Dialogue with Epoch Ventures Founder: Large-Scale Capital Rotation Has Begun, the Four-Year Cycle Has Ended

Source: 《What Bitcoin Did》

Compiled by: Felix, PANews

Broadcast Date: August 28th

Eric Yakes, founder of Epoch Ventures, recently appeared on the 《What Bitcoin Did》 podcast to explain why Bitcoin may never experience an 80% crash again, and why the recent 50% pullback might mark the end of the "four-year cycle theory."

In the interview, Eric Yakes pointed out that with decreasing market volatility and institutional capital inflows, Bitcoin is transitioning from a high-risk asset to a hedging tool against fiat currency depreciation. He believes that by integrating Bitcoin into existing financial infrastructure, it has the potential to reshape the global power structure over the coming decades.

PANews has compiled the key insights from the interview.

Host: In your view, what was the key turning point in this recent market movement?

Eric: Indeed, a series of major events have occurred recently. I believe several core events together constitute this historic turning point.The first is the Tether audit announcement. While there has been some debate within the industry, this is undoubtedly a milestone. A Big Four accounting firm verified Tether's reserves. Keep in mind, Tether is now among the top 20 global holders of U.S. Treasuries and operates internationally. Moreover, they are heavily buying gold and Bitcoin, holding massive reserves of both. This audit is a crucial step in proving its legitimacy to the mainstream world.

The second, and most significant event, is the Treasury's announcement. Whether you call it Yield Curve Control (YCC) or a Treasury version of Quantitative Easing (QE), it's essentially the same thing. The Treasury is allocating funds in an attempt to directly control the long-end of the U.S. Treasury yield curve. The market quickly picked up on this, realizing it would inevitably lead to further fiat currency depreciation, causing an instant surge in Bitcoin and gold.

Host: That's critical. Does this mean the familiar Bitcoin "four-year bull and bear cycle" we knew is changing, or even being broken?

Eric: Exactly. This is one of the core predictions we made in our annual report:"The cycle is being broken, or perhaps it never truly existed." Previously, it was widely expected that Bitcoin would experience 70% to 80% drawdowns in each bear market. But if a 50% pullback represents the bottom this time, it indicates that the underlying structure of the entire market has fundamentally changed. People view this asset differently now. You can see that Michael Saylor is not buying at this stage; he's selling. This reflects that even the biggest bulls are actively managing their capital. Additionally, there is net inflow into ETFs. This is buying behavior from both institutions and retail, proving Bitcoin is seen as a hedging asset against fiat depreciation. We predicted in our annual report that this would gradually materialize by 2027, but it appears now that 2026 will be the year Bitcoin decouples from stocks and broader risk assets. It will increasingly be viewed as a tool against monetary debasement or a counter-cyclical hedge.

Host: What does lower volatility mean for asset managers?

Eric: It's a huge liberation. As an asset manager, if the worst-case scenario for this asset is a 50% drawdown (potentially shrinking to around 30% in the future), I can confidently recommend it to clients. Previously, with the risk of 80% drops, asset allocations were often limited to 0% to 2%. But with lower volatility, allocations of 10% to 20% become completely logical and acceptable from a risk management standpoint.

Host: Earlier, you mentioned asset managers changing their views. But some might counter:If Bitcoin's maximum drawdown is capped at around 50%, does that also mean its upside potential is compressed? For example, could it previously reach $250,000 but now it might not?

Eric: I don't think so. People are used to looking at historical price charts and cycles, thinking this represents diminishing marginal returns.But what truly drives Bitcoin demand is not historical price action, but the adoption of its underlying monetary functions. We look at this through a macro framework of the three functions of money: store of value, medium of exchange, and unit of account.

In our firm's founding philosophy, Bitcoin's adoption goes through three main "S-curve" stages, each corresponding to one of its monetary functions. The first stage is capturing the store-of-value market. This is what's happening with Bitcoin now. It's the world's scarcest commodity and the only truly permissionless payment network. The second stage is transitioning to a medium of exchange. Once it becomes an extremely robust store of value (e.g., everyone holds some), people will start using it for direct transactions due to the superiority of its digital signatures and protocol. The third stage is finally becoming a unit of account.

