Senior Analyst Dialogue: What Powell's Departure and Warsh's Appointment Mean for Crypto?

Compiled & Organized by: Deep Tide TechFlow

Guest:Noelle Acheson

Host:Steve Ehrlich

Podcast Source:Unchaind

Original Title:Powell Is Out, Warsh Is In: What It Means for Crypto

Broadcast Date:May 22nd

Editor's Note

Former IMF Chief Economist Gita Gopinath's "Bliss Trade" (expectation of large, persistent stimulus) mentioned in the FT is replacing "Taco Trade" as the market's underlying logic. This is a structural, trans-party, trans-regime expectation of fiscal backstops, forming the true moat for current risk asset valuations and the core rationale for currency depreciation trades.

In the podcast, Noelle Acheson, author of the Crypto is Macro Now newsletter, offered three key judgments: First, the extreme divergence between stocks and bonds, with bond markets pricing in global tightening while the stock market is driven by AI hype, reminiscent of the pre-1999 internet bubble divergence between the S&P 500 equal-weight index and the market-cap weighted index. Second, while acknowledging Powell's defense of Fed independence, one must not forget his role in shutting down Silvergate in 2023 and the de-banking of crypto firms. Finally, inflation will not fall quickly; even if the Strait of Hormuz crisis ended tomorrow, the transmission of energy prices and consumer expectations would take months to repair, and the uptrend in inflation, driven by deglobalization, predates Trump's tariffs.

Key Quotes

Stock-Bond Divergence, "Bliss Trade" & System Fragility

• "Global bond yields are rising; this is global tightening, and it's not good for markets. But stocks always march to a different drumbeat. That's not new. What's new is the sheer scale of this divergence; it's staggering."
• "Bond markets are traditionally called 'smart money' because they look only at macro data, narratives, and trends; stock markets can get swept up in various hype cycles. The current situation is that stocks follow the hype, and bonds follow macro indicators. Two entirely different stories with different drumbeats, but they don't need to be the same."
• "The essence of the Bliss Trade is structural, unlike the Taco Trade which was limited to the Trump presidency. It means that today, no administration, when the populace is in trouble—whether it's a market crash, banking crisis, or high oil prices—will choose not to spend money to bail them out. This has nothing to do with political party, or even with being a democracy; we've seen it too many times south of the equator."
• "'Backstopping' is now part of the system, which of course adds another layer of fragility. This is also one reason why risk appetite remains so strong in such an uncertain environment."
• "Historically, market tops have often been triggered by an exceptionally large IPO."
• "The reverse indicator I'm most focused on right now is that everyone is cheering the S&P 500 hitting new highs while ignoring the widening gap between the S&P 500 and its equal-weight index. The last time it widened at this pace was 1999. Anything top-heavy, by the laws of physics, will eventually tip over."

Inflation Won't Fall Quickly

• "I must refute one assumption: inflation is not falling as many believe it is. Since 2024, core CPI has been ranging sideways between 2.6% and 3%; it simply hasn't been declining."
• "The real reason for rising inflation is deglobalization, a trend that even predates the Trump administration, starting during Biden's tenure. Trump is just accelerating it, turbocharging it. Tariffs are flip-flopping, and the Strait of Hormuz crisis lit a match underneath it all."
• "Even if the Strait of Hormuz crisis ended tomorrow, it would take time for energy prices to fall back, and even longer for that to transmit into inflation indices and expectations. So this inflation story won't end in the short term, regardless of how the Strait situation plays out."
• "A 3% target rate would actually be reasonable; many Fed officials privately think so. But they can't change the target because a huge part of the Fed's job is managing trust. Once you change the target, you're telling the market 'we can't achieve the original goal,' and the entire Fed trust framework would be damaged."

Powell's Tenure: Merits and Demerits

• "Powell seems like that grandfatherly uncle you'd want to go get a cotton candy latte with, but we must not forget he was also the driving force behind the de-banking of crypto companies, the mastermind behind Silvergate's shutdown and the events of March 2023, and he completely misread inflation."
• "The word 'independence' itself deserves scrutiny. He did stand up and push back when the DOJ subpoena arrived, and that deserves credit; but in shutting down crypto-related banking, there was no sign of independent thinking; that was politically influenced. Does independence mean not being accountable for any decision? Does it mean you can ignore subpoenas?"
• "He wants to shrink the balance sheet, but the market won't let him. It's that simple. The bond market is the boss here; the Fed cannot allow disorder in the Treasury market because that affects the dollar and price stability. So he can wish for it, but it won't happen. I also wish I were a professional pianist, but that's not happening either."

