What percentage of a portfolio does Howell recommend in crypto as an inflation hedge?

Howell's view from the data is that roughly 5% of a portfolio in the crypto basket gives fairly comprehensive coverage against monetary inflation, given the 8x sensitivity of crypto to liquidity versus gold's 2x. He frames it as an insurance policy, and at 5%, most investors are already prepared to accept the risk. He recommends both gold and Bitcoin, with a meaningful crypto allocation for maximum sensitivity to the monetary inflation he sees as inevitable.

Podcast

Michael Howell: Yields Must Rise, Fed Must Hike

Michael Howell returns to walk through the nominal GDP math that forces yields higher, the yield volatility control the Fed is quietly running, why China is driving gold, and why Bitcoin remains the best documented hedge against the debasement that's coming.

Marty Bent

August 1, 202615 min read

↓ Jump to the video and timestamps

Michael Howell was last on in February. It is now the end of July, and the thesis he laid out then is tracking almost exactly as he called it. Yields are drifting higher. The global liquidity cycle is slowing. Bitcoin has been grinding through a correction.

And the mid-2027 trough he projected is still where the data points.

I came into this conversation already convicted. Yields are going up whether the Fed likes it or not. The debt situation is structurally out of control. The only honest policy response is debasement, which means you better have hard assets.

What Howell brings is the data and the frameworks that sharpen that conviction into something you can actually act on. His Global Liquidity Index, his nominal GDP analysis, and his read on what the PBOC is doing in the gold market are the clearest maps I've found for navigating what's coming.

This is one of those conversations I find myself returning to. Not because it's comfortable, but because it tells you what's actually going on.

Key takeaways

The Fed is suppressing yield volatility, not yield levels, Treasury buybacks respond directly to spikes in the MOVE index, and Howell estimates this artificial suppression is worth at least 50 basis points on the 10-year, while the underlying economy demands rates considerably higher.
Nominal GDP running at 6-7% against a suppressed 10-year yield is historically unsustainable, Howell's chart going back to 1955 shows this gap always closes, and it closes by yields rising, not by the economy slowing.
China, not Western money printing, has been the primary driver of the gold rally, PBOC liquidity injections track almost perfectly with the gold price measured in renminbi; the "great debasement" narrative got the mechanism wrong.
Global liquidity leads the crypto basket by roughly 13 weeks with 85-90% directional accuracy, Howell's analysis shows an R-squared exceeding 32%, crypto shows 8x sensitivity to liquidity changes versus gold's 2x, and the GLI is pointing toward a trough around mid-2027.
Governments have one lever left, bond markets are resisting more issuance, taxation is driving capital flight, and welfare reform is politically impossible. Monetization through short-dated bill issuance is the path of least resistance everywhere, and 80% of US gross issuance under two years is Howell's evidence that it's already underway.
A 40-45% Bitcoin drawdown after 13 years of cycles is noise, not a thesis-breaker, if the current bear cycle is shallower and shorter than historical precedent, the people who capitulate now are making the same emotional mistake they always make.

The Fed's Real Game: Yield Volatility Control

I brought this observation to Howell rather than the other way around. Yields are drifting higher, but the MOVE index, the volatility measure on US government bonds, has stayed relatively controlled. That doesn't happen by accident. My read was that the Fed and Treasury are managing the volatility on the way up, not the yield level itself. Howell confirmed it and gave it a name: yield volatility control.

The mechanism is specific. Treasury buybacks pick up in direct response to MOVE index spikes. When bond volatility jumps, the Treasury steps in to purchase older off-the-run bonds, the MOVE comes back down, and the market reads this as stability. Simultaneously, the buybacks allow hedge funds to run a repo-to-cash-bond arbitrage, borrowing short in the repo markets to buy the cash bond.

Howell estimates the cumulative effect of this suppression is at least 50 basis points, possibly more, artificially held down on the 10-year.

