BTC254: Bitcoin & Macro Overview w/ Luke Gromen Q4 2025 (Bitcoin Podcast)
Timestamps are as accurate as they can be but may be slightly off. We encourage you to listen to the full context.
Podcast Summary
Luke Gromen joins Preston Pysh to unpack America's mounting financial crisis, which extends far beyond surface-level economic indicators despite record tax receipts. The conversation explores a "poly crisis" where multiple systemic pressures converge: The US has been forced to shift Treasury issuance to short-term debt for thirty months due to insufficient demand for long-term bonds, creating unprecedented liquidity strains in overnight funding markets. (02:00)
- Main themes: Federal financing crisis, global power shifts undermining dollar dominance, AI sector's unsustainable capital demands competing with government funding needs, and the diverging paths of Bitcoin and gold as debasement indicators.
Speakers
Luke Gromen
Luke Gromen is a macro strategist and founder of Forest for the Trees (FFTT), a macro research firm providing institutional and retail research on global financial markets. He has over two decades of experience analyzing global macro trends, with particular expertise in Treasury markets, currency dynamics, and geopolitical implications for financial systems. Gromen is known for his prescient analysis of fiscal dominance and the unsustainability of current government debt trajectories.
Preston Pysh
Preston Pysh is the host of the Bitcoin Fundamentals podcast and co-founder of The Investor's Podcast Network. He has a background in finance and investing, with particular focus on Bitcoin, macroeconomics, and value investing. Pysh regularly interviews leading financial experts and provides educational content for investors seeking to understand complex market dynamics.
Key Takeaways
The US Treasury Funding Crisis is Accelerating
The government has been forced to shift from long-term to short-term debt issuance for thirty consecutive months, creating a "Red Queen" problem where they must run faster just to stay in place. (02:00) Weekly Treasury bill rollovers have exploded from $100 billion in 2013 to $550 billion currently - a staggering 15% compound annual growth rate. This shift occurred because central banks stopped growing their Treasury holdings, eliminating demand for longer-duration debt. The result is unprecedented strain on overnight funding markets, forcing the Treasury to maintain larger cash balances, which paradoxically tightens liquidity further.
Hedge Fund Basis Trades Create Systemic Vulnerability
Highly leveraged hedge funds have become the marginal buyer of 37% of net issuance of longer-term Treasuries since 2022, owning $1.8 trillion in Treasury positions. (07:30) These funds finance long-term Treasury positions using the same short-term markets that the government is now crowding out with massive bill issuance. When volatility spikes anywhere in the system, these funds must deleverage, creating potential for $1.8 trillion in Treasury selling pressure. This creates a "snake eating its own tail" dynamic where the solution to one funding problem exacerbates another.
AI Capital Requirements Compete with Government Funding Needs
The AI sector's capital demands have reached unsustainable levels, with companies like OpenAI requiring trillions in funding over the next five years while generating only $20 billion in current revenue. (54:18) This creates direct competition with the US Treasury for scarce capital, pushing real rates higher. Paradoxically, AI's success would further undermine the government's tax base by eliminating white-collar jobs, creating exponentially growing funding needs just as AI companies demand more capital. The sector has moved from funding through retained earnings to creative financing mechanisms, with credit spreads on major players like Oracle beginning to rise.
Gold is Signaling the End of Dollar Hegemony
Unlike previous crises where the dollar strengthened against all assets, gold may outperform during the next liquidity crunch due to fundamental changes in the global system. (57:03) The 2022 sanctions on Russian reserves told the world that Treasuries are no longer truly safe, while military technological shifts have ended 400 years of naval dominance doctrine. Countries can no longer rely on US protection or Treasury safety, driving sovereign demand for gold as the ultimate reserve asset. Central banks and sovereign wealth funds understand this shift, even if Wall Street hasn't fully recognized it yet.
Fiscal Dominance Eliminates Traditional Monetary Policy Tools
With debt levels at current extremes, the Federal Reserve faces only bad choices - they can be Benjamin Strong (leading to depression) or Arthur Burns (leading to 1970s-style inflation). (21:32) In fiscal dominance, raising rates increases deficits through higher interest payments, which are stimulative. Cutting rates also becomes stimulative by reducing the government's interest burden. The real estate market is beginning to recognize this reality, as mortgage rates rise regardless of Fed policy direction. This dynamic will force a choice between preserving bond market values or allowing currency debasement.
Statistics & Facts
- Weekly Treasury bill rollovers have increased from $100 billion in 2013 to $550 billion currently, representing a 15% compound annual growth rate over the period. (03:00) This massive increase reflects both growing deficits and the shift to short-term issuance due to lack of demand for longer-term bonds.
- Hedge funds own $1.8 trillion in Treasury positions and have purchased 37% of net issuance of longer-term Treasuries since 2022, making them the biggest marginal buyer of mid and long-term Treasury debt. (07:30) This concentration creates systemic risk as these highly leveraged funds must sell when volatility increases.
- China has added electrical capacity equal to the entire US grid in just ten years, highlighting the infrastructure gap that constrains US competitiveness in energy-intensive industries like AI and manufacturing. (62:37) This disparity affects everything from hyperscaler deployment to industrial reshoring efforts.