The Cost of Bitcoin's Macro-Assetization & The Clarity Act's Prospects

• "Bitcoin is a hedge against currency depreciation. When it surged during the 2023 banking crisis, everyone said 'it's because people realized the banking system is corrupt and fragile.' I said then, no, it's because people expected central banks to step in with liquidity. Bitcoin is truly reacting to that."
• "Bitcoin becoming a macro asset is a good thing, but it comes at a cost; it's now just one among many macro assets. And investors chasing volatility will go for higher-volatility assets, which currently isn't Bitcoin. Right now, there are endless AI narratives to speculate on, prediction markets... there's too much else to play with."
• "Even if the Clarity Act passes this year, it won't have much impact on Bitcoin. Bitcoin doesn't lack regulatory clarity. The real beneficiary is ETH, and when ETH rises, it often pulls Bitcoin up because they frequently move together."
• "My concern is the details of the tokenization innovation exemption. If it allows third parties to issue tokens wrapping a company's stock without the company's knowledge or consent, that would purely be a market for derivative speculation, not for capital formation. This contradicts the fundamental purpose of markets and is detrimental to the crypto industry's already existing stigma of being 'purely speculative.'"

Steve Ehrlich:Hello everyone, welcome to Bits and Bips, where we explore the intersection of macro and crypto. I'm Steve Ehrlich, Research Director at SharpLink and your host for this episode. Today is a fantastic show. There's a lot happening in the macro world, stocks and bonds are moving in opposite directions, and crypto is caught in the middle. Tomorrow, a new Fed Chair takes office, and there's so much more to discuss.

Let me introduce our guest. She previously worked at Genesis, served as Research Director at CoinDesk, and is now the author of the highly influential newsletter Crypto is Macro Now, Noelle Acheson. Noelle, welcome.

Noelle Acheson:Hi Steve, great to be chatting with you again.

Steve Ehrlich:How are you today?

Noelle Acheson:I'm still recovering from the near 35-degree heat in Philadelphia. So hot for May.

Steve Ehrlich:I know, probably something you'll have to get used to. Like many watching today, I'm also trying to figure out what's happening with the markets. As mentioned in the intro, stocks are still climbing.

Noelle Acheson:Yes, but there are already some warning signs.

Steve Ehrlich:Right, Nvidia delivered another stellar earnings report, but the market reaction was muted. There's considerable fear in the bond market, with yields on the 10-year and 30-year rising, which is an area you've been closely watching. Adding fuel to the fire, we got our first inflation data since the Iran war started. No one is sure what's next. Powell steps down as Fed Chair on Thursday, though he'll remain on the board and vote, at least for the foreseeable future. Crypto is also caught up in this; Bitcoin recently rose to the $80k-$83k range, ETH touched $2400, but both have pulled back.

So let's take it step by step. First question, how do you interpret the fear in the bond market? Yields are being pushed higher, 10-year, 30-year, all rising. To me, these are concerning signals, but the stock market is largely ignoring them.

Stock-Bond Divergence & The Bond Market's "Smart Money" Narrative

Noelle Acheson:You're right, these are indeed concerning signals, and they are global warning signs. Global bond yields are rising; this is global tightening, and it's not good for markets. But stocks always march to a different drumbeat; that's not new. What's new is the scale of this divergence.

You probably remember the 60/40 portfolio theory, where stocks and bonds were supposed to move inversely. We are seeing inverse movement now, but the magnitude is staggering.

The stock market is currently driven by endogenous, temporary factors, primarily AI enthusiasm—look at the chip sector performance. The bond market looks at the macro outlook, the future. Bond markets are traditionally called "smart money" because they focus only on macro data, narratives, and trends; stock markets can get swept into various hype cycles, increasingly frequently.

So the current situation is: stocks follow the hype, which may or may not have some foundation (we can discuss that later), while bonds follow macro indicators, which are not looking good right now. That's why the two drumbeats tell completely different stories, but they don't need to be the same.

Steve Ehrlich:Let's talk about those macro indicators. Inflation data is on everyone's mind, and PPI (Producer Price Index) is also starting to pick up. What else are you seeing? How do you interpret these inflation signals? I don't want to use the word "transitory," but theoretically, if the Strait reopens and there's any resolution with Iran, the energy market should at least return to pre-February 28th attack levels, and things should calm down.