The problem is that you cannot suppress the underlying reality indefinitely. Nominal GDP is running somewhere between 6% and 8% by Howell's read, against a 10-year yield that is being kept well below that. That gap exceeds 200 basis points. History since 1955 has one answer for what happens to a gap that size: it closes, and yields do the moving.

On Warsh and the rate decision, I pushed on the dark-horse case. The market at time of recording was pricing only about a 30% probability of a hike. The argument for doing it anyway: a surprise hike confirms the new framework of no forward guidance and draws a line under the idea that the Fed is serious about inflation.

Howell thinks Warsh would have to carry the rest of the FOMC to pull it off. Whether he has the nerve for it remains to be seen. But Howell's position is clear. Either this meeting or the next, the data demands a hike.

Why Yields Have to Rise: The Nominal GDP Math

The most important chart Howell walked through is a simple one: US 10-year Treasury yields against nominal GDP growth going back to 1955, shortly after the Treasury-Fed Accord gave the Fed real independence. The two lines track each other through the cycles, with yields overshooting during the Volcker era and then spending decades above nominal GDP as both declined together.

The inflection came around the Global Financial Crisis. Nominal GDP started moving back up strongly, and the gap between it and the 10-year yield began to open. Today, by Howell's projections using consensus NGDP estimates, that gap is historically unsustainable.

The fiscal taps are open, AI capex is still building, and energy exports following tensions in the Gulf are adding to the nominal base. None of those factors are going to reverse quietly.

Howell's conclusion: the bond market drives the Fed, not the other way around. The textbooks say the short end drives the long end. History says the opposite. And right now, history is winning.

He also flagged the 2-year yield versus SOFR spread as a leading indicator for Fed policy. His AI-assisted backtesting of that spread shows it correctly signals the direction of rates about 85-90% of the time. The current path is tracking the 2021-22 analog almost exactly, where the S&P eventually fell around 25% and major cryptocurrencies fell roughly 75-80% before the cycle turned.

The Global Liquidity Cycle and What It Says About Bitcoin

One thing I want to be precise about here because I've seen people conflate these: Howell's Global Liquidity Index measures money flowing through financial markets specifically. It is not M2 or a real-economy money measure, and that distinction matters for how you read what comes next.

The GLI momentum chart showed an inflection at the end of Q3 last year. The growth rate of global liquidity slowed, not because central banks were tightening, but because money flowing into a strong real economy is money not available for asset price appreciation. That is a normal cycle dynamic. What is less normal is the scale of what comes on the other side.

Howell's data shows the crypto basket he tracks, Bitcoin at 60%, Ethereum at 30%, Solana at 10%, moves with roughly 8x sensitivity to liquidity changes. Gold and silver average about 2x. The GLI leads that basket by approximately 13 weeks.

His analysis shows an R-squared exceeding 32% between global liquidity and the crypto basket, which in financial data is a powerful association. He also ran Granger causality testing to show the directional relationship runs from liquidity to crypto, not the reverse.

I'm presenting Howell's data here because it's the best systematic framework I've found for understanding the macro forces that move Bitcoin's price. To be clear about the portfolio implication Howell draws: he thinks roughly 5% in crypto gives comprehensive coverage against monetary inflation. I'm a Bitcoin-only guy, and Howell's basket includes ETH and SOL. But the underlying liquidity relationship he's documenting applies most powerfully to Bitcoin, and that's the part that matters for how I think about it.

The projected trough for the current GLI cycle: mid-2027, consistent with what he said in February.

China Is Running the Gold Market

The dominant narrative this year has been that gold is rising because of Western money printing and the great debasement trade. Howell's data says that story got the mechanism wrong.

The chart that makes this case plots PBOC liquidity injections against the gold price measured in renminbi. The two lines track each other closely. Chinese liquidity, not Western debasement, has been the primary driver of the gold rally.

The reason comes down to how China manages its monetary system. The PBOC needs to devalue the yuan internally to reduce the country's enormous domestic debt burden, essentially getting the price and wage level up to debase what's owed. At the same time, China maintains capital controls and uses forex reserves and state banks to keep the external exchange rate competitive against the dollar. The result is two nearly independent exchange rates operating simultaneously.

