Crypto's Flash Crash, What Next? | 1000x

Look, I'm a bull. That's why there's a bull behind me. So when you look, screen, it's green. There's no more bear. Bear's gone. We got rid of the bear. But I do think that it's very possible that we're just entering into a new downtrend. The people that bought below, they're probably going to sell $60K and then $60K turns into, turns into resistance. It'll be very hard to get people to buy an asset like crypto. Which is so volatile, if you go 30% down in a week. And this is what we've learned in basically every major crash scenario, is that there's no such thing as an uncorrelated asset when things are falling apart. If the equity markets continue down, then Bitcoin's, in my personal opinion, still in big trouble.

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Welcome back to another, another episode. God, you can tell, you can tell I've been staring at charts too long. I can't even talk properly right now, Jonah. I don't know about you.

Yeah, I mean, I'm pretty fried. Not like anything's going on in the markets or anything, Avi. I don't know. Have you seen anything happening in the charts?

No. I mean, what did I do this weekend? Went to West Virginia, saw my parents. They met my girlfriend. Nothing really else happened, you know?

Yeah, same.

No. Oh, is Bitcoin $55K right now? Did it? Did it hit? Did it hit $49K?

Did I miss something? Oh, that's a big move.

That's crazy. We should probably talk about that.

Yeah, yeah, we should probably make this an emergency episode of the 1000x Podcast for everybody out there, including ourselves, who's just wondering what giant WTF is going on right now kind of emotions.

I mean, I'm also wondering what WTF is going on. One thing which was insane, did you see the VIX chart?

Yeah.

Oh my God, that's a wild chart.

Yeah. And the craziest thing is it's the third highest peak ever, but nothing happened. Like, like, if you really think about it, right, VIX hits 65, NASDAQ is off 15%.

Nothing crazy, right?

Right. Like, it's a The equity markets, yeah, they're down. Yeah, we had a bad day, but during COVID we went down 30%. VIX didn't do that, or VIX did that, but it took, you know, a 30% drop from November of '21 to the bottom, went down 40%. VIX didn't do that.

Yeah, I mean, the last time VIX was up here, there are a couple of times. One of the times was COVID when there was like an outbreak of an unknown virus that was just like killing people. And then the other time that I remember pretty vividly was 2008 when I worked at Lehman Brothers and the VIX hit 65. And then it was kind of like, hey, here's a cardboard box. You should put all this, all your stuff from your desk in the cardboard box because your company doesn't exist anymore. Like this time we hit 65 in the VIX, the volatility index. It's just sort of like, why? Like, what, what is going on? I have a theory, and like, as you can tell from our relatively blasé conversation here, I don't think either of us is particularly worried about this one. I don't think either of us is shitting the bed. We're gonna get into it, get into it deep on this podcast. But like, for me, um, the lower the sort of general volatility landscape gets, the calmer things are, uh, the bigger the positions you need to run in order to make, you know, the same kind of money that you were making during what, you know, previous volatile environments, right? So in 2022, one unit of risk will generate, you know, X return or X volatility. Uh, in 2024, volatility is so low that you knew, you know, you need 2, 3, or 4 units of of risk to generate that same X level of P&L variance. And so I think what, what we've been seeing is just like after, you know, some really wild years of COVID and Ukraine wars and, you know, regional bank crises, uh, you know, people have made a lot of money. And I think, uh, you know, speculative participants across the board, across, you know, the, the investment landscape now need to deploy much more risk in order to generate commensurate returns. Uh, and when you get an unwind of a crowded trade, if everybody has a lot of risk on, you can see some pretty crazy moves. So to me, this is just like a technical unwind type trade. I don't think there's anything fundamentally flawed about the economy. I don't think there's a supply shock, a demand shock. I don't think that we're seeing some sort of like crazy thing happening out of left field like COVID. I think this is just like classic textbook everyone crowded into the same trades in size, you know, dollar-yen carry trade, short options, long crypto, long stocks, long AI, you know, all, all of these crowded trades. And then, um, you know, when they start to look a little bit shaky— I think, I honestly think that the, you know, maybe the election odds tipping a little bit away from, from, uh, Mr. I Pump Markets has been a bit of a catalyst for this. Like, it's starting to look a little bit shaky, you see all these people with a lot of risk on and crowded trade thinking, huh, I'm up a lot this year. I want to protect these returns. I'm, you know, time to get out, time to de-risk. And everybody from Buffett on down to, you know, your, your three-figure retail trader on crypto Twitter is doing the exact same thing at the same time.

It just seems to me, as you just eloquently put, that this is just one massive deleveraging event and it's a growth story. As well, which is why equities, equities are puking. And I think it's just the combination of these things that is leading to the sell-off. It's nothing, it's nothing that we haven't seen before. It's actually pretty in line, like you would expect something like this even in, even in a bull market. So it's not as scary. As previous sell-offs, which I think we've been, we've been going, going back and forth and saying. But that being, that being said, still went down a lot, right? I mean, from peak, from recent peak to the recent low, Bitcoin went down 30%. That's actually, that's, that's a big, that's a big move, right? And I think a lot of people got carted out over the weekend. Just to help people think about how these things tend to go, when you get sell-offs into a weekend, trends tend to continue. Why? Especially selling, uh, specifically selling, because most people are not going to be allocating or buying heavily over the weekend. People aren't going to make decisions to initiate new positions over the weekend, especially big money. But what people can do and what they often do is they reduce existing positions or they play with existing positions. And when the trend is down, when it was down on Friday, down on Saturday, and Sunday is an extremely illiquid day in general, you tend to want to just stay away from doing anything on a Sunday. Like, you don't want to buy the dip on a Sunday, which I did a little bit, but got blown out. But that's just the lesson that I think people should take away, is you almost never want to fight the trend on a Sunday. The flip side of this is sometimes you get a move on a Sunday where it's like a flash, like maybe Sunday morning goes up, or a weekend, like, you know, maybe weekend buying tends to be very on, you know, on and then off. So if market moves up on a, on a Sunday, maybe you want to sell it. Market moves down a little bit on a Sunday, maybe you want to sell it. But we were, we were selling off on Friday, Saturday, Sunday. You just don't fade until you get some sort of liquidation event normally.

