’m in the camp of no hikes this year. My base case is that, despite sticky inflation, it takes but a few bad labor data prints to shift the Fed’s focus back to the two sides of the dual mandate. Manufacturing employment has been on a tear since April, clawing its way back into expansionary territory in July, and at its highest level since August 2022:

The six largest manufacturing industries in the US are Chemical Products, Transportation and Equipment, Computer and Electronic Products, Food Beverage & Tobacco, Machinery, and Petroleum & Coal. Here’s what ISM wrote about its latest employment print in manufacturing:

Of the 18 manufacturing industries, six reported employment growth in July, in the following order:

• Printing & Related Support Activities;

• Miscellaneous Manufacturing;

• Electrical Equipment, Appliances & Components;

• Transportation Equipment;

• Food, Beverage & Tobacco Products; and,

• Computer & Electronic Products.

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Three of America’s big six industries in manufacturing expanded employment this past month. Overall, a decent print for the US economy. And a decent fundamental print for the narrative that AI CapEx investment has been expansionary for the US economy, with computer & electronics, as well as electrical equipment, appliances, & components growing. Chief Economist at Apollo Global Management shows that current AI investment expectations are “more than twice the peak of the telecom and fiber buildout of the late 1990s.”

This is surely additive to the US’s job outlook in manufacturing. The caveat is that services is a much larger sector in the US than manufacturing. And this past month, services employment contracted. As per most of 2026, services employment is once again below 50:

** Here’s what ISM wrote about its latest employment print in services, in case you’re curious about sectors.

Where am I going with this? With more industries in the services sector showing employment contraction, there is a case to be made for a resumption of the early-2026 worries of an employment slowdown. Of course, one data print for one month in 2026 shouldn’t paint the entire picture, but it’s the regression below 50 in ISM services employment that I am addressing here. Is AI investment enough to outweigh the negative employment trend in services? I wouldn’t bet against it, but if you’re a US rates watcher, you cannot be certain that AI CapEx will carry the team here. If the Fed was truly going this year, you’d expect markets to be pricing in hikes quicker (as one 25bps hike will hardly do much to inflation). Price is truth. Markets (and the Fed) need more labor prints.

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And yes, despite the fact that July’s unemployment rate came in lower than expected on Friday (Act. 4.1% versus Exp. 4.2%), the overall print was bearish given 103,000 downward revisions in jobs added over the past two months. Personally, I was expecting a more bearish print in the unemployment rate on Friday, given ISM services employment this past month. That said, the lower-than-expected unemployment rate must be taken with a grain of salt, as Nick Timiraos puts it here:

The participation rate simply continues to slide lower, which can strengthen the unemployment rate calculation, even in a labor market slowdown:

And no, I am not saying the US economy and the labor market are both in shambles…or that the Dark Ages are coming (that one’s for Nik)…but I am saying that investors can’t be too certain about inflation dominating both the Fed and yields right now…and price action in yields showed that on Friday.

TBL Liquidity Components

This past week, we sent TBL Pros an update regarding a small data bug we found. We have since fixed the issue, and here’s where TBL Liquidity stands today. Let’s break it down by components:

MOVE Index

Our TBL Liquidity Index is built looking back at components over a one-year period. Looking at MOVE over the past year, it is lower than it was last August (chart below), which is slightly helping TBL Liquidity:

However, the overall MOVE index has been pretty much consolidating over the past year (vol suppression has been working).

US Dollar

Despite weakness in the dollar, it is still 1.03% higher than where it was a year ago:

Our data correction earlier this week changed what our TBL Liquidity Indicator was signalling, but the correction hasn’t changed our narrative on a weaker dollar helping Liquidity. The latest drop back below 100 in DXY is the culprit for why our indicator has been trending upward lately towards a Green Dot (chart below):

US Treasuries

Admittedly, my bullish outlook on USTs (given labor market pressures) hasn’t exactly come into fruition (chart below), which is another factor for why our Indicator is still in a Red Dot:

But should the narrative hold, and US Treasuries strengthen soon on labor market issues (as they did on Friday), we would paradoxically end up in a Liquidity-positive environment (weak labor market = stronger UST collateral = strong Liquidity tailwinds for markets …I love this job…it sometimes makes me say paradoxical things that make no sense for the average Joe, but perfect sense for a market watcher).

Last note: these three components are exactly why we’ve been closely watching Bessent, the US Treasury Department, the Fed, and the dollar. These bigger macro factors quite literally help us explain TBL Liquidity and our expectations of where it is going.

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Substack This Week

• Nik’s letter went out on Monday;

• Nik’s global macro video update went out on Tuesday; and,

• Johan’s weekly letter went out on Wednesday (with a video update).

YouTube This Week

• Nik’s conversation on Coldcard with Galaxy’s Alex Thorn went out on Monday:

• Nik’s conversation with Strike’s CEO Jack Mallers went out on Wednesday:

• Demian’s Coldcard conversation with software engineer and bitcoin expert Stacie Waleyko:

For Podcast Listeners

Here are the links to our latest episode:

SPOTIFY

APPLE

A five-year-old firmware bug rattled a core pillar of bitcoin, and price barely blinked

To be honest, I’m not sure where or how to start this week’s letter. So much has happened in the last couple of days, but at the same time, so little has happened.

It has been a devastating time for people who did the work to understand bitcoin and to figure out how to self-custody their bitcoin, and still lost the wealth they stored on addresses created with a Coldcard. Nik already wrote a very strong letter, and he also recorded multiple videos with our own team member Demian and another one with Galaxy Digital’s Alex Thorn (and one more coming up with Jack Mallers…stay tuned!).

I won’t be spending too much time on what happened, because a lot has been said already. Also, people like Rob Hamilton from AnchorWatch keep working tirelessly to explain and inform people, help people migrate, and find any other vulnerabilities and stop them before they get exploited.

What I will do is point out what hasn’t been said or what I think is important to reiterate.

We recorded a video with Pascal Hügli from Less Noise More Signal to explore if we can create a collaboration similar to the one with the Checkonchain team. This wasn’t a typical recording because of the Coldcard situation, but the idea is that it will be about markets: possibly in combination with other analysts to gather a kind of mastermind around bitcoin and markets, plus some regular monthly updates between the two of us. We hope TBL Pros enjoy hearing my thoughts in video form. Please share feedback/thoughts on today’s video, so we know if this is something that you’d like to see more of:

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This is neither the time nor the place to write a twenty-page report on bitcoin self-custody, but since the moment I started to make sense of how bitcoin custody works, I’ve felt the community was using suboptimal words to describe how things work. Semantics matter. I do understand why this has grown as it did: you want to create analogies so people intuitively understand the concept better.

‘A hardware wallet to store your bitcoin’ makes it easier to grasp and explain what these companies are trying to accomplish.

But the fact of the matter is: it’s not a wallet, nor does it store your bitcoin.

Bitcoin the asset lives on a shared ledger, the timechain. Coins move from address to address, and the transactions that move them get batched in blocks, validated, timestamped, and added to a practically immutable chain. That’s it.

The address type and its pre-programmed conditions (scripts) determine how the bitcoin can be spent. Does it require one signature or multiple signatures? What threshold of signatures needs to be met?

One needs the right private key to create a valid signature to spend the bitcoin. ‘Hardware wallets’ like a Coldcard or a Blockstream Jade are just devices that make certain parts of the process easier.