Chinese citizens cannot legally buy crypto. That prohibition has been in place since 2021. With crypto off the table and capital controls limiting other exits, gold becomes the natural vent for domestic monetary expansion. That's why China is driving the gold price, and that's why the Western framing missed it.

The conspiracy-theory layer, and I'll own that framing because I brought it, is the timing. Howell's daily PBOC balance sheet data shows it peaked roughly two days after Iran tensions began, then dropped to a trough that aligned with the signing of an MOU, before starting to turn back up. His read: China deliberately cooled its economy during that window, possibly as part of a negotiated arrangement. He notes China did something similar in 2008 ahead of the Beijing Olympics, cooling the economy deliberately to reduce pollution ahead of the showcase event.

I find this lens useful. If you view everything currently happening, AI competition, Iran, the MOU flip-flopping, as a proxy conflict between the US and China, a lot of the moves that look chaotic start to have a logic. Whether Trump is using these levers intentionally to push China around is a harder question. But the chart makes the case that China has been reacting to US moves, not the other way around.

For more on how central bank gold buying has been tracking this year, central banks bought a record 289 tonnes in Q2 2026 even as prices were pulling back, which fits this framework.

Capital Wars, Wartime Footing, and the Air Pocket in Risk Assets

Howell's framing for the current regime is capital wars, not trade wars. The distinction matters. Trade wars are transactional. Capital wars are about which bloc controls the commanding heights of technology, energy, and productive capacity, and they require states to take direct stakes in the outcome.

The Trump administration taking equity positions in Dell, Intel, and rare earth companies signals to me that this is existential, not a market trade. You don't do that in peacetime. And as Howell points out, China has been running this model longer, Japan is restructuring toward it, and Europe hasn't figured out that it needs to.

That wartime footing has a direct consequence for nominal GDP. Howell estimates the capital war regime is running NGDP roughly 200 basis points above its historical baseline, because you have AI spending, fiscal deficits, secured resource competition, and onshoring all running simultaneously. That's great for economic output. It's terrible for the bond market.

The consequence Howell names is an air pocket in risk asset prices, because all money that's anywhere must be somewhere, and money feeding a hot real economy is not feeding financial market asset appreciation.

The Japan situation is worth noting separately. Japanese government bond yields at the 10-year have moved substantially higher in the past few years. That matters globally because Japanese institutions are significant holders of European sovereign debt, particularly French OATs. If Japanese investors pull back, OAT spreads over German bunds widen.

There are no unrelated events in bond markets.

Europe's position in all of this is bleak. Howell's assessment is direct: overtaxed, over-regulated, overgenerous welfare state, and nothing to compete with on technology or energy. History, and that's about it. The UK losing around 600,000 millionaires since 2021 is what the taxation lever looks like when you pull it. Talent leaves.

That exodus is the data point that closes the argument for me. If you can't tax your way out and you can't cut your way out because the bond market won't accept more issuance and the voters won't accept welfare cuts, you print. Debasement is the path of least resistance, and it's already happening through the bill issuance channel.

I wrote about how 30-year Treasury yields have been hitting multi-decade highs and what that means for where this is all going. The pressure Howell describes in this conversation is exactly what's behind those moves.

The Debasement Math and Bitcoin's Position in It

Howell's estimate for real Main Street inflation is around 4-5%, not the 2% the Fed targets. Asset price and monetary inflation, by his reckoning, runs another 2-3 points above that, somewhere around 7-8% per annum. That figure, he notes, is roughly consistent with the growth rate of US federal debt over the past 25 years.

By his figures, US federal debt has grown dramatically over that period, with gold tracking a similar trajectory and Bitcoin considerably outperforming both. The point is not the specific multiple. The point is the trend, and the trend is set by governments that have run out of options. Howell's conclusion: the path of least resistance is printing, it is already underway through the bill issuance channel, and the best documented hedge against it is the asset class most sensitive to liquidity.

