BF233 - The System is Getting Harder to Manage - 9/20/26

Thank you. Hey guys, welcome back to the Bitcoin Fortress podcast. This is episode 233. Back after a little vacation. And so we have a couple weeks worth of news to digest. The world, of course, didn't wait for me. And so there's plenty to talk about. We're recording this on September 20th, 2026. Bitcoin block height 967855, Moscow time. 1236 sats per dollar. And fees are as good as they get. One sat, one sat, one sat. High, medium, low priority. Well, again, a lot to cover because we haven't talked in a couple weeks. But when I went through everything that happened, one theme keeps jumping out at me. The system is getting harder to manage. 10-year treasury crossed 5%. Treasury itself has started buying larger amounts of long-duration government debt back from the market. Oil went through $100. The Federal Reserve responded by raising interest rates. Japan raised rates too, and somehow the yen weakened anyway. Congress failed to pass the Clarity Act, but almost immediately the SEC and CFTC started figuring out how much they could accomplish without Congress. And Bitcoin? Bitcoin took the punches, briefly dropped into the mid-70s, and then climbed right back above $80,000. That may be the most interesting part of the entire story. Because Bitcoin isn't supposed to like rising rates. It's not supposed to like a stronger dollar. It's not supposed to like 5% treasury yields. It's not supposed to like regulatory disappointment. And yet, here we are. So with that, let's get into it. Part 1. The bond market is sending a message. Let's start with what I think may be the most important macro development of the past two weeks. The U.S. 10-year treasury yield broke through 5%, reaching its highest level since 2023. There are several explanations. Oil has moved sharply higher. Inflation is still sticky. Economic growth remains surprisingly strong. AI infrastructure is creating enormous new capital demand. And of course, the federal government continues issuing extraordinary amounts of debt. But I think the more interesting question is whether the market is simply demanding a higher price to own long-duration U.S. government paper. For most of my investing life, treasuries were treated, as the unquestioned risk-free asset. Now, the market appears to be asking a different question. What yield do I need to be compensated for owning this thing for 10 years? And apparently, the answer is increasingly around 5%. That's a very different monetary world. And it ties directly into an essay I have coming up next weekend, actually, that maybe 5% isn't a temporary arbitration. Maybe 5% is normal. Certainly, if you go back and look historically, it is. If inflation eventually settles somewhere around 2.5%, but the 10-year stays near 5%, then the real story isn't runaway inflation. It's a structurally higher real cost of capital. And that has enormous implications for equities, housing, banks, government finance, and ultimately, Bitcoin. Treasury tripled its long bond buyback. And the market, well, it just shrugged. This story got surprisingly little attention. They increased their buyback operations from a previous $2 billion maximum to as much as $6 billion. And the market basically said, "That's nice." And yields, well, they kept rising. This is important because Treasury insists these operations are primarily about improving market liquidity and tech. And technically, that's true. But markets aren't stupid. When the issuer of the world's reserve asset begins buying larger quantities of its own long-duration debt while yields are rising, people are going to pay attention. And here's the fascinating point. The intervention wasn't large enough to overpower the market. $6 billion sounds enormous until you remember that we're talking about a Treasury market measured in tens of trillions of dollars. The market is a big market. It is effectively saying, if you want lower yields, you're going to need a bigger boat. I've said many times that the cure for higher rates is higher rates. Eventually, something gives. The question is what? Then we add energy. Brent crude moved above $105 as Middle East tensions threatened supply routes, including infrastructure used to bypass the Strait of Hormuz. That matters far beyond the gasoline pump. Energy is embedded in almost everything—transportation, agriculture, manufacturing, plastics, shipping, mining, data centers. So when oil jumps from an already elevated level, it creates a second-round inflation problem. The Fed can raise interest rates. It cannot manufacture oil. It can't reopen a pipeline, nor can it clear a shipping lane. This is one of the great weaknesses of modern monetary policy. Central banks have one very blunt instrument—the price of money—and they're constantly being asked to solve problems that