Those devices have their own function, and most have multiple:

• Generate private keys

• Sign transactions

• Store private keys

• Verify transactions

Software like Sparrow can help create the right type of addresses according to the user’s needs and wants. Because the standard became hierarchical deterministic, multiple addresses can be created out of one extended public key, also known as an xpub. Addresses that share the same root and are derived from one source create the idea of a ‘wallet’ or ‘account’ with multiple addresses.

Wallet software, like Sparrow, helps you (among other things) with:

• Setting up the right type of address (script) you want to use, which determines how the bitcoin can be spent once you’ve sent sats to it (single signature or multi signature, native segwit or taproot);

• Showing the addresses that can be derived from your extended public key, which we experience as the ‘wallet;’

• Updating those addresses with new information from the bitcoin timechain: showing the activity on those addresses and their total balance;

• Creating a new transaction: choosing which UTXOs to spend, what amount, and what address to send to, and helping gather the right signatures for the transaction; and,

• Broadcasting the (valid) transaction to the network (nodes and their mempools).

It’s important to understand that companies like Trezor, Foundation, Ledger, or Blockstream are trying to provide both the hardware piece and the software piece. The device and the suite. Together they offer the possibility to self-custody your bitcoin.

Why do I say all of this? Because I think if people who hold bitcoin in some way, shape, or form understand this process better, they’ll understand better where the shoe pinches in the current situation.

Semantics are important so that people better understand that it’s not Coldcard or Trezor that provides ‘the wallet;’ the bitcoin protocol does. It needs to become obvious that those hardware devices are signing devices, storage devices and/or key-generating devices.

If people understand this concept better, the logical step towards wanting to create your own private key, add entropy (with actual dice rolls) or build a quorum with multiple keys, created by different kinds of devices with different kinds of firmware, will come almost naturally.

Precisely because the bitcoin network stores the bitcoin, and because private keys are generated according to a shared standard, with a matching public key from which addresses are derived, it’s all interoperable. You can recreate the bitcoin wallet from Trezor Suite in Sparrow. You can generate a private key with a SeedSigner, import it into a Foundation Passport, and sign a transaction built in BlueWallet.

If you send bitcoin to an exchange, it’s not like sending gold to another physical vault. The bitcoin just moves to another address, of which people working for the exchange hold the key(s).

It’s not magic. I know it can sometimes feel like magic. But if it feels like magic, that’s a problem. If it feels like magic, you don’t understand the process.

It should feel majestic. There’s a big difference.

The bitcoin protocol didn’t break. Bitcoin self-custody didn’t fail. Faulty firmware from Coldcard created weak private keys.

I know it offers little to no solace, but what happened isn’t the fault of the users of Coldcard. They did what was expected of them. That’s why it feels so painful and unfair.

As a community, we need to step up. ‘Don’t trust, verify’ doesn’t mean anything if we don’t execute on it. We shouldn’t let big talk stop us from reviewing companies, hardware, and software.

We shouldn’t let people get bullied into self-custody. We need to reject manipulative behavior. It’s ironic that the loudest voices cheering for Strategy’s downfall in June were the biggest Coldcard promoters. It went from ‘Stack real bitcoin, not the fake shit’ to ‘Only the paranoid survive’ real quick.

Self-custody shouldn’t be scary either. We need to create the tools and the content, and offer help so people are able to do so in a comfortable way.

The relative amount of bitcoin somebody stores in self-custody should reflect the amount of knowledge, experience, and willingness to learn they have. Again, it should feel majestic, not like magic.

Having said that, if for whatever reason you want to self-custody your bitcoin today but don’t have the knowledge and experience yet, you could choose to hire somebody who can close that gap for you.

That’s what companies like Unchained, Casa, AnchorWatch and The Bitcoin Way (among others) are doing.

“There is no bitcoin without self-custody. This is non-negotiable.” - Rob Hamilton

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Macro Update

Here are this video’s topics of discussion:

• I start with the US and Japan currency intervention, the operation nobody expected in the form it arrived, and why I am calling it the story of the year.

• I then turn to what this means for the dollar and for global macro, and the shift in how monetary authorities are going to intervene from here.

• I move on to TBL Liquidity and our unconfirmed green dot, and where I think confirmation stands right now.

• I then walk through what is actually driving the move in US yields, plus a look under the hood at the banking system.

• I close on the US economy, including one chart I genuinely could not believe when I opened the chart pack this morning.

Okay, on to today’s 36-minute video and TLDR summary.

Video’s TL;DR

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Dear Readers,

It feels like a death. That’s the most fitting way to describe the feeling that I felt over the weekend, soaking in the facts of the case. Reading the first-hand accounts of theft victims. I’ve witnessed and experienced ups and downs along this journey, but this one stings in a way that is difficult to describe. As a writer, I will do my best to capture what can be said in this moment, and I hope that today’s letter is able to help the Reader in some way.

Likely hundreds or thousands of people have lost large sums of bitcoin, currently valued around $100 million but that number is fluid. Some of the questions we are all asking ourselves in this moment include:

• Is bitcoin going to survive the AI era?

• Is bitcoin private key generation vulnerable at large?

• Is the COLDCARD bug and theft this cycle’s capitulation moment, wherein a cohort within bitcoin give up and leave?

• Who is responsible ultimately for this loss?

• Were there signs?

• Should we give up on self custody?

Let’s try to answer each of these questions, but they are meant to be open-ended.

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My journey with self custody bitcoin

Increasingly, I feel that it is my responsibility to share with people my own practice. Over the years, I have advocated for a diversification of storage techniques, essentially what I practice for myself. That means custody is split between self custody and custodians in a way that suits me and my family. I have given many people the advice to buy and hold on exchanges, some of which I regret recommending. I have told many to simply buy IBIT as an ETF in a brokerage account is an easy way to allocate to bitcoin for most traditional investors.

On self custody, The Bitcoin Layer has been sponsored in the past by Foundation, the maker of a hardware wallet (we’ll come back to Foundation shortly). We have also been sponsored by Blockstream in the past and marketed their hardware wallet as well. I am extremely quick to admit that aside from character and industry reputation, I do not have any secret methodology or in-house expertise to technically audit products that have come to us for advertising opportunities. In short, if this bug happened to have been in another device made by a company that sponsored my company, I wouldn’t have known.

Readers then might, and rightfully so, point blame at me for presenting them a product that led to severe financial loss. Just knowing this could have happened is haunting me, and imagining what others must be going through who presented COLDCARD to their viewership hurts.

During the FTX saga of November 2022, I was out of the country when I panicked about a particular storage method I had chosen (not self custody). Using the blockchain outside of your controlled environment is downright scary. There are other situations I’ve been through that still haunt me. All this is to say that using bitcoin can be stressful and complicated to those with lots of experience. Bitcoin is nothing like dollars, gold, or any paper asset tied to the legacy financial system, and this brings about a risk vector that keeps most people away.

I grew up in a bitcoin era where self custody was much more important than it is today…for the majority of Americans that don’t believe an asset seizure is likely. For those that do, or even those who believe it is the realm of possibility, yours truly included, self custody is important. For many outside the United States, not only is self custody important, it is the only value proposition of bitcoin.

With a global audience, and a readership that stretches across generations, TBL has never been a one-size-fits-all approach to bitcoin. But as of today, the days of “trusting” yourself with self custody are seemingly over in an era in which AI agents can exploit bugs to a catastrophic degree.

In the spirit of providing transparency because I think it is important during a time like this, I write to tell you that I too used the blockchain this weekend. Out of pure fear and additional diversification of storage. This reminds me of 2022 because I didn’t necessarily have to but wanted to. In 2022, it was removing custodians from the picture. In 2026, it turned out to be involving custodians to a greater degree. My IBIT position is untouched, but I am thinking about increasing it due to a stronger desire to harness the value of the underlying capital for income generation through the options market (TBL Model Portfolio is designed to help both me and you achieve stronger returns).

