"Positively correlated Bitcoin" may be the truly important direction for the future; when interest rates rise, Bitcoin will actually rise as well. Key Takeaways: Jeff Park is a partner and chief investment officer at ProCap Financial. In this conversation, we discussed Bitcoin's recent price pullback, analyzed whether the market has entered a true bear market, and discussed the current interest rate environment and the role of the Federal Reserve in the economy. We also discussed the possibility of Kevin Warsh being nominated as Federal Reserve Chairman, Jeff's outlook on the precious metals market, and his warning about an asset class investors should avoid in the future. Key Insights: We are in a bear market. Even if policies become more accommodative, it may not necessarily propel us into a bull market. If you have already made good returns from silver investments, now may be the time to move your funds to Bitcoin. "Positively correlated Bitcoin" may be the truly important direction for the future; when interest rates rise, Bitcoin will actually rise as well. We initially chose Bitcoin because we believed that scarcity could solve the problem of artificially manipulated money supply. I remain very optimistic about Bitcoin's future, but this is more because I believe that the role of government will become more centralized in the future, and Bitcoin will once again become the ultimate hedge against this system. The position of Federal Reserve Chairman should not be held by a socialist or nationalist. What we need is a technically skilled official, but this person must also be pragmatic enough. Warsh and Bessant happen to possess these qualities. If interest rate cuts do occur in the future, and liquidity increases further, I think the price volatility in the precious metals market may become even more volatile. The market outlook for silver is not optimistic. Silver's performance in the precious metals market is very similar to that of altcoins in the cryptocurrency market. Kevin Warsh firmly believes that blockchain technology is not magic, but a tool that can solve many practical problems and improve efficiency, and Bitcoin is an important part of this technological culture. Is the Bitcoin sell-off sustainable? Anthony Pompliano: Jeff, Bitcoin has been falling recently, and I personally think the market may continue to fluctuate or even decline. We may have entered a bear market. Bitcoin's 40% drop has attracted a lot of attention. What do you think? Do you think we are in a bear market now? Do you think the decline in Bitcoin is sustainable? Jeff Park: I think we are indeed in a bear market, and it has been going on for some time.One key point to remember is that Bitcoin has historically been viewed as a hedging tool, believed to be positively correlated with global liquidity—meaning increased global liquidity typically benefits Bitcoin. However, this relationship has long been broken. In the cryptocurrency space, we often assume history simply repeats itself. This is a compromise with behavioral biases, such as the belief that altcoins always follow Bitcoin's rise, the so-called "four-year cycle," or the assumption that quantitative easing (QE) and low interest rates will always benefit Bitcoin. But the world is constantly changing, and many circumstances are different now. A crucial assumption we need to re-examine is whether quantitative easing, global liquidity expansion, and low interest rates are truly beneficial for Bitcoin. While this may have been true in past cycles, the situation may be different now. Currently, global liquidity is actually steadily increasing. According to Michael Howell's tracking data, global liquidity will reach approximately $170 trillion by 2025, originating from China and the United States, and this growth is likely to accelerate further. We can see this trend in the general rise in asset prices, such as the strong rebound in the metals market and corporate credit spreads reaching historic lows. This suggests that Bitcoin should have participated in this rally, but it didn't, indicating that some fundamental mechanisms may have changed. Therefore, I believe we are indeed in a bear market, and it may have started as early as mid-2025, when the Federal Reserve's balance sheet begins to shrink, especially as the Treasury begins rebuilding the Treasury General Account (TGA). Looking ahead, we may need to accept the reality that even if policies become more accommodative, it may not necessarily propel us into a bull market. However, this actually makes me somewhat optimistic about potential catalysts for Bitcoin's future rise. I previously mentioned the concepts of "negatively correlated Bitcoin" and "positively correlated Bitcoin." The "negatively correlated Bitcoin" we are familiar with refers to the situation where, in an environment of low interest rates and accommodative policies, the prices of risky assets rise, and Bitcoin rises accordingly. But there is also the possibility of "positively correlated Bitcoin," which I believe is the ultimate goal—that is, when interest rates rise, Bitcoin will actually rise. This situation is completely opposite to the theory of quantitative easing, and the logic behind it is to question the reliability of the risk-free rate. In this case, we are actually saying that the risk-free rate is no longer risk-free, the dollar's hegemony is no longer absolute, and we can no longer price the yield curve in the ways of the past.This means we need a completely new model, such as a basket of currencies based on commodities, and Bitcoin may be