Podcast source: Bankless

Guest profile:

Lyn Alden, a renowned global macro strategist and investor, has long studied long-term debt cycles, the evolution of monetary systems, and the roles of hard assets like gold and Bitcoin, and is the author of "Broken Money." Her research framework excels in cross-asset allocation and historical cycle analysis, often understanding financial market changes from the perspective of long-term debt structures and policy constraints.

Why is the current global environment highly chaotic and uncertain?

Lyn: I usually explain this using long-term debt cycles, rather than solely relying on the culturally tinted framework of "the Fourth Turning."

The current world is in the latter half of a long-term debt cycle, characterized by a sustained rise in debt/GDP over decades, a structural decline in interest rates close to zero, and when private sector debt can no longer expand, the system begins to shift leverage to the government sector, achieving "soft deleveraging" through means such as inflation and currency depreciation. This stage is often accompanied by declining institutional trust, political polarization, a return to industrial policy, and increased trade friction, making it seem as if all variables are in disarray simultaneously.

Historically, after the peak of private debt bubbles, policies often turn towards fiscal and central bank coordination, maintaining debt sustainability through monetary expansion and lowering real interest rates. This process does not happen overnight but continues for several years. The current stage has some structural similarities to the late 1930s, only the speed of information dissemination is faster, the demographic structure is older, and social media amplifies volatility, hence the sensation is more intense.

Is the independence of the Federal Reserve being weakened?

Lyn: This kind of public conflict is indeed rare and can be likened to the period before 1951. During the Great Depression and World War II, the Federal Reserve was largely dominated by the Treasury, implementing yield curve control to support high debt financing and maintaining negative real interest rates for a long time. It was only after the 1951 accord that the Federal Reserve regained relative independence, but this independence has never been absolute, as maintaining stability in the government bond market itself becomes an implicit goal when debt levels are extremely high.

The current situation is not completely taken over by politics, but rather high debt and fiscal pressure gradually narrow the policy options. Often, the central bank and fiscal authorities align not because of direct orders, but because system constraints force them to take similar paths. Only when discrepancies arise between the two sides will the issue of independence be genuinely tested, and indeed we have entered a stage where discrepancies are more publicly apparent.

Under the new leadership of the Federal Reserve, will there be "massive monetary expansion"?

Lyn: My baseline judgment is that we are entering a "gradual printing" phase, rather than extreme massive monetary expansion. Firstly, the Federal Reserve Chair is just one member of the FOMC; policies still require committee consensus. Secondly, short-end rates do not fully control long-term rates, while long-term rates are key for housing and fiscal financing. If policies are too aggressive, they may push long-term rates higher and weaken effects, so decision-making will be constrained by reality.

Currently, liquidity in the banking system is close to the bottom, and the further shrinkage of balance sheets has limited space, but expansion may also be slow. Interest rates may trend dovish, but balance sheets are more likely to rise moderately rather than expand massively immediately. Overall, the next few years seem more like a gradual rise in liquidity rather than a one-time policy shift.

Why is gold performing strongly?

Lyn: It's a mix of both. Structurally, central banks in various countries are paying more attention to reserve diversification after geopolitical frictions and asset freezes, increasing the importance of gold as a neutral reserve asset. At the same time, financial and trade frictions between China and the U.S. are prompting some countries to reduce their reliance on U.S. dollar assets, thereby increasing their gold allocations. In the short term, market momentum, arbitrage trading, and fluctuations in leveraged funds may also amplify price changes, making it not surprising to see temporary overheating during price rises.

I do not believe gold is in a long-term bubble, but fluctuations or corrections after rapid rises are normal. The overall trend is still related to changes in global reserve structures and the adjustment of monetary systems.

Where is the monetary system heading in the future?

Lyn: I lean towards a multipolar arrangement. The scale of the global economy has far surpassed the early post-World War II period, making it difficult for any single country's currency to bear all reserve and settlement functions. In the future, multiple regional currency centers may arise, supported by neutral reserve assets as bridges, with gold still being the most mature option, while digital assets like Bitcoin may play a complementary role in the longer term.

This transition will not happen suddenly but will be a process lasting several years, accompanied by volatility and adjustments. The U.S. dollar will still maintain its important position, but its "privilege" may gradually be diluted.

Why has Bitcoin lagged behind gold in this cycle?

Lyn: Its performance in this cycle has indeed been below my previous optimistic expectations, but I do not believe this changes its long-term value. One reason is the reevaluation of risk by institutional funds, including long-term uncertainties such as quantum computing, which are counted as left-tail risks in models, thus lowering allocation ratios. Additionally, changes in some structural inflow mechanisms may have also dispersed direct buying.

The long-term logic of Bitcoin remains in its decentralization and network effects, but the adoption rate may be slower than many expect, as most people do not directly feel an urgent need for an alternative monetary system in their daily lives. Compared to gold, Bitcoin is still in an earlier stage, hence the different pace of performance.

Is the four-year cycle still valid?

Lyn: In the early stages, halving greatly affected supply, making the cyclicality noticeable. However, as the proportion of new issuance declines, market prices are more influenced by holder behavior, institutional funds, and macro liquidity, reducing the importance of halving itself. However, market psychology has inertia, and many investors still reference the four-year cycle, and this expectation may continue to affect market behavior in the short term.

How to conduct asset allocation?

Lyn: I lean towards a three-pillar structure.

The first pillar is high-quality stocks, including the U.S. and overseas markets, with a moderate increase in international allocation to diversify risk.

The second pillar is hard assets, such as gold, Bitcoin, and energy infrastructure, which provide protection in an environment of long-term currency depreciation and supply constraints.

The third pillar is cash and liquidity, used to respond to volatility and provide allocation space when the market experiences significant corrections.

The core of this structure is not to bet on a single narrative but to maintain diversity and flexibility in an uncertain environment while avoiding excessive leverage. The current world is more likely to experience a slow reconstruction rather than a sudden collapse, so investment strategies should also prioritize long-term and diversified approaches.

Conclusion

Lyn Alden's overall judgment is that the world is in the latter stages of a long-term debt cycle, with policies gradually shifting towards more moderate and sustained liquidity expansion, while the monetary system is evolving towards a more multipolar direction. In this process, the roles of gold, Bitcoin, and various assets will continually change, and investors will need to maintain structure and patience amidst uncertainty rather than relying on a single grand narrative.

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