Source: "What Bitcoin Did"

Editor: Felix, PANews

Broadcast Date: August 28

Epoch Ventures founder Eric Yakes recently appeared on the "What Bitcoin Did" program to explain why Bitcoin may never experience an 80% crash again, and why the recent 50% pullback may signify the end of the "four-year cycle theory."

In the interview, Eric Yakes pointed out that as market volatility decreases and institutional funds flow in, Bitcoin is transforming from a high-risk asset into a hedge against fiat currency devaluation; and he believes that by integrating Bitcoin into existing financial infrastructure, it is expected to reshape global power dynamics in the coming decades.

PANews compiled the highlights of the interview.

Host: In your opinion, what is the key turning point of this recent market wave?

Eric: Indeed, a series of significant events have occurred recently. I believe several core events together constitute this historic turning point. The first was the Tether audit announcement. Although there is some debate within the industry about this, it is absolutely a milestone. A Big Four accounting firm has verified Tether's reserves. It is worth noting that Tether is now one of the top 20 holders of U.S. Treasuries globally and operates independently internationally. Moreover, they are buying large amounts of gold and Bitcoin, with substantial reserves of both. This audit is a crucial step in proving its legitimacy to the mainstream world.

The second and most significant event is the Treasury announcement. Whether you call it yield curve control (YCC) or Treasury-style quantitative easing (QE), they are essentially the same. The Treasury is allocating funds to directly control long-term U.S. Treasury yields. The market has keenly picked up on this and realized it will inevitably lead to further fiat currency devaluation, causing Bitcoin and gold to surge instantly.

Host: This is critical. Does this mean we are witnessing a change in the "four-year bull-bear cycle" of Bitcoin that we were previously familiar with, or has it been broken?

Eric: That's right; this is one of the core predictions we made in the annual report: "The cycle is breaking, or it never existed at all." In the past, it was commonly expected that Bitcoin would experience a pullback of 70% to 80% during each bear market. But if this time's pullback of around 50% is indeed the bottom, it indicates that the underlying structure of the entire market has fundamentally changed. People's views on this asset have changed. You can see that Michael Saylor did not buy during this phase, but sold instead. This reflects that even the largest bulls are actively adjusting their capital. Furthermore, ETF funds are flowing in contrary to the trend. This is a collective buying action from both institutions and retail investors, proving that Bitcoin is being seen as a hedge against fiat currency devaluation. We had made specific predictions in our annual report that this would gradually be realized by 2027, but now it seems that 2026 will be the year Bitcoin decouples from stocks and broader risk assets. It will increasingly be seen as a tool for countering currency devaluation or as a counter-cyclical hedge.

Host: What does the reduction in volatility mean for asset management firms?

Eric: This is a huge liberation. As an asset manager, if the worst-case scenario for this asset is just a 50% pullback (which may even shrink to around 30% in the future), I can confidently recommend it to clients. Previously, due to the risk of 80% drops, the asset allocation ratio was usually only brave enough to allocate 0% to 2%. But if volatility decreases, allocating 10% to 20% of the asset portfolio becomes completely reasonable and acceptable in terms of logic and risk management.

Host: You just mentioned that asset managers are changing their views. But some may argue: If Bitcoin's maximum drawdown is capped at 50%, does that mean its upside potential is also compressed? For instance, could it not rise to $250,000 anymore?

Eric: I don't think so. People tend to look at historical prices and bull-bear cycles, assuming this represents diminishing marginal returns. But what truly drives Bitcoin's demand is not historical candlesticks but the proliferation of its underlying monetary functions. We look at this issue from a macro framework of the three major functions of money: store of value, medium of exchange, and unit of account.

In our company's founding philosophy, the proliferation of Bitcoin will go through three main "S-curve" stages, each corresponding to one of its monetary functions. The first stage is capturing the store of value market. This is what is currently happening with Bitcoin. It is the world's most scarce commodity and the only truly permissionless payment network globally. The second stage is transitioning to a medium of exchange. Once it becomes an extremely solid store of value (for example, when everyone holds a part), people will start trading directly with it due to its superior digital signature and protocol. The third stage is ultimately becoming a unit of account.

Host: Since Bitcoin surpasses gold in storing value, why hasn't all of the trillions of "monetary premium" in gold been rotated into Bitcoin yet?

