Many investors develop a mindset where they feel they are owed a bull market, which is never a guarantee. Some have bought bitcoin for the wrong reasons, speculating that institutional buyers like the government will purchase it, rather than understanding its fundamental qualities and long-term potential. This leads to a mismatch between expectations and reality for many people, whether they are over-invested in treasury companies, altcoins, or even bitcoin itself without the right perspective.

Lyn Alden expects bitcoin to return to six figures in 2026, with new all-time highs likely in 2026 or 2027. However, she questions the validity of the traditional four-year cycle. This cycle is different because it has not yet reached euphoric levels, making a major capitulation less likely.

There's no particular reason to believe that there's a four year cycle intact. We haven't hit euphoric levels this cycle. Therefore there's less of a reason to expect kind of a major capitulation.

The current market movement might extend longer than people anticipate because it is driven by broader macroeconomic factors and interest in the asset itself, not just the bitcoin halving event.

There's a feeling that the macro world is at a pivotal point, with Bitcoin near 92k, gold on a year-long bull run, and a potential repo market crisis with drying liquidity. Lyn Alden agrees that it's a pivotal moment, but suggests the magnitude is often less than what sensationalist tweets or podcasts portray.

The pivot is literal. The Federal Reserve is concluding a multi-year reduction of its balance sheet, a process known as quantitative tightening. This policy is shifting towards a flat balance sheet, which will likely start tilting upward again soon. This marks a significant multi-year change, even if it's not as dramatic as some headlines suggest.

Bitcoin can be seen as a smoke alarm for liquidity, but that is just one of its many roles. As a relatively free market, it can signal trends before they appear elsewhere. Research shows a correlation between Bitcoin and liquidity over longer time frames, offering a good insight into general market direction. However, this relationship isn't simple enough for short-term predictions. Bitcoin is also subject to its own unique events that have nothing to do with liquidity, such as elections, ETF launches, or accounting changes for companies holding it on their balance sheets.

Regarding the recent price drop, the more interesting factor is not the size of the correction but the length of its stagnation. Even the 2017 bull run, which was quite smooth, had multiple sharp 30% corrections that quickly recovered. The current situation is notable because Bitcoin has been essentially flat for a year. This stagnation can be attributed to several factors. Tighter liquidity is playing a role, but it is not the only issue. The rise of AI may be drawing capital and enthusiasm away from Bitcoin, as investors chase the "fastest horse." There is also disillusionment with certain catalysts that failed to materialize, such as the idea of a sovereign nation adding Bitcoin to its reserves.

I said I'd rather kind of have a price estimate that doesn't include Uncle Sam buying a half a million coins. I'd rather be surprised at the upside if that does happen than to factor that all in and then be surprised when it doesn't.

Lyn Alden believes the four-year halving cycles are no longer particularly relevant. They previously happened to correlate with liquidity cycles, but now other factors are more important. This period is washing out investors who held Bitcoin for the wrong reasons or with unrealistic expectations. The coins are rotating into the hands of those with more conservative, long-term views. While it's true that long-term holders are selling, this is a normal part of any emerging asset's lifecycle. Distribution from early holders to new buyers occurred in every previous bull market. The key selling pressure now is about what price will convince existing, tightly held coins to enter the market, not about the creation of new coins.

While demand for Bitcoin has come from treasury companies and ETFs, broad retail demand has been weak as the popular narrative has shifted elsewhere. This concentrated demand, combined with moderate liquidity and selling pressure from early adopters, has created some weakness in the market.

However, the bullish perspective suggests the traditional four-year cycle may no longer be intact. This cycle has not reached the euphoric highs of previous ones, which means there is less to wash out in a potential capitulation. The cycle could extend for longer than people expect because it's not primarily driven by the halving event. Instead, it is more influenced by broader macroeconomic conditions and fundamental interest in the asset itself.

Some investors may get caught offside by assuming Bitcoin's four-year cycle is still functioning as it has in the past. Lyn Alden suggests this is already happening to some extent. People are often too heavily invested in treasuries, altcoins, or even Bitcoin itself, but not just in terms of position size. Being 'too heavy' can mean having expectations that don't align with reality.