Hopefully this dance between custodians and wallets gives you some perspective on where I’m coming from today. Now for some opinions on what has unfolded.

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There were signs

Stories from victims are trickling out. No, we don’t know for sure if all these stories are real, but there are real victims that are reaching out publicly to share their stories. Here is one I stumbled upon:

It is so sad to read, and there are many such cases. If you want a solid overview on what we know so far, this morning I recorded an episode with Galaxy’s Alex Thorn to help us understand some of the logistics of what went wrong and how these criminals operated.

We also plan to interview a veteran bitcoin developer this week for additional technical information, so please make sure you are subscribed on YouTube (or Apple Podcasts or Spotify).

The sad and scary thing in all of this is that there were many signs that Coinkite wasn’t a good citizen, but the industry at large completely failed to bubble this up to the top. But the only individual person that I can consciously assign any blame to in this entire saga is Rodolfo Novak, CEO of Coinkite. Novak is also known as “NVK,” his Twitter handle.

Quickly, here is the mainstream news picking up the story if you are looking for the headlines before continuing.

I don’t know Novak, never met him, spoke with him, or appeared alongside him on a podcast. I’ve never owned a Coinkite product. We obviously have never taken a sponsorship from them or else we would have to immediately admit fault and reach out to every reader that might have possibly purchased a COLDCARD.

With that being said, I have always considered COLDCARD one of the top hardware wallets in the industry because people said it was. Without verification, because how am I supposed to understand the entropy process within a hardware wallet on my own? Of course I am not expected to know, but that is also why private key generation and storage is such a sacred practice that should be saved for the capable. As this week passed, my confidence in such a practice is severely diminished, and that is coming from somebody who has used all sorts of bitcoin wallets, from software wallets, to paper wallets, to devices which ended up being simply not to my taste.

Even though they are not my favorite way to custody bitcoin, I realize that they are practical for many people and that self custody and hardware wallets go hand-in-hand for many if not most. So when looking for sponsors for The Bitcoin Layer, we connected with Foundation, a company whose CEO, Zach Herbert, has a long history with NVK and Coinkite. I will let Zach tell his story, and I include it here because I think it is important background to the idea that this was possibly avoidable. While a “bro” culture developed around NVK, COLDCARDs, and the people who recommended them left, right, and center, people like Zach waved a red flag at the behavior and business tactics of Coinkite. Specifically, the language used by NVK was at times flagrant that it could have raised caution to potential customers.

In the end, Zach’s warnings on how people were behaving proved to be the difference maker for me. At the time, I believed that Foundation had identified a bad actor, and I did my best to steer away. That does not make me some grand visionary, but we have to listen to our gut and trust the human interaction and first impressions when assessing who we associate with.

In case you thought that NVK was some hero on a pedestal in the bitcoin industry, he wasn’t, and the record shows this. Thank you to Zach Herbert for telling his story, something that I didn’t want to have to recount myself years later in a second or third hand way.

Don’t blame people who bought a COLDCARD. I don’t think most that promoted the product deserve any blame, while I hope they are reaching out to their audiences with the appropriate caution. I don’t think the investors are to blame as long as they themselves weren’t vouching for the technical prowess of Coinkite products. My point is there is always blame to go around, but people make mistakes. As far as NVK goes, however, it is fairly clear to me that there was some extremely shady behavior going back several years. Based on my judgment and reading everything I could have over the past few days, it appears as if this entropy bug could have been addressed but problems were swept under the rug by laziness, hubris, and this bro culture of protecting the personality and reputation of NVK himself. That is my takeaway in the early days here, that Coinkite’s CEO is the most obvious fraud in the history of bitcoin hardware wallets. It is not only sad but infuriating. A guardian angel (literally) sent me Zach Herbert years ago (you know who you are dude! ❄️), and for that I am grateful. I count my blessings, but I know that it could have swung the other way.

NVK must face justice, and hopefully the justice systems of the United States and Canada can find a way to provide it to the victims, whether it is a monetary restitution or something beyond. I cannot straight accuse NVK of criminal activity because that would be too categorical, but my oh my is he going to have some explaining to do. I genuinely believe it will be with a lawyer by his side in front of government employed prosecutors. And I pray people get their money back. Their bitcoin back.

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Open ended questions

I appreciate you getting this far, as today’s letter has been a chance to explain, vent, speculate, blame, and just get it out on the page. While nobody has personally reached out to me with a disaster tale, it doesn’t change the fact that I feel pain. It’s a pain felt for the individuals who have lost their life savings, but it also stretches beyond that loss. There is a black mark on bitcoin now, but our job is to determine whether that black mark resembles previous ones such as the FTX collapse, the legacy of bitcoin as a currency for narcotics on the Silk Road, the Trump family crypto money grab of 2024-2025, and others. Or, is this black mark more of a permanent clouding?

I do believe that bitcoin will shake this one off, but there is an AI danger that creeps below the surface that makes this week’s exploit feel different from other thunderstorms in bitcoin’s history.

Now, let’s try to answer some of these big picture questions before we part ways.

• Is bitcoin going to survive the AI era?

  • We don’t know. There is the quantum angle, wherein computers gain the capability of cracking bitcoin’s encryption algorithm family called SHA-2 which was invented by the NSA years before bitcoin was created. AI doesn’t necessarily help achieve quantum encryption by itself, but if AI becomes capable of greater scientific discoveries, it might become an engine on the quantum front. If we reach quantum encryption as society, bitcoin will have to adapt or die. That is a risk, but this lowly rates analyst finds it difficult to assign probabilities to something so far beyond my core expertise.

• Is bitcoin private key generation vulnerable at large?

  • This is the scariest thing for me. What type of random number generation did my wallets use? How can I know that my seed won’t be brute force duplicated? I don’t know, and this by itself was reason enough for me to move some balance away from self custody this weekend. I was not the only one, and I’m curious how people are approaching this post-COLDCARD.

• Is the COLDCARD bug and theft this cycle’s capitulation moment, wherein a cohort within bitcoin give up and leave?

  • I have a suspicion that people will leave bitcoin and never come back, but that this bug probably affected too small of a cohort for it to trigger a mass capitulation. Those events are usually price driven, meaning that it is after bitcoin’s famous 80% declines that you face this type of “giving up” event. Perhaps, and this is my opinion, we already saw our capitulation wave earlier this year as we saw many folks give up bitcoin for the AI world.

• Who is responsible ultimately for this loss?

  • NVK. Others are apologizing for promoting Coinkite, and we should do our best to forgive where we can and unfollow who we choose.

• Should we give up on self custody?

  • Maybe, for some. This is a reminder that bitcoin is a technical phenomenon, and the truth is that the United States has moved to protect bitcoin as a form of property that enshrines it into the traditional financial system alongside shares, bonds, and other commodities. Even real estate. That means that many Americans can allocate to bitcoin via registered products (ETFs) or keep coins on regulated exchanged domiciled in the United States (Coinbase) with more of an assurance of property rights than when I started in bitcoin 10 years ago. Self custody bitcoin now must require a new, higher responsibility regime, and you must ask yourself if you are up for the challenge.

Bitcoin will make it through this saga, but confidence has been shaken across the board. Keep your heads up, and remember that price is truth. Bitcoin’s price has essentially gone unchanged for several days, which is a sign that this event is not the catastrophe for the market that it has been for individuals and families out there.

