Dialogue with Epoch Ventures Founder: Large-scale Capital Rotation Has Begun, Four-Year Cycle Has Ended

Source: "What Bitcoin Did"

Compiled by: Felix, PANews

Broadcast Date: August 28

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

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

PANews has compiled the highlights of the interview.

Host: What do you see as the key turning point in the recent market?

Eric: Indeed, a series of significant events have occurred recently. I believe several core events together constitute this historic turning point. The first is Tether's audit announcement. Although there is some debate within the industry, this is definitely a milestone. A Big Four accounting firm has verified Tether's reserves. It’s worth noting that Tether is now one of the top 20 holders of U.S. Treasury bonds globally and operates independently on an international scale. Moreover, they are buying large amounts of gold and Bitcoin, holding 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's announcement. Whether you call it yield curve control (YCC) or Treasury version quantitative easing (QE), it is essentially the same thing. The Treasury is allocating funds in an attempt to directly control long-term interest rates on U.S. debt. The market has keenly picked up on this and realized that it will inevitably lead to further devaluation of fiat currency, causing Bitcoin and gold to surge instantly.

Host: This is critical. Does this mean that the "four-year bull-bear cycle" of Bitcoin that we were familiar with is changing or even being broken?

Eric: Exactly, this is one of the core predictions we made in our annual report: "The cycle is breaking, or it never existed at all." Previously, it was generally expected that Bitcoin would experience a 70% to 80% pullback in each bear market. But if this time's pullback of around 50% is the bottom, it indicates that the underlying structure of the entire market has fundamentally changed. People’s perception of this asset has shifted. You can see that Michael Saylor did not buy in at this stage but instead sold. This reflects that even the biggest bulls are actively adjusting their capital. Additionally, ETF funds are flowing in against the trend. This is a collective buying behavior from institutions and retail investors, proving that Bitcoin is viewed as a safe-haven asset against fiat currency devaluation. We 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 be increasingly seen as a tool for countering currency devaluation or a counter-cyclical hedge.

Host: What does the decrease in volatility mean for asset management companies?

Eric: This is a huge liberation. As an asset manager, if the worst-case scenario for this asset is only a 50% pullback (which may even shrink to around 30% in the future), I can confidently recommend it to clients. Previously, due to the potential for an 80% drop, the asset allocation ratio was usually only allowed to be between 0% and 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 might counter: if Bitcoin's maximum pullback is limited to under 50%, does that mean its upside potential is also compressed? For example, if it could previously rise to $250,000, is it now unable to do so?

Eric: I don't think so. People are used to looking at historical prices and bull-bear cycles, thinking this represents diminishing marginal returns. But what truly drives Bitcoin demand is not historical candlesticks but the proliferation of its underlying monetary functions. We view this issue based on a macro framework, namely 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 goes 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 portion), people will start using it for direct transactions due to its superior digital signatures and protocols. The third stage is ultimately becoming a unit of account.

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

Eric: The biggest problem with Bitcoin right now is that it is too young and too small in scale. Gold is stable because of its massive size and deep liquidity. Large countries like China or Russia can use hundreds of billions of dollars to buy or sell gold for international trade settlements without causing significant fluctuations in gold's market price. But Bitcoin currently cannot support such instantaneous liquidity of that scale.

I often use a metaphor: looking at Bitcoin now 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 most robust, active, and standardized assets globally. When this liquidity depth is established, the massive rotation from gold to Bitcoin will truly explode, and people will realize that Bitcoin is "gold with higher returns and more convenience."

Host: So how long do you think it will be until Bitcoin truly starts to invade the gold market, i.e., the large rotation of gold funds?

Eric: If the current trading model continues, assuming the Treasury continues to expand its fiscal control and continuously increases liquidity in the system: with U.S. debt expansion and gold maintaining strong momentum, if Bitcoin keeps pace, then even if only a small portion of the gold market funds shift to Bitcoin, Bitcoin could soar from $80,000 to $800,000. Once people feel sufficiently secure about Bitcoin's downside risk, they will value its enormous return potential 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 during monetary and fiscal expansions, it will establish its position as a hedging tool in people's minds.

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

1. The Treasury promotes the proliferation of stablecoins;

2. Stablecoins expand the dominance of the dollar;

3. Long-tail weak currencies gradually dollarize;

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

5. Stablecoins achieve "Bitcoinization";

6. Fiat currencies ultimately surrender, 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 consumption of fiat currency?

Eric: This is precisely my core argument. Let’s break it down 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 a "debt spiral." When people lose confidence in U.S. debt and are unwilling to hold it, the value of the debt declines, inevitably leading to currency devaluation and hyperinflation. The Treasury urgently needs to find new, massive buyers of U.S. debt. It is predicted that by 2030, the stablecoin market size will explode from several hundred billion dollars to several trillion dollars. If the stablecoin market reaches $5 trillion to $10 trillion, due to compliance requirements, stablecoin issuers must use 100% or the vast majority of their reserves to purchase short-term U.S. Treasury bonds. This effectively provides the Treasury with trillions of dollars of purchasing power for bonds, greatly alleviating the debt crisis. Therefore, the interests of the Treasury and stablecoins are highly aligned, and they will vigorously promote and proliferate stablecoins globally to consolidate the dollar's global dominance.