Host: Since Bitcoin surpasses gold as a store of value, why haven't the trillions in "monetary premium" from gold fully rotated into Bitcoin by now?

Eric: Bitcoin's biggest problem right now is that it's too young and its scale is still too small. Gold's stability comes from its massive size and deep liquidity. Major nations like China or Russia can buy or sell tens of billions worth of gold for international trade settlement without causing huge price fluctuations. Bitcoin currently cannot handle that kind of instantaneous, large-scale liquidity.

I often use this analogy: Looking at Bitcoin today is like watching LeBron James in high school. We know he will dominate the NBA and become a superstar, but he's still playing high school games. Once Bitcoin's market capitalization enters the $5 to $10 trillion range, it will become one of the world's deepest, most active, and most standardized assets. When that liquidity depth is established, the great rotation from gold to Bitcoin will truly explode, and people will realize Bitcoin is "gold with better returns and easier portability."

Host: How long do you think it will be until Bitcoin truly starts encroaching on the gold market, meaning the great rotation of gold capital begins?

Eric: If the current trading pattern continues, assuming the Treasury expands its fiscal controls and continues increasing liquidity in the system: with U.S. debt expanding, gold maintaining strong momentum, and Bitcoin keeping pace, then even a small portion of the gold market's capital shifting to Bitcoin could cause its price to surge from $80,000 to $800,000. Once people feel sufficiently comfortable with Bitcoin's downside risk, they will focus on its immense return potential and counter-cyclical value. While I can't give an exact timeline, if Bitcoin maintains its counter-cyclical performance for at least a year, or reacts positively with price increases during monetary and fiscal expansion, it will firmly establish its role as a hedge in people's minds.

Host: You posted a "hyperbitcoinization" development script on platform X:

1. The Treasury promotes stablecoin adoption;

2. Stablecoins expand the dominance of the U.S. dollar;

3. Long-tail, weaker currencies gradually become dollarized;

4. Bitcoin expands as the underlying reserve asset for stablecoins;

5. Stablecoins become "bitcoinized";

6. Fiat currencies ultimately surrender, achieving "hyperbitcoinization".

Can you break down the logic? How are stablecoins and the U.S. Treasury working together in this game to push Bitcoin to devour fiat currencies?

Eric: This is precisely my core thesis. Let's deconstruct it step by step:

Steps One & Two: The Treasury needs to promote stablecoin adoption. The U.S. faces terrible deficits and a "debt spiral." When people lose confidence in U.S. debt and are unwilling to hold Treasuries, the debt's value falls, inevitably leading to currency depreciation and hyperinflation. The Treasury desperately needs to find new, massive buyers for its debt. Predictions indicate the stablecoin market could explode from its current hundreds of billions to several trillion dollars by 2030. If the stablecoin market reaches $5 to $10 trillion, due to compliance requirements, issuers must use 100% or the vast majority of their reserves to purchase short-term U.S. Treasuries. This would deliver trillions in demand for Treasuries, greatly alleviating the debt crisis. Therefore, the Treasury's interests are highly aligned with stablecoins. They will aggressively export and promote stablecoins globally to consolidate the dollar's dominance.

Step Three: "Dollarization" of global long-tail fiat currencies. In the Global South, or regions suffering from hyperinflation and inefficient international settlement systems, people crave non-depreciating assets. Stablecoins, through digital signature technology, bypass the extremely inefficient traditional international banking system, allowing people in these countries to own U.S. dollars with a click. This will inevitably lead to the gradual abandonment and full dollarization of weaker local currencies.

Step Four: The "Bitcoinization" of stablecoins and the return of free banking. As stablecoin issuers grow to trillion-dollar sizes, how do they differentiate in competition? The answer is "yield" and "the hardness of reserve assets." International issuers like Tether already hold over $20 billion in gold and Bitcoin as excess reserves (roughly 5% to 10% of their reserves). This is because stablecoins are essentially a "carry trade." They are the world's only carry trade tool with zero funding costs: absorbing users' zero-interest deposits (stablecoins), buying interest-bearing assets (U.S. Treasuries/Bitcoin), and pocketing all the spread.

