Original Text: David Lin
Compiled & Edited by Yuliya, PANews
The global financial market is at a critical juncture, with the artificial intelligence boom driving stock markets to new highs. However, high levels of government debt and interest rate uncertainty continue to pose risks. Are we in the midst of an 'everything bubble'? And when will this bubble burst? To answer these questions, renowned YouTuber David Lin has invited Dr. Richard Smith, Chairman and Executive Director of the Foundation for the Study of Cycles (FSC), to this episode. Utilizing his profound cycle analysis theory, Dr. Smith analyzes the future trends of core assets such as Bitcoin, gold, the stock market, and global debt. He argues that market liquidity lies at the heart of all current issues, and the U.S. government's adoption of a 'fiscal dominance' strategy to maintain low interest rates is profoundly affecting every corner of the market, from cryptocurrencies to traditional equities. More importantly, he provides a specific timeline prediction: a deeper crisis triggered by debt may arrive by mid-2026. PANews has compiled and translated the dialogue.
Is Bitcoin's Bottom Near? It All Comes Down to 'Fiscal Dominance' and Liquidity
Host: Bitcoin has experienced significant volatility in recent weeks, retreating from its peak and once dropping to around $80,000, far below last year’s high. Many are discussing whether Bitcoin's four-year cycle has ended or if the 'halving' narrative remains the primary driver of price as it has been in recent years. How do you view Bitcoin's current state and future trajectory?
Richard: Bitcoin reveals many deep-seated issues in the current market. Our foundation has been closely monitoring Bitcoin. Based on our cycle detection technology, we clearly pointed out that the market would undergo a correction when Bitcoin's price previously peaked.
However, this does not mean it won't reach new highs again. I want to emphasize that Bitcoin’s price reacts most quickly to the amount of money in the entire financial system (i.e., liquidity). Therefore, its price movements can be seen as an early signal of overall market conditions. Analyst Michael Howell explained it well: he said the crux of today's market is actually 'debt refinancing.' We may think that stock market performance depends on corporate operations and cryptocurrency on technological innovation, which holds some truth, but the more important reality is that we are living in an era of 'fiscal dominance.' This means that the U.S. government, burdened with massive debt, must continuously borrow new funds to pay off old debts. But if interest rates are too high, the government will face excessive interest payments it cannot afford. Therefore, the U.S. government’s top priority now is to use every possible method to keep interest rates low. This need to manage debt is now the dominant force influencing all financial markets.
Let me illustrate this through our cycle analyzer.
The blue line represents Bitcoin's price. We observed a high of approximately $125,000 in October 2025, and our cycle model predicted at the time that Bitcoin would experience a pullback. Currently, it appears that this pullback is nearing its end. I need to clarify that what cycle analysis tells us is the 'direction of the wind,' which is not the only decisive force in the market, but we must know which way the wind is blowing.
At present, the cycle model shows that Bitcoin is searching for a bottom. Additionally, some fundamental factors support this view. In the Federal Reserve’s recent meeting, it was explicitly stated that they are preparing to halt Quantitative Tightening (QT) (PANews note: The Fed ceased QT on December 1). This is a highly significant signal because:
- Money market funds no longer borrow from the Federal Reserve
- They are not earning interest
- Liquidity in the system has become excessively tight.
When liquidity becomes too tight, the Federal Reserve must halt QT and begin injecting liquidity—this implies that 'covert quantitative easing (QE)' is set to return. The Fed will need to inject more liquidity into the system. They have explicitly indicated that they will no longer merely allow Treasury bonds to roll off the balance sheet upon maturity but will purchase new short-term Treasuries to replace the old ones.
At present, the Treasury is primarily issuing short-term debt to sustain financing since it cannot afford the high interest rates associated with long-term debt. All of this suggests to me that Bitcoin, as the asset most sensitive to liquidity, is experiencing a cyclical bottom, coinciding with reports of interest rate cuts, the possibility of a more dovish successor to Powell at the Fed, and renewed expectations for a rate cut in December. Underlying all of this is the U.S. government's core objective: maintaining the operation of the entire system because the dollar and U.S. debt have become 'too big to fail.'
Host: Richard, I have data from the prediction market Kalshi. Regarding the question of whether Bitcoin can surpass $100,000 again this year, market participants currently appear split roughly 50-50. As a cycle analyst, how do you view this issue?
Richard: I don't have extensive research on prediction markets, and compared to the multi-trillion-dollar Bitcoin market, the trading volume of $1.45 million isn't particularly significant. However, what matters most to me is:
- Accurate peak signals: Our cycle model successfully predicted previous tops.
- Cycle pressure has been released: The model indicates that downward pressure from the cycle has largely dissipated, and this is now a typical period where market participants may change their views.
- Bearish market sentiment: We are currently witnessing a surge in negative news about Bitcoin, such as the sharp correction in Michael Saylor's Strategy shares, which is often a signal of bottoming sentiment.
