Cycles Don’t End Before They Start | David Kalk & Pranav Kanade

If money starts flowing into alts, which it has not to date in this cycle, and maybe, maybe won't, but if it does, the market structure is going to feel much different. I think it is not an environment where Bitcoin necessarily will be outperforming in the way that it does. I think there'll be a lot of new things to do. And this boom-bust pattern that we've seen, the fact that we haven't seen it is just a reflection of the fact that capital has not flowed into alts. I still think that capital allocators more generally are preparing since the election to move into the space in a way that they were not before. The potential for them to chase another move in the future, I do think they'll be more prepared for that. And that has the potential to be an environment where alts do perform.

Hey everyone, just wanted to take a second to tell you about our latest conference taking place from the 18th of March to the 20th, DAS New York. We'll be hosting some of the largest allocators, asset managers, and financial institutions in the industry, such as Cathie Wood, Michael Saylor, Mike Novogratz, and many more. Plus, me and Santi will be recording a live episode. For Empire listeners, you can use code EMPIRE10 for 10% off. Just click the link in the show notes to take you to the event page. All right, let's get into today's episode. This episode is brought to you by zkSync. Join the Elastic Network today at zkSync.io/empire. Thanks to zkSync for making today's episode possible. All right, everyone, welcome back to Empire. We have Pranav from VanEck. We've got Dave back on the show, Dave from Reflexive Capital. Welcome to the show, guys.

Thanks for having us.

Yeah. Pranav, you eating popcorn? What are you eating over there?

Candy?

No, it's like this mouth freshener that Indian people eat that my parents gave me. So nice. It's not like gum, it just digests.

Interesting.

All right.

Good to know. Noted.

Noted.

Noted. Pranav, man. All right. So I want to have you guys on because I think Santi and I had this roundup that we were— so this is coming out on Monday. Santi and I had this roundup on Friday and we were pontificating about markets. And the unfortunate thing for Empire listeners is that Santi and I have no idea what we're talking about. So we figured we should actually bring on two people who actually know what they're talking about. So maybe Pranav, I mean, I'd throw this first question to you, like, just what is going on? Like, you know, Bitcoin is down to $75K or $80K. I don't know the exact price that we're recording at, but, you know, it was $105K, $110K, and then I opened my eyes and it's down to $80K. SOL is down 50%, memes have gotten— are down 80%. Like, just what's going on in the market right now?

Yeah, so I generally kind of bucket these things into like these sub-asset categories. So I put Bitcoin in its own bucket. Then I put sort of like the majors, like ETH, SOL, and call it like, I don't know, top 5 coins on CoinMarketCap into one bucket. And then I put alts in a bucket and I put memes in a separate bucket. So like, let's say there are 4 buckets out there. Um, the altcoin— we can, we can start with the altcoin world, which is the easiest one to start with, which is we started talking about this issue of increasing supply through vesting and low floats, and those floats ultimately vesting. VCs went into DPI and, and needing to sort of sell some tokens they're vesting into, into a market where there's not enough demand for those tokens. There's not enough liquid managers, and retail doesn't really care for these tokens. Um, like, that being an issue, we started talking about that spring of last year. I feel like people forgot about that issue post-election, so kind of everything went up, and then that issue came back to the forefront, I would say, probably early to mid-December. And so you've kind of just seen a continuation of that issue with alts, and you guys have talked about it a fair bit, sort of that low float, high FDV, vesting, no demand, and liquid kind of issue. Um, the meme coin thing to me looks a lot like the NFT market. Um, you know, if I remember correctly, the general top around NFTs was when that ApeCoin dropped, and that kind of sucked a lot of liquidity out of the market. I remember a lot of people were buying the Bored Apes and these, you know, things around them for the ApeCoin drop, and that was generally the last hurrah. And it feels like a combination of the Trump meme coin and the Melania coin, and now like the Libra thing is probably the thing that has people saying, you know, we're kind of good with this for now. Because ultimately, again, the same thing, which is you have supply of meme coins constantly growing. You have a certain amount of audience that wants to play the game. Once you run out of people play the game, then you then kind of know nobody's making any returns. And so they stop playing the game, especially when they start to realize, hey, maybe this game is very unfair towards me, the retail participant, which is kind of what happened post-Libra, right? So that's memes. And then the majors, I think we all talked about what the issue with ETH is. Solana has been the real winner. And obviously with Solana, you have kind of two issues. One is the meme coin stuff that is dying and is primarily on Solana. And the other is this fear around FTX unlock. So a confluence of those two things is probably driving that. And then the last piece on Bitcoin, general view there is like, you kind of ran out of incremental buyers, right? So something David and I were talking about a few weeks ago is you got this headline around, uh, a Middle Eastern sovereign wealth fund disclosing they have a holding in iBit, and you would have thought that's like one of the most positive things you can see. And when the price doesn't go up on that, the realization is, well, like, when price doesn't go up on good news, you kind of run out of buyers. So you have that. And then, you know, I think David pointed this out to me last night, and maybe I'll let David unpack this, but His view is TradFi firms are probably setting up shorts in Bitcoin via the CME futures. I may be butchering your explanation, but I'll kick it to you.