Until next time,

Nik

You can also get access to our charts and data inside our TBL Pulse Dashboard:

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Dear Readers,

Before we get into the US rates and FOMC section of this article (and my case for no hikes in 2026), I thought it’d be appropriate to send what we know at this time about the COLDCARD situation, as well as Japan’s recent developments.

ON COLDCARD

Still too new to be officially reporting on it; we are also trying to understand what’s going on exactly, but here are our initial thoughts in video form for you to listen to:

As well as a very informative piece from our friends over at Checkonchain:

Checkonchain Bitcoin Newsletter

⚠️ PSA: Addressing The Coldcard Exploit

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13 days ago · 44 likes · 20 comments · James Check (Checkmatey)

On Japan

Have a look at the yen against the greenback as of Friday afternoon EST:

Given yen weakness, Vol Secretary Scott Bessent intervened in FX markets, as he deemed the yen to be “undervalued.”

On Bessent’s to-do list: “Buy Japanese Yen $5-10B.” Bessent wants to intervene because Japan is America’s largest lender:

To defend its own currency, Japan can sell reserve assets like US Treasuries or dollars in an effort to prop up the value of the Japanese yen. This can create unwanted vol in Treasury markets, and unwanted higher rates overall. So, the US Treasury has the incentive to intervene.

The BoJ confirmed a yen intervention on Thursday via a sale of US dollars. Also confirmed is the fact that the US conducted a “rate check,” wherein US officials call different financial institutions to ask for current spreads on FX.

The New York Fed, on behalf of the US Treasury, sold euros to buy yen. “At least two major US banks were asked by the New York Fed to check the rate on the yen against the euro during the day, two people familiar with the matter told Bloomberg.”

The Secretary of Vol is back at it again…

On Everything Else This Week

This past week, there was a lot of talk about real and nominal yields following the FOMC presser, so I thought it would be a good idea to get some clarity on US rates’ mechanics (for your reading sake, and mine…).

American economist from the late 19th and early 20th century, Irving Fisher, is responsible for a formula that all finance professionals and hobbyists have come across:

Wherein i means nominal rates, r equals real rates, and 𝝅 equals inflation. Rearranged and expressed in simpler terms, a good approximate for the equation above is:

This is a simple concept that financial markets price every single day in real time. Investors have direct, tradable access to nominal and real rates through regular US Treasuries and Treasury Inflation-Protected Securities (TIPS), respectively. The inflation rate (otherwise known as the ‘breakeven’ rate) is inferred from where the other two stand. Let’s dive into it…

TIPS

US rates junkies can attest to the fact that TIPS are fascinating (although the purity of strip bonds is probably higher up on the list of fascinating things in fixed income…but I digress).

TIPS are fascinating not only because they protect from inflation (specifically CPI, which I understand is not the best measure), but also because, in doing so, its rate prices in expectations of economic growth.

If the economy is hot, it takes a lot more convincing to lock TIPS investors into a 5- or 10-year note…there’s simply higher yielding opportunities elsewhere, meaning real (TIPS) rates must rise.

I’m sure many of you know how they work, but just to hammer the dynamics down, say you invested $1000 into a 1-year inflation-protected Treasury (which do not exist on-the-run, but just make for an easier example). Say it offers an annual coupon rate of 2%.

Fast-forward one year, say inflation was 3%. At the end of the year, your principal would have appreciated by 3% to $1030 (from inflation adjustments), and you’d have received a coupon payment of 2% on top of that, leaving you at $1030 + $20.60 = $1050.60.

Just like that, you adjust your return for inflation, and get paid on top of it.

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Good Ol’ US Treasuries

A regular one-year Treasury, unlike TIPS, doesn’t make that adjustment, so a $1000 one-year Treasury bill paying 4% at the end of that same year would have returned $40, of which $30 go back into paying for 3% inflation that year, while the remaining $10 (or 1%) is your real return.

Markets’ Inflation Expectations

Using Fisher’s equation at the start of that year in the example above, the market was telling us that it expected inflation to be 2% over that year:

But it was wrong. Inflation ended up being 3%, and regular US Treasury buyers paid the price.

Markets Today

Currently, the US 10-year yield is at 4.68% and the 10-year TIPS yield is at 2.41%, leaving the breakeven rate at 2.27% (using Fisher’s formula):

The market expects inflation to average around 2.27% annually over the next decade. Global Macro Director at Fidelity, Jurrien Trimmer, had this to say about these yields in a recent letter:

“The rise in yields last week was on both the nominal and real side, with the inflation breakeven staying put at around 2.3%. The 10-year real yield is now a generous 2.43%, which in my view is a better value than the 4.7% nominal yield.”

The statement is inherently bullish on inflation if he sees better value in a 2.43% real yield. If inflation over the next decade averages a higher rate than 2.27%, then Trimmer would be correct. The higher the inflation, the more nominal yield on regular US10s gets eaten up, and the lower the real return on them. Meanwhile, 10-year TIPS pay a real 2.27%, regardless of inflation.

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Kevin Warsh

During his press conference, Warsh made a few things clear despite saying practically “nothing.” First, real yields are rising because of AI-led investment and growth (something we’ve been talking about for quite some time here at TBL). Next, he’s kind of happy that the rates market is doing his “material tightening” for him (?). I’m not kidding, he literally said the economy, CapEx, and labor market are all solid, and the Treasury market is saying that same thing using nominal and real yields.

When Should the Fed Go?

Here’s where I start to deviate from others, and where I expect to lose some folks, but bear with me. Personally, I err on the side of caution when it comes to a hike in 2026, despite what markets are saying (and it really seems as though I am alone here). Many argue that Warsh’s reputation is at stake. Not going (hiking) could be the difference between getting ahead of inflation or not. Inflation appears to be their sole concern given relatively strong employment numbers, but here’s how I see it in the medium term…which could be considered somewhat bullish for US Treasuries (again, bear with me here):

On the inflation side:

As of late, inflation has been sensitive to the energy shocks from the war; however, I personally fade this narrative as a one-time hit in an otherwise “okay” inflationary backdrop (in the same way that many faded tariffs as one-time shocks).

Yes, I agree there is AI-driven inflationary pressures, and we have also been over the 2% target for quite some time now, but let me present my next, and perhaps most important point to my argument…

On the labor/consumption side:

I am certainly not bearish on the US economy (that has proven to be a widow-making trade so far in the Roaring 2020s), but I am cautiously bullish. On January 14th of this year, I wrote the following:

“Looking ahead, we see two big tailwinds in 2026 for the largest sector in the US economy (services): (1) continued AI investment, as well as (2) some momentary growth tailwinds (spending) coming from the FIFA World Cup 2026. [...] Lastly, Trump’s Big Beautiful Bill has tax advantages for the US that will be stimulative for the overall economy.”

So far, the outlook has played out. Consumers spent well during the World Cup, as reflected by Redbook Same-Store Retail Sales, a “weekly index measures the percentage change in sales at stores that have been open for at least a year:”

And thanks to Trump’s OBBB, we just had the largest average tax refund year since 2022:

But the World Cup is over, tax filing season is done, and savings are falling:

Remember how everyone was worried about a K-shaped economy at the start of the year? Well, I don’t necessarily believe that narrative is gone. It hid underneath bigger headlines and spending events, but it’s not gone.

So, although the Fed is not necessarily worried about the labor market, I do believe labor and spending will mutually face more headwinds in 2H26 than they did in 1H26.

If the Fed hikes, a 25bps increase seldom does much to combat inflation meaningfully. It would need to go a few more times for inflation to feel a tickle. But hiking 50-75 bps bps against a spending/labor market backdrop that could be slower in the near future risks damaging spending and labor even further.