Noelle Acheson:Things will calm down, at least regarding oil prices. But that doesn't mean inflation will immediately fall back, for two reasons. First, inflation transmission is slow. We've already seen a slight uptick in the core indices the Fed watches, though not huge, because while oil affects everything, the transmission takes time.

Second, we'll see heightened volatility in expectations. This is interesting, especially in the US economy, where gasoline prices have an outsized impact on inflation expectations. Watching the numbers tick up at the pump feels like money is being siphoned from your bank account. So even if gasoline prices don't enter core inflation, consumers already feel inflation rising. This affects their expectations, which influences behavior and ultimately actual inflation.

So even if the Strait of Hormuz crisis ended tomorrow, it would take quite a while for energy prices to fall back, and even longer for that to transmit into inflation indices and expectations. In other words, the inflation story isn't ending anytime soon, regardless of how the Strait situation plays out, because this isn't new; inflation was building even before the Strait crisis.

Steve Ehrlich:Could you elaborate on that? I know you're in Spain, a European perspective; I'm American. Since inflation fell from its post-COVID peak, the Fed has been raising rates to push it down. Although not to the 2% target, it has been declining. What do you mean by "it was building up" earlier?

Noelle Acheson:I must refute an assumption: it hasn't been declining like you think. Look at the chart since 2024; core CPI has been ranging sideways between 2.6% and 3%; it simply hasn't been going down.

Actually, a year or even a year and a half ago, many said, "Okay, the inflation story is over, the disinflation process is done, we'll range here for a while and then move higher." Why the expectation for inflation to rise again? Because of the deglobalization trend, which even predates the Trump administration, starting during Biden's tenure. So it's a long-term trend; Trump is just accelerating it, turbocharging it. Tariffs are flip-flopping; the situation with tariff refunds is unclear now, but prices have already risen due to tariffs; and the Strait of Hormuz crisis lit a match underneath. But honestly, if you look at the chart, inflation hasn't been falling for a long time.

Steve Ehrlich:You're right. I also recall discussions about possibly raising the Fed's 2% target, recalibrating the neutral rate.

Noelle Acheson:A 3% target would be more reasonable. Many are discussing this, even many Fed officials privately think so, but they can't change the target. The reason is the Fed's fundamental issue: credibility. A huge part of what the Fed does is managing trust. If they suddenly say, "We can't hit 2%, so we're changing the target," that undermines market trust in the Fed's ability to achieve its own goals.

Steve Ehrlich:Understood. We'll return to the Fed and trust in about ten minutes.

From Taco Trade to Structural Backstop Expectations

Steve Ehrlich:I want to follow up on this "unstoppable force vs. immovable object" of stocks vs. bonds. In your newsletter this week, you highlighted a very interesting commentary piece by a former IMF deputy about the so-called "Bliss Trade," which might be a more sustainable extension of the Taco Trade, belonging to the same family of Fed backstop expectations. I read a book a few months ago about the rise of carry trades, arguing that there will always be a backstop expectation, turbocharged during COVID because global central banks had to flood the system to support the shutdown economy. Could you explain this Bliss Trade? Which side do you think will give way first?

Noelle Acheson:The Bliss Trade comes from a very interesting FT commentary a few weeks ago by Gita Gopinath, former IMF Chief Economist and Deputy Managing Director, now a Harvard professor. You must read the article from her IMF perspective, but she makes a brilliant point: the market's expectation of a "backstop," a "safety net," is no longer just the Taco Trade. The Taco Trade is certainly part of it—Trump has indeed provided countless events that make people believe "he'll ultimately step back"—but her point is that it's broader.

The Taco Trade is temporary, limited to the Trump presidency. But Bliss Trade stands for 'big, large and lasting stimulus or support.' It's structural. Her argument is that today, no administration, when the populace is in trouble—whether it's a market crash, banking crisis, or high oil prices—will choose not to spend money to bail them out. We saw it in 2020, we saw it in 2022 with energy prices, and now it's happening in Europe due to the Strait of Hormuz crisis. Governments don't get voted out for not spending money to rescue people.

This has nothing to do with political party, or even with being a democracy; we've seen coups too many times south of the equator. But this is crucial for the currency depreciation outlook: where does the stimulus money come from? They'll always find a way; their toolbox is vast.