Yeah, I think the— been looking at what's going on with the constellation of the basis trade and CME futures, and what's been notable is that the funding rate of the basis trade has come down, which, you know, the strongest The thing there is that basically the implied— to pay someone to go short the market has come way down. So there's this large long in futures contracts. Someone has to take the other side. It can be an arbitrageur who just shorts the future and goes long spot through the ETF or otherwise and does it purely to collect the yield, or someone can come in because they want to be short. And what's been notable is that the futures outstanding position hasn't come down that much, certainly not as much as the funding rate has come down. So to me, that reflects that someone's probably come in to short this market. And I think the obvious explanation on that is, uh, the momentum has just turned. So we have some evidence that CTAs and other momentum accounts, kind of these cross-asset futures-based funds who do trend following, um, in every asset, have been active in crypto futures contracts for some time and maybe increasingly large size. So my guess is that they're, uh, they've been shorting the market over the last few days because, um, the funding rate is coming down so much. Everyone's focused on the basis trade being unwound and whether that's a, that's a spot trade or not. Um, but I, I think there's quite a bit of evidence that that's going on.

Um, and Dave, is that for my simple trading brain, is that basically just buy Bitcoin spot ETFs, short the Bitcoin futures on CME and basically farm the spread for like 5 or 6%. And now, now that's the normal—

so in, in, um, I'd say in most, most periods of time, you have someone who wants to be long levered on the future, and then the only way to find someone to take the other side— because for every long, there of course has to be a short on the futures contract— is to incentivize that person to come in and do what you just described. So that's how I would describe equilibrium of futures in most environments. In this case, because the funding rate has come down, it reflects that there's more of a, a directional long and a directional short opposing each other in this case. And so people don't often just go and directionally just short naked crypto. I mean, that, you know, that's a difficult trade. The, the— what we do see is people who trade momentum or trend following, so basically buy high and sell low. And, and, you know, that works systematically very well in crypto, uh, there's probably a pretty large short position that's been opened up, uh, in CME futures. And my best guess is that it's these types of accounts. It's replacing the basis trade. Like, everyone's focusing on the fact that the basis trade has been coming off, and, and that's the ETF flows. Um, what I'm saying is I think the person who's come in to replace them as the opposite side of the, um, the long trade is someone who's shorting based on a trend following signal. That's That's my best guess.

And that makes sense for like two primary reasons, right? If you just look at the worst performing equities in the past couple of weeks, it's all the things that did really well post-election. And all these things have a correlation. People trade these correlations and you kind of layer in the fact that Bitcoin stopped going up on good news. It kind of all perpetuates, which is people— there's a reason to short it at that point.

How much of this is— yeah, go ahead, Dave.

I was just saying, just to kind of reinforce this, um, if you look at the, the yield that was available kind of post-election to come in and do this relatively risk-free basis trade ETF versus future, short the future, long the ETF, it was paying you, you know, 10, 11, 12, 13, 14% yield, and it's come down to about 4%, aka a level where, uh, a basis trader doesn't care. And so it hasn't come down there because the, you know, the long came off. It came down there because someone in and replaced it, kind of took the other side in a way where the long doesn't need to pay as high of a financing rate because there's a short willing to take the other side in a naked way.

Hmm.