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There’s also one chart making the rounds, and that is the 30-year yield chart, now at levels not seen since the GFC:

I’ve grown more wary over the years about what the 30-year yield is telling us about today’s inflationary outlook. Many were quick to jump on X and argue that the bond market is telling the Fed to hike due to inflation, but a 30-year instrument is simply too far removed from today to tell us anything meaningful about inflation today (in my opinion). Yes, an inflation outlook is traditionally built into it, but the further the forecast (i.e., the longer the maturity of a Treasury), the more room for error. Here are a couple of tweets I really enjoyed this past week to drive the point home:

Let me elaborate less cryptically. During the press conference, Warsh said:

“If, as the Fed has long held, interest rate policy should be its primary monetary policy instrument, how much accommodation are we getting from the balance sheet?”

In non-Fed talk, if their short-term policy rates are held high to fight inflation, but the Fed’s balance sheet is still skewed toward long-dated securities (MBS/USTs), then long-term credit conditions are still ‘artificially’ loose. Two opposing forces are at work.

So, the market looks at this statement, digests it, and thinks:

“Well, if Warsh is still thinking about bringing down the weighted-average maturity of its SOMA holdings (i.e., holding less long-term Treasuries), then perhaps the long-end of the yield curve has to be repriced higher given less expected artificial suppression from the Fed.”

So, the long-end shoots up, and not just because of these “inflation expectations.”

Substack This Week

• Nik’s letter went out on Tuesday;

• Johan’s weekly letter went out on Wednesday; and,

• Nik’s global macro update video went out on Friday.

YouTube This Week

• Nik’s interview with Matt Dines on energy markets went out on Tuesday:

• Nik’s FOMC meeting review went out on Wednesday:

• Nik’s conversation with Demian about COLDCARD went out on Friday:

For Podcast Listeners

Here are the links to our latest episode:

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Macro Update

Here are this video’s topics of discussion:

• I start with the levered hedge fund that just blew up in the AI trade, then what its unwind tells us about where the real risk sits.

• I then turn to the Fed’s balance sheet and the mechanics behind an exit from the mortgage market, and why that piece is the one on my mind.

• I move on to TBL Liquidity’s unconfirmed green dot, what it means, why the dots are coming faster, and how we are thinking about it.

• I close on the dollar and the Treasury curve, and the one headline I think matters most for the second half of this year.

Okay, on to today’s 17-minute video and TLDR summary.

Video’s TL;DR

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Crabbing along

Bitcoin is crabbing along. It finds itself most likely in the ‘Time Capitulation’ area of the bear market. While price is just -1.6% lower than last week’s letter, it still showed some interesting price action. We’ll go over what I thought was interesting and we’ll dive into the on-chain category of the Trend Composition to dissect what is going on there.

Last week price was trading around $65,500 while I was writing and was murmurating about the bitcoin market entering the ‘Disbelief’ phase of the psychological market cycle. One of the most promising moves was the 25 Delta skew going from -7% towards -2%, which I thought could be a signal we’ve seen in 2022. The other reason was the bullish PCR for the 31-JUL-2026 expiry, a position the investors involved probably wanted to maintain and defend. TBL Liquidity flipped to ‘SELL’ which was reason for caution, but based on the relative bullish signs from the option data, my take was that bitcoin could make the jump towards $73,000 to battle it out with the 200-day MA.

So yeah, that didn’t happen. Price got rejected around the $66,500. In ‘Johan’s Corner’ in our TBL Community, I flagged some short-term bearish price action. It was the opposite of what we saw two weeks ago, when we got a daily bullish engulfing candle. Please come hang out in our community and ask questions and get some in-between updates on our thoughts.

In my post I wrote that I wanted to see the $64,200 area hold and if that wasn’t the case, it would invalidate my thesis of going forward to $73,000.

That was when the price went down to the number 1 on the chart. It survived the weekend and even picked up some momentum on Monday. The level that I flagged was the Point-of-Control (the bronze line) of the area since the sell-off towards the lows. **The Point-of-Control is the level where the most volume traded, but most of the time also where the largest High Volume Node is.** So a cluster of volume. It could act as support or become resistance once price gets below it.

Then the same bearish pattern occurred. Price went back up towards the spot it sold off from in the first place, but rather than gaining the area, it got rejected. No bueno. As a response we got a daily bearish engulfing candle.

Price fell below the PoC of the most recent range that it’s forming and made lower lows on the low timeframe. For me, this is reason to become more cautious and prepare for a possible sweep of the lows again.

For 14 hours straight, price got rejected at the PoC. Again, this wasn’t looking very good and continuation to the downside was in the cards. But then just like that, it got back above the PoC and started to consolidate over the $64,400, probably getting prepared for some weird shenanigans during and after the FOMC decision today.

TL;DR

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Dear Readers,

In a stunning move, Korean stocks opened up Tuesday morning down 9%. At precisely this time, investors’ theories start coagulating from individual streams of thought to one blob of consensus:

We now must ask ourselves if the going theory is correct, a bunch of hype, or completely missing the point. In this endeavor, we will proceed sentence by sentence. Starting with the first:

“A selloff in global semiconductor stocks deepened on Tuesday, as investor sentiment continued to worsen over the sustainability of the artificial intelligence boom.”

The sustainability of the artificial intelligence boom. This is what everyone is worried about: whether returns in Nvidia, Micron, and other names can or will continue into the future; whether a company like SpaceX’s IPO marks the top of the market, and whether China’s old tricks in new games can spoil the entire party.

TL;DR Summary

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Dear Readers,

I take a paradoxical stance today. Growing up, I heard it often. “Be a maverick! Set yourself apart from the crowd. Don’t be a sheep. Be a thought leader. Think critically, and don’t follow.”

While most bitcoiners agree, I believe there is true safety in numbers. During my finance degree, most classes had what are known as iClicker questions, wherein a professor asks a question to the entire class, and students get to vote live on multiple-choice answers. For example, a professor would ask something like: “How many sats make up one bitcoin?”

A: 1B

B: 10M

C: 100M

D: 1T

Students would then vote live on the right answer.

Sometimes professors would mess with us by sharing the live distribution of the answers, and that was always fun to watch.

Once everyone saw where everyone had voted, you’d see students from A, or B, or D quickly change their answers to C because that’s where the biggest bar was.

Some 9 times out of 10, the switch would pay off for these students. There was always that one occasion where being a maverick paid off, but you were almost always safe in the crowd.

We want to hear your daily takes on markets over there. We want to get a Pulse (pun intended) for what you want analysis on, and what is topical for TBL Pros.

On a personal note, this is a big milestone for TBL, and one I am so proud to be a part of. Nik has assembled a great team here:

Let’s review a little bit of what’s currently going on in markets before going into the weekend, shall we?

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Brent

The latest CPI print led to a knee-jerk impulse in markets that inflation was no longer something to be worried about. Given the Memorandum of Understanding (MOU) between the US and Iran, stability in expensive Brent helped tame inflation last month…specifically, in transportation:

These lower inflation readings left SOFR 1-month futures pumping, effectively fading some rate hike expectations by EOY:

But then the MOU ran into some issues, with further tanker blockades taking place in the Red Sea, leaving Brent making a break for $100:

Leaving markets to assign a higher probability to two rate hikes by the EOY (...yet again). Simply put, energy is no longer considered a disinflationary factor.