Hey Avi, let me interrupt you for a second. Uh, some guys in our StreamYard saying that you tweeted the StreamYard link, so you should probably untweet that.

Oops. I mean, can they see us?

No. Oops.

I took a screenshot. I said we're recording an emergency pod.

Um, cool. Anyway, back to what you were saying.

Sorry, I actually feel like if they can't see us recording, does it matter?

Oh, GCR just connected, or somebody who's pretending to be GCR just connected. All right, kick from studio. Fuck. All right, so we're just gonna get all these random people in here.

If they can't see us or hear us, it's kind of fun.

No, yeah, we're just gonna have random people in here. We could just— it could be like radio where we just like invite random people on to say like extreme shit.

And it's kind of like, it's kind of like an Easter egg, you know. It's like if you find the link, then you get to hang out here.

Yeah, there you go. All right, anyway, so you're saying don't buy dips on Sundays because it's extremely illiquid. And also, like, what I would add to that is it's a Sunday in August, right? Like, this is when the big risk takers are out on vacation. They're on their, their, um, their yacht in Saint-Tropez. They're not like thinking, all right, time to get— go all in buying this dip, especially since this dip isn't some like weird crypto idiosyncratic thing that's going to mean revert on a Monday when markets open, right? Like, this is, this is being driven by bigger macro markets than crypto.

Well, that's the part that confused me, is I thought that it would be reverted, and it was a bit, right? So basically throughout the entire session today, we've gone up at market open at 9:30, we are trading $50K. We're now trading $54K. So we reverted. It just so happened that we died horrifically up until then, right? So the, the real move, the real move down started Sunday at 8 PM. So we were trading $58K Sunday, Sunday at 8 PM, and then we nuked down to 9, we nuked down to 52, and then we had one more puke down to 49. And that— and then, and then we cleared out, I think, a lot, a lot of the supply, which I, you know, right now the way that I think about this is if you want to play this on the long side, you have to understand who's selling. Most people got carted out. Most of the buyers got completely destroyed. So the only people that are selling right now are the people that bought the bottom, of which there were very few. And so it might take a while to chew through supply of— but the reality of the situation is that there's not that many people left to sell unless something crazy happens, right? If equity markets keep nuking, that can be crazy. If you know, we don't go up for 2 weeks, 3 weeks, then I think people that are holding Bitcoin get very nervous about holding too long because normally Bitcoin tends to reverse reasonably, reasonably quickly. And I think a lot of people start de-risking alts in that scenario. I actually think Bitcoin's probably okay in that particular scenario. It's just that alts are going to get totally destroyed. So people are going to slowly trickle out of Solana, they're going to slowly trickle out of Jito, all these random things. But Bitcoin probably just, just chops around unless you get a shock, right? And I don't know what that shock would be because I think the two, the two major shocks were just earnings that were really bad and then major cap tech selling off aggressively. And then the yen trade unwinding.

There's also a bad, um, payrolls number.

Yeah, but the services number today was okay. Yeah, so I mean, I, I don't view this as a, as, as necessarily existential.

Yeah, me neither. I mean, I think that I like— okay, so I've had mixed success, to put it generously to myself, but like pretty actually not limited success, just like trying to step in and buy, like catch the falling knife when it's falling this fast, right? Like, I, I'm, I'm so not worried about this sell-off. This has none of the hallmarks of like a proper bear market that's just gonna nuke the economy, um, and nuke, nuke the middle class and nuke the average investor and, and business alike. This just doesn't look like that, doesn't smell like it, it doesn't feel like it. And as market participants with a little bit of, uh, you know, a little bit of experience now, we've unfortunately seen what real bear markets look like quite a few times in our short careers. And it's, it's like, this just isn't one of them, right? It has none of the hallmarks of that. However, it feels dumb to just be like, all right, thing just came off, I'm gonna— I'm just gonna go dive right in there and catch this falling knife. Like, it feels like you get hurt pretty bad. So I don't really You have to manage your risk effectively. Yeah.

At the end of the day, I mean, you can't get, you can't get taken out of the game. The most important thing in crypto is to just never get taken out of the game, survive so that you catch the next upswing. Yeah.

So like, I think what would be dumb would be to suddenly add a bunch of line items here, just start like going, going shopping for random altcoins and meme coins and doing stupid shit. I think that, um, I honestly think that the smartest thing you could possibly do in this market is either hold steady, or if you're gonna buy, like, buy Bitcoin, or cons— or consolidate line items into Bitcoin, because I do think Bitcoin dominance is gonna—

can—

is gonna, you know, rally from here.

After sell-offs like this, you're 100% right. I've seen this happen over and over and over. Bitcoin dominance goes Yeah, unless you get a very, very sharp reversal, you tend to go up. Like, sorry, so Bitcoin dominance tends to go up. So the way that I'm trying to play this market right now is I'm— I am buying some alts. I'm buying alts that I really think could have idiosyncratic strength or that have a narrative behind them. Including things like Helium, but, and TON. But basically other than that, I don't really like touching alts. I like touching BTC, ETH, and potentially SOL. And even then, I don't know if I love ETH. One thing that really fucked so many people— I don't know if I can curse on this podcast, but curse all you want.

I'm here for you.

One thing that like really, really, really hurt is all of the people that were long ETH and ETH/BTC because of the ETF, and then they just got— they just got taken out back. Yeah, that's, that, that, that's tough because I think a lot of people viewed that as a quote-unquote safe trade, which is a reminder to everyone out there that's investing: anytime you feel super comfortable with the trade, probably the wrong trade. In fact, almost always the wrong trade. So what I would say is, in this— in, in these, in these types of environments, do the hard thing.