Yeah, it's something I've been thinking about with just as the market develops, you basically have in the first 15 years of crypto, you had people who are buying this stuff because they genuinely believed And they believed in the ethos of the industry and they believed in the asset long term and probably in their PA as well. They were allocated to Bitcoin like they were, they were like Bitcoiners, right? And then like the Ethereum crowd came along and the Solana. And now as the market develops, I mean, I would say the people putting on this trade in size, I mean, they don't give a damn if it's Bitcoin or Tesla or some random penny stock, whatever.

It's just an asset that they can make, you know, 6, 7, 8, 9% I might put myself in that bucket too, but just to be 100% clear, this person does not care at all. They will look at— these are just funding trades. There's a trade that's the exact same thing in bonds. There's a trade the exact same thing in some commodities. The trade in S&P physical or S&P futures, they have a certain amount of balance sheet that they can rent or on their own balance sheet, and they're just going to find the best funding trade. The crypto funding trade, this basic trade, has been by far the best. You know, and so, so they are willing to do large amounts of this regardless of what the underlying is. Um, I think Wall Street has clamped down on how much trade they're willing to help facilitate, which has been a constraint at times in the past year since the ETF came out. But for the most part, yeah, it does— the underlying doesn't matter other than the fact that there is some different idiosyncratic risk with custody and things that I'm sure that makes the yield that they want like sufficiently higher than than everything else.

This episode is brought to you by zkSync. In 2024, zkSync took a step toward a multi-chain future by transforming from a single L2 into an ever-expanding network of zkChains, the Elastic Network. To onboard the whole world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders Choose zkSync for unmatched security, scalable infrastructure, better onboarding, gasless transactions, and privacy-first design. Join over 20 chains, including Abstract, Sophon, and Cronos in the Elastic Network today. Behind zkSync is the zkStack. It is a one-stop platform for building private blockchains on Ethereum. The stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zkSync.io/empire. Thanks to zkSync for making today's episode possible. Geodnet is a first-of-its-kind DePIN protocol that's revolutionizing satellite navigation services. They're actively generating on-chain revenue that's growing 500% year over year by providing precision location services that are 100 times more accurate than standard GPS. On Empire, we always talk about finding how crypto can power completely new business models, and they're a perfect example of this. They're already trusted by over 30 enterprise customers across industries, including automotive, agriculture, construction, and even robotics. The network is powered by its native token, GEOD, and easily mined with their satellite miner. By setting up a base station, you can get involved with this groundbreaking Web3 ecosystem. Learn more by heading over to geodnet.com or just by hitting the link in the description of today's episode. The best trade in crypto has not been funding or basis or, you know, trying to clip 11% or something. It's been going long coins that 10x. That's the best crypto trade. Even considering all the volatility in the pullbacks, that is the best crypto trade. The— how do you think about the fact that I'm putting quotes around this for listeners, like outsiders maybe don't know the narratives that drive the industry. They don't know the crypto nativity. Let's say you're looking at like, I don't know, the Move ecosystem. You've got Moviment and Sui and Aptos. An outsider might say, I don't know, I'll pick the fastest one. An insider knows the games, the teams, that kind of stuff. How do you think about, like, I don't know, how do you just think about—

I think, yeah, one of the, the last conversations that we had when I was on here was about this concept of, like, suppressing volatility and, and the benefit of doing so in terms of unlocking new capital. I think the idea is, like, 10x being the best trade, you know, that doesn't conform anywhere close to how most people— the mandate they have to, to invest money. And so it's important to recognize that not everyone has the risk tolerance of Jason Yanowitz. Um, and you know, some— you can't lose more than 3% or 4% or 5%, or you know, the things have to be purely volatility-adjusted returns, for which crypto doesn't always screen the best. So I think that, you know, yeah, a mature market is one where people have different allocation preferences and they end up doing different things, uh, which is a good thing. That's a healthy thing. I mean, right now we have a market which is not in equilibrium because so much money's flowed in to try to get the 10x, and then there's no one for them to sell to because there's no one else who has a mandate to do anything else. Uh, so that maturation is not going to be a quick process, but, um, uh, a feature of it will certainly be large players who are just doing various versions of arbitrage or funding rates. Like, if you think about where is leverage going to come from this cycle, to the extent that the cycle still has run on it, um, you know, this basis trade can be an important source of that. Uh, and so, you know, that may not always be healthiest in every respect, but, um, there will be different people doing different things.