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That said, when looking at the Brent futures curve, the market is currently in backwardation over the next 12 months, meaning that investors expect markets to “chill” in the near future:

Someone in the TBL Community chat made the comment that they see some strong resistance come in at $100 in Brent, and I think the futures curve largely backs up that narrative:

Rates and the Fed

I recently wrote about US rates not caring about oil-related inflation, and instead focusing only on economic growth. This was because, as Brent fell back toward $70, yields were not following suit - here’s a chart from my article two weeks ago:

Well, it looks like these two are once again related (chart from today):

My argument two weeks ago was that AI productivity was the dominant factor; hence, yields were not falling on lower Brent. There are currently two camps on the AI inflation/productivity argument (and Chairman Waller has spoken about both of these throughout this month):

• On the one hand, AI-related demand works as an additional source of inflation. Apple is raising prices given surging memory and storage costs.

• On the other hand, all this AI investment can lead to an economic boom via productivity that outputs a lot more than it inputs, leading to disinflationary pressures.

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We are seeing Unit Labor Costs’ (ULC) growth rate fall to its lowest level in this 2020s decade, showcasing how the latter bullet from above is, in fact, a key driver in today’s economy:

It is also a reason not to sleep on higher yields, even if oil pressures ease. Productive growth is clearly on the table.

The yield on the most Fed-sensitive coupon remains well above EFFR. The latest driver for a higher spread at this point in time is obviously oil reigniting, but, again, it would be remiss to think that oil coming back down will, by default, narrow the spread:

It could…but USTs are also pricing in continued growth…just look at real yields:

I am honestly not on either a hawkish or a dovish camp as far as the Fed goes. Productive growth is non-inflationary by definition, so a hike is not necessarily needed to tame growth-induced inflation. But also, current rates are clearly not restrictive, seeing as growth is ongoing, so a cut is also not necessary today.

All else equal, we sit pretty today at current policy rates.

You can also get access to our charts and data inside our TBL Pulse Dashboard:

Get Access to TBL Pulse

Substack This Week

• Nik’s letter went out on Tuesday;

• Johan’s weekly letter went out on Wednesday;

• TBL Pulse Community was launched on Thursday; and,

• Nik’s global macro video update went out on Friday.

YouTube This Week

• Nik’s global macro update was also published on YouTube this week:

For Podcast Listeners

Here are the links to our latest episode:

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Macro Update

Here are this video’s topics of discussion:

• I start with bitcoin on price alone before any narrative, then lay out both the bullish and bearish technical case for where we sit.

• I then turn to the dollar and what is really driving the tightness in TBL Liquidity land, and the lens I am using to make sense of it.

• We move through the pressure points around the world, from India to Japan and Korea, and how oil, rates, and the war tie together.

• I get into what the yield curve and two-year yields are signaling, and what that means for the rate path from here.

• I close on Michael Howell’s cycle theory, the regulatory picture, and where bitcoin fits in all of it, including a research direction we are exploring at TBL.

Okay, on to today’s 42-minute video and TLDR summary.

Video’s TL;DR

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Open the Community Chat

It is a set of chat channels built into the TBL Pulse dashboard, where you can casually talk markets, liquidity, and bitcoin with Nik, Johan, and the rest of the TBL community in one organized place.

For a long time, those conversations were scattered across email replies, comment threads, or Substack chat threads. Now they live inside the product, next to the charts and signals you already read every day.

What is inside the Community tab:

Six channels, each with a purpose

• A general channel for open discussion on what is moving in markets today: TBL Liquidity, bitcoin, US rates, etc.

• Nik’s channel, where he will post quick market takes regularly, and where the community can ask him questions.

• Johan’s channel, where he will also post quick bitcoin takes regularly, and where the community can ask him questions.

• Feedback channel, where you can all give us your thoughts on our content across all of our platforms, and improvement suggestions.

• Customer support channel, where we will help you with any admin issues.

• Feature updates channel, where we will keep you posted on improvements and fixes on TBL Pulse.

Threaded replies and likes

Reply to any message to keep a conversation together, and like the posts and charts you find useful. Mention anyone with @ to pull them into the thread.

Share charts and screenshots

Drag in an image, paste a screenshot straight from your clipboard, attach a file, or drop in a GIF. Put the exact chart you are asking about right in the message.

Real-time, with notifications

Messages appear live as they are posted. Turn on notifications for the channels you care about and see unread counts on the Community tab, so you never miss a reply or a mention.

A civil, moderated space

Everyone picks a handle and posts under their real name. The team moderates so the signal stays high and the conversation stays worth reading.

Are we entering Disbelief?

Bitcoin is back in ‘Disbelief’ territory, at least according to our framework. What amazes me is that this framework is derived purely from data: technicals, on-chain metrics, derivatives, flows, and risk appetite. Yet it aligns remarkably well with current sentiment. The Valuation and Trend framework was not fitted to psychological labels, but its output appears to map closely to the market states popularized by the Wall Street Cheat Sheet.

The data shows that the current readings resemble those from periods when market psychology matched the ‘Disbelief’ phase. And when I open X and scroll through my timeline, ideally not for too long, the dominant feeling I get is Disbelief. The bulls who remained convinced throughout the entire decline that price was about to recover recently flipped to, “We’ll probably reach $45,000 before we bottom,” following the latest sell-off toward $58,000. That is always possible, of course, but our data suggests it is becoming less likely, not more likely.

Before we move on, notice the Bitcoin State Grid below. The current trend score is almost identical to where it stood three months ago, when bitcoin traded at $78,000. I would even go so far as to say that a new move to $78,000 would probably put us in ‘Hope’, supported by a genuine trend reversal. The reason I say this is that, in bitcoin’s history, a move above the 200-day moving average has never been followed by a rejection all the way back toward the lows. Each previous occurrence marked the start of a new bull market.

The one thing that gives reason for caution, or maybe even concern, is the combination of bitcoin being near resistance and TBL Liquidity flipping to ‘Sell’ at this very moment. If you haven’t already, please check out Nik’s most recent letter on this topic.

Link to chart

TL;DR

• The Valuation and Trend framework, built purely on data, currently lands on ‘Disbelief’. That matches the timeline: bulls who held conviction all the way down now call for $45,000. Our data suggests that is becoming less likely, not more.

• Price action stays constructive: the market defended the $64,200 magnet every time, and price now faces the Point-of-Control around $66,900. Above that, the 200-day moving average near $73,800 is the final boss of the downtrend.

• The bullish overall Deribit PCR is exaggerated by one expiry: 31-JUL-26 prints 0.28 with 34% of all open interest (145,000 BTC, of which 113,281 BTC in calls). The rest of 2026 sits at 0.55-0.59, historically neutral for bitcoin.

• The 30-DTE 25-delta skew recovery that was missing two weeks ago has begun. Skew is now less negative than when bitcoin traded at $80,000, echoing the 2022 bottom pattern.

• The ETF bleeding stopped: after roughly 130,000 BTC of outflow in two months, holdings grew 14,000 BTC in two weeks and the Coinbase Premium turned positive. Not big inflows, but seller exhaustion, at least for now.

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Dear Readers,

This week started with a real conundrum. Planning out my week with pen and pad in hand, I wondered what we would do if Monday morning brought about a confirmed Red Dot. After all, our data and methodology was showing that it might happen. And most importantly, the bitcoin chart started to look solid.

One of our sharp TBL Pros pointed out last week what we have ourselves been pondering. TBL Liquidity is flatlining because the underlying components balance out to minimal changes, so why not avoid BUY and SELL signals when our TBL Liquidity Indicator, our ultimate “swing” signal, is near zero?