Yeah. And buy Bitcoin.

Yeah. Is buying Bitcoin hard for you right now? That's the issue.

It's a little hard for me. I mean, I'm, I'm not like fully allocated in the way that you know, younger people without kids and families are fully allocated. Like a lot of the guys that I talk to who are in their 20s, they have literally 100% of their net worth in crypto. Me, like, I had a career in oil before crypto, uh, so I, you know, at this point I'm trying to defend some, some capital as well as grow it. So I have a sort of a maximum threshold that I allow myself to be allocated to crypto. Of like a maximum percentage of my portfolio, and I'm at that percentage.

So I could lose discipline if it keeps going down, then your percentage of portfolio will go down too, right?

Yeah, that's true. But I mean, honestly, what's happening this time, like, it's going down a little bit, but it's not going down by too much because again, everything's nuking, right? So except bonds. So obviously, like, I'm— as this, as this sell-off happens, like My crypto equity balance is like kind of still almost preserved, but now I'm getting more overweight fixed income, which probably isn't the stupidest thing in the— as, as we go into a rate-cutting cycle. But like, you know, honestly, like where I'm at right now mentally is I could lose discipline and just YOLO more cash and rotate stuff into crypto, or not. And I'm I think where I'm personally feeling like gut feel, I, I have some fear about adding more to crypto given that I already like maxed out. Like I'm so bullish, but I need to maintain discipline because I don't want to get myself into trouble, you know?

Yeah, I think that's, I think that's very fair. And I think a lot of people would do well to just listen to that advice, which is that you just need to maintain discipline at the end of the day.

Also, like, what's weird, you know, it's funny, like, when I had no money whatsoever, it was very stressful to take risk because I grew up in a, you know, raised by baby boomers who said, you know, a penny saved is a penny earned and don't take risk. And, you know, I sort of came of age during the 2000s under the, you know, G.W. Bush administration when the stock market literally did absolutely fucking nothing for 10 years, right? So it wasn't just like this guaranteed, oh, investing makes you returns kind of mindset. I was like, you know, mostly in cash for my early career. It was very difficult for me to get used to taking risk. Um, in my PA, obviously at work I took a lot of risk, but then it's funny, like now things have changed for me. I've been a trader for 20 years, but as they say, like, mo money, mo problems. I still, I still get that same like weird stress, uh, that I used to get when I was like 20 years old, uh, you know, buying, like, buying stocks. Because I, you know, when markets are absolutely nuking, it's, it's hard to take hard-earned money and just, like, throw it in front of the— throw it into the, you know, into the arena, hoping that, that you don't get it blown out. Um, that's not to say that I don't do it on occasion, but for me, like, crypto is a momentum asset. It's reflective, as you always say, Avi, and I think that I've, I've gotten really hurt in crypto just trying to catch the falling knife. Made a lot of money in crypto buying, like, buying early on recoveries, like buying that upward momentum once it seems like the shitstorm has passed. And to me, this shitstorm is just positioning. So I'm, I'm gonna wait and see just how deep and how, how savage this unwind truly is. I don't know how long the world is these short vol carry trades that are unwinding right now. Maybe it's over, maybe it's not going to be over for a few months. But one thing that I'm damn sure of is that, uh, you know, in a, in an election year, you're not going to have the government hang the middle class out to dry and just like stand silently on the sidelines while the American populace gets absolutely obliterated and elects them out of office. That just, that just doesn't seem like an outcome.

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The thing is, do you, do you think that the Fed cares about the equity markets or not?

Yeah. Hell yeah.

They talk about credit spreads, but no equity markets.

Yeah, I think they can. I mean, look, the first thing that equities and credit are part of the same corporate American capital structure, right? Equities are obviously riskier and credit is secured, so it's less risky. So equities go first and credit follows, and they're highly correlated. So, you know, when I used to trade high-grade credit, um, the index of high-grade credit, uh, insurance called IGCDX or CDXIG, uh, it's just correlated with the VIX, right? Like, when volatility goes up, uh, the price you pay to insure bonds goes up, meaning bonds go down, like bond prices go down. So it's— or sorry, credit spreads widen. Excuse me, it's late. But yeah, it's just, it's literally, it's just one interrelated system. And the equity part of the capital structure moves faster and earlier than the debt part, but it's all connected. And so like, I think the only thing that investors should be actually worried about, like the only way you lose your shirt is if there's a credit crisis. And, you know, you and everybody you know and the company you work for and everybody else's employer are forced to do things at irrational prices when they don't want to do them. That's what credit crises are all about. We haven't had a credit crisis since 2008 because the Fed and the Treasury and, you know, basically like the bureaucracy in Washington, D.C., stopped letting those credit crises happen. They basically just transferred risk from balance sheets of individuals and companies onto the balance sheet of the government. And that happened again in 2020, happened like in many little ways in 2013, 2018, 2023 with the regional banks. Like it keeps happening. So if, if this thing metastasizes into a credit crisis where suddenly you can't access capital you need, to get a home or to grow your business, or if credit really dries up, which just seems like totally out of the question to me, but let's just say that it happens, right? If, if the, the bureaucracy in Washington, D.C. decides to just let that, let that go, right, and not do anything about it, not buy asset-backed securities, not cut rates, not print cash, and they just let it go, they're not just going to be taking one crisis worth of medicine. They're going to be taking like 15 years, 16 years worth of post-global financial crisis worth of medicine and stock markets going down to like—

What if they are? Like, that's, that's, that's a question that people have to answer is what if they are? If we have, if we don't have a reason to step in. So why did we step in last time, uh, when we had a sell-off this fast, this hard? It's because it was COVID. There's a political reason to step in now because there's no political reason. It's just happening because it's happening. Is there enough backing to come in, or are people going to go up in arms? I I, I do think the one, you know, the one bullet point that's good is that this is happening during an election cycle. And so the people that are currently in charge are very incentivized to con— to continue the bull market. And so there might be some level of political pressure on the Fed, even though it's, you know, not, not necessarily the best thing in the world. Uh, the qu— the question is when it does happen, how can you even tell, right? And why I am an advocate, at least right now, of— look, I'm a bull. That's why there's a bull behind me. That's why when you look, screen, it's green. There's no more bear. Bear's gone. We got rid of the bear. But I do think that it's very possible that we're just entering into a new downtrend, and the reason is because I mean, the people that bought below, they're probably going to sell $60K, and then $60K turns into, turns into resistance. And unless the world becomes less scary, so unless you do get intervention, then people will be very hard— it'll be very hard to get people to buy an asset like crypto, which is so volatile. If you can go 30% down in a week, right? That's, that's a pretty scary asset.