Jason, I was going to say, like, we always talk about the folks that buy a token, a full port into a token, and then they 10x that. But I think there's probably an equivalent number of people that, that buy a basket of stuff, right? Like, that maybe had an ETH bag in 2017 and decided to buy a whole bunch of ICOs. That didn't get a bunch of 10x's across the portfolio. And I think we always talk about the ones that get their 10x on one token, but like, there's a lot of people I think that get marginal returns or even like negative returns by doing too many different things. And it's like, I think part of it is like, it's easier said than done. Um, and I think, you know, one of the things I try to do is sort of just look across the space and say, what are the most likely 10x's and how do I generally try to size them? So that even if a few of them work, the net portfolio should work. Yeah.

Yeah. It's funny. I actually think this is the first time, the first cycle where crypto natives did not really win. Like, if you looked at the last cycle, it was like, I don't know, if you just bought some NFTs and you bought some DeFi things like Aave and Uniswap and Maker, and you bought some like L1s and you bought some L2s, you kind of made money on all of them, honestly. But this is the first cycle where you— I mean, you could have had a basket of 10 things and 9 of them are down 80%. And maybe, maybe you caught hype, or you caught SOL, or you got, you know, WIF or something like that. But yeah, you could have, could have lost money.

Go.

I think this is something kind of wanted to discuss today. So I'll jump in on that. I mean, I think we should be careful making terminal conclusions about what this cycle has, like, you know, there's certain, certainly some clear differences between this cycle and last one, but I see a lot of kind of like reflection as if this is the end of the cycle and looking, you know, um, saying that, you know, we're not going to have an all-season or a period where people might be able to perform in the way that you described. Um, you know, I won't make everyone sit through my TED Talk on, on reflexivity again, uh, but, you know, as a macro trader, which is something I did for a long time, you know, the old-school macro is trying to understand how the flow of money across asset classes, uh, can, can lead to cycles, you know. And there's different levels to that. There's like these big liquidity cycles, there's, uh, economic cycles, credit cycles, but then there's like these more local credit cycles like in emerging markets. And one of the key to these cycles is the flow of money. And credit often plays a very large role in creating the inflow and outflow of credit. But the boom-bust cycles, as a result, are common because of how procyclical leverage is. And so reflexivity is this concept of this reinforcing relationship between higher asset prices, you know, stronger balance sheets, and more credit, let alone some of the other behavioral economic stuff that happens. So I like to model crypto as its own closed economy, and for alts in particular, they're basically never in equilibrium. You know, capital flows go from zero or, you know, to somewhat negative to very positive. In very short periods of time. And so it's very— it's much more extreme than in an emerging market where you also have inflows and then a crisis and an outflow. So I think this reflective dynamic is really important to understand as it relates to the question of alts and whether we're going to have an environment where, uh, you know, as you're saying, the crypto-native people are able to outperform. Because I think if that feedback loop of inflows starts going again, then alts, you know, alts can basically go back to to going anywhere. And maybe it's not going to be all alts, you know, there's going to be a bunch that are left behind. It's probably going to be a bunch of new alts. But yeah, I, you know, it's pretty hard to see a full cycle starting tomorrow, but I want to be very open-minded and flexible to the idea that if money starts flowing into alts, which it has not to date in this cycle, and maybe, maybe won't, but if it does, the market structure is going to feel much different. I think it is not an environment where Bitcoin necessarily will be outperforming in the way that it does. I think there'll be a lot of new things to do. And this boom-bust pattern that we've seen, I think the fact that we haven't seen it is just a reflection of the fact that capital has not flowed into alts. And then you can have a discussion of will it. And I still think that capital allocators more generally are preparing since the election to move into the space in a way that they were not before. They were not going to move in in December or January. They're not going to come in and buy this dip because that's not how they act. But in this like made a, you know, double bubble or whatever you want to call it, sign this like this reset that we are now experiencing right now, the potential for them to chase another move in the future, I do think they'll be more prepared for that. And that has potential to be environment where alts do perform. So, you know, again, it doesn't mean one should be full blow to alts right now. None of this is financial advice, but I remain pretty open-minded to things changing in a way in the future and then capital actually flowing in a new way. And then the crypto natives can win. And, you know, the people who come in late will probably lose.