the perfect hedging tool for this. Therefore, I think this "positively correlated Bitcoin" may be the truly important direction for the future. The current money supply and financial system are already problematic, and we also know that the cooperation between the Federal Reserve and the Treasury is insufficient to advance the national security agenda. All of this makes me feel that to pull Bitcoin out of its current slump, we may need to abandon old perceptions and return to Bitcoin's essential value—we initially chose Bitcoin because we believed that scarcity could solve the problem of artificially manipulated money supply. Therefore, although global liquidity is increasing, it is not actually a friend of Bitcoin. Federal Reserve vs. White House: Is Bitcoin Forward or Backward? Anthony Pompliano: Jeff, I think there are two different perspectives to analyze the current economic situation. First, historically, we have always considered monetary policy to be the main force driving the economy and asset prices; however, the current US administration seems to be trying to wrest control of the economy from the Federal Reserve. They are doing this by deregulating, cutting taxes, imposing tariffs, and trying to depress the dollar exchange rate. At the same time, they are also leveraging the development of artificial intelligence to boost economic growth. The Federal Reserve seems somewhat passive, whether voluntarily or involuntarily, as they appear to be trying to understand various economic trends and how to respond. Therefore, the economy currently seems to be in a dynamic power balance between the Fed and the White House. We need to figure out whether the Fed or the White House is leading the direction of economic policy. Secondly, I'm also considering whether Bitcoin's market behavior is more forward-looking or reflects current or past economic conditions. When you mentioned the psychology of Bitcoin holders, you described them as "driving while only looking in the rearview mirror," believing that the past four-year cycles will always repeat themselves, so there's no need to look to the future, just look at past patterns. But I think your view is more like reminding us to "look through the windshield," which might be a better analytical approach. So the question is, is Bitcoin's performance based on the current economic situation or predicting future developments? For example, in 2020, many investors bought Bitcoin and gold because they anticipated impending inflation; the market is often forward-looking. If Bitcoin is falling now, does this mean there's a greater risk of deflation? Or is it warning us of other potential problems?How do you view the power balance between the Federal Reserve and the White House? And is Bitcoin looking to the future or looking back at the past? How should we interpret current price movements within a larger context? Jeff Park: That's a very good question. I have an interesting concept in mind that I call "peacetime Bitcoin" and "wartime Bitcoin." In times of peace and prosperity, we expect the monetary system to function properly, and investment frameworks to operate in the traditional way. This is "peacetime Bitcoin," which is more linked to inflation and used as a hedge against it. But "wartime Bitcoin" is completely different. In "wartime," the main force driving economic growth is no longer monetary policy, but a combination of industrial policy, military policy, and fiscal policy. This has happened historically—in times of crisis between democracies and more authoritarian governments, the importance of monetary policy often gives way to the priority of power struggles. Therefore, your point about the future positioning of Bitcoin is correct. Part of the reason is that the world seems to have become more centralized during the Trump administration. In the past, we were full of aspirations for the concept of decentralization, believing that distributing resources and establishing checks and balances were virtues, and Bitcoin and cryptocurrencies were the embodiment of this idea. However, a closer look at recent US cryptocurrency policies reveals a trend towards a more centralized model. For example, stablecoins are centralizing bank profits; tokenization is increasingly being used as stocks rather than long-tail assets; coupled with the centralized nature of the Trump administration itself, all of this lends Bitcoin a "centralized" energy. Bitcoin's value has always lay in its decentralization and censorship resistance; it represents a "free currency." US investors have many other options, such as silver, metals, and AI-themed investments. Those who truly need Bitcoin are those living under oppression and facing capital controls. If you believe the future world will be more fragmented, more chaotic, and even subject to more capital controls, then Bitcoin's importance will become even more pronounced. Therefore, I remain very optimistic about Bitcoin's future, but this is largely because I believe the role of government will become more centralized, and Bitcoin will once again become the ultimate hedge against this system. Kevin Warsh and the Future of the Federal Reserve Anthony Pompliano: You mentioned Kevin Warsh, who is clearly the nominee for the new Federal Reserve Chairman.He expressed some very positive views on Bitcoin, believing it won't compete with the dollar but rather has a unique role in portfolios. What do you think of his potential as Federal Reserve Chairman? How might he influence the future development of Bitcoin? Jeff Park: To be honest, I really admire