I mean, so what do you think happens when, let's say, intervention is announced in one form or another? Let's just say it's, uh, the Fed comes out with a 50 or 75 basis point cut. That's kind of interventionist. What do you think crypto does?

I think— I don't think 50 points would be construed as interventionist. I mean, it's priced at 60%, so the way that— I mean, maybe 75. Sure, we gotta, gotta take a look at the, got to take the probability that that is being priced in right now. I mean, but I think that if the Fed does intervene in, in a meaningful way, or the Treasury intervenes in a meaningful way, then crypto is probably back at the highs. But the question is, is that, is that going to happen? And can you even, can you bet on that, right? Can the, the worst thing that would happen to this market is that people bet on it and then it doesn't materialize, and then we're probably looking at $42K. I do still have trouble wrapping, wrapping my head around the probability that, let's say, Fed, Treasury, whatever, they, they step in, they, they back, they backstop, they backstop the market. Um, this makes me nervous because it might provide a short-term sugar rush, but the question is, once you've capitulated from backstopping the market for a financial crisis or a pandemic to we're backstopping the market solely because credit spreads blew up, because earnings are bad, and, uh, you know, the Bank of Japan raised rates and that caused a sell-off, then you're near the end. And I don't think I'm smarter than everyone else, and I don't think I understand this, the macro market, better than everyone else, but it's pretty obvious to me that that would signal that we're getting close to the end of the Fed's ability to actually prop up this market. Because if there's no real reason to do it other than the fact that, well, the market is weak, then that signals that it's no longer an action that you take in an emergency, but now it's a whole regular action that's needed in order for the market to not die.

Well, the Fed has a dual mandate, right? I kind of disagree with you on this. They're, they're basically they're, they're supposed to pursue two goals: maximum employment and price stability. Um, price stability obviously refers to the price of like goods and services, not price of equities. Um, so I still like— I, I know that market stability technically isn't part of their dual mandate, but they always take it into account because as, as capital markets crash, companies do lay off people, right? Like they do, like it filters through. If they're, if the stock market is careening lower and it looks like we're headed for a real problem, like companies will batten down the hatches and they'll, they'll tighten their budgets and they'll fire people. So there's sort of like an indirect feeder effect into that. Un— like that employment part of their mandate. So that's why they pay attention to, you know, falling equities markets. I take your point. The big difference between this and sort of like previous environments, uh, during where they, you know, did a bunch of stimulus was that in this environment rates are high. Like in previous— in during the ZIRP era, the only thing the Fed could do— I guess it wasn't even the Fed, it was the Treasury— would— could print dollars and the government could spend those dollars on stimulus, right? So that's sort of like modern monetary theory, quantitative easing, whatever you want to call it, TARP. Like, those— that's the last resort shit. This time, you know, interest rates are north of 5%, you can just cut them, and that, that's a much more effective tool for managing, uh, volatility, right, than, than QE. So while I do agree with you that we're in like kind of a problem zone, that the— that governmental bodies, be it the Fed or the Treasury, are going to try and manage something as stupid as a positioning-driven unwind, um, I think what that tells you is you should be long-term bullish Bitcoin because that shows you that, uh, bureaucrats have lost the plot a little bit and they are starting to kind of deviate from that dual mandate and instead try to, you know, keep people high on that sugar rush that you just mentioned, which is, which is not their job. Like, it's bad. And Bitcoin is ultimately the only thing that's gonna— it's like gold, it's digital gold. It's, it's basically a foil to frivolous central bankers who debase dollars in an attempt to provide short-term results for their own careers and political parties.

It's just never acted that way.

Bitcoin is, uh, didn't in 2021 when there was just ludicrous stimulus for no fucking reason, didn't Bitcoin just take off?

Yes, but so did the rest of the equity markets. I don't think there's ever been a period of extended period of time where the equity markets have done poorly and Bitcoin has done well. And that's sort of the issue is that And this is what we've learned in basically every major crash scenario, is that there's no such thing as an uncorrelated asset when things are falling apart. And the reason there's no such thing as an uncorrelated asset is because there's almost nobody that singularly holds one asset. Everyone has a portfolio. And when you have a portfolio and everything else is going down, then you actually still— you rebalance, right? You sell the goods, you sell the stuff that's going up, buy the stuff that's going down to rebalance. And so what that leads to is that leads to just everything going down. And even then, it might not be that you're rebalancing, it might be that you're meeting margin calls, it might be that you're getting dicked somewhere and you need to, you need to save yourself. So the issue is that if the equity markets continue down, then Bitcoin's, in my personal opinion, still in big trouble. And yes, we might get to a spot in the future where you have Bitcoin go up against the equity markets going down because people genuinely, genuinely are worried about the stability of the dollar, the stability of the financial system, and then people buy Bitcoin. But that's a, that's a reason about— that's a reason to own Bitcoin $100K calls. That's a reason to own like Bitcoin $200K calls, because I guarantee you the moment that that happens, the moment that that happens, Bitcoin's going to $150K in a short period of time, not a long period of time. Because in the situation where— can you imagine a situation where everything is down 10% and Bitcoin is up 20%? That's going to create the biggest FOMO in the history of FOMO. I mean, if, if I were Saylor and I had gigabillions of dollars to deploy into the Bitcoin market, and I could move the price of Bitcoin or support the price of Bitcoin. That's like, I don't understand why he buys when he does. It makes no sense. It's like he always buys at the worst possible times. It seems what I would like, I would always and only buy during periods of stress so that Bitcoin can sell. We sound like always, it looks like it outperforms the downside and then you create this image of, image of stability. Saylor, if you're listening to this when it gets released, let me know. I can consult for you for 1 Bitcoin an hour. You're going to make a lot. You're going to make a lot more money. You just listen to a few pieces of advice, promise you. So, you know, it's just one of those things again where, you know, I am definitely nervous for the short term, mostly for alts. Not if Bitcoin trades down to $45,000 from here. That's got to be a low. I think that At $45,000, people would look at that and they would say to themselves, well, this is a great risk-reward trade. If Trump is going to get elected president and he loves Bitcoin and Bitcoin just sold off almost 50% from the highs, you know, maybe I should probably buy, right? I think that's what's going to go through people's heads at that point. So I think that the Trump narrative, the Trump announcement, what he was talking about gives Bitcoin a floor in a way that you never really had a floor before. So I'm definitely, you know, I definitely go all in at that level. Not financial advice.