Step three: The dollarization of long-tail fiat currencies globally. In southern countries or regions suffering from hyperinflation and extremely backward international settlements, people yearn for non-devaluing assets. Stablecoins, through digital signature technology, bypass the extremely inefficient traditional international banking system, allowing people in these countries to easily access U.S. dollars. This will inevitably lead to the gradual abandonment of these countries' weak fiat currencies, resulting in full dollarization.

Step four: The "Bitcoinization" of stablecoins and the return of free banking. As stablecoin issuers grow to trillion-dollar levels, how do they achieve differentiated competition? The answer is "yield" and "the hardness of reserve assets." International issuers like Tether currently hold over $20 billion in gold and Bitcoin as excess reserves (accounting for about 5% to 10%). Because stablecoins are essentially an "arbitrage trade." They are the only arbitrage tool in the world with zero funding costs: absorbing users' interest-free deposits (stablecoins), buying interest-bearing assets (U.S. debt/Bitcoin), and pocketing all the interest spread.

As the global financial system moves towards fragmentation, decentralization, and increasing long-term concerns about U.S. debt itself, stablecoin issuers will inevitably mimic the historical "free banking" model to prove their safety. In the historical Scottish free banking period, banks issued their own paper currency receipts, with the underlying reserves being gold, and the reserve ratio typically ranged from 20% to 30%. In the future, as Bitcoin's liquidity and stability surpass gold, stablecoin issuers will continuously increase their Bitcoin reserve ratios. It may start at 5%, then 10%, 20%, and eventually develop to 70% Bitcoin reserves + 30% liquid dollar reserves. Once this step is achieved, stablecoins will essentially have been "Bitcoinized."

Steps five and six: Fiat surrender and super Bitcoinization. When 30% to 40% of global payment volume runs through stablecoins operating on digital signature protocols, and these stablecoins are mostly backed by Bitcoin reserves, users will be just a "button press" away from completely 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 held in trusts, ETFs, or centralized institutions like Tether, will the network be controlled and manipulated? Wouldn't decentralization be destroyed?

Eric: This is a very classic concern, but I believe people overlook the constraints of free market competition. I explored this mechanism in my research on "free banking." Historically, a true free banking system had no central bank. Various private banks competed freely, absorbing customers' gold and issuing paper currency receipts. This system was able to operate healthily for over a century, and customers almost never lost money due to bank reserve bankruptcies; usually, shareholders bore the cost, and bankrupt banks were quickly acquired by competitors.

The key lies in the exit costs and substitutability. In the gold standard era, you could withdraw gold and keep it yourself, but because gold is so heavy, trading it in the modern economy is extremely inconvenient. In other words, the difficulty of "exiting the system to trade on your own" was very high. Yet even so, banks still did not dare to act recklessly.

Bitcoin is completely different. The marginal cost of self-custody and on-chain participation in Bitcoin is extremely low. In the world of Bitcoin, you don’t need to move heavy gold bars like in the past; you just need to control your own private keys. If Fidelity, BlackRock, or government custodial institutions try to forcibly control or manipulate the network and impose restrictions, even if only 10% or less of the market is self-custody, they hold the privilege to "exit and withdraw funds" at any time. This "exit mechanism" poses a strong deterrent to custodians and governments, forcing them to act in ways that align with the best interests of their clients.

Host: What about the issue of wealth concentration? For example, people like Michael Saylor or early holders hoarding massive amounts of Bitcoin.

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

As Bitcoin's market cap skyrockets, the cost of controlling and hoarding this wealth will rise exponentially. We have already seen that every time the price rises, old OGs will sell. Last year, an early player sold 80,000 Bitcoins at the top. Because ultimately, holders must distribute this wealth into real economic activities and consumption. The redistribution of wealth and decentralization is an inevitable historical process.

Host: As a venture capitalist, how are you promoting the adoption of Bitcoin in the capital markets? People may only see AI and stablecoins becoming the darlings of the venture capital circle.

Eric: Current VCs are indeed frantically chasing AI and stablecoins, and we appear very niche in the Bitcoin venture capital field. But our investment logic is very clear: to make the entire traditional financial system compatible with Bitcoin. We cannot expect everyone to suddenly become geeks and self-custody; we must meet them where the capital currently is.

Currently, the fastest-growing, most arbitrage-rich, and most revolutionary area in financial infrastructure is Bitcoin-backed loans. Traditional commercial banks' core survival is their net interest margin. 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 can double directly. However, the current bottleneck is that traditional financial institutions and community banks lack technical understanding and face complex compliance restrictions. We are investing in and helping these financial institutions build the underlying channels.