On the surface, we think it is a good idea. After all, why lead the TBL Pro in and out of positions when the signal appears to be weak, not strong? I examine this and present my conclusion, at least for now. It would also be easy to take this mini-rally in bitcoin and suggest that our entire methodology is incorrect, but that approach lacks discipline, which I’ll explain.

I also discuss what is happening in India and relate it to US domestic and international policy, which appears to be unravelling for the White House but may instead be much more devious. My “Spidey senses” continue to perceive a dollar squeeze-type financial pinch and/or crisis, so we’ll pull on that thread as it appears.

Before I begin my letter in earnest, we want to point you to the official launch of our TBL Model Portfolio tracker on TBL Pulse. You’ll see that it is already underperforming its benchmark, as we started ourselves “on the clock” July 1st and tech names have severely lagged during July.

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As noted in our portfolio’s debut report, it is made up of:

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Dear Readers,

In the week just past, three events (not including the battle for passage in the Strait) took over headlines. The American consumer, inflation, and semiconductors. Let’s start with what the American consumer showed:

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As expected, given lower oil prices, a regression back to ‘norm’ in gas station sales was almost inevitable. What is interesting to highlight, however, is that despite the personal savings rate at record lows…

…retail sales for nonstore retailers performed the best. We also find more discretionary categories climbing up the MoM ladder, with the “sporting goods, hobby, & books” category placing 3rd on growth rates. Amazon’s Prime Day might’ve had something to do with this, or perhaps consumers at the lower end of the income ladder are able to spend more on things other than basics now that gas prices take up less of their paychecks. The takeaway here is that consumers continue to do what they do best: consume.

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Inflation was one of the biggest market movers this week (especially when looking at TBL Liquidity components). When stripping out food and energy, the monthly change in inflation came in at one of its lowest prints so far in this interesting 2020s decade:

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This brought the US dollar down to its lowest level of the past month given the drop in yields:

With such cool inflation prints, expectations of a more dovish (or, should I say, less hawkish) Fed seeped into market narratives, causing SOFR December 1-month futures to bounce off their YTD low levels of 95.925, or an expected December SOFR rate of 4.075% (read as the market expecting two hikes by EOY):

After that bounce, SOFR futures have cut those 2-hikes predictions in half. These easing expectations gave equities and bitcoin a momentary boost early in the week before markets started truly digesting shared strikes at the Strait of Hormuz. Oil has once again surged above $80:

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This has brought renewed angst amongst risk investors, especially during a time when contrarian indicators appear to be signaling technical corrections for highly valued semiconductor stocks:

Nevertheless, US Treasury markets (specifically TIPS - real yields) have been pricing in economic growth since 2H25:

With tier 1 economic data out of the way for this month, as well as the FOMC pre-meeting blackout period, we don’t expect much volatility in Treasuries. In fact, the monthly range in 10s has slowly narrowed over the past three months (chart below), showing a bit more certainty (or perhaps less drama) in the UST market:

That said, narrowing ranges are also a perfect set-up for a breakout, and the two main catalysts left for this month are the FOMC meeting and the Strait. As we set up for midterm elections this Fall, I am biased toward a bullish breakout (lower yields), as high inflation from oil is not something you’d want voters to bring into the ballots this November.

On the semiconductor/AI jitters, there is also something to be said about these American companies being too big to fail now. These AI Goliaths represent two things:

• A national security interest for the US, especially in a time when the East versus West spheres are competing on technological advancements *cough* Kimi K3 model *cough* (another DeepSeek mania?).

• A pivotal cause for consumer spending (through the wealth effect), as more households than ever before participate in capital markets, according to the SEC (chart below):

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In short, if you want to keep consumers spending, a stock market “put” must be sold to protect the wealth effect.

So, to summarize all these variables:

1. Despite low savings rates, growth is still on the table given recent spending habits from retail sales.

2. TIPS are also still pricing in economic growth.

3. With low inflation readings after a brief pause in the war, risk caught a bid from less hawkish Fed expectations.

4. The main headwind for risk right now appears to be oil (once again) and renewed AI jitters.

5. I am biased toward a constructive Treasury market for risk, more so from the “lower inflation” end, and less so from the “economic growth” end…but war is unpredictable.

TBL Liquidity Indicator - Latest Dot

I want to explain our methodology for our TBL Liquidity indicator, as many questions have come up about it. The best way to explain it is through an example: Where does peak temperature actually take place?

Say the temperature over one week was:

In this example, Wednesday was the hottest day. If, for whatever reason, we needed smoother data than these points, we could use a few different methods.

Method 1: One-sided (3-day trailing average, looking only backward):

• Wed = (Mon+Tue+Wed)/3 = (60+64+70)/3 = 64.7

• Thu = (Tue+Wed+Thu)/3 = (64+70+68)/3 = 67.3 ← highest

• Fri = (Wed+Thu+Fri)/3 = (70+68+62)/3 = 66.7

The trailing line says the peak was Thursday, which is a day late, as it is dragging along the cold days from before, so it always notices the turn after it already happened. Hard to detect a true peak here.

Method 2: Two-sided (3-day centered average, looking both ways):

• Tue = (Mon+Tue+Wed)/3 = 64.7

• Wed = (Tue+Wed+Thu)/3 = (64+70+68)/3 = 67.3 ← highest

• Thu = (Wed+Thu+Fri)/3 = 66.7

The centered line says the peak was Wednesday, which is correct. To smooth Wednesday, it balanced the days on both sides of it, so it sits right on top of the true turn. True peak detected.

The catch: the two-sided method is more accurate about where the turn really was… but to truly detect that peak, it needed days that hadn’t happened yet if today was Wednesday.

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So a two-sided method can’t fully finish the most recent points in real time. It waits on future data that doesn’t exist yet. As new days arrive, the tip of the smooth line gets filled in and slightly revised.

Our TBL Liquidity Indicator was designed to detect exactly where short-term liquidity turns take place, so we use a two-sided method.

Our latest dot is so shallow that we wouldn’t be surprised if new data actually ended up deleting the dot. And that again comes down to the fact that TBL Liquidity is moving sideways (chart below). This is precisely why we developed the confirmed and unconfirmed framework. That is the true indicator.

You can also get access to our charts and data inside our TBL Pulse Dashboard:

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Substack This Week

• Nik’s letter went out on Tuesday;

• Johan’s weekly letter went out on Wednesday; and,

• Nik’s global macro video update went out on Friday.

YouTube This Week

• Nik’s global macro update was also published on YouTube this week:

For Podcast Listeners

Here are the links to our latest episode:

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Macro Update

Here are this video’s topics of discussion:

• I start by sharing what four weeks teaching my bitcoin and AI course at USC taught me, and what my students said stuck with them most.

• I then walk through TBL Pulse and our liquidity signal in detail, including where our confirmed dots stand right now.

• I move on to what the on-chain data is telling me about where bitcoin sits today, and why I have been stacking.

• I close on the global macro picture, from the cooling inflation print to the pressure building in the corporate bond market to a dollar story out of Asia that almost nobody is talking about.

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Okay, on to today’s 66-minute video and TLDR summary.

Video’s TL;DR

• With the desks quiet during the World Cup, our TBL Liquidity Index, cycle, and indicator are all flatlining near zero. We confirmed a green dot on June 19 (~63k, roughly where bitcoin trades today), an unconfirmed red dot reappeared about recently, and we are approaching our signal-plus-14-days window to decide whether it confirms. The signal is weak precisely because everything is range-bound.