Kevin because I think he's an expert with a deep understanding of how things work. He understands that sometimes you need to break existing patterns to take the next step, and he knows that you can only find solutions by truly understanding the root of the problem and diagnosing it correctly. You can't just change for the sake of change, and those who truly understand things are often reluctant to change the status quo easily. Having this kind of innovative thinking requires great courage, and Kevin happens to possess this quality. In addition, he is an excellent technical expert. In one of my conversations with him, I clearly remember his passion for cryptocurrencies. He mentioned that there are many "hypocrites" in the world who think technology is something magical but don't actually understand its essence, blindly betting without proper justification. In contrast, Kevin firmly believes that blockchain technology is not magic, but a tool that can solve many practical problems and improve efficiency, and Bitcoin is an important part of this technological culture. This is crucial because many technologists don't truly understand how technology works. For them, imagining the space for technological innovation is counterintuitive. For example, when we talk about productivity growth, the Federal Reserve might not perceive the deflationary effects of artificial intelligence. This cognitive gap exists because many people cannot envision a future that is drastically different from the past, as Kevin Warsh does. Therefore, I believe he is first and foremost a technology expert, and this is especially important today. I think we need more leaders with his technological vision in the field of monetary policy. Furthermore, Kevin has extensive experience at the Federal Reserve. Studying his past actions reveals that he genuinely believes in the value of the Fed as an institution. He is not one to advocate ending the Fed's independence, but he understands why its independence is challenged and how to reshape the institution to regain public trust. He once said something that impressed me: "Inflation is a choice." In contrast, we see current Fed Chairman Powell and others seemingly always looking for external excuses for inflation, such as "inflation is because of tariffs" or "inflation is because of the Ukraine war."They are almost unwilling to admit that inflation is a choice made by the Federal Reserve, when in fact, inflation is a policy choice and one of the core missions of the Fed. Regarding inflation, it's also important to clarify that inflation and nominal price changes are two different things. Many people confuse the two, thinking that a 5% increase in the price of a commodity constitutes inflation, but that's just a price change, and price changes can be caused by a variety of factors, such as war or tariffs. True inflation is a dynamic concept, a long-term trend in the rate of price change, not a one-off price fluctuation. The Fed's responsibility is not to focus on monthly price changes, but to manage the long-term trend of these price changes. This point is often overlooked. I strongly agree with Kevin Warsh's point that "inflation is a choice," because the Fed actually has all the tools to control inflation, if they choose to act. Anthony Pompliano: Interestingly, two seemingly contradictory situations can actually coexist. I think people always want to find a simple answer, such as inflation or deflation? High inflation or low inflation? But in reality, the economic system is very complex, and Bitcoin seems to simplify these complex economic relationships. You don't need to learn all these complex economic principles; you just need to understand supply and demand: if more people want something, its price goes up; if demand decreases, its price goes down. Bitcoin's philosophy seems to be reimagining the monetary system. If so, are they trying to simplify the system? Are they hoping to streamline this complex economic machine into a system that anyone can easily understand? Jeff Park: Yes, the system is inherently very complex, and I'm not sure it can really be simplified. However, I think they should make it more transparent and honest. Americans have lost confidence in the current monetary system not only because it's become complex, but also because it lacks transparency. I think one of Kevin Warsh's tasks is to change the way the Federal Reserve uses its balance sheet while addressing the obvious transparency issues in the current system. For example, at the Federal Reserve meeting in January of this year, someone asked Powell a question about the relationship between the value of the dollar and the interest rate setting mechanism. This is obviously an important question given the significant strengthening of the dollar, because the core of interest rates is that the value of the benchmark currency directly affects long-term yields and interest rates. But Powell's answer was: "We don't focus on the level of the dollar when making policy.""To some extent, he may be trying to simplify the issue, as this isn't his area of expertise. However, this statement overlooks an important reality: the value of the dollar is indeed closely related to interest rate policy. But in fact, both can be balanced. That's why I'm optimistic about the possibility of a new agreement between the Federal Reserve and the Treasury. Bessant and Warsh have an opportunity to redefine this agreement. The core of the issue returns to the Triffin Dilemma: as the global reserve currency, the dollar must meet international reserve demands