Yeah, I mean, me too. But I think it's harder to do that with alts, right? Like, because alts, okay, let's say you, let's say you get to that level in Bitcoin and then you look at your favorite alts and you're thinking, okay, well, you know, there's two ways of looking at it. One is like, well, okay, I want some cycle bags, I'm going to add here. Another is like, okay, I think we're going to get a bounce back, let me pick the highest debate a thing. The problem with, uh, with picking alts for a bounce back is that if you're wrong, unlike Bitcoin, those alts could go down another 90%, right? And then when you finally do get your rebound, maybe you don't even make it back to your high watermark or your purchase price, uh, whereas Bitcoin, it feels like, does perform to the downside. So I think alts and memes, like, that's that's like the catch-up trade when we're already in the banana zone, right? When Bitcoin is sending and ETH is sending and Solana is sending and alts are still like, they haven't like really started to outperform yet. I think once, once we're in safer, safer waters, that's the trade. But we're just not in safe waters for at least a few months now. That's clear.

Yeah. And after, I think a lot of people make this mistake. So this is what happened in May of 2021. In May of 2021, you get this massive collapse. Bitcoin goes down 50% off the highs. And for the first week when Bitcoin was ranging and going up a little bit, everybody piled into alts. Everybody. Alts had a little bit of a pop. And then for the next 6 weeks, alts basically bled to zero because there's no real buyer of these things and there's inflation. And when you're— when there's no momentum in the market, or even perceived momentum— what do I mean by this? Well, at least in the range that we had since March, every 2 weeks there was perceived momentum to the upside. Even though we didn't break out, we would go up 10-15%, and it looked like we might break out, right? Like, we might break out. If we go up 15— if we go up 10% right now, we're at resistance at the bottom of the range for Bitcoin, 58 to, you know, 58, 58 to 62. So, so a lot harder because you don't actually see momentum at this point until you get to 65, which seems like a hard, hard target to reach right now, at least over the next 2 weeks, because I think we're going to work through some stuff. So I think alts are kind of fucked, but I don't think Bitcoin's going anywhere. Again, that's why there's a bull behind me is I think it's very possible that we trade $60K in the next week or two. Do I think we're going to $65K? No. But do I think we're going to get a violent bounce in the next— like, my bet is that by Friday we've tagged $60K. Let's see how that plays out.

We could tag $60K tomorrow. I mean, the thing's traded in a $10K range in the last 24 hours. This market is so volatile. Um, so yeah, I think you're right, Avi. I— it's hard, it's hard to trade these markets because when things are just like wildly whipsawing around, um, you, you kind of lose your edge as a discretionary click trader, you know. Like there's— there are levels that you can achieve with a longer-term horizon, but just trying to like get in and out of stuff with this sort of insane volatility is, is tough. I've seen people chop themselves up on it. So like, my, my thinking/advice would be, um, if you're gonna buy, or like, don't, don't try to buy and sell. Don't try to like market make this, this chop. Just like, pick, pick your direction. Either you're de-risking or you're scale-in buying on levels as it goes down. and then when it rallies back, maybe you can sell out some of what you bought at a higher level. But nothing, nothing like trying to generate, generate like alpha in the midst of this chop and then go home flat when you're done. That's not going to work. Um, huh, looks like, looks like the, the loiterers in this chat are starting to participate here, so Some people are in there.

This could be kind of fun. Maybe we should do—

maybe we should let somebody in here. So, so, Eth— Mr. Eth 10K End of Year is in here. So is, um, somebody wrote Avi is a cutie for real, no homo. Um, why don't we let in Eth 10K End of Year? Just add them to the— oh no, they don't have their mic connected. Should we add in the Nexus? Let's just like—

I don't think, I don't think we should add any of these people in, to be completely honest. Okay, cool. What if they, what if they get in here and they just, uh, you know, shill their own bags? And then I have to— like, if somebody shows your bag, I have to buy it, and it's like a whole thing, and it's gonna cause issues.

Yeah, this dude wrote, you are risking ear rape, sir, don't do it. Okay, yeah, we're definitely not letting that guy in.

Um, Yeah, it's kind of like that Nexus guy is pretty smart because he's, he's warning us not to do it, so he's a smart guy.

Yeah, exactly. Because I was thinking this could be like— this may be past your time, Avi, but like when I was a kid, I used to listen to radio shows where they would just let in random callers, and then occasionally you get like a really crazy one, and it was kind of funny, you know?

You know what, maybe, maybe we should start doing that in like the last 5 minutes of the podcast. We'll just let in a random dude Like, I'll, I'll tweet out the— I'll tweet out the link for like 5 minutes, see who fills it, and then we'll just let in a random person.

Yeah, we should just do that, and hopefully they don't go on some like crazy rampage.