As the global financial system fragments, decentralizes, and long-term concerns about U.S. debt itself grow, stablecoin issuers, to prove their safety, will inevitably emulate the historical model of "free banking." During the historical Scottish free banking era, banks issued their own banknote receipts, backed by gold reserves, typically around 20% to 30%. In the future, as Bitcoin's liquidity and stability surpass gold's, stablecoin issuers will steadily increase their Bitcoin reserve ratios. It might start at 5%, then 10%, 20%, and eventually develop into 70% Bitcoin reserves + 30% liquid dollar reserves. When this step is achieved, stablecoins will have effectively been "bitcoinized."

Steps Five & Six: Fiat surrender and hyperbitcoinization. When 30% to 40% of global payment volume runs on stablecoins using digital signature protocols, and these stablecoins are mostly backed by Bitcoin reserves, the step for users to switch to pure Bitcoin payments is merely "the press of a button." Once fiat currencies can no longer compete with this "Bitcoin-backed, instant settlement, borderless" hard money, the traditional fiat system will collapse, achieving "hyperbitcoinization."

Host: It sounds ideal, but many Bitcoin maximalists are deeply concerned:If a large portion of Bitcoin is held in custody by trusts, ETFs, or centralized entities like Tether, couldn't the network be controlled or tampered with? Doesn't that destroy decentralization?

Eric: This is a classic concern, but I believe people overlook the constraints imposed by free-market dynamics. I explored this mechanism in my research on "free banking."Historically, true free banking systems had no central bank. Private banks competed freely, taking in customers' gold and issuing banknote receipts. Why could this system operate healthily for over a century, with customers rarely losing money due to bank reserve failures (typically, shareholders bore losses, and failed banks were quickly acquired by competitors)?

The key lies in exit costs and substitutability. Under the gold standard, you could withdraw your gold and store it yourself, but gold was heavy and highly inconvenient for transactions in a modern economy. In other words, the difficulty of "exiting the system and trading independently" was extremely high. Yet, banks still dared not act recklessly.

Bitcoin is completely different. The marginal cost of self-custody and on-chain participation in Bitcoin is minimal. In the Bitcoin world, you don't need to haul heavy gold bars; you just need to control your private keys. If custodians like Fidelity, BlackRock, or government entities attempt to forcefully control or tamper with the network, or impose restrictions, even if only 10% or fewer users practice self-custody, they hold the privilege to "exit and withdraw funds with one click." This "exit mechanism" acts as a powerful deterrent to custodians and governments, forcing them to act in ways that align with their clients' best interests.

Host: What about wealth concentration? For example, individuals like Michael Saylor or early holders who have amassed huge amounts of Bitcoin.

Eric: This is also a normal economic pattern. If you study the development trajectory of any new economy from birth to maturity, wealth concentration tends to increase sharply in the early stages and then gradually dilute as it matures.

As Bitcoin's market cap skyrockets, the cost of controlling and hoarding this wealth rises exponentially. We've already seen this: every time the price surges, old OGs sell. Last year, an early player sold 80,000 Bitcoin near the top. Because holders must eventually allocate this wealth into real economic activity and consumption. The redistribution and decentralization of wealth is an inevitable historical process.

Host: As a venture capitalist, how are you promoting Bitcoin adoption in capital markets? Usually, people only see AI and stablecoins being the darlings of the VC world.

Eric: VCs today are indeed chasing AI and stablecoins frantically; we are a very niche player in Bitcoin venture capital. But our investment logic is very clear: to make the entire world's traditional financial system Bitcoin-compatible. We can't expect everyone to become geeks practicing self-custody overnight; we must meet capital where it currently is.

Currently, the most rapidly growing, highest arbitrage opportunity, and most revolutionary area in financial infrastructure is Bitcoin-collateralized lending. The core survival of traditional commercial banks is their net interest margin. And Bitcoin is humanity's most perfect financial collateral. If a community bank shifts its asset allocation toward Bitcoin-collateralized loans, its net interest margin can double. However, the current bottleneck is that traditional financial institutions and community banks lack technical understanding and face complex compliance hurdles. We are investing in and helping these institutions build the underlying channels.

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