while ensuring domestic economic stability, creating an inherent contradiction. Therefore, what we need is not absolute independence of the Federal Reserve, but functional interdependence between the Federal Reserve and the Treasury. I think we need to move away from the idea that 'the independence of the Federal Reserve is being challenged' and instead accept that 'the Federal Reserve must establish a functional cooperative relationship with the Treasury' to formulate more reasonable policies. Once we achieve this, the Federal Reserve will have taken a significant step and regained public trust in its role. Anthony Pompliano: What's your take on Warsh and Bessant's backgrounds?" They both come from the same system, studied under the same mentor, and share similar ways of thinking and working philosophies. They might even be among the greatest risk-takers of all time. Jeff Park: This excites me greatly. I've expressed my opinion publicly online many times, and since last year, I've believed that Warsh must become the Fed Chair. This is a historic moment because you find two people who trust and know each other deeply, who have both worked under arguably the greatest market practitioners of all time, and now they have the opportunity to make real change. The importance of trust at this level cannot be underestimated. This reminds me of some previous situations, like Warsh being a candidate, then Hasset appearing and becoming a candidate, then Rick Reer, but actually, throughout this process I've been thinking: "You're ignoring the bigger picture." "This may seem like a Trump decision, but in reality, who ultimately made that decision? It was Bessant. Who would he choose to work with? Who would he trust? Who could realize his vision for the future and bring about change? The answer has always been only one: Warsh. When you realize this, you see a very clear and powerful moment. Because of this relationship of trust, we are now able to accomplish things on the global stage that were previously impossible. I am very excited about this."Of course, I know many people are prejudiced against billionaires, believing they only care about their own interests and don't consider ordinary people, but I hold the opposite view. I believe we should expect these people with enormous resources to do something meaningful. Because if it's not these resourceful individuals driving change, it might be some ill-intentioned people taking control. Rather than that, let those who no longer need to make money for themselves drive systemic improvement. I believe that for Bessant and Warsh, the last thing they care about is how to make more money for themselves; what they truly care about is how to fix the entire system. That's why I'm very optimistic about them. They have a deep understanding of the market because they are practitioners in the capital markets themselves. They know that while the Federal Reserve as an institution has its merits, many problems still exist. And their intelligence, integrity, and clear communication skills make them an ideal combination to drive change. In my opinion, the position of Federal Reserve Chairman should not be held by a socialist or nationalist; what we need is a technologist-type official, but this person must also be pragmatic enough, and Warsh and Bessant meet this requirement perfectly. Anthony Pompliano: What I find interesting is the collaboration between Warsh and Bessant. They not only have a deep understanding of the American financial system but also a global perspective. For example, some of the measures Bessant took in Argentina proved to be very wise in hindsight. Although they caused a lot of controversy at the time, and some even questioned why money was being spent on that, in retrospect, those decisions were indeed farsighted. The United States has always been an adventurous country, always with a "let's build" mentality. But from a monetary policy perspective, the United States is also trying to cut unnecessary spending and carry out some reforms. In this mindset, you need people who truly understand probability and risk. I think that's the key point you mentioned: these are people who have spent their lives studying these issues, right? When Bessant was nominated, I'm not sure how many people thought he would be outstanding. People might think he's smart, but there wasn't necessarily an overwhelming consensus that he would be exceptionally good. However, if we look back objectively now, he may be one of the best Treasury Secretaries I've ever seen in my life. And Warsh complemented his weaknesses, creating a "1+1>3" effect. Warsh served as a Federal Reserve governor during the global financial crisis and has a deep understanding of the Fed's internal workings. He later applied this experience as a trader.Now he's back in the system, bringing different perspectives and experiences, and the trust between them bridges their differences. Jeff Park: Yes, I think a key point you mentioned is that leaders need the ability to think systematically. Because in economic policy, actions in one area can affect outcomes in another. To understand the probability of this interaction, one must realize that monetary policy is not isolated. It is actually closely related to fiscal policy and industrial policy. For example, Trump wanted to bring manufacturing back to the US and increase investment in the semiconductor industry. These three are like a symphony orchestra, and they must coordinate to achieve the ultimate goal, which requires multi-dimensional thinking. Unfortunately, most academics