Bitcoin in a Debt and Liquidity Polycrisis

Briefing Notes contain: (1) a summary of podcast content; (2) potential information gaps; and (3) some speculative views on wider implications for Bitcoin. Most summaries are for Bitcoin-centered YouTube episodes but I also do some on AI and technological advance that spill over to affect Bitcoin.

Summary

The November 19, 2025 episode of Bitcoin Fundamentals features Luke Gromen in conversation with host Preston Pysh on the mounting strains of U.S. fiscal dominance and global funding markets. Gromen argues that front-loaded Treasury issuance, leveraged hedge fund basis trades, and rising energy and AI capital demands are tightening dollar liquidity while pushing policymakers toward currency debasement rather than genuine fiscal adjustment. The discussion situates Bitcoin within this environment as an early liquidity casualty in sell-offs but a potential long-term beneficiary of eroding confidence in fiat and changing preferences for gold, stablecoins, and non-sovereign money.

Take-Home Messages

1. Fiscal Dominance: High U.S. debt levels and rising interest costs are driving a regime where policy choices increasingly revolve around how, not whether, to debase the currency.
2. Liquidity Fragility: Heavy reliance on short-term Treasury issuance and leveraged hedge fund basis trades leaves global funding markets acutely vulnerable to volatility spikes.
3. Energy and AI Pressures: Structural energy constraints and massive AI-related capital and power demands are likely to keep real rates and inflation pressures elevated.
4. Shifting Reserve Preferences: Sanctions on reserves, changing military dynamics, and commodity bottlenecks are encouraging some sovereigns to rebalance from Treasuries toward gold and other real assets.
5. Bitcoin’s Dual Role: Bitcoin currently trades like a high-beta liquidity asset that sells off early in stress events, yet Gromen and Pysh present it as a longer-term hedge against sustained fiat debasement.

Overview

Luke Gromen opens by arguing that the United States has entered a phase of fiscal dominance in which record tax receipts still leave true interest expense near the level of total revenues. He explains that the Treasury’s choice to push issuance aggressively into short-term bills has driven weekly rollover volumes far above historical norms, while a larger Treasury General Account effectively drains liquidity from broader markets. In his view, this configuration forces policymakers into a “print or default” corner over time, with each bout of tightening increasing the risk of a disorderly funding squeeze.

The discussion then turns to the structure of Treasury demand, where Gromen highlights how hedge funds running leveraged basis trades have become major marginal buyers of intermediate and long-dated bonds. These funds finance positions through repo markets and rely on low volatility to sustain high leverage, which means that sudden rate moves or spread shocks can trigger rapid “degrossing” and heavy selling. Pysh underscores that this dependence on leveraged buyers amplifies systemic fragility and raises the stakes for any policy misstep or exogenous shock.

Gromen widens the frame to global markets, focusing on Japan’s weakening yen and rising yields as a sign that a long-standing anchor of the low-rate world is shifting. He notes that carry trades funded in yen and deployed into higher-yielding sovereigns and risk assets can reverse violently if Japanese yields rise enough, feeding back into U.S. and European bond markets. Alongside this, he stresses that U.S. shale growth is rolling over just as official agencies concede that oil demand is not peaking, implying that energy prices will remain a recurring source of inflation pressure and geopolitical leverage.

Geopolitics, AI, housing, and Bitcoin are woven into this macro backdrop. Gromen contends that sanctions on Russian reserves, Russia’s performance in Ukraine, Houthi attacks on naval assets, and Chinese dominance in rare earths have weakened the long-assumed link between U.S. military power and dollar supremacy, prompting some reserve managers to increase gold holdings. He and Pysh also discuss how housing markets are “frozen,” experiments like 50-year mortgages, expanded immigration, and AI-driven wage pressure interact with fiscal constraints, and how Bitcoin and gold respond differently to liquidity squeezes—Bitcoin as an early-risk asset that sells off first, and gold as a favored hedge for sovereign balance sheets.

Stakeholder Perspectives

1. Fiscal and monetary authorities: Balancing the need to roll over growing debt at manageable rates against the inflation and credibility risks of prolonged monetary accommodation.
2. Sovereign reserve managers: Reassessing the relative safety of Treasuries versus gold and other real assets in light of sanctions, shifting military dynamics, and commodity dependencies.
3. Institutional investors and risk managers: Navigating a world where Treasuries, gold, stablecoins, and Bitcoin respond differently to liquidity shocks, forcing adjustments in hedging and allocation frameworks.
4. Energy and AI-intensive industries: Facing simultaneous pressures from higher funding costs, constrained grid capacity, and policy uncertainty over how governments will prioritize scarce capital and power.
5. Households and labor organizations: Contending with housing affordability, potential wage suppression from AI and immigration, and the indirect impact of fiscal and monetary choices on real incomes and savings.

Implications and Future Outlook

The episode suggests that the interplay between fiscal dominance, leveraged Treasury demand, and energy constraints is likely to produce recurrent liquidity squeezes rather than a clean normalization of interest rates. If weekly T-bill rollovers remain elevated and hedge funds continue to act as leveraged shock absorbers, modest volatility spikes could still force outsized policy responses that reverberate through global markets. In this environment, Bitcoin may continue to behave as a high-beta risk asset in the short run, even as repeated episodes of debasement and stress gradually strengthen its appeal as an alternative monetary asset.