For Bitcoin, this might manifest as having too much exposure for one's volatility tolerance, or holding it with the expectation of a 10x gain in a short period. This ignores that it's now a multi-trillion dollar asset and is unlikely to behave as it did in prior, smaller cycles. Some people get into a mindset where they feel they are 'owed a bull market'. The emotional swings are very noticeable on social media.

As soon as everything rolls over, it's like, 'oh, the cycle's dead. That's a Ponzi.' This whole thing, it's just like the roller coaster is pretty palpable if you're just watching it regularly. It's kind of like a cartoon almost how these kind of roller coasters come and go.

The reality is often not as good as people expect during the highs, and not as bad as they fear during the lows. This makes social media sentiment a potential signal for counter-trading.

Many pure-play Bitcoin treasury companies are now trading below a 1x market to net asset value (mNAV). Lyn Alden believes another positive cycle for these companies is likely. She considers a reasonable mNAV to be around 1.5, with a band of 1.2 to 1.8. Currently, many are at the lower end of that band. However, Lyn is not interested in the long tail of smaller treasury companies, as liquidity tends to concentrate in the market leaders. She finds the largest company in a specific market, like a particular country, to be more interesting because it is differentiated.

Lyn is personally more focused on the rise of cash-flow positive companies that hold Bitcoin, viewing it as a potential future narrative. For pure-play treasury companies, she only focuses on the highest quality ones that are leaders in their jurisdiction. The speed at which valuations can change is surprising. For example, Metaplanet went from a 6x mNAV to below 1x in just a few months. While the cooling-off was expected, the speed was not.

If another Bitcoin bull cycle occurs, companies that survive the current bearishness with their leverage intact will likely see renewed demand. The main question is how well they can manage their downside risk. Even with top names like Metaplanet and MicroStrategy looking like good value, caution is needed due to regulatory challenges and ongoing interest expenses. Ultimately, these investments should be viewed as portfolio accelerators rather than core positions.

At the end of the day you want to own the core thing and the extent that you use the others, that's kind of the accelerator rather than a core position.

The current global liquidity situation is messier than usual. While overall global liquidity remains decent, partly due to liquidity from China in the first half of the year when the dollar was weaker, it has become more middling as the dollar has firmed up. The main pressure point is in US onshore base liquidity, which is experiencing tightness. This situation is comparable to the September 2019 repo spike environment. It's significant enough to capture the attention of financial experts but not large enough to become a major macroeconomic event that affects the average person.

This development is roughly in line with what the Federal Reserve anticipated. The New York Fed's reports have projected that by 2025 or 2026, quantitative tightening (QT) would reach a point of creating liquidity constraints. Their plan was to then pivot back to expanding the balance sheet in line with nominal GDP growth. We are now at that inflection point. The expansion phase hasn't started, but the Fed has already signaled an end to QT, and some members are discussing the possibility of expansion.

The repo market often generates significant attention on platforms like Twitter, but it's important to separate the reality from the sensationalism. According to Lyn Alden, the topic is worth watching because a disruption in the repo market signals a major structural shift. It marks a transition from the Federal Reserve decreasing its balance sheet to increasing it. This situation is notable because it could be the first time the balance sheet expands for liquidity purposes without interest rates being at zero, a departure from the post-2008 norm.

However, Lyn advises against getting caught up in the hype. When repo market issues arise, it's common to see dramatic predictions of a major crash, a bank failure, or a "liquidity tsunami." This excitement can stem from genuine bullish or bearish sentiment, but it's also often fueled by a desire for clicks and online engagement. The underlying pivot is real and substantial, but the event itself is generally less dramatic than portrayed.

Even the 2019 "repo crisis" was more of a Twitter phenomenon. It was actually a T-bill oversupply problem that the Fed quickly resolved. Today's situation is even more benign because the Fed now has a standing facility specifically to handle such issues. The market appears scary because an unresolved spike in overnight lending rates would be a disaster, but market participants know the Fed will intervene.

It's one of those things that freaks people out because if unresolved, it is a massive issue. If overnight lending rates spike like that, it's a disaster. But basically anyone that's in the markets knows that the Fed's going to put out that fire. They have the facilities specifically to put out that fire. And it doesn't take big numbers to put out that fire.

This creates a disconnect between a theoretical catastrophe and the practical reality. The actual event is not on the scale of the 2023 regional bank crisis. Instead, it signals a gradual pivot back toward a structural environment of rising base liquidity, where the Fed uses its tools—which involve money printing—to solve the problem.