and those who have never worked in the for-profit sector often lack this kind of systematic thinking. The operation of the non-profit sector does not aim to assess the resilience of multiple variables, let alone build complex systems. In fact, I even think that centralized, top-down government models often just mechanically execute orders and allocate resources, but lack accountability. It just spends money without ever really reflecting on whether these investments have brought any real results. This capacity for reflection and critical thinking is typically cultivated through experience in profit-driven sectors. Frankly, it also requires a great deal of self-awareness. Repeating past practices won't solve future challenges; we need to forge a completely new path. To achieve this, leaders must possess sufficient credibility, which stems from their authority as systemic thinkers. This cannot be cultivated in a closed, rigid institution. The combination of Warsh and Bessant gives me confidence in the future. They are not only technically skilled leaders but also pragmatic and experienced in the market. They understand market dynamics, the strengths and weaknesses of the Federal Reserve as an institution, and are capable of driving change through clear communication and integrity. This combination is ideal. In my view, the position of Federal Reserve Chair should not be held by someone with an overly extreme ideology. You need a leader who is both technically savvy and pragmatic, and Warsh and Bessant perfectly fit this description. Why are precious metal prices soaring? Anthony Pompliano: The precious metals market has been very active recently, with significant price fluctuations in gold, silver, and even copper and platinum, sometimes surging, sometimes experiencing slight pullbacks before continuing to rise. What exactly happened behind the scenes?Jeff Park: This actually reflects a current market frenzy, which I think is one of the reasons we need to rethink the logic of Bitcoin investment. Although this wave of enthusiasm hasn't directly affected Bitcoin, it's been particularly pronounced in the entire precious metals market. As for the reason, I think the global liquidity environment is currently very loose. Frankly, if interest rates are indeed cut in the future, and liquidity increases further, I think the price volatility in the precious metals market could be even more dramatic. Some funds may flow into Bitcoin, or they may not, but the key is that this market phenomenon is already happening. Especially silver, I think it's currently the main target of retail investors, which reminds me of the altcoin market. In fact, silver and altcoins have many similarities; silver's position in precious metals is like Ethereum's position in cryptocurrencies. While I don't mean to offend the Ethereum community, this analogy does have some merit. Analyzing the price fluctuations of most commodities can actually be attributed to two basic factors: supply and demand. From the supply side, silver is actually a byproduct of mining other metals. Many people may not know that there are almost no mining companies in the world that specialize in mining silver; most silver is produced as a byproduct of mining metals such as zinc or copper—it's like a "freebie." In the world of cryptocurrency, it's like when you're doing yield mining. You're initially investing in Ethereum, but because you use Ethereum to participate in mining activities on certain chains, you receive some random tokens as extra rewards. These tokens are like silver—an additional source of income. Therefore, miners don't specifically mine silver because of its price; it's merely a byproduct of mining other metals. From this perspective, the supply of silver is actually quite large. Unlike the scarcity of Bitcoin, the supply of silver is relatively abundant. Eventually, the market will find a reasonable price for silver, and because silver is just a byproduct of other metals, its price may be suppressed due to ample supply. From the demand side, while some mention the promising applications of silver in industries such as artificial intelligence and solar panels, silver is actually a commodity that can be substituted. Silver is favored for its high conductivity, but copper's conductivity is only about 5% lower than silver's. This means that although silver has superior performance, its high price is not enough to make it the only choice. In fact, due to the rise in silver prices, many solar panels have begun to use copper instead of silver. Furthermore, silver is not a reserve asset, and no central bank would buy silver.From a supply perspective, silver production isn't entirely determined by its market price; it's a byproduct of mining other metals. Therefore, overall, I don't think the market outlook for silver is optimistic. This reminds me of the altcoin market. Silver prices are highly volatile and strongly correlated with gold prices, a relationship similar to how altcoin performance often depends on Bitcoin's rise. However, most altcoin prices eventually revert to supply-demand equilibrium. For investors who have participated in the cryptocurrency market over the past few years, there's a lesson to learn: silver's performance in the precious metals market is very similar to that of altcoins in the cryptocurrency market. Anthony Pompliano: So you mean silver prices might see a significant pullback? Jeff Park: Yes, if you've already made a good profit from silver investments, now might be the time to move your funds to Bitcoin. [Deep Tide TechFlow]