Eric: The biggest problem with Bitcoin right now is that it is still too young and the scale is too small. Gold’s stability comes from its massive size and deep liquidity. Large countries like China or Russia can utilize hundreds of billions of dollars to buy or sell gold for international trade settlements without significantly affecting gold's market price. But Bitcoin currently cannot support such massive instantaneous liquidity.

I often use a metaphor: Seeing Bitcoin today is like watching LeBron James in high school. We know he will dominate the NBA and become a superstar in the future, but he is still playing in high school leagues. Once Bitcoin’s market cap crosses the $5 trillion to $10 trillion range, it will become one of the world's most liquid, active, and standardized assets. When this depth of liquidity is established, the great rotation from gold to Bitcoin will truly explode, and people will realize that Bitcoin is "a higher-yield, more convenient gold."

Host: How long do you think it will be until Bitcoin truly starts to cannibalize the gold market, that is, the large rotation of gold funds?

Eric: If the current trading model continues, assuming the Treasury continues to expand its possible fiscal control and liquidity within the system: as U.S. Treasuries expand and gold maintains strong momentum, if Bitcoin keeps pace, then even if only a small portion of funds from the gold market shifts to Bitcoin, Bitcoin could surge from $80,000 to $800,000. Once people feel sufficiently reassured about Bitcoin's downside risks, they will pay attention to its immense potential for returns and counter-cyclical value. Although I cannot provide an exact timeline, if Bitcoin can maintain at least a year of counter-cyclical performance or respond positively with price increases during monetary and fiscal expansions, it will establish its position as a hedge tool in people's minds.

Host: You mentioned a development script for "super Bitcoinization" on platform X:

1. The Treasury promotes the proliferation of stablecoins;

2. Stablecoins expand the dominance of the dollar;

3. Long tail weaker currencies gradually dollarize;

4. Bitcoin expands as the underlying reserve asset for stablecoins;

5. Stablecoins achieve "Bitcoinization";

6. Fiat currency ultimately surrenders, achieving "super Bitcoinization."

Can you break down the logic? How do stablecoins and the U.S. Treasury work together in this game to promote Bitcoin's absorption of fiat currencies?

Eric: This is precisely my core argument. Let’s deconstruct it step by step:

Steps one and two: The Treasury needs to promote the proliferation of stablecoins. The U.S. is facing a terrifying deficit and "debt spiral." When people lose faith in U.S. Treasuries and are unwilling to hold them, the value of debt declines, which will inevitably lead to currency depreciation and vicious inflation. The Treasury urgently needs to find new, massive buyers for U.S. Treasuries. It is predicted that by 2030, the stablecoin market size will explode from the current hundreds of billions to several trillions. If the stablecoin market reaches $5 trillion to $10 trillion, due to regulatory requirements, stablecoin issuers must use 100% or most of their reserves to purchase short-term U.S. Treasuries. This amounts to providing the Treasury with trillions of dollars of purchasing power for government bonds, which will greatly alleviate the debt crisis. Therefore, the interests of the Treasury are highly aligned with stablecoins, and they will vigorously promote and disseminate stablecoins globally to reinforce the dollar's global dominance.

Step three: The dollarization of weak global currencies. In southern countries or regions suffering from hyperinflation and extremely backward international settlements, people eagerly seek non-devaluing assets. Stablecoins, utilizing digital signature technology, bypass the extremely inefficient traditional international banking system, allowing people in these countries to effortlessly access U.S. dollars. This will inevitably lead to the gradual discarding of their native weak currencies and a complete dollarization.

Step four: The "Bitcoinization" of stablecoins and the return of free banking. As the size of stablecoin issuers grows to the trillions, how do they achieve differentiated competition? The answer lies in “yield” and “hardness of reserve assets.” International issuers like Tether currently hold over $20 billion in gold and Bitcoin as excess reserves (about 5% to 10% of their total). This is because stablecoins are essentially an "arbitrage trade." They are the world’s only arbitrage tool with zero funding costs: absorbing users' interest-free deposits (stablecoins), buying interest-bearing assets (U.S. Treasuries/Bitcoin), and enjoying all the interest rate spreads.