He also referenced Stanley Druckenmiller, who in a widely noted speech roughly four years ago called the US debt issuance structure something you'd normally associate with a Latin American economy. Howell's observation: that was four years ago, and the situation is now considerably more extreme.

The 80% of gross US issuance under two years maturity is the mechanism to watch. Banks absorb short-dated government paper because it matches their liability duration almost perfectly. When fiscal deficits expand and the government issues more bills, bank accounts swell, banks buy the paper, bank balance sheets expand alongside.

That is monetization. It doesn't look like the money printer the way people imagine it, but it is the same thing.

The honest question is whether $40 trillion in national debt has any psychological trigger power. I already suspected it doesn't, and Howell confirmed it. We're heading to $50 trillion on a shorter timeline than we hit $40 trillion.

Thirteen Years In: Why I'm Not Selling

I've been in Bitcoin for 13 years. I've been through multiple cycles where this thing fell 70, 80% and people declared it dead. I've watched people throw it away at the bottom and miss everything that came after.

The current correction, down roughly 40-45% from the October/November peak, is shallower than any bear cycle in the asset's history. If a bottom forms this fall and Bitcoin starts climbing into winter, this could be one of the shortest bear markets Bitcoin has ever seen. That's not guaranteed, and I'm not calling the bottom. Howell's framing is the right one: buy the weakness, no one catches the exact bottom, wait for stabilization.

What I'm not going to do is let an emotional reaction to a price drawdown undo 13 years of conviction built on understanding why this asset exists and what it does. The macro setup Howell lays out, government debt spiraling with no clean exit, debasement as the path of least resistance, liquidity cycles that lead Bitcoin prices with documented predictive power, is the same thesis I've been holding through every prior cycle. It hasn't changed. If anything, it's gotten stronger.

The generational dimension of this matters to me personally. As a millennial, I'm already in the first generation likely to end up worse off than their parents. Gen Z is going to have it worse. The political bifurcation I see coming from that squeeze, hardcore nationalism on one end, democratic socialism on the other, is predictable.

It's what happens when a generation gets locked out of wealth and looks for someone to blame. And it doesn't help that the leading AI labs are simultaneously predicting their technology will eliminate millions of jobs while lobbying for regulatory moats that protect only them.

Bitcoin is the exit from that trap. Not a trade, not a speculation. The exit.

Howell closed by saying you need both gold and Bitcoin, and probably a meaningful crypto allocation because that's the highest-sensitivity monetary inflation hedge the data shows. I'll say it the way I said it to close this conversation: debasement is the way. Better have hard assets.

The Strategic Bitcoin Reserve executive order and the growing list of corporate and sovereign treasuries adding Bitcoin are early institutional acknowledgment of exactly this thesis. The cycle always looks the same from inside the drawdown. And the people who hold through it are always the ones who were right.

About Michael Howell

Michael Howell is the founder and CEO of CrossBorderCapital, a London-based research firm specializing in global liquidity analysis and capital flows. He authors the Capital Wars newsletter and Substack, which track the Global Liquidity Index and its implications for financial markets. He spent over two decades in institutional finance, including a period at Salomon Brothers, before founding CrossBorderCapital. His work on the relationship between central bank balance sheets, private sector credit creation, and asset prices has built a substantial following in macro and Bitcoin-native investment circles.

Sources mentioned

CrossBorderCapital / Capital Wars newsletter (Michael Howell): primary source for the Global Liquidity Index, R-squared and Granger causality analysis cited in this episode
30-Year Treasury Yields Hit 19-Year High at Auction (TFTC): the yield backdrop Howell's nominal GDP analysis points toward
Central Banks Buy Record 289t of Gold in Q2 2026 (TFTC): institutional gold accumulation consistent with Howell's PBOC liquidity thesis
Strategic Bitcoin Reserve EO 14233 (TFTC): US policy context for Bitcoin as a reserve asset
Metaplanet Hits 43,000 BTC (TFTC): corporate treasury accumulation during the current drawdown
You Can't Have Capitalism When the Money Is Corrupted (TFTC): the monetary foundation for why debasement is the path of least resistance