When quantitative tightening ends and a form of quantitative easing (QE) returns, the initial market impact will not be dramatic. The move is more about preventing negative outcomes than providing a major stimulus. It will primarily reduce banks' anxiety about liquidity, allowing them to continue lending without hitting regulatory constraints. This action is more anti-deflationary than it is an inflationary jolt.

Historically, an expanding Fed balance sheet has a positive correlation with asset prices, including Bitcoin. It is generally pro-liquidity, slightly anti-dollar, and provides a slight upward tilt for other assets. However, the magnitude will be much smaller than in previous cycles. The increase is expected to be mild, in line with nominal GDP growth, rather than the multi-trillion dollar injections seen in 2020.

This stimulus will also be weaker because the Fed is expected to only buy Treasuries, while letting mortgage-backed securities mature off its balance sheet. This means the housing market will not receive direct support to lower mortgage rates, taking a major refinancing boom off the table. The defining characteristic of this next phase will be its persistence, not its size. It will be a more grinding, gradual increase in the Fed balance sheet.

It goes back to the nothing stops this train thesis which is more about duration than magnitude.

There is a common narrative that the next QE will have to be bigger than ever, but Lyn Alden's base case is for a slower, more gradual expansion. This is because the banking system is starting from a higher liquidity threshold than it was in 2008. The situation is more comparable to late 2019, when balance sheet expansion was driven by liquidity needs, not intentional stimulus. Barring another major external shock like a pandemic or war, this round of QE is likely to be far more gradual than what was seen during the COVID crisis or the initial QE phases.

The primary driver of the economy and inflation is not monetary policy, but fiscal policy. The Federal Reserve's actions, like expanding its balance sheet, are mainly a way to enable the government's large fiscal deficits. This dynamic keeps the whole system going. When the government runs large deficits, it can create strains in the treasury or repo markets. The Fed then steps in to keep things functioning smoothly.

A distinction is made between different types of quantitative easing (QE). The QE after the 2008 financial crisis was anti-deflationary rather than inflationary, as it recapitalized the banking system without the money reaching the general public. In contrast, the QE in 2020 was paired with massive fiscal spending, acting like 'helicopter money' that directly fueled a large inflationary impulse. The QE expected in the near future will likely resemble the older, less directly inflationary type.

However, this doesn't mean the economy is healthy. It has created a 'two-speed' economy. The large, structural fiscal deficits are driving today's above-target inflation and creating distinct winners and losers.

If you're on the right side of fiscal deficits or AI CapEx, you're doing great. If you're not on the right side of those two things, you're pretty much in a world of hurt.

The winners are those who benefit directly or indirectly from government spending in areas like Social Security, Medicare, defense, and interest expenses. The money flows to them first and then trickles out into the broader economy. The losers are those not in the direct path of this spending, such as a young family struggling with high mortgage rates, elevated home prices, and the inflationary effects of the stimulus. This explains the unusual divergence where consumer sentiment is near record lows while the stock market is near record highs, a classic sign of an economy operating under fiscal dominance.

When considering if the current era of fiscal dominance can be stopped, the answer is complex. Lyn Alden suggests that if it is stopped, it will be because the situation accelerates so dramatically that it causes a massive reset. This would be a "death by fire rather than death by ice" scenario, requiring a significant adjustment in debt values and global trade flows. Paradoxically, as things get worse, the trend tends to speed up.

The phrase "nothing stops this train" is used within a specific timeframe, roughly a decade leading into the mid-2030s. This view is based on several factors: demographics, voting patterns, a polarized Congress, and the fundamental nature of the fiat system, which must either grow or die. The system is now fueled more by fiscal policy than by bank lending, which creates a situation where the economy is "running hot" but only for certain segments. This explains the apparent contradiction where people see strong GDP numbers but also observe struggles in manufacturing, commercial real estate, and residential real estate.

So, who is actually winning in this environment? The answer is specific. It's not a broad-based prosperity. The main beneficiaries are those on the right side of fiscal deficits and the artificial intelligence boom.