Let me, let me add some around what you're saying there. So I agree with you, although I thought we were going to come in like kind of argue with each other, but we're just going to agree with each other, which is two things like money comes in two different ways, right? Retail goes directly and buys stuff on exchange and, you know, moonshot or whatever. and allocators who usually don't open their own Coinbase Prime account. They would come through conduits like us or from some passive product if you're in Europe. Um, in the US, there's not that many passive products you can come through. So yeah, yeah, so I, it's hard to predict what retail is going to do. I mean, I think my best guess is if we ever go back to like things like stimmy checks, like that's when you'll get the really full swing retail in going to want to speculate on things. And who knows? I mean, like, you saw the headlines last month, which was, um, giving Doge dividends to people, right? Um, if— take Dogecoin and give it out as dividends. I mean, I don't know what likelihood that is, if that happens, but that could be an interesting catalyst on the retail side. On the allocator side, I think David's kind of nailed it, because those people start to change their mind post-election. They're usually afraid of coming in on a big drawdown. They need to see things normalize. And I think two things are probably going to happen. One, like, if you think about last cycle, you had a drawdown that was kicked off by the Fed, and then you had all this hidden leverage, right? Luna blew up, and then a whole bunch of things from the Luna blew up— blown up, like, then permeated and caused additional blowups over the course of the following 6 months. But if you don't believe something like that could happen, i.e., there is no hidden leverage and fraud and all this stuff underneath the hood, then this drawdown should stabilize at some point. And while that stabilizes, I do think you'll have a ton of positive adoption stories that, you know, people can relate to. So there was a great letter from Stripe that was out a couple of days ago, their annual report, and they talked about stablecoins pretty extensively and what they're doing there. But you'll see products like that come to fruition, right? 'Cause when I talk to allocators, the biggest question they ask me is, look, I see all this regulatory headlines, but like, why should I care about this? Like, I understand ChatGPT and AI 'cause I touch the product, but I still don't touch and feel any crypto product outside of Bitcoin. So that answer will become more clear as you go throughout the course of the year. And as long as you don't have another sort of like deleveraging cycle, I think the flows will come back.

This episode is brought to you by ZKSync. In 2024, ZKSync took a step toward a multi-chain future by transforming from a single L2 into an ever-expanding network of ZK chains. The Elastic Network. To onboard the whole world into crypto, many specialized chains must be able to coexist, work together, and share liquidity. Institutions and global financial leaders choose zkSync for unmatched security, scalable infrastructure, better onboarding, gasless transactions, and privacy-first design. Join over 20 chains including Abstract, Sofon, and Cronos in the Elastic Network today. Behind zkSync is the zkStack. It is a one-stop platform for building private blockchains on Ethereum. The stack solves all the typical privacy, regulatory, user experience, and deployment concerns of blockchain without compromising performance or security. Join the Elastic Network today at zkSync.io/empire. Thanks to zkSync for making today's episode possible. Geodnet is a first-of-its-kind DePIN protocol that's revolutionizing satellite navigation services. They're actively generating on-chain revenue that's growing 500% year over year by providing precision location services that are 100 times more accurate than standard GPS. On Empire, we always talk about finding how crypto can power completely new business models, and they're a perfect example of this. They're already trusted by over 30 enterprise customers across industries, including automotive, agriculture, construction, and even robotics. The network is powered by its native token, G-E-O-D, and easily mined with their satellite miner. By setting up a base station, you can get involved with this groundbreaking Web3 ecosystem. Learn more by heading over to geodnet.com or just by hitting the link in the description of today's episode. Yeah, the story can change really quickly if Stripe starts moving every payments company, every payment onto stablecoins. Those stablecoins are running on Base and Ethereum and Solana, right? The, the story can change very quickly. What do you think about the idea that alts— in my mind, alts have not run for two reasons, maybe three reasons. I think one is people realize the games that were being played, like the low float, high FDV, the venture games, that kind of stuff. Two is people tried to predict the— they tried to predict the cycle, and the cycle used to go Bitcoin flows into ETH, flows into alts, flows into like NFTs, aka memes. So now people said, all the crypto natives said, I know how this game is played, let me just skip to the end. So it went straight to the memes. The third might be that there are more ways to gamble on Bitcoin now. So if you're retail, you can just open up your Robinhood account and basically, I mean, just, you know, play with options, lever long 10x on Bitcoin. You don't actually have to— like, if alts were your lottery ticket, you can play the lottery actually just on Bitcoin now. What do you think about that idea?