• Our TBL Liquidity strategy is up 23% year to date versus bitcoin buy-and-hold down 28%, an outperformance of over 50%. The mechanism is simple and unleveraged: own bitcoin by default, rotate to T-bills on a sell signal, rotate back on a buy. It is 100% exogenous, built on four pillars: the banking system, the treasury market, treasury volatility, and the dollar index, and we are not changing the methodology now that it is live.

• Bitcoin is sitting in the stacker zone. MVRV is in the 20th percentile at 1.19, price has tagged levels below its 200-week moving average, and Johan’s State Grid has us in the capitulation zone with both valuation low and trend negative. This is deep value territory, and it is why I have personally been stacking since bitcoin went below 80K.

• The derivatives overhang is the thing bitcoin cannot escape. Johan’s read is that the derivatives market has been so bearish, with heavy put buying and negative skew, that price struggles to recover. A lot of those bearish puts were rolled forward into August, so the overhang may persist over the next few weeks.

• Inflation cooled, and the market noticed. CPI year over year dropped from above 4% to 3.5%, PPI fell, and month-over-month CPI went negative. That took July and August Fed hike expectations off the table and eased both yields and the dollar at the margin.

• The hyperscaler bond squeeze is a story I am looking into. Roughly 79% of the sector’s bonds issued since early 2025 are trading at wider spreads than their first day, stacking up capital losses. Meta, Alphabet, Amazon, Nvidia, and SpaceX are all borrowing heavily to fund AI capex because cash flow cannot cover the build-out, and that supply is pinching liquidity in both corporate bonds and Treasuries. I do believe they get funded in the end.

• Apple caught Nvidia, and SpaceX slipped below its IPO valuation. Nvidia and the rest of the chip complex sold off on this bond pressure plus rotation into the broader market, which is what let Apple overtake it as the largest company in the world.

• A dollar squeeze is showing up in India. The RBI is offering overseas Indians attractive, leveraged, near-guaranteed dollar returns through the FCNR deposit scheme to pull in $70 to 80 billion. This is a eurodollar operation and a sign of a genuine global dollar shortage. I am watching India, Korea, and Japan for where an Asian financial crisis could develop.

• International stress is broad. The KOSPI is correcting hard after tripling over the past year but is still above its opening level, USD/JPY is at its weakest since 1990, and the DXY keeps grinding higher, a tight financial condition felt everywhere except US stocks.

• Bitcoin versus gold keeps grinding higher. Gold is trading weak with a possible $3,500 target, while the bitcoin/gold ratio bottomed in February and sits around 16. A move back to a 40 multiple would put bitcoin near 160k. That is not a price prediction, but it belongs in your range of outcomes.

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Disclaimer

Running Idle

Bitcoin gave us something to work with this week. A soft inflation print forced traders to show their hands, price defended a key level and printed a bullish daily engulfing candle, and our trend framework is quietly improving under the surface. In this letter: what the price action around the ‘drop-off’ point tells us, why the market is still running idle, an honest update on our volatility research, and the price level where we think our framework flips green again.

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TL;DR Summary

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Dear Readers,

The war is un-over.

While the House of Representatives slips further away from President Trump, markets have a mind of their own. A Korean company, instead of Hormuz-driven oil price spikes, seems to be the main driver of macro narratives, at least in my opinion.

This letter will wade through the macro ocean, including volatility, Treasury yields, SK Hynix, and the US dollar wrecking ball’s prominent return, but first I have some words on bitcoin. I rely on TBL Pulse to strike four charts from Johan’s arsenal that summarize the entire game from my perspective. Throughout, I reflect on what I’ve gotten wrong over the past several months, including the Japanese rate check and associated TBL Liquidity bullish outlook in late January. It is in this context that I talk about my own personal portfolio decisions this year.

Closing thoughts will be on gold's recent bear market and the bitcoin to gold ratio. All of a sudden, price action feels like summer is over and the desks are back to making calls and executing trades. And so, here I am to cover it all.

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TL;DR Summary

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Dear Readers,

Before we get started, note that all the charts within this article were created using our MCP server, which anyone can connect to.

Connect To Our MCP Server

Historically, Brent crude and 2-year yields move almost in tandem; just take a look at both of these assets from 2023-2026:

This makes sense given oil’s near one-to-one relationship with inflation:

What’s interesting to note, however, is what has taken place since mid-May:

When the Strait of Hormuz issues began back in February, the relationship continued to hold: higher oil prices —> higher 2-year yield. However, as war tensions began to ease (though they seem to be rising again now that the World Cup fever is behind most countries), so did the relationship between oil and yields. That is, oil fell, but yields held their ground.

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I have a strong feeling this is the market putting TBL narratives on display. With oil no longer having influence on the most Fed-sensitive coupon, something bigger is clearly at play, and the latest FOMC minutes provide some guidance.

Before we go into Fed expectations, however, I would like to note an important caveat, which my friend, SEP The Hedgehog, will help me demonstrate (if you didn’t get it, SEP is short for the Fed’s Summary of Economic Projections):

As you can see from our hedgehog, the Fed isn’t very good at projecting its own future policy rates (i.e., they drive using the rearview mirror), which adds credence to Warsh’s questioning of why we have a dotplot at all. The Fed constantly overshoots and undershoots on its own policy expectations. That’s the caveat.

No matter what the Fed tells you, forward guidance should never be held as gospel.

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Caveat aside, the latest FOMC minutes are less about us trying to gauge where the Fed will set interest rates going forward (which the hedgehog shows would be a futile effort), and more about whether our larger narratives are seeping into markets (which they are); thereby explaining why yields are not coming down with a weakening Brent.

To keep it nice and short, here’s a great summary of AI’s part in the latest FOMC minutes from Ed Yardeni’s latest piece:

“AI was mentioned 21 times in the minutes, up from eight in April, and the context was overwhelmingly hawkish. Participants noted AI continues to drive investment in data centers and high-tech equipment with no sign of slowing. Many also noted that strong AI-related demand will keep upward pressure on technology and electricity prices. In short, the minutes suggest the Fed shares our view that AI is boosting economic growth, bolstering labor market conditions, adding to inflationary pressures, and raising the neutral rate of interest.”

Further, semiconductor and tech investors continue to bolster returns in their respective sectors, leaving traditional indices biting even more dust this year:

In fact, if you’re watching Brent crude to get some signal on yields, you might be looking in the wrong place. A semiconductor index might be a better option:

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Put differently, US Treasuries are reacting to an economic outlook. Demand for tech is evident in consumers. Yes, the latest retail sales print in the US showed gasoline and electronics spending on opposite ends of the spectrum, given oil’s price spike from the war:

But gas station sales were pretty much flat prior to the war, which explains the sudden climb in the retail sales rankings:

Warsh wants the market to come to their own conclusions on where interest rates should go, right? Well, this is what the market is telling us:

But don’t let that fool you into believing that a major sell-off of USTs is underway given expectations of continued growth. After all, tax refunds from the One Big Beautiful Bill, as well as World Cup consumption, are somewhat behind us now, which may reflect on the data during 2H26. So, our base case is that yields at the 4% handle continue to be home sweet home:

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You can also get access to our charts and data inside our TBL Pulse Dashboard:

Get Access to TBL Pulse

Substack This Week

• Nik’s letter went out on Monday;

• Johan’s weekly letter went out on Wednesday; and,

• Nik’s Macro discussion with James from Checkonchain went out on Thursday.

YouTube This Week

• A walkthrough of how to use our MCP server:

• Nik’s conversation with James Van Straten, senior analyst at CoinDesk:

For Podcast Listeners

Here are the links to our latest episode:

SPOTIFY

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