In the long term, this certainly increases moral hazard and adds froth to the speculative side of the market. This is also why we see such strong risk appetite in such an uncertain environment. But it's structural; "backstopping" is now part of the system, which of course adds another layer of fragility.

Steve Ehrlich:I'm curious when this systemic fragility might burst. Because anyone who dares to short the "doom loop" ends up getting slapped by the market; the market always recovers, usually with a K-shape, V-shape, or some other letter.

Before we move to the next topic, I want to ask you about AI stocks. OpenAI is rumored to confidentially file for an IPO as soon as tomorrow, and Anthropic is rumored to go public later this year. These companies are raising hundreds of billions to build infrastructure and buy Nvidia chips. I hear Anthropic posted impressive operating profits this quarter; but OpenAI is still burning massive amounts of cash, using debt to build the future. Yet this is the engine pushing up the stock market. What are your thoughts?

Noelle Acheson:Many reports insist that current P/E ratios, forward P/Es are actually quite reasonable. What drives me crazy is that everyone assumes profit expectations will be met or exceeded. Historically, that has often been true, but we can't assume it will be forever. Because what are these profit expectations based on? Often, it's company guidance; often, it's simple demand extrapolation. We are assuming massive demand for chips and AI infrastructure, and that may not materialize.

It might; I don't claim to be an AI expert. But historically, technological innovations have their own hype cycles; expectations outrun reality, eventually experiencing a correction. Could this be the first historical exception? Possibly, but betting your entire portfolio on this exception is reckless. And right now, the market is all-in on this, which is a severely overlooked underlying fragility.

You mentioned Nvidia had great earnings but the stock fell. Actually, for the past eight quarters, every time Nvidia reported, the same thing happened. Each time, people said, "The AI story is over." It's not; it's classic "sell the news"—expectations build up before earnings, earnings deliver, people exit. So I wouldn't read too much into that reaction now, but your point is correct: at some point, it will tip. I'd like to add one more thing: historically, market tops have often been triggered by an exceptionally large IPO.

Steve Ehrlich:That's a good point to watch. Nvidia is also an interesting case; I read they've beaten analyst expectations for 14 or 15 consecutive quarters. But analyst expectations should theoretically be grounded in reality, while the hype machine on Twitter can extrapolate arbitrarily, and that's the momentum traders' money.

What I find interesting is that Jensen Huang and Nvidia themselves emphasize concerns about "inbreeding" among AI companies, the interconnections between chipmakers and customers. They try to alleviate concentration concerns by saying about half their customers aren't large cloud providers.

Noelle Acheson:There is indeed a high customer concentration issue, and these customers themselves are facing rising costs and rising debt costs. How can we be sure these clients' health can continue to support the profit expectations being sold to the market by these cloud and chip companies? Okay, I admit I might be wrong; I've been expecting a market correction for a while and have been wrong on timing. So take that with a huge grain of salt.

Powell's Departure: Merits, Crypto De-banking & Independence Debate

Steve Ehrlich:Powell's tenure as Fed Chair has almost spanned the crypto industry's journey from early days to maturity. And Bitcoin and crypto were initially designed as a counterforce to everything the Fed does. Could you discuss what his tenure has meant for this industry?

Noelle Acheson:The cult of personality around Powell is easy to get swept into. He does seem like that grandfatherly uncle you'd want to go get a cotton candy latte with. But we must not forget he was also the driving force behind the de-banking of crypto companies, the mastermind behind Silvergate's shutdown and the events of March 2023 (referring to the sequential collapse of Silvergate, SVB, Signature Bank). He did many things that damaged the reputation of US bank regulation. He also completely misread inflation.

So while I admit a personal fondness for him—I watch FOMC press conferences, and he does a great job communicating Fed goals and inner workings—many things he was aware of and supported ended up harming the crypto industry and the overall reputation of US banking; other things he simply didn't know about, which is also his fault. This doesn't even include the credibility of the DOJ case itself. His non-response, non-engagement with those subpoenas suggests a certain arrogance and non-cooperation. Even if you disagree with the premise behind the White House's actions, for precedent and procedural reasons, you need to at least go through the motions. So overall, a mixed review. He certainly had a lot to deal with—the repo crisis, pandemic, inflation.

Steve Ehrlich:Right, I forgot he was Fed Chair during the 2019 repo crisis too.

Noelle Acheson:He certainly had a lot on his plate. But for me, fondness does not equal absolution.