originate somewhere else. Which brings us to the Fed. The Federal Reserve raised the federal funds rate by 25 basis points to 3.75% to 4%. That is remarkable when you consider where markets thought we would be not very long ago. The consensus wasn't supposed to be talking about another tightening cycle. Fed Chair Kevin Walsh said the economy has actually strengthened while inflation remains the problem. That's an important combination. This isn't necessarily the Fed hiking into a recession. It's the Fed confronting an economy that may be growing faster than the monetary system can comfortably accommodate. AI investment may be part of that. Fiscal deficits certainly are. Energy is. Tariffs and trade policy may be. And this is why I keep coming back to the possibility that the old framework may simply be wrong. Maybe we're not returning to the 2010s. Maybe the 2010s were the anomaly. Zero rates. Quantitative easing. Cheap energy. Cheap global labor. Cheap capital. Maybe that world is gone. Now, here's where things get interesting for Bitcoiners. Bitcoin initially wobbled around the Fed decision. Nothing surprising there. But by Friday, it had reclaimed $8 billion. It was up to $80,000 and briefly moved above $81,000. Think about the week Bitcoin has just absorbed. The 10-year crossed 5%. The Fed raised rates. The Clarity Act failed. Oil remained elevated. And Bitcoin ended the week rallying. I don't want to read too much into a few days of price action. Bitcoin is Bitcoin, and it can give back a $5,000 move before breakfast. But I do think it's worth watching. For years, Bitcoin traded largely as a high bid, but now it's down to $100,000. is a high beta liquidity asset. Rates go down, Bitcoin up, rates up, Bitcoin down. That relationship may be becoming less reliable because at some point, rising sovereign yields stop representing monetary strength and start representing fiscal risk. Those are two very different things. Institutional flows reinforce that point. U.S. spot Bitcoin ETFs took in about $433 million on Friday alone. That was enough to drag the entire week back into slightly positive territory after several days of outflows. Fidelity's FBTC accounted for roughly $311 million of Friday's inflow. Again, don't obsess over daily ETF numbers, but the infrastructure matters. Every wealth manager now has an easy way to allocate. Every investment committee can discuss Bitcoin without opening an exchange account. Every broker can discuss Bitcoin without opening an exchange account. They trade relative to other currencies, relative growth, relative inflation, fiscal credibility, and capital flows. If the United States offers yields around 5%, raising Japanese rates modestly doesn't necessarily close the gap. And Japan has another problem, enormous government debt. Raise rates too far, and you create fiscal stress. Don't raise enough, and the currency remains under pressure. That's not a great set of choices. We've talked before about the yen as a possible fault line in the global monetary system, and I think it still deserves attention. Bitcoin doesn't need every fiat currency to fail. It simply needs people to notice that every fiat currency has constraints. Next, Washington fails, and the regulators, well, they keep moving. The big Washington story was the failure. Of the Clarity Act procedural vote, the Senate vote failed to advance the legislation. There were multiple issues involved, including disagreements over ethics provisions, stablecoin economics, financial regulation, and the appropriate division of authority. For Bitcoiners, I think the lesson is pretty simple. Don't build your thesis around Washington. Good legislation can help. Clear rules can help businesses. Regulatory certainty can accelerate adoption. But Bitcoin doesn't require Congress to work. Blocks kept coming. Transactions kept settling. The network didn't notice the Senate vote. And that is not just a feature, but the feature. Two days after Clarity failed, the SEC announced an innovation exemption allowing limited experimentation with tokenized U.S. listed stocks on certain options. It was a huge success for the SEC, but it wasn't the end of the world. This is a much bigger story than it may appear. We've spent years hearing that tokenization is coming. Now pieces of the traditional securities market are actually beginning to move on chain. Stocks, settlement, ownership records, liquidity pools, potentially 24-hour markets. This is where Bitcoin's influence becomes larger than Bitcoin. Bitcoin demonstrated that value can exist natively on a global digital network. Now, traditional firms can't. Traditional finance is trying to import some of those properties. The irony is actually pretty great. Bitcoin has traded 24 hours a day, 7 days a week for 17 years. Wall Street is finally discovering weekends. The