- Improved macro liquidity: The Fed halting QT and potentially shifting to some form of 'covert QE' is a positive development for liquidity and will benefit Bitcoin in the long run.
We are about to enter the most seasonally bullish period of the year (the last few weeks of December and the first week of January). I expect no major financial crisis to erupt in the next six to eight weeks. Overall, all of this suggests that liquidity is beginning to return to the system, providing support for assets like equities, Bitcoin, and Ethereum. As for reaching new all-time highs, it may be possible for equities, but Bitcoin requires further observation.
Macroeconomic Debt Cycle and Outlook for Gold and the US Dollar
Host: This leads to my next question: Are market cycles independent of macroeconomic conditions? For instance, most traders currently predict a 'soft landing' for the economy. How does your view on the economic outlook influence your cyclical analysis of assets like Bitcoin or gold?
Richard: The macroeconomic backdrop significantly impacts asset performance, especially during the current phase of the debt cycle and interest rate changes. Looking back historically, from 1955 to 1981, long-term interest rates experienced a continuous rise over approximately 26 years, peaking at around 16%. According to the classic Kondratiev long-wave theory, interest rates should have completed a major cyclical bottom around 2007, entering a new upward cycle. However, the subprime crisis in 2008 led governments worldwide to implement large-scale stimulus policies, including zero interest rates and quantitative easing (QE), which kept rates suppressed for over a decade. Only in recent years have rates begun to rise significantly, and we are now in a phase of high debt levels alongside rising interest rates.
This combination presents significant challenges: heavy debt burdens and increasing interest costs are forcing fiscal policy to focus more on controlling volatility and interest rates. Asset performance is also profoundly affected; for example, Bitcoin has transformed into a completely different asset between 2012 and 2025, with its deep integration into the liquidity system making it more sensitive to debt and policy cycles. Future asset movements must be analyzed comprehensively against the macroeconomic backdrop.
I would like to mention stablecoins and money market funds again.
The market capitalization of stablecoins has been growing steadily since 2018, rising from almost zero to over USD 300 billion. Particularly after Trump's election, the market cap of stablecoins surged in a straight upward trend. According to the GENIUS Act, after stablecoin issuers absorb US dollars, they are required to purchase short-term US Treasuries as reserves. This effectively creates a new channel for foreigners to buy dollars and ultimately finance US Treasury bonds.
Similarly, the scale of money market funds has also grown dramatically, reaching USD 7.5 trillion. After acquiring dollars, these funds typically purchase short-term US Treasuries, consistent with the pattern where stablecoins also invest in short-term Treasuries after receiving funds. Both ultimately point to the same goal: assisting the US Treasury in continuously rolling over massive amounts of short-term debt.
Currently, the US Treasury prefers issuing short-term debt, primarily because the interest rates on long-term debt are too high. Issuing large amounts of long-term debt would lead to excessive interest burdens over the coming decades. To address current political and economic realities, the Treasury prioritizes short-term funding needs, such as 'getting through the midterm elections,' while temporarily setting aside long-term risks.
Richard: The MOVE Index, which measures implied volatility in the US Treasury market (often referred to as the 'VIX of the bond market'), has remained consistently low. Since April, this index has dropped significantly and is now at a historical low. This indicates that there is no crisis in the Treasury market at present. As long as the volatility of these assets remains low, their value as collateral remains high, and the repo system can function smoothly. I do not see any signs of a major crisis in the Treasury market at this time, and this situation may last at least until January. As long as the bond market remains liquid, a slight easing by the Federal Reserve would be positive for both the stock market and cryptocurrencies.
Now let’s take a look at gold (GLD). Our cyclical analysis shows that gold should have peaked, and it did indeed peak around October 20. Although it hasn’t collapsed, the power of the cycle has slowed its upward momentum. I believe that the US action of seizing Russian assets during the Russia-Ukraine war served as a serious warning to the global dollar system. This has prompted some central banks, particularly those of the BRICS countries, to purchase gold in order to reduce their complete reliance on the dollar and the US government. This is one of the factors driving the rise in gold prices.
Host: What magnitude of correction do you anticipate for gold? Historically, after the peak of bull markets in 2011 and 1980, gold experienced significant declines of 40% to 60%.
Richard: The characteristic of cycle analysis lies in revealing 'timing' and 'direction,' but it cannot directly predict the extent of rises or falls. Although multiple cycle models suggest that gold should peak here, this does not imply a 'collapse.' Personally, I believe that due to genuine concerns over U.S. federal deficits and central bank gold purchases driven by geopolitical factors, gold will not experience a crash-like decline. It simply needs to 'catch its breath,' and cycles indicate that this moment of respite may have arrived.
