The Train Ain’t Stopping
Friday August 14th, 2026 - Issue # 141
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
There are plenty of sophisticated ways to define a bear market, but the simplest is that Bitcoin has become almost unbearably boring. It has underperformed nearly every major asset this year, and the people who spent the last bull market explaining Bitcoin to everyone have suddenly found other interests. The group chats are quiet, engagement has collapsed, and almost nobody wants to talk about it. At this point, there is a decent chance nobody is even reading this and I am just talking to myself, but I am bored out of my skull and refreshing the same bitcoin chart for the hundredth time today has somehow failed to move the market. Kidding.
The defining feature of a real bear market is not simply that the price has fallen. It is that the decline lasts long enough to train everyone to expect disappointment, so good news gets ignored, bad news confirms what people already believe, and every potential buyer becomes convinced that a much better entry is right around the corner. Even the people who still believe in Bitcoin are tired of defending it, with the ColdCard incident and now the Trezor data breach giving the market fresh ammunition. Buyers sitting on cash keep moving their bids lower, while anyone who arrived during the last burst of excitement is starting to wonder whether they bought into a giant waste of time. None of this guarantees that the exact bottom is in, and I am not going to pretend I know whether Bitcoin trades at $55,000 before it trades at $75,000. It simply means the enthusiasm, leverage and tourists have been washed out, which is usually when I become much more interested in what is happening underneath the price.
In July, the USG collected $334 billion and spent $766 billion, producing a $432 billion deficit in a single month and the largest July deficit in history. Some of that was caused by benefit payments being pulled forward because of the calendar, but even after adjusting for timing, the deficit was still approximately $333 billion and 18% larger than the prior year.
Through the first ten months of fiscal 2026, the US has borrowed $1.8 trillion, already more than it borrowed during all of fiscal 2025, with two months still remaining. Total federal debt was $39.89 trillion as of August 10, meaning the country is now roughly one bad month away from crossing $40 trillion.
Last time I posted this, I think the number started with 34. We are now close enough to $40 trillion that I may have to host the lamest countdown party of all time.
These numbers are difficult to comprehend because they stopped sounding like money a long time ago, but the direction matters more than the exact number. The debt is compounding, annual deficits are becoming structural, and there is obviously no credible plan to reverse either one. The only politically acceptable escape hatch is to somehow grow fast enough that the debt becomes manageable, which helps explain why Washington has become so obsessed with winning the AI race.
I had actually spent the last two weeks chipping away at an entirely different letter sparked by Jensen Huang’s first post on X about open weights, US AI leadership and the parallels with Bitcoin, but the macro got too spicy to ignore. I may come back to it next week, assuming the global financial system can keep its shit together for another seven days, although markets are already pricing in a remarkably optimistic version of that AI-powered future.
The stock market is near record highs, unemployment remains relatively low (sketchy, but still), and the economy is supposedly doing fine, yet the government is still borrowing at a pace normally associated with a national emergency. If this is what the budget looks like during reasonably good conditions, imagine what happens during the next real recession (assuming policymakers still allow one), banking crisis or geopolitical shock. More importantly, there is no serious political support for fixing it because voters enjoy government spending and hate paying for it, while politicians generally enjoy being re-elected (maybe that’s the real 4 year cycle). Republicans and Democrats will argue endlessly about where the money should go, but both parties have made it clear that spending will continue, which means the real debate is no longer whether the debt grows but how quickly it gets there.
😬😬😬
The size of the debt is only half the problem because the cost of carrying it is now accelerating as well. Interest expense on US debt reached a record $1.37 trillion over the last 12 months, while gross interest expense during the first 10 months of this fiscal year was approximately $1.17 trillion, compared with roughly $804 billion spent on national defense. Only Social Security and Medicare now cost the federal government more, which means the boys down in Washington are spending more servicing debt than they are defending the country these days. The truly dangerous part is that this becomes self-reinforcing as old debt matures and gets refinanced at higher rates, interest expense rises, the deficit grows, the Treasury issues more debt, and investors demand higher yields to absorb the additional supply. Higher interest costs create more borrowing, more borrowing creates more supply, and more supply eventually creates even higher interest costs.