Steve Ehrlich:I think I share that view. I'm an institutionalist; listeners know I've worked in the US government and military. I have a strong belief in the objectivity and non-partisanship of key government institutions. Powell's insistence on defending Fed independence strikes me as highly commendable; he clearly faced immense pressure. And I think that pressure didn't just come from the White House; Congress has somewhat abdicated its fiscal policy-making responsibility in recent years, forcing the Fed to pick up the slack. Kevin Warsh actually wants to push back on this; he wants to shrink the Fed's balance sheet and refocus the Fed on monetary policy. So I get it. However, if the first line of Powell's "obituary" as Chair is "he defended independence," the second line must be "he misjudged inflation." We heard "transitory" ad nauseam in 2021, 2022. There was some logic then; COVID seemed like a one-off tail event, and theoretically, things should have cooled after the market reopened. But they didn't, as you said, due to factors like deglobalization changing supply chains. He misjudged it, leading to the highest inflation in decades that then had to be crushed; that led to the banking crisis you mentioned, where some banks got caught holding bonds during this rate cycle, leading to an unprecedented rescue. These two things are hard to reconcile.

Noelle Acheson:Even his reputation for "independence" itself deserves scrutiny. He did stand up and push back when the DOJ subpoena arrived, and that moment was remarkable and necessary; a huge part of his job is communication and fostering trust in the institution, and he did well there. But we must also remember that in shutting down crypto-related banking, there was no sign of independent thinking; that was politically influenced.

We must also ask ourselves: does independence mean no accountability for any decision? Does it mean you can directly ignore subpoenas? So what exactly does "independence" mean? Has this Fed truly demonstrated that independence? These are open questions. And this opens up a fascinating topic: what exactly do we mean by "central bank independence"? When might it become a drawback rather than a virtue?

Steve Ehrlich:For me, he's more like Paul Volcker (the Fed Chair known for hiking rates to crush inflation in the late 70s/80s) than Arthur Burns (the 70s Fed Chair accused of bowing to political pressure). But indeed, independence has multiple definitions.

Kevin Warsh's Appointment: Balance Sheet, Forward Guidance & Rate Cut Expectations

Steve Ehrlich:Let's talk about his successor. Kevin Warsh has also undergone his own evolution between "dove" and "hawk." In his hearing, he clearly stated he wants the Fed to step back from fiscal policy. His wording was something like, "Fiscal policy is more about picking winners and losers, monetary policy is more democratic and affects the whole economy," and that's where the Fed Chair should sit. He also wants to create new inflation measurement methods to make the Fed more precise and forward-looking. Powell provided a lot of forward guidance; Warsh doesn't want to do that. What are your expectations for him?

Noelle Acheson:He can say he wants a smaller balance sheet, but the market won't let him achieve it. It's that simple. The bond market is the boss here; this is closely tied to price stability. The Fed cannot allow disorder in the Treasury market because that affects the dollar and price stability. So it's a wish. I also wish I were a professional pianist, but that's not happening either.

As for forward guidance, I wouldn't be surprised if there are fewer FOMC press conferences, fewer dot plots. There will be a big debate about whether that's good or bad. This relates to what the SEC is doing; they're also discussing reducing annual disclosure frequency. Will the market accept having less information? Or will it increase volatility? Does it mean analysts actually have to do their homework instead of being spoon-fed data on a schedule? I don't know. It's a huge change. We've become accustomed to a certain rhythm, being fed data on a schedule; once that's taken away, will it disrupt the market so much that he has to put it back, or will it be a healthy shift, reducing costs and reintroducing original thought? I don't know. I wouldn't be surprised if he tries, but whether the market lets him succeed, I'm not sure. That's probably all he can do. He certainly can't change inflation measurement methods; that's not under his purview. He can influence what people focus on, but people will judge for themselves what's important. And he certainly won't have the ability to cut rates.

Steve Ehrlich:On that point, yesterday the Fed released the April meeting minutes. One revelation was that there were more hawkish voices in the meeting than the final vote (to hold rates steady) indicated. This is the environment he's walking into: higher inflation, but a President wanting lower rates, believing AI productivity will suppress inflation. And then Warsh also has to prove himself "independent of the President." What are your expectations for the next few Fed meetings?