The housing market has reached the end of a 40-year generational cycle defined by progressively lower interest rates. We've effectively bounced off zero, and now rates are moving sideways, if not up. This structural shift means the powerful refinancing cycles of the past are over. Previously, when the Federal Reserve cut rates, a broad swath of homeowners could refinance, freeing up cash and stimulating the consumer economy. Now, any refinancing cycle will be very weak, limited only to those who bought homes recently at higher rates.

As a result, traditional tools like rate cuts no longer fix economic stagnation as they once did. This leads to a longer-term slowdown. The economy is currently in a strange state: it's propped up by stimulatory fiscal spending, which prevents a collapse, but there's also a tight lid on growth. This creates a stagflationary environment where consumer sentiment is low, yet inflation remains above target. Lyn Alden describes this dynamic:

It feels sickly to a lot of people because it is sickly. And you're more likely to obviously get rising social discontent in those types of environments, not just in the US but globally.

Proposals like a 50-year mortgage are viewed as a minor Band-Aid on this larger structural problem. While the modern financial system has long rewarded those who use long-term debt to acquire scarce assets, a 50-year mortgage isn't a game-changer. It doesn't lower monthly payments significantly and is an artificial extension trying to solve a problem that can't be fixed by simply extending loan terms. It's an acknowledgment that the 40-year runway of falling rates has ended. At best, it might provide another half-cycle of life to the market, but it lacks the macro-scale significance of the previous era of perpetually falling interest rates.

A recent shift towards a potentially less dovish Federal Reserve caused the market to readjust its expectations, which may have been a minor catalyst for a recent Bitcoin sell-off. Lyn Alden suggests that trying to predict specific FOMC meetings is difficult, as the Fed often aligns with market expectations and uses public statements to guide those expectations if they go off course. She focuses on the longer-term outlook, expecting several rate cuts by 2026, but considers the decision for December a coin flip.

The more significant story is what happens next year, particularly with Jerome Powell's term ending and a new Fed chair potentially being appointed. This raises questions about Fed independence, which is already being eroded by fiscal dominance. The Fed's plan to increase its balance sheet in line with nominal GDP creates an indirect link to government spending.

The fiscal deficits, the size of them, contribute to nominal GDP. It's one of the inputs into that. So basically the Fed is kind of indirectly saying our rate of balance sheet increases will be partially dependent on how big the fiscal deficit is. And so that's already at least a minor reduction and a kind of a persistent reduction in Fed independence.

At its core, Fed independence is meant to separate short-term interest rate decisions from the election cycle. While perfect independence is a myth, the Fed must maintain a degree of credibility. If it is perceived as too political, the bond market could react negatively, driving up long-term rates like mortgages, which would be an undesirable outcome for any administration. Ultimately, the Fed is in a position where it must keep the Treasury market liquid, likely by increasing its balance sheet even if inflation remains above target. This allows the system to continue running at a stagflationary pace, with the Fed managing liquidity flare-ups as they occur.

A significant downturn in the prices of major tech stocks like Nvidia, Apple, and Microsoft could create a disconnect in the economy. Even if the Federal Reserve and fiscal policy are stimulative, a multi-trillion dollar destruction of capital would have a powerful wealth effect. This could lead to a reduction in consumer spending.

Assets like Bitcoin might also get caught up in such a scenario. While the long-term trend is driven by fiscal deficits and the liquidity required to fund them, this doesn't prevent major short-term fluctuations. On a year-by-year or quarter-by-quarter basis, valuations still matter. This long-term macro backdrop provides a foundation, but shorter-term analysis is still crucial for understanding market movements.

The current excitement around AI may be a localized bubble, but it's built upon a real, underlying structural trend. Lyn Alden compares it to Bitcoin in 2017, which was a local bubble on a fundamentally important technology. While there is euphoria and some deals have become circular, the long-term trend of AI transforming industries, especially white-collar work, is very real.

Historically, productivity cycles like the invention of the tractor freed up labor for other sectors. One farmer could do the work of ten, allowing the other nine to pursue different fields like technology or healthcare. AI represents a similar shift, where energy and hardware can replace a portion of human labor. This is generally desirable, as it allows machines to handle routine tasks, freeing up people for other things.

Where people get spooked is when you have machines so good that a lot of people can't find any work that they can do that is better than a machine.