That’s a debt spiral.
The pressure in Japan is a perfect example of why this is no longer just a US debt problem. The yen fell to a 40-year low, forcing Japan to intervene in currency markets, with America’s top currency crusher, Scott fricken Bessent, joining the operation. Ordinarily, Japan could raise the dollars it needs by selling some of its enormous Treasury portfolio, but Washington is already issuing historic amounts of debt and does not need one of its largest foreign creditors dumping Treasurys into the market at the same time. A weaker yen is Japan’s problem until the obvious solution threatens the US bond market, at which point it quickly becomes America’s problem too. The entire system is now so interconnected that allowing one market to clear naturally risks breaking something much larger.
I’ll leave it to Arthur Hayes to tell you all about the Yen-quake. Really good read.
TLDR: Japan needs dollars to defend the yen, but selling its enormous Treasury holdings to get them would put even more pressure on an already fragile US bond market. The proposed solution is to expand the Fed’s Foreign and International Monetary Authorities repo facility, allowing Japan to borrow dollars against those Treasurys instead of selling them. This is probably what the next era of money creation looks like: not necessarily massive QE announcements, but an expanding network of liquidity facilities and backstops that prevent important markets from being forced to clear without intervention. The system’s problems can always be delayed with more dollars because the politically honest alternatives, including spending cuts, higher taxes and higher interest rates, are too painful. Bitcoin does not need the dollar or banking system to collapse for this to matter. It only needs governments to keep choosing money creation over austerity while its own supply remains fixed at 21 million, and gold is already giving us the clearest evidence that capital is beginning to price that reality.
The comparison between gold and BTC is still useful because it shows how small bitcoin remains relative to the pool of capital it is trying to enter. At current values, gold is worth approximately $30.7 trillion while bitcoin is worth around $1.27 trillion, making gold roughly 24 times the size. If BTC grew to just 10% of gold’s current value, that would represent approximately 2.4 times today’s market cap, while 25% would be roughly 6 times, 50% would be roughly 12 times, and parity would be roughly 24 times, or as the kids would say, “goals.” None of that is a price forecast, and the calculation assumes gold stands still, which I do not expect because gold can continue rising as governments continue borrowing. The point is that bitcoin does not need to destroy gold, replace gold or even come close to gold’s total value for the upside to become extremely meaningful.
I recently got into a lively debate in a private group chat that includes some serious gold bugs after someone, presumably one ass cheek off a bar stool by that point, started taking shots at Bitcoin late into the night. I woke up and chose constructive violence, asking what, beyond being physical, older and less volatile, actually makes gold better than BTC. The conversation quickly escalated to World War III, destroyed satellite networks and a world without reliable internet. My response was that if this is genuinely the future we are building portfolios for, we have probably moved beyond asset allocation and should be focusing on bunkers and freeze-dried food. Eventually, tokenized gold was presented as offering the best of both worlds, which I found revealing. If the strongest modern version of gold is gold placed on a blockchain and wrapped with an issuer and custodian, it starts to sound like an admission that Bitcoin solved portability from the beginning while still allowing you to own the asset directly without a counterparty. I am not sure they could have made a better argument for Bitcoin if they tried.
As I said after the chat settled down, I actually expect gold and BTC to perform well together. Gold is not going anywhere, and as someone joked in a group chat this week, even when Elon starts mining asteroids and discovers an abundance of it, demand will probably scale with interstellar exploration. Bitcoin is simply the version where no amount of technology or exploration can ever increase the supply beyond 21 million.
That fixed supply matters even more when the institution responsible for protecting the dollar can quietly add $11.4 billion to its balance sheet in a single week. Kevin Warsh has spent his first few months as Fed Chair talking like a hawk, which makes his earlier comments about Bitcoin worth revisiting.
Warsh has called Bitcoin a “very good policeman for policy.” When the man responsible for the printer praises the asset designed to expose monetary excess, it is probably worth listening.
I’m doing more than listening, I’m buying.
Have a great weekend!