Um, yeah, so I think on the, uh, it's a good list, the, the, the games being played, you know, that people don't want to, um, you know, everyone's fighting the last war, I guess, would be the concept. Another one would be that it's really hard for people to, um, you know, with those scars coming and do the exact same thing. So, uh, one of the reasons I think a lot of the existing alts from last cycle, some of the biggest names, may not perform is something like that exact reason. And that will be a difference in market structure here. Um, but yeah, there needs to be some new identity around the bet that people are making in crypto. But I don't think that's impossible that that's around alts, you know, the potential for, um, uh, a large institutional capital inflow to happen into these names in particular. Like, put the— Purnav put it right, there's retail money and institutional money. The retail money, I think, is of a certain scale. It's the institutional money coming in, uh, $20, $30, $40 billion in a similar way as last cycle that would come into a very different set of things than has happened before. And they might still have scars from last cycle, but some of the innovation on tokens potentially, you know, with regulatory clarity, that still feels like it has some legs of making people feel like they're investing in tokens which maybe they're more equity-like, which I'm not sure is correct in the end, but, uh, have tokenomics which are somewhat more productive. And then it can feel like you're making a different bet, still probably in some of the tokens than the old token. So again, I want to be mentally flexible that just because like the crypto people have decided they don't want to do one set of things. Maybe they'll be committed to do something else later, but the institutional money will come in for a certain set of reasons. And, uh, we shouldn't reflect on the last 12 to 18 months as a terminal state of this market. Um, and, you know, obviously that money's never going to come into memes, you know, to be, to be pretty clear.

Yeah.

And I also think retail hasn't come back to the same extent as it did last cycle. I think there's a small subset of retail that's come back, and you can probably observe that in some of the, you know, exchange volume data.

Do you think that's just because they've been burned one too many times, or why is that?

Like, yeah, no, I mean, it's that plus I think—

yeah, Bitcoin didn't hover above $100K for long enough. It's like, I feel like—

yeah, no, I think— I personally think— I think most of retail, uh, which again I think are sort of you know, folks that, um, got a lot of steamy money that compounded through the markets last cycle, they haven't had the same experience so far. Um, I don't— I think the retail that's in crypto is somewhat playing defense as much as we think they're playing offense. They're, in my opinion, they're trading meme coins because that's their quickest way to kind of hit 100x and, and solve all their, you know, pain points in some ways. Yeah, they're not investing. I don't think like the investing retail is back. I think the gambling retail is back.

I think you're right. I think you're right, Dave. Let's come back to one of the— I think the big question on everyone's mind. It's like, if you could only answer one question in this podcast, it's, is the cycle over? It's like, that's the thing I think everybody is thinking about is— and by the way, not just traders, not just investors, not just traders. You know, every founder I know in all these founder group chats are saying, oh shit, you know, I was going to raise later this year. Should I raise? Should I race and raise right now at maybe a lower valuation so I can keep my business going? Like, Everybody is thinking about this question. So maybe just expand on your idea of like where we're at in the cycle. Are there still— is the 4-year cycle still a thing? Um, David, maybe you can start, and Pranav, I'd love to hear your take on this too.