Closely related to gold is the fate of the U.S. dollar. In my view, the dollar is forming a bottom. It may still have some downside potential, possibly even hitting a new low, but this is likely to be the final bottom. This is one of our proprietary momentum indicators, called 'Cyclical RSI.' You can see that the momentum of the dollar is rising, though the pace of price increases is not as fast. I expect the dollar's price could drop further, but momentum will remain stable. I believe that by 2026, we will witness a significant rebound in the dollar. Of course, this will put pressure on dollar-denominated assets such as gold. Overall, I anticipate that gold will trade sideways or decline over the next 6 to 12 months.
The 'Everything Bubble' and the 2026 Crisis Warning
Host: Do you think the cycle of one asset (such as gold) can be used to predict the cycle of another correlated asset (such as the dollar)?
Richard: Yes, you often see similar cycle lengths in highly correlated assets. This is why I monitor various markets to grasp what I call the macro landscape of 'fiscal dominance.' The primary task of the current market is managing government debt and federal deficits.
I even have a somewhat radical view: the massive investments we are seeing in AI data centers are ultimately aimed at suppressing Treasury yields. When these tech giants finance long-term debt for data centers, the newly issued, reasonably yielding corporate bonds enter the debt system, providing a benchmark for Treasuries, thereby helping to lower Treasury yields. At the same time, to hedge loan risks, these companies need to participate more in the Treasury market. All of this is part of an effort to suppress interest rates across the entire yield curve. I suspect that this substantial investment in AI is motivated more by fiscal dominance requirements than by genuine productivity demands.
Host: Speaking of this, I can't help but ask, are we currently in an 'Everything Bubble'? Since 2008, especially after the pandemic in 2020, we've seen stocks, Bitcoin, gold, real estate, and virtually all asset classes rise together under the impetus of expanded money supply. Where do you think we stand in this cycle?
Richard: You're absolutely right. The root of this 'Everything Bubble' lies in the unprecedented expansion of financial assets caused by historically low interest rates. From 2008 until recently, this major bull market has almost perfectly coincided with the trajectory of the 10-year Treasury rate declining from 16%-17% to zero.
Although interest rates have now rebounded, the Federal Reserve has offset the negative effects of rate hikes through large-scale stimulus measures (QE). However, without another sudden crisis, such large-scale stimulus can no longer be justified. We are in a very delicate situation where the country is nearing bankruptcy, and the currency also faces a crisis.
I believe this situation can persist for a while longer, but not for too long. My intuition tells me that the turning point will be around mid-2026.
Host: You mentioned that JP Morgan predicts a record $1.8 trillion in bond issuance in 2026, primarily driven by AI investment. If this indeed depresses yields, wouldn’t it be bullish for risk assets? Doesn’t this contradict what you referred to as the 'top phase'?
Richard: This is precisely one of the key reasons why I believe the top phase might be 'extended' or experience a 'rightward shift' (a term in cycle analysis indicating that the peak occurs later than expected). The market still has 'ammunition.' For instance, the Fed’s interest rate is currently at 3.75%, and people are accustomed to near-zero rates, so they feel there's room for further rate cuts. Personally, I think there isn't any room for rate cuts, but I believe they will eventually cut rates anyway. And this, in turn, will lead to a spike in inflation and trigger an even larger crisis.
Host: If this larger crisis were to erupt, what would it look like?
Richard: It would look like this: soaring interest rates, heavier fiscal burdens from federal deficits, rising populism, and voter anger. Frankly, the day I truly feel optimistic about the future will be when we no longer rely on the federal government to save us.
Host: Are there specific indicators or 'signposts' that can help us observe whether we are approaching the crisis scenario you described?
Richard: Certainly. I focus on two key indicators:
- MOVE Index: This is the volatility index for the bond market. You need to watch out if it starts rising. Currently, it has been steadily declining since April, so things are relatively stable for now.
- Option-Adjusted Spread for high-yield bonds: This measures the spread of high-risk debt and is also at historically low levels.
As long as the volatility of these debts remains low and controllable, they can serve as collateral for refinancing within the system. The problem arises when these indicators start to rise significantly — that’s when a crisis will be imminent. Keep in mind that a large amount of loans issued during the zero-rate period in 2020 (with an average maturity of about 5.5 years) are now facing refinancing pressures. So far, they have managed to keep things under control. However, if conditions begin to change dramatically, we will see a more pronounced correction in financial assets.
Host: For the last question, are there any mainstream financial assets that are completely non-cyclical, making your analytical approach inapplicable?
Richard: Personally, I have had the least success in the natural gas market. Natural gas is an extremely difficult commodity to store, resulting in high volatility and a departure from the typical supply and demand cycles seen in other commodities like oil. Therefore, there are indeed markets where cycle analysis is hard to apply. Additionally, cycle analysis tends to be more effective in long-term frameworks than in short-term scenarios, such as intraday trading.