Actually sounds pretty fun. But going back to the markets for a second, I was just checking some of the data. The last time that we had this much open interest on Bitcoin was when Bitcoin was $44K. There's kind of no leverage in the system right now, relatively. And that to me indicates that we're in a very, very good position to start going up. If I were to bet, there are actually quite a few shorts that have entered in and entered in the market. And this is again why I'm bullish. I'm bullish for that $60K setup. It's one, you have VIX at— VIX tagged $65, VIX is at $38. That's insane, uh, especially given the way that the market, the market has traded. What that indicates to me is that people are really, really, really, really fearful, and the fear doesn't actually— the price action, right? And so what that tells me again is that these people are probably quick to buy back, uh, if things, if things start going their way. However, there's a lot of supply that's underwater. And so when we go up to levels like $60K, people are going to start offloading. So it's just going to chop.

I mean, also you got to be careful with that open interest number because a lot of it is against it. Like a lot of it is basis. You have people short CME futures versus long spot or long ETFs. And basis was positive for quite some time, meaning futures traded at a premium to spot. So it's just like risk-free arbitrage to be long spot and short futures. And then on sell-offs, that basis collapses and the arbitrage goes away. So then what happens is people get out of their futures, OI goes lower, and on the other side of that equation, people exit spot and exit ETFs. And that's why, you know, you probably, you know, on, on the 2nd of August, which would have been last Friday, um, the Bitcoin ETF space saw $240 million worth of outflows. Some of that was probably just like straight up Delta One selling everybody getting out of their Bitcoin.

To me, I actually, I, I, I, I interpret it differently. Everything that you said is correct, but the way that I interpret it is that in December, the last time— so the last time that we had this much open interest was in December '23. It's been 8 months since then, and the ETFs have traded billions and billions and billions of dollars of volume. And so the amount of people running that basis trade has probably gone up substantially. So the fact that we are at the same levels of open interest that we were back then indicates to me that there's way less leverage in the system than there was even at $45K back in December, because in theory, a substantial portion of that basis should now be— or a substantial portion of that open interest should be basis. So even though it's the same number and you might say there's the same level of leverage, I actually take what you said and I say there's less leverage.

Oh, that's really smart.

I agree.

Yeah, that makes complete sense. That's a really good take.

So the way that— again, the way that I view this is that everyone that was going to get blown out has been blown out. There's nobody left to blow out. The only people that are left to sell this asset are the people that are going to slowly get out of their positions because they think it's over. Over, which there are probably some. They're idiots and they're dumb and they don't deserve to live.

Well, there's also— don't forget, like, if equities— there are plenty of people who can still get out of the stock market, right? And if the stock market keeps puking lower, there's probably some correlation algos that'll take Bitcoin down with it. Um, but that's the second—

we're talking about Jump for a second.

Yeah, let's talk about Jump.

These guys liquidated their whole— basically like all of their ETH. They liquidated their entire portfolio, the whole market.

Is that confirmed? Or like, is it confirmed that Jump unwound their portfolio? Or is it just like some guys are looking at Nansen and saw that a Jump wallet got out of ETH, but like, who knows what's on the other side of that trade? Like, maybe they were selling ETH to buy ZIN. I don't know, I'm making shit up. But I mean, are we, are we certain that Jump is out?

We're not certain, but I mean, they've definitely been winding down their activity. As far as I understand it. And they definitely did sell some. They were, uh, you know, I, I do, I do think that they sold some at least. And this is come again coming, coming from wallet movements, coming from price action, uh, coming from the inability to candidly get in touch with them.

Yeah, I mean There are rumors flying all over the marketplace. Like, I'm not going to allege anything specific related to Jump, but like, Mustache Warrior disappears from the Jump leadership team. There are investigations left and right involving Mustache Warrior. Suddenly their ETH wallet is, you know, has been seen liquidating an insane amount of ETH in what, what seems like a particularly sloppy type fashion. You wouldn't expect that out of a high-frequency trading company. Now, I mean, I worked at a Jump competitor, so I, you know, there's no love between me and Jump. But, um, you know, I— it just seems like kind of an unceremonious end to what in 2021 was like one of the most interesting and polished stories, not just in crypto but in, in the entire world of trading. I mean, these are the guys that were rumored to have made somewhere between $8 and $10 billion on shitcoinery in 2021. And now it's, it seems like it's all just kind of ground to a halt. I like the crypto space.

Everyone's feeling that, Joe. I think if you talk to basically, I would wager based on my conversations with all of the major funds in the space that 80% are down year to date. Which is funny.

How the fuck is that possible? Bitcoin's still up like 35% on the year. ETH is up like 5 to 10%.

It's because they all— most of them weren't allocated to Bitcoin in the way that they were supposed to be. And what ends up happening when you are lagging your benchmark is you rotate into the higher, higher risk, higher beta assets. And so what ended up happening is that over time, during that entire rally, you had portfolio shift from majors to alts, and alts are down tremendously. I mean, most of them have retraced, if not below.

We've been warning about this again and again. Like, I took, I took personal heat for this, for this call. Like, we've specifically been saying, like, stay out of that stuff. It's, it's toxic.

In environments like sideways chop or worse, this, you know, dude, Arbitrum is below FTX lows. It's 30% below FTX lows. Like, imagine just the pain. Imagine the pain of being such an idiot. You would hold that.

And also, like, Arbitrum is— it's not vaporware. Like, it's, it's a, you know, if you go, if you go a little bit into the weeds, like, it's a good— it's one— it's like basically that and Base are the two performant L2s that, that you want to be part of.

Yeah, I mean, look, it's good, it's good tech, but it's not used at the end of the day, and that's, that's what matters. I mean, if you look at my— again, just going back to what I was saying at the beginning— if you look at my portfolio, it's, you know, the, the, the three, the three majors I'm probably going to pick up some, some Coin stock. I think Coin's good, a good bet.

Yeah, that's like buying BASE if BASE had a token, you know, except it does. It's called Coinbase stock. That's a great trade.