Watch the conversation

Timestamps

0:07 - Intro: Bitcoin wins in a world of debasement
4:25 - Warsh, the FOMC, and why a rate hike would draw a line in the sand
6:24 - AI CapEx bubble risk: Global Crossing and fiber optic déjà vu
8:54 - Inflation, valuation bubbles, and the bond market's verdict
15:55 - Nominal GDP vs. 10-year yield: the chart from 1955 that says yields must rise
24:23 - US, China, Japan: scoring the capital war
28:16 - Japanese yields, the yen carry trade, and the OAT-bund spread
31:11 - Europe: overtaxed, over-regulated, and out of options
45:20 - Global liquidity, R-squared, and Granger causality: the data behind crypto sensitivity
54:53 - PBOC balance sheet, the Iran timing, and who is really running the gold price
1:02:40 - Debasement is the way. Better have hard assets.

Frequently Asked Questions

Yield curve control is an explicit central bank commitment to pin yields at a specific level by buying however many bonds are required, the way the Bank of Japan ran it for years. Yield volatility control, Howell's term for what the Fed and Treasury are doing now, is more subtle. Treasury buyback auctions respond to spikes in the MOVE index, and the resulting liquidity allows hedge funds to run repo-to-cash-bond arbitrage that suppresses the 10-year yield. The target is the volatility of the move, not the yield level itself. You let yields drift higher, but you prevent disorderly spikes that would force a policy response.

Howell's Global Liquidity Index measures money flowing through financial markets, not M2 or real-economy money aggregates. His data shows the GLI leads a basket of Bitcoin, Ethereum, and Solana by approximately 13 weeks and correctly predicts the direction of that basket roughly 85-90% of the time. His analysis puts the R-squared correlation above 32%, and he has tested the directional relationship using Granger causality methods. Crypto shows about 8x sensitivity to GLI changes, meaning a 10% move in global liquidity has historically corresponded to roughly an 80% move in the crypto basket.

Howell's chart of PBOC liquidity injections against the gold price measured in renminbi shows the two tracking closely. The mechanism: China needs to devalue the yuan internally to reduce its domestic debt burden, so it injects liquidity domestically while maintaining capital controls to protect the external exchange rate. Chinese citizens cannot legally buy crypto, so gold becomes the primary vent for that domestic monetary expansion. Western central banks were not printing money to any significant extent during the period when gold was rallying most aggressively, which breaks the standard "great debasement" narrative.

It means the US government is funding a growing deficit almost entirely with short-dated bills rather than long-dated bonds. Banks are the natural buyer of that paper because it matches their liability duration. As fiscal deficits grow and the government issues more bills, bank accounts expand, banks absorb the paper, and bank balance sheets grow alongside. That process is debt monetization. It doesn't look like the printing press, but the economic effect is the same: more money chasing goods and assets, which shows up as inflation in both Main Street prices and asset prices over time.

In a widely noted speech roughly four years ago, Stanley Druckenmiller called the structure of US short-term debt issuance something you would normally associate with a Latin American economy, not the world's reserve currency issuer. The specific concern was the extreme concentration of issuance at the short end of the maturity curve, which forces constant rollover at whatever interest rate the market demands and eliminates the buffer that longer-dated debt would provide. Howell's point is that the situation is now considerably more extreme than when Druckenmiller made that observation, and some of the Latin American economies that were the negative comparisons have since cleaned up their act.

Prior Bitcoin bear markets have typically seen drawdowns of 70-85% from peak to trough, lasting anywhere from one to three years. The current cycle, down roughly 40-45% from the late 2024 peak at time of recording, is shallower than any prior bear market in the asset's history.

If a bottom forms in the fall of 2025, it would also be among the shortest in duration. That's not a guarantee, and the GLI data Howell presents points to continued macro headwinds for risk assets into 2027. But the depth and duration profile, if it holds, represents a fundamentally different character than the bear markets that preceded it.