Noelle Acheson:First thing to watch now is what Trump says. He publicly said, "Warsh can do whatever he wants, I have complete confidence in him." That's quite remarkable, considering the environment Warsh is walking into. We know Warsh can't cut rates. One, he only has one vote; almost no one will vote with him. Two, Trump can't criticize him so soon after appointing him. So there will be a truce period.

One thing the market is misreading now, I think, is rate hike expectations. I've been saying "no rate cuts" for a long time, and it's gratifying to see that consensus form; but now we've swung to the other extreme—one rate hike this year. I think that's overdone. He can't cut, but few will have the courage to vote for a hike when the "transitory vs. persistent" inflation debate isn't even settled. So it will be "on hold." This will keep Trump comfortable, maybe not completely happy, but he'll stay quiet. This gives the Fed some breathing room, gives Warsh time to build his relationships, because ultimately it depends on FOMC members' trust in the Chair, whether they'll follow his lead, which affects future monetary policy.

Steve Ehrlich:I find that somewhat reassuring. Before dissenting votes started appearing last year, there hadn't been one in decades. I actually think dissenting votes are good because there are so many people in that room, with different backgrounds, overseeing different regions; there *should* be different opinions economically; we should move away from groupthink. I look forward to a potential SNL Season 52 sketch of an FOMC meeting; the personalities are distinct enough to recognize.

Noelle Acheson:Brilliant. Another way to think about it: what if the next dissenting vote comes from the Chair himself?

Steve Ehrlich:That would be interesting. I'm not sure there's a precedent.

Noelle Acheson:I doubt he would do that; his number one task now is to earn the trust of the FOMC members.

Steve Ehrlich:Right, at least not in the first meeting. But who knows later.

The Cost of Bitcoin's Macro-Assetization

Steve Ehrlich:We've covered a lot of macro. Let's talk crypto. Bitcoin and ETH got caught up again over the weekend, with news on Sunday about a potential second attack on Iran, then on Tuesday Trump said several Gulf states asked for more negotiation time, so things were put on hold. But crypto hasn't recovered. I heard some Chinese oil tankers passed through the Strait, with reports saying they paid some kind of "fee" to Iran. Not sure if that becomes a pattern. But crypto is stuck again. Is it a high-beta risk asset, or will currency depreciation trades in a higher-inflation world make Bitcoin and crypto outperform again? Or will it lose out to gold again? How do you view the current performance of major crypto assets?

Noelle Acheson:Honestly, possibly all of the above. I don't see any catalyst to push it out of its current range, at least no positive catalyst. Negative risks are always there; a stock market crash would drag down major crypto assets. Even if correlation weakens in the short term, gravity will eventually exert its pull. But will stocks actually crash? That's uncertain.

The depreciation trade narrative is always there. Bitcoin is a hedge against currency depreciation. When people worry about currency depreciation, Bitcoin tends to perform better. When Bitcoin surged during the 2023 banking crisis, everyone said, "It's because people realized the banking system is corrupt and fragile." I said then, no, it's because people expected central banks to step in with liquidity. Bitcoin is truly reacting to that. If there's a genuine market deterioration, signals of stimulus measures (the Bliss Trade we discussed earlier), that could potentially wake crypto from its slumber.

But given current risk appetite, Bitcoin isn't moving much because there are too many other options. Endless AI narratives, prediction markets... there's too much else to play with. This is the cost of Bitcoin becoming a macro asset. I've been following this for a long time. Bitcoin becoming a macro asset is a good thing; it's increasingly finding a place in macro portfolios. But the cost is that it's now just one among many macro assets. Investors chasing high volatility will choose higher-volatility assets, which currently isn't Bitcoin. So in summary, there's no catalyst right now to push it out of its range until it breaks out on its own and momentum takes over.

Steve Ehrlich:A potential future catalyst is the Clarity Act (market structure legislation). We don't have time to delve into it today, but it's been discussed to death. Could you briefly touch on it? Both the act itself and the likelihood of it being signed into law?

Noelle Acheson:I hope the Clarity Act passes this year. But my confidence isn't high; maybe it's just wishful thinking. I don't think it will have a huge impact on Bitcoin. Bitcoin doesn't lack regulatory clarity. What truly lacks clarity is ETH, and ETH might benefit; and when ETH rises, it often pulls Bitcoin up. Overall, regulatory clarity might make some investors more comfortable allocating to Bitcoin, but Bitcoin itself doesn't lack clarity today.