Yeah, people have different ways of, uh, measuring a cycle, which I think requires some, some nuance. I mean, you have these like crazy people talking about Bitcoin halving day like 500 or whatever. Um, but you know, there seems to be some progression here. Which is similar as in the past where Bitcoin has pulled a bunch of things up. And then the question is, can that momentum be catalyzed into other stuff? I mean, I think if you're measuring a Bitcoin-specific cycle, we may or may not have much further to go in price, maybe still in time. Um, not bearish Bitcoin by any means. Um, but like, if you were to focus just on the altcoin part of the cycle, which is either just the next stage in the entire cycle, or I think for someone who's focused on convexity and upside and asymmetry, it's like, if you just were to focus on that part of the cycle where those sorts of returns are possible, you could say it hasn't even started. And so then the discussion is like, will it start? If you go back to capital flows, money has not flowed into the space yet. A cycle is money flows in and money flows out. Oftentimes, the money flowing out is, as Purnav mentioned, credit contracting very quickly, BlockFi, Celsius. And that's the intense selling, which can lead to this depression on the other end, but I don't see an inflow which has happened yet, which makes it seem very premature to specifically ask the question of, is the cycle over as it relates to altcoins? And, you know, I think it's like, it's very, you know, right now it feels really bad. It feels like there's no momentum in anything like that. It's hard to find exactly how the cycle is going to start. But I maintain that if momentum were to reset and start to go in a positive way, and then money started to flow in in a way that it hadn't. That's the beginning of the cycle, uh, and so that's why I kind of try to add nuance to the frame here. Because again, if you're talking about like the 4-year cycle, then yeah, it might still— or like use this baseball thing— it could still be in, in time like the 7th or 8th inning, but that might only be the ending where the next stage where altcoins perform actually starts. And again, it may just— it may never happen. Like Bitcoin could just lose momentum and The money may not actually flow. I mean, I, you know, not financial advice, tend to think it will, but I think it's sort of the wrong— it's like a premature question to be asking.

I also think like, look, we might be in a world where we get microcycles in different pieces of the market, right? So if you think we've kind of tapped out the number of people want to gamble, like, that's— it is what it is. That's not— that world is not growing, right? Like the people that want to do sports betting, there's a certain amount of people who do that. Same thing, like, people want to trade memes and like just gamble. There's a certain amount of people that do that. So let's say you tap that audience out, then the audience that's left to come are going to buy things that they think are useful products, that there's clear value, and it can gather mindshare and attention and has a good, responsible, good founder. You can trust the whole thing. Like, if you think that the next audience to come are the people that will buy assets like that, where good assets, they can buy it and sleep at night type people, then you will get microcycles in those types of assets because of like actual product market fit.

Yeah, I think that, yeah, the microcycle thing is certainly another path and one that would feel distinctly different. But it's the— I think that part of that question is like, do we have— are we just going straight down for the next 6 to 9 months with like a, you know, -80 from here? Or like if you were to measure it from the something like the peak. And, and that feels very, very hard if you haven't had the inflow yet. So the way I would differentiate between a mega cycle and a mini cycle is it's more about like how much money flowed in on the way in, which then— I have very boom-bust models for this asset class. The more money comes in, the more money that can come out. So yeah, it's like right now maybe it's only mini cycles because only like trace amounts of money have flowed in. Putting Bitcoin aside, I'm trying to really focus on the altcoin side of things. Of course, money can come from Bitcoin into this stuff, but yeah, you can't have a major cycle outflow if you haven't had a major cycle inflow. So, you know, a good trader will just kind of respond to things, how it evolves. I'm open to mini cycles or major cycles, but it's hard to get the outflow if you haven't had the inflow, I guess would be the one.

David, I'll give you the— I'll give you the outflow though, right? The outflow is the $40+ billion of VC money was poured into pre-seed, seed stuff in '21 and '22. And those guys, those VCs, haven't raised another fund, most of them, since, and they need to raise their next fund. And so as they get vested, they're going to sell because even a small markup in DPI is better than, than no DPI, because they have to— they got to raise the next thing, right? So that's, that's your outflow.

Yeah, and that feels, um, that feels like a— like if you were to measure the, the supply and demand of altcoins for the last year, that, you know, without inflows, that's been this steady headwind that has led to, you know, really, um, uninteresting, kind of like arguably negative reflexivity price action. Uh, we saw something a little bit different in and around the election where there was actually some leverage that built up and then came out very quickly over the course of this month. That's like a real outflow, I would say, as opposed to just kind of like a trickle of an outflow, which makes it hard for things to perform. Um, I would say going back to 2021, it was probably BlockFi, this unsecured borrow that was rehypothecated around the system, which led to something really dramatic. That's, that's like, that's a that was an inflow which was retrenched very quickly. And the pattern of that is just different than what we're describing with, with these VCs, I would say, you know, they act in a much more measured way and the unlock schedules are more gradual. So it's one of the reasons why the thing may just never get off the ground. But I'm not sure those guys will sell it all the way down to, you know, another down 50 from here.