Helium is actually up 10% today, which is, which is really great.

That's encouraging.

Yeah, I mean, you know, things that actually have usage, but basically everything else— I mean, I closed most of my shitcoin shorts. I mean, like, just like going through the short basket— Aptos, TIA, Alt, Arca, ETHFi, ID, Sei, Sui, StarkWare, Worldcoin, Zai. Not again, not financial advice, but these were the ones that I thought had really bad unlock schedules, and we're just, we're just gonna, it's gonna bleed out. I've closed all of them, no longer short those assets.

Also, if Jump were liquidating, like, they would be selling that stuff. Right? Like, they're— Jump, an organization like Jump, I don't know what, what their bags look like, but something tells me they don't just have like a couple of line items. They're probably long like hundreds of different tokens, including all of the ones you just mentioned. So yet another— if they're sloppily selling ETH in the most visible possible way— again, all of this is speculation, I have no idea what they're actually doing— like, it would be overwhelmingly likely that they're also just blasting out of, uh, other things that are not only like worse bets fundamentally but also less liquid. So when they get— when somebody sells, uh, that, you know, they'll puke harder.

Yes, sir. Uh, the other thing that I think was spooking a lot of people, but I actually don't think spooked the market, it was just in all the group chats because it's fun to talk about, was this whole Israel-Iran thing. I don't think it's relevant to the markets personally.

I'm not worried about that.

The oil market doesn't, doesn't care about it. I think that it's very clear that Iran just wants to, again, do a saber-rattle, scare, scare Israel. Talk to a lot of friends of mine that live in Israel, they're in the IDF and in intelligence, and they're not— nobody's freaking out.

The oil market's nuking right now. Like, it's, it's trading like Bitcoin. It's basically careening lower. And literally today, Libya, which is, you know, a sizable oil producer, one of their major oil fields called Sharara just like went out because the warlord in charge of it, my second favorite Libyan warlord, General Khalifa Haftar, he, you know, he's in some sort of dispute with the locals there. So he shut this massive oil field. Oil just nuked. Like, like oil is shrugging off all of this geopolitical risk. And that pretty much tells you which, which market is driving price action right right now. It's, it's, it's risk assets. It's not, it's not the Middle East geopolitical, uh, scene setup. Um, that could change rapidly. I just don't think it will.

Anyway, we have a few questions here. This is actually— we should invite more people.

Yes, it's great. We have like a Q&A.

Jonah, dude, I'm farming volume on Polymarket right now. Who's your pick for 2024 election winner? Hook me up. Jonah, who's your pick?

I think Trump's gonna win, and this isn't a political statement of support for anybody. This is literally just like I think these guys are late. The Republicans are laying a trap for Kamala Harris. I think that they're just letting her, letting her have her moment, and, uh, she's gonna have her honeymoon period and her convention. And then, um, as soon as she locks the nomination— like, if they, if they, if they try to take big shots at her right now, she might not get the nomination. But I think she's perceived internally in the Republican Party as a weak candidate, so they want her to run against Trump. And I think as soon as she gets the nomination and she's locked in, I think all kinds of horrendous stuff is gonna just rain from the sky and torch her chances of winning. So I think we're seeing peak Kamala here. What do you think Abhi?

100% agree with that in every way shape or form. I think that Kamala reminds me— the Kamala candidacy reminded me a lot of DeSantis in that in the beginning he had all this momentum, all this hype, everyone loved him on the Republican side, blah blah this blah blah that, and the reality is he's just not a viable candidate because he's a little— he's weird, he's uncomfortable, and Trump just has the hearts and minds of the Republican Party and he's a great political candidate. You ever listen— have you ever heard Kamala say anything smart ever?

No, no. And me saying that Kamala is gonna lose—

well, have you ever heard her do anything that would indicate to you that she's a good political candidate? No. No, she like, she flamed out so hard in the Democratic primaries and just got bailed out because candidly she was the right profile for a candidate that, you know, Biden needed at the time for VP. She's not a good politician. She's a terrible politician. And at the end of the day, I don't think somebody like that can win no matter how hard they try to push her. So I think at that moment, And that's fine. But that's actually a good setup for end of year for BTC. I mean, I don't see why we can't end the year back at the highs. I mean, if Trump gets elected, which I think he will, because as long as we don't have—

through the highs—

as long as we don't have World War III and Trump is elected and the market hasn't completely shit itself in terms of equities, even if it has gone down a bit, it's very good. Right? That's a very, very good setup for Bitcoin.

Oh, it's huge. I mean, I think we could end up— we could end up, you know, not financial advice— I think, I think Bitcoin could easily be trading $100K. ETH could be $5K if Trump wins, right, in the middle of November.

No, ETH $100K— or sorry, BTC $100K, ETH $3K.

Okay, fine, whatever, whatever you want. ETH was just trading $3K recently, but I mean, let's just, let's just, let's just keep our Let's keep our pants on here, Avi. 3K, sure. My point is like, this isn't opium that me saying that Trump is going to win. Like, I again, I don't really have— I'm not, I'm not trying to come out with a political endorsement or, or affiliation on the podcast here. I'm more just saying like, if I legitimately thought Kamala had a decent chance, I would be slashing my Bitcoin exposure right now. I would be, I would be reducing it. And I think that that's what you're seeing in, at least in crypto. And a lot of markets, I think, as Kamala's odds are, are, you know, sort of rallying on Polymarket, I think a lot of people who had these Trump trades that they were putting on that they felt really confident are suddenly like, wait a second, oh hell, this is bad, right? Like, I gotta, I got, I gotta pull some, some dough off the table here while I'm still up on the year. Um, it's, it's, yeah, I, I think Trump's got this one in the bag unless he either gets shot or, or really manages to blow it for himself, which I don't think he's doing.

Uh, somebody asked me to give one bullish single narrative for ETH until end of year. That's— I mean, the, you know, the most bullish narrative I can think of is that I can't think of a bullish narrative.