As the global financial system moves towards fragmentation, decentralization, and increasing long-term concerns about U.S. Treasuries, stablecoin issuers will inevitably strive to demonstrate their safety by mimicking the historical "free banking" model. During the historical period of Scottish free banking, banks issued their paper currency receipts backed by gold, with reserve ratios typically around 20% to 30%. In the future, as Bitcoin's liquidity and stability surpass that of gold, stablecoin issuers will continue to increase their Bitcoin reserve ratios. It might start with 5%, then 10%, 20%, or even ultimately reach 70% Bitcoin reserves + 30% liquidity in U.S. dollars. When this step is realized, stablecoins will effectively have been "Bitcoinized."

Steps five and six: The surrender of fiat currency and super Bitcoinization. When 30% to 40% of global payment volumes run through stablecoins operating under digital signature protocols, and most of these stablecoins are supported by Bitcoin reserves, users will be just a "button press" away from fully using pure Bitcoin for payments. Once fiat currencies can no longer compete with this “Bitcoin-backed, instant settlement, borderless” hard currency, the traditional fiat currency system will collapse, achieving "super Bitcoinization."

Host: It sounds wonderful, but many Bitcoin extremists will be very concerned: If a large amount of Bitcoin is custodial managed by trusts, ETFs, or centralized institutions like Tether, won't the network be controlled and manipulated? Isn't decentralization being undermined?

Eric: This is a very classic concern, but I believe people overlook the constraints of free market competition. I explored this mechanism while writing my research on "free banking." The historical free banking system was one without a central bank. Various private banks competed freely, absorbing clients' gold and issuing paper currency receipts to them. This system managed to operate healthily for over a century, and clients almost never lost money due to bank reserve bankruptcies; usually, shareholders covered the losses, and bankrupt banks were quickly acquired by competitors.

The key lies in the exit cost and substitutability. During the gold standard era, although you could withdraw gold to keep it yourself, it was extremely inconvenient to trade in a modern economy because gold is heavy. In other words, the difficulty of “exiting the system to trade yourself” was very high at that time. Nevertheless, banks still did not dare to act recklessly.

Bitcoin is fundamentally different. The marginal cost of self-custody and on-chain participation in Bitcoin is very low. In the world of Bitcoin, you do not need to transport heavy gold bars as in the past; you only need to control your private key. If Fidelity, BlackRock, or custodial institutions attempt to forcibly control or manipulate the network, even if only 10% or less of the market is self-custody, those holding self-custody have the privilege to "exit and withdraw funds at any time" at the press of a button. This "exit mechanism" poses a powerful deterrent to custodians and governments, forcing them to act in ways that align with the best interests of customers.

Host: What about the issue of wealth concentration? For instance, people like Michael Saylor or early holders have hoarded vast amounts of Bitcoin.

Eric: This is also a normal rule in economics. If you study the developmental trajectory of any nascent economy from birth to maturity, its wealth concentration often rises sharply in the early stages and then gradually dilutes during maturity.

As Bitcoin's market value skyrockets, the cost of controlling and hoarding this wealth will increase exponentially. We have already seen that every time the price rises, old OGs will sell off. Last year, an early player sold 80,000 bitcoins at the peak. Ultimately, holders must distribute this wealth to real economic activities and consumption. The redistribution of wealth and decentralization is an inevitable historical process.

Host: As venture capitalists, how do you promote the spread of Bitcoin in the capital markets? People might only see that AI and stablecoins have become favorites in the venture capital circle.

Eric: Currently, VCs are indeed crazily chasing AI and stablecoins, and we seem very niche in the Bitcoin venture capital field. But our investment logic is very clear: to make the traditional financial system of the world compatible with Bitcoin. We cannot expect everyone to become a geek overnight and take up self-custody; we must meet them where capital currently exists.

Currently, the fastest-growing, most arbitrage-opportune, and most revolutionary field in financial infrastructure is Bitcoin-backed loans. The core of traditional commercial banks is net interest margin. And Bitcoin is the most perfect financial collateral in human history. If a community bank shifts its asset allocation to Bitcoin-backed loans, its net interest margin could double directly. However, the current bottleneck lies in traditional financial institutions and community banks lacking technical understanding and facing complex regulatory restrictions. We are investing in and helping these financial institutions build the underlying channels.

Related Reading: Glassnode: Farewell to panic and welcome to turbulence, BTC surged 26% and met an "$81,000 - $86,000 supply wall"

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