CFTC also signaled that it intends to proceed with crypto market rulemaking despite Congress failing to advance Clarity. A proposal titled Regulation Crypto Asset Transactions. and Regulation Crypto Asset Markets was sent to the White House. We don't yet know all the details, but the direction is clear. The regulatory machinery is moving, even without comprehensive legislation. There are legitimate questions about how far agencies should go without Congress. But from a market perspective, the important takeaway is that the failure of Clarity didn't freeze the industry. The bureaucracy simply found another path. Meanwhile, a House committee advanced legislation that would codify a U.S. strategic Bitcoin reserve. The proposal would direct Treasury to maintain secure Bitcoin storage and contemplate additional acquisition using budget-neutral strategies. Whether that ultimately becomes law is a separate question, but think about how far the conversation has moved. Five years ago, the debate was, should governments ban Bitcoin? Now the debate is, should governments hold Bitcoin as a strategic reserve asset? That's an extraordinary shift in the Overton window. Bitcoin doesn't need the United States government to buy it, but sovereign competition for a fixed asset is certainly an interesting game theory experiment. 21 million means 21 million. Next up, institutions keep building. Deutsche Bank announced plans to launch digital asset custody for Bitcoin. Bitcoin will be among the supported assets. This is another one of those stories that barely feels like news anymore. And that's precisely why it's important. A major global bank building Bitcoin custody used to be a headline. Now it's another Tuesday. That's adoption, not excitement, normalization. Banks spent years warning customers about Bitcoin, and now they're building the vaults. Strive continued accumulating Bitcoin and now holds 25,000 Bitcoin. The latest purchase was 469 Bitcoin at an average price just under $78,000. What's particularly interesting about Strive is its capital structure. The company emphasizes that it carries no conventional debt, no margin requirements, and no encumbered Bitcoin. That's a different model from some of the leveraged treasury companies we've seen. And I think we're entering the second generation of Bitcoin treasury companies. The first generation asked, "How much Bitcoin can we buy?" The second generation is asking, "How do we construct a balance sheet that can survive every part of the Bitcoin cycle?" That's a much better question. Strategy did something different. Instead of buying more Bitcoin, it repurchased roughly $139 million of Stretch preferred shares during the week. It still holds about $845 million. The second generation is asking, "How much Bitcoin can we buy?" The third generation is asking, "How much Bitcoin can we buy?" that's how bitcoin should handle this not panic not dismiss the threat study it test solutions build migration paths then move when the evidence requires it bitcoin slow governance can look frustrating from the outside but when you're securing a trillion dollar plus monetary network moving slowly isn't necessarily a bug next up bitcoin in the real world here's a smaller story that i think actually is very encouraging bitbox has integrated a lightning hot wallet directly into the bitbox app users can keep long-term savings protected by their hardware wallet while maintaining a smaller lightning balance for spending one application one backup architecture two different security models for two different jobs that's exactly how bitcoin ux should evolve your life savings should not have the same security model as the bitcoin you use to buy coffee you should not have the same security model as the bitcoin you use to buy coffee savings and spending are different problems the technology should reflect that and increasingly it does finally treasury sanctioned iranian exchange bitbank alleging it was involved in transferring hundreds of millions of dollars worth of bitcoin to entities connected with iran's revolutionary guard i'm not interested in the partisan politics of that story i'm not interested in the partisan politics of that story i'm not interested in the partisan politics of that story i'm not interested in the prices of bitcoin i'm not interested in the prices of bitcoin i'm not interested in the prices of bitcoin i'm not interested in the prices of bitcoin bitcoin may simply be one of the first industries experiencing that arms race because bitcoin is valuable global digital and final if you steal someone's bitcoin and successfully move it there's no customer service number that reverses the transaction and that creates enormous incentives to attack bitcoin infrastructure over at tftc marty bent had chris over at tftc marty bent had chris We'll see you next week.