It's so hated, right?

It's like, it's so hated that I can't think of like a real— but like, all the bullish narratives I'm sort of pulling out of my ass. I mean, they're not completely out of my ass, and they actually were talked about by Chiefing Zhao on the previous podcast. But people, people view crypto as an asset class. And because there's an ETF and a Bitcoin ETF, once people start allocating to crypto again, which probably happens in September, it's likely that they also buy Ethereum. And Ethereum is a lot less liquid than Bitcoin, which could lead to price appreciation for Ethereum. The other thing is, again, as we've talked about ad nauseam, it's easier for Wall Street to understand. So the only, the only real bullish narrative for Ethereum is that it basically is added to the S&P of crypto, the equivalent of adding, you know, stock to the S&P. Now it gets all the passive flows. But I mean, there's, there's no real interesting activity going on on ETH. In my personal opinion, there's no real interesting projects that are building on ETH. All the most interesting—

Polymarket, right?

Isn't Polymarket on Polygon?

Which is on ETH.

No, not really. I mean, I think Polygon is an L2, but that, you know, they're moving away from—

like when you put, when you put USDC on Polymarket, like you're not doing that via SPL, you're doing it on like a sort of an ERC transfer.

The only, the only thing that I can think of is that ETH is just horrifically underallocated relative to BTC. That's it. That's literally, that's literally it, unfortunately.

Yeah, my, my ETH bull narrative is, is that it's literally like it has a huge moat, which is that it's the smart con— the granddaddy smart contract platform that legacy business can get their head around and not get fired for using. If you're legacy business, like TradFi or Web2, and you start doing crypto stuff and you choose Aptos and you get wormholed and lose all your money, or you get Mustache Warrior, Mustache Warrior accidentally loses it you know, you get fired. But if you lose it on ETH, like, you know, you're playing it safe.

Matic $3 end of— dude, just no, no, no way. No, we're not at 3. If Matic is at $3 by the end of the year, you can have my spot on this podcast.

That'll be good. Matic may never see $2. Ever again. I never did.

Don't want to show my bags, but what do you think about the AAVE fee switch proposal? I have no idea whether it's going through or not. I don't know. Uh, the answer is that it would be giga bullish, obviously, because it would be the first real productive DeFi asset that actually has a real product. It's actually generating real revenue that is actually tying its token to a revenue stream. But I, I've got no clue. I mean, it's very possible that it goes nowhere. I mean, if it goes somewhere, then Aave probably goes. That's my guess. So we'll see. It's a TL;DR. Um, I think it's probably worth— the, the issue is it's, it's like hard to say it's even worth owning because I think a lot of the recent price action has been because people are starting to buy it in anticipation that it might go through. And if it doesn't go like if it doesn't actually work, get implemented effectively, then it's probably just fucked. So anyway, that's, that's my take. I do, I do like, I do like DeFi though, because I think that, I think that people are going to look for, look for like real productive assets. ENS actually looks kind of interesting, retraced the entire move, uh, from May all the way back.

So you're bearish ETH but bullish ENS? What?

Yeah, I mean, yeah, because, because there are some— you don't have to be bullish the platform to be bullish one product, right?

I, I probably need for a trade, or like bullish for a cycle? Bullish for trade.

I'll be obviously bullish for a cycle if they turn on the fee switch, but I think that the, the issue is that you need more than one or two applications. And I like AAVE and I like ENS, and I don't really like anything else on ETH. So kind of hard to maintain my bullishness. I do like AR still. Uh, I think that AR, AR is good. I think that the AI narrative is going to come back at some point and that you can probably build a portfolio of these AI coins, but You got to be, again, just a little bit careful. Um, yeah, I mean, my, my, my bullishness is firmly shifted towards SOL and BTC.

Well, on that note, we got a comment in here. After Jump leaving crypto, feels like they're gonna leave a vacuum in the SOL eco— SOL eco tech scene. So my take on that is Solana does not need Jump. They did a great job surviving the FTX collapse. I think they're going to be just fine without Jump. Um, I, I don't think that Solana— I think Solana is doing a great job overcoming the narrative that it's just this mafia of insiders, uh, controlling things. And I think that shedding Jump from their ecosystem is actually a great thing because, uh, as a trader, I never understood why anyone would want to use like basically use a blockchain that's supposed to be open, permissionless, and decentralized, where the entire validator-client ecosystem is designed by a high-frequency trading company whose literal business model is to see your transactions before they hit the market and front-run you, right? That's kind of how I've always perceived FireDancer. Now, Toly knows more than me about how Solana works, obviously, and shot that down on our podcast with him, but I'm still suspicious. And I think that like just in terms of getting the, uh, just, just getting the sort of like overhang of that possibility out of the way. Um, Jump and Jump and its Mustache Warrior army, uh, being gone is probably— it probably does, does wonders for the Solana ecosystem. It probably gets everybody a little bit more confident that it's this decentralized open-source Linux-like project and less this like sort of, um, sinister casino where you come in and you're wooed with free drinks and then you end up losing your, your money in there, um, you know, uh, transaction after transaction just getting bled away into, into Jump's coffers.

Guys, it's a pleasure. Thanks for spending the time to scan the picture that I tweeted out and look for a link and then manually— I guess you could probably— I think you can copy and paste iPhone. If any of you manually typed it in, that's pretty sick. Appreciate it.

This was, this is a great episode. I kind of like having a, um, like having people in here listening in and chatting with us. This is great. We should, we should probably do this in the future.

Yes, we should. Oh, somebody said loves this format, you should keep doing with the chat. Yeah, we probably should. The only issue, the only issue is sometimes I say really stupid things and I ask them Edit it out.

Whoever listens to this podcast is going to realize that we do no preparation. This is—

our jobs are the prep. We like spend every day doing this and then we just come out here and talk about it.

This is true trading floor chat.

All right, see you, Jonah. See you later, Abhi. Good times.