Renowned hedge fund manager Hugh Hendry is placing his bets on Bitcoin (BTC) and low interest rates for the upcoming year. According to Hendry, a short volatility investment strategy always carries two constant risks. This strategy aims to profit from market volatility decreases by selling options. He questions whether investors should purchase call options speculating that the “Magnificent Seven” tech stocks (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla) will become capitalized at 100% of GDP or if interest rates will plummet rapidly to the lower bound. Hendry emphasizes the importance of monitoring stock levels on the day of the next interest rate cut. He describes his investment strategy as a barbell, with long positions in BTC and long calls on the Fed Funds rate being below 2% by the end of 2025. Although he acknowledges the risk of a tracking error, where stocks surge while Bitcoin remains stagnant or experiences a decline due to idiosyncratic news, he is willing to take this risk. Hendry also compares the size of Bitcoin to the Invesco QQQ, an ETF based on the Nasdaq-100 Index. He highlights that Bitcoin’s capitalization is only $1 trillion, while the QQQ is valued at $42 trillion. Therefore, he believes that the QQQ and the $13 trillion invested in the Magnificent Seven stocks are the primary considerations. Hendry expresses concerns about the robustness of this valuation, as bank stock lending could potentially unravel the credit if it melts. He suggests that banks should be cautious about the moneyness of the collateral, reducing their assets in a contracyclical manner if possible. By moneyness, he refers to the proximity of pledged assets to a Treasury bill, which is unlikely to lose 83% of its value over the next 18 months. Hendry points out that stocks capitalized at high levels in relation to GDP have historically experienced significant reversals.