Gromen’s emphasis on AI capex, grid bottlenecks, and rising power needs points toward an extended period in which sovereigns and large firms compete for capital and energy, keeping real rates and geopolitical tensions elevated. As reserve managers slowly increase exposure to gold and possibly diversify into new payment and savings instruments, traditional safe-asset hierarchies could erode at the margins. For Bitcoin, the medium-term outlook hinges on whether institutions and policymakers treat it as a speculative side bet or integrate it into broader portfolio and infrastructure planning as a complement to gold and, potentially, to carefully regulated stablecoin systems.

The housing and labor themes in the discussion hint at growing domestic political sensitivity around interest rates, immigration, and technological change. If households continue to face stagnant real wages, high housing costs, and visible financial market support, trust in policy institutions may weaken further, raising the salience of alternatives that promise self-custody and predictable rules. Over a three-to-five-year horizon, the most important question for decision-makers is whether they can redesign fiscal, monetary, and industrial policies to manage these tensions without triggering either a disorderly debt repricing or a destabilizing rush into parallel monetary systems centered on gold and Bitcoin.

Some Key Information Gaps

1. How vulnerable is the Treasury market to a rapid unwinding of leveraged hedge fund basis trades during a spike in cross-asset volatility? Understanding this vulnerability is essential for designing prudential rules that prevent a funding shock from cascading into a broader sovereign debt crisis.
2. How will AI’s projected trillions in capital expenditures and grid demands influence real interest rates and sovereign funding costs over the next decade? Clarifying this interaction can help align industrial strategy, energy planning, and debt management so that AI growth does not inadvertently destabilize public finances.
3. How does fiscal dominance change the relationship between policy rates, deficits, and inflation dynamics compared with earlier high-debt periods? Better models of this regime are needed to guide central bank decisions and to inform long-horizon allocation between fiat assets, gold, and Bitcoin.
4. How do sanctions on sovereign FX reserves and changes in military technology affect central bank reserve allocation between Treasuries and gold? Evidence on this shift would illuminate how quickly the perceived safety premium of U.S. debt can erode and what that implies for global financial stability.
5. How feasible is the envisioned $1–3 trillion “global stablecoin glut” given historical growth rates in stablecoin market capitalization? Assessing this feasibility, and its consequences for current account balances and bank balance sheets, is crucial for anticipating whether dollar-linked stablecoins complement or undermine existing monetary frameworks.

Broader Implications for Bitcoin

Repricing Sovereign Safe Assets and Reserve Norms

If leveraged demand and sanctions concerns persist, the traditional assumption that U.S. Treasuries are the unquestioned global safe asset will face mounting scrutiny. A gradual shift toward a multi-asset reserve mix that includes more gold and selective alternative stores of value would change how risk-free rates are defined and used in regulation, valuation, and portfolio construction. Over time, this environment could create more space for Bitcoin to function as an adjunct reserve asset, especially for actors seeking censorship resistance or diversification away from both dollar and renminbi blocs.

Liquidity Regimes and Bitcoin’s Market Role

A world of repeated liquidity shocks and short-term funding stress implies that high-volatility assets will continue to serve as early release valves when conditions tighten. Bitcoin’s current behavior as a “liquidity canary” means that its price will often move sharply before more traditional indicators, but it also positions Bitcoin as a live laboratory for understanding market expectations about debasement, policy error, and systemic risk. As risk frameworks and derivative markets mature, Bitcoin’s role could evolve from a speculative proxy for macro sentiment into a core component of institutional toolkits for managing currency and duration risk across jurisdictions.

AI, Energy Systems, and Bitcoin Infrastructure

The collision of AI’s capital and power demands with already strained grids will force governments and utilities to rethink how they allocate scarce energy to data centers, industry, and households. Bitcoin mining, with its flexible load profile and capacity to monetize stranded or overbuilt generation, can become either a useful balancing tool or a political target, depending on how policy frameworks evolve. Over the next 3–5 years, jurisdictions that integrate Bitcoin mining into broader AI and energy strategies may gain an advantage in financing infrastructure, smoothing grid demand, and attracting capital aligned with long-term, rules-based monetary assets.

Stablecoins, Dollar Reach, and Parallel Monetary Rails

A policy push for a large global stock of dollar-linked stablecoins would extend dollar reach into new domains but also shift settlement, credit, and compliance risks into less regulated perimeters. If bank reserves or other core assets are rapidly transformed into backing for off-bank digital dollars, traditional measures of liquidity and capital adequacy may become less informative for crisis prevention. In parallel, Bitcoin can operate as a neutral base layer beneath both dollar and non-dollar stablecoins, shaping a future in which monetary power is contested not only between states but also between open networks and vertically integrated fiat systems.

Domestic Political Economy and Monetary Legitimacy

Persistent housing stress, perceived wage suppression, and visible support for financial markets risk deepening skepticism about the legitimacy of existing fiscal and monetary arrangements. In such an environment, the appeal of assets and systems that promise transparent rules, self-custody, and resistance to discretionary interference is likely to grow, particularly among younger cohorts. Over the medium term, this could translate into greater political pressure for policies that recognize Bitcoin as a legitimate savings vehicle and for regulatory approaches that accommodate non-sovereign monetary technologies alongside reformed fiat institutions.