Dave, you talk about reflexivity. What is the catalyst that kicks off? I think of like reflexivity as just like a snowball where it's like this snowball starts rolling down a hill, it gets bigger and bigger and crazier and crazier, and everyone grabs onto it and wants to be part of the snowball rolling down the hill. What is, um, what is the thing that pushes the snowball down the hill? What is it? Because I thought it'd be November, right? I thought it'd be Trump getting elected. That leads to good regulations, which leads to institutions starting to allocate, which leads to companies starting to adopt stablecoins. The narrative gets big and like, boom, you've got a big picture.

That's still my best guess. So there's like the tactical question of how do we get there from here? But big picture, I think, I believe in what you said quite a bit. And the point I was trying to make earlier was like, the idea that capital is going to flow in, in December and January was just wrong. So to the extent that a bunch of leverage built up ahead of that, you know, $10 billion of leverage or whatever we think the number actually was, that was vulnerable in the interim. Before the money actually came in. So it was like leverage front ran the idea of that. It didn't happen. You know, we've basically, uh, reversed that entire move. I'm still not sure that view is wrong. You just have to be on the same time frame as the large— as the large allocators. Now, how do we get there from here? I think there's a process, because right now momentum is negative. Like, you can kind of think of as reflexivity as, uh, being the dynamic underpinning momentum. And so right now we're going from like arguably negative reflexivity to, to one that's positive. Um, so I, you know, I think that's a process which will take a bit of time. And then, you know, it'll probably be a set of catalysts. I mean, it could be some really great ones, but it may just be some ones that initially are kind of small. It could be a Solana ETF, you know, no view on when or how that's going to happen. But, you know, then the idea is that if you can flip momentum, the snowball effect, as you described, actually starts working. It doesn't have to be something major as like the tactical catalyst, but the big picture of the election I think will fuel quite a bit of the dynamics supporting this allocation process. So it's still big picture, very, very important.

Yeah, my sense of this is that the thesis is still completely intact. It's just that it wasn't like institutions woke up on, you know, the day after the election and said, oh great, now I can start allocating to These are boomers, right? They take their holidays and, you know, all take like 3 weeks off for Christmas, you know, like, we'll kick off a committee in January.

Okay, we'll have our first meeting. Who's going to do what? It's like, it's probably a second half thing in all cases.

And I think they made their decision in 2024 that crypto and Bitcoin is either real or it's not real. So they're not just, it's not like things pull, it's not like Bitcoin pulls back from 100 to 80 and they're like, oh, never mind, throwing away the strategy.

No, though it doesn't, it doesn't help accelerate anything. They will chase price, but you know, that's why it's probably like the initial snowball next time is one they're prepared, more prepared to chase. And that's why something which seems kind of like a medium catalyst within the big picture bullishness can just get things going in a way that it could not in December.

I was going to say, like, the thing you'll probably also notice as you get through like the next couple of quarters of earnings is you'll see more and more public companies talk about stablecoins. Like the number of mentions of stablecoins on earnings calls will just go up, and naturally people will be like, all right, what is this thing, why should I care, and how do I get exposure to it?

Yeah, well said. Um, Pranav, what's your take on the cycle, short-term, short-term view and long-term view?

I think the short term, defined as like 3 to 6 months, is purely going to be macro. Um, like as in what's happening with growth inflation, Fed cuts, QE, QT, tariffs, all that stuff, right? And then those are things I don't particularly have a strong edge in. I don't try to predict, but I think it just seems like that is going to dominate flows, risk appetite, all that good stuff. So if you think, if you're kind of on the positive side of that, you know, if you have a positive view on those things, then, um, then, then, you know, you'll have a good time in the next few months. You know, the opposite's true as well. So I don't think crypto will live on an island for the next several months. I think it's going to be driven by that. Uh, I'm pretty optimistic on the other side of it, especially on the other side of stablecoin legislation. Um, I also think you don't necessarily need a market structure bill to pass through Congress to start to see movement on things outside of stablecoins. Because I think the SEC and CFTC can, through rulemaking and through no-action letters, allow things to happen. And, and you will see more things happening there. Um, it just makes too much sense. So I think all those things will take time. I think it's like a second half of this year story. So I could see next 3 to 6 months being very choppy, and people get chopped, you know, people try to trade it and get chopped up, whatever. And then things look a lot better in