A key distinction exists between data center AI and portable AI, or robots. Data center AI is the star of the show right now, disrupting white-collar work by acting as a powerful tool and extension for remaining workers. However, automating physical tasks in uncontrolled environments, like fixing an HVAC system, is a much harder problem and a long way off. The human brain runs on 20 watts of power and is a self-healing robot, while AI requires megawatts of power in a data center and constant hardware replacement.

Ironically, the disruption of white-collar work by data center AI could lead to a boom in blue-collar jobs that operate in the field, as these are harder to automate. The most pressing near-term concern is not AI replacing all jobs, but the social instability that could arise from a smaller but significant portion of the workforce being displaced.

What happens when it replaces 10% of jobs and those 10% of people are really angry. That's I think the actual, the thing I worry about rather than that kind of more extreme scenario.

Gold's recent bull market, which surprised even gold bulls like Lyn Alden with its speed, is being driven by several converging factors. One significant shift, underway since 2009, is the reaccumulation of gold by sovereign nations. This trend accelerated in 2022 due to the potential risk of asset confiscation or freezing. Nations are realizing that holding the securities of another country does not constitute a truly sovereign asset.

Another driver is the increasing awareness of fiscal dominance. As investors and large pools of capital recognize that the current fiscal trajectory will likely continue for the next 5 to 15 years, they are turning to gold for its established track record as a safe asset. Unlike newer assets, gold requires no extensive research for these institutions; they already know its role.

The current market environment is also a key contributor. Despite the stock market being near all-time highs, it is not a broad, risk-on environment. The market is narrow and, outside of AI, has been relatively flat and stagnant. In this climate of decent liquidity but a stagnating broader economy, capital has sought out assets perceived as low-risk.

The things that have taken off has been AI gold. What the market ironically looks as low risk. They view AI as low risk even though the pockets of it that are obviously not. But they view it as low risk because they view it as a sure thing. It's like okay, that's cycle resistant. Let's go to AI. Then they say gold, okay, that's low risk.

This is all part of a larger, gradual realignment toward a more multipolar world. Countries are diversifying their reserves beyond just one nation's bonds, opting to also hold gold, other currencies, and in some cases, even Bitcoin. As the incumbent reserve asset, gold is the chief beneficiary of this shift. As markets grow more concerned about tens of trillions of dollars in sovereign debt, it only takes a small spillover from the massive bond market to significantly impact the price of gold.

Retail FOMO has recently become apparent in the gold market, with people seen queuing outside gold shops. Lyn Alden notes this is not surprising and follows a typical pattern. The initial price increase in gold was not driven by retail investors. Instead, it was pushed by sovereigns and institutions while Western retail interest remained low.

It was because sovereigns institutions were driving it... It's only really in kind of the second half of this year where retail, western retail did start to FOMO into gold. So that's kind of a later stage portion of it. So first institutional, then retail. And that's generally how things go.

This pattern could also apply to Bitcoin. The current lack of significant retail participation doesn't mean it won't happen. Retail investors often enter during the later phase of a bull run. Even with its recent surge, Lyn does not view gold as structurally overvalued. She sees it as moving from undervalued toward a more sensible price, even if it's overextended in the short term. The two assets still play different roles in the market.

Gold still, because it's the incumbent, it has more of a risk off aspect to it, it's got more of a sovereign interest in it. Whereas bitcoin is still kind of collectively lumped into a tech play, even though from those that deeply understand it, it does have digital gold, digital cash attributes that can be viewed as risk off as well.

Lyn Alden expects Bitcoin will be back into the six figures in 2026, with new all-time highs likely in 2026 or 2027. Despite being structurally bullish on Bitcoin, she emphasizes the importance of diversification. Her portfolio includes gold and equities because different assets have different performance patterns. This strategy helps take the emotional edge off market cycles.

For me it's not just about owning what I think is going to be the fastest horse. It's okay, I'll put extra on the fastest horse, but I want to own a handful of horses.

This approach protects against the emotional swings of the market. When Bitcoin is soaring, some criticize her for not being 100% in, and when it's crashing, others question why she owns any at all. A diversified portfolio provides balance. One year she might be disappointed in Bitcoin but happy with gold, and the next year it might be the other way around.

Lyn also notes that the broader crypto space is running out of narratives after cycles like ICOs, NFTs, DeFi, and meme coins. She considers this space to be mostly dead weight now. For Bitcoin to continue reaching new highs, it must decouple from the rest of the crypto market.