Steve Ehrlich:Right. I've written a few threads on Twitter that Bitcoin and ETH already have pretty good clarity. The SEC even issued guidance that many staking activities aren't securities, which is completely opposite the stance of the Gensler-era SEC. For DeFi, it could be unlocking, as it gives some TradFi firms more certainty to participate; DAOs won't be treated as general partnerships, which would carry huge liability risks; FinCEN and AML compliance boundaries will be clearer. These are the unlocks Clarity might bring. But you're right, Bitcoin, ETH, including XRP, Solana, even without formal legislation declaring them commodities, have enough traditional rulings, not to mention the SEC already approved ETFs under the '33 Act, essentially packaging a commodity into an ETF.

Noelle Acheson:It's indeed very complex. Let me ask you a question: Has the market already priced in the passage of the Clarity Act? In other words, if it doesn't pass, would crypto crash? Or do people already not care?

Steve Ehrlich:Hard to say, probably depends on the specific asset. I lean towards it not being fully priced in because crypto has been in a slump for months. If there's real momentum to push it through in the coming weeks, it has to happen by early summer, otherwise I don't think it will. Even if it passes, it doesn't necessarily mean Bitcoin immediately hits $140k or ETH automatically goes to $5000. It would take longer. But I also don't think it's fully priced in because people understand that crossing so many hurdles in a short time—reconciling Senate versions, then reconciling with the House version, adding ethics language acceptable to the White House, then signing—it's tight. I heard the target is July 4th, which gives about six weeks; it's tight.

Noelle Acheson:The devil is in the details. Legislation is one thing; subsequent rulemaking is another. But I keep thinking, if it doesn't pass, it's not the end of the world for crypto. The SEC is already on board, most financial regulators are on board; they can just keep rulemaking through the end of Trump's term. And even if an anti-crypto party enters the White House in 2028, by then crypto will likely be too big to dismantle.

Steve Ehrlich:Right. Crypto has proven to be a very powerful lobbying group, an interest group. I believe any successor, even a Democrat, is unlikely to be as hostile as the Gensler era, because that stance hasn't yielded much political gain.

Tokenization Innovation Exemption, Metrics to Watch & Contrarian Views

Steve Ehrlich:One last small topic: the tokenization innovation exemption. What are your thoughts on its interaction between crypto and traditional markets?

Noelle Acheson:The devil is in the details again. One thing I worry about is that it's rumored to allow third-party issuance. In other words, anyone could issue a token wrapping a stock, and they have no relationship with the company. There's even talk it wouldn't require the company's consent, which I think is crazy.

To me, the essence of markets is capital formation. Derivatives support capital formation by creating more liquid markets, offering a form of insurance to investors putting money into a stock. But if you create a market purely for derivative speculation, like tokenized stocks, you're subverting the fundamental idea of markets. This also isn't favorable for crypto, which already faces the stigma of being "only for speculation"—we've heard it too many times. Of course, not you and I think that, but the perception exists.

So that's my concern. But if the details ultimately aren't that bad, the tokenization innovation exemption is actually good news; it encourages experimentation. Regulators will be careful; they won't let just anyone in, and won't allow unlimited scale. But it will encourage entrepreneurs, market participants, and innovators to experiment with this new market architecture. We know tokenization will be a significant part of markets in the next five, ten years. Regulators giving confidence that "you won't be retroactively punished for experimenting with new asset forms" is a major step forward.

Steve Ehrlich:Final question, choose one: What is one chart/metric you're watching most closely in the coming weeks/months? Or, one contrarian view you'd like to share?

Noelle Acheson:I love your questions; you don't beat around the bush, you pick up neglected stories. For a metric, I choose "inflation." If we can't keep it in check, a very bad script lies ahead. Inflation drives the bond market, dominates monetary policy, and has a huge impact on fiscal policy at a global level. So inflation is unavoidable. You can change the index calculation as the new Chair suggests, but it won't work; inflation is unavoidable.

For a contrarian view, I'll pick one neglected thing. Everyone is cheering the S&P 500 hitting new highs, but they're ignoring the widening gap between the S&P 500 and its equal-weight index. The market-cap weighted index we all watch keeps hitting new highs, but the equal-weight index isn't. This gap is growing. The last time it widened at this pace was 1999.

Steve Ehrlich:Followed by the dot-com bust.

Noelle Acheson:Exactly. Anything top-heavy, by the laws of physics, will eventually tip over.

Steve Ehrlich:Completely agree. Noelle, we'll have you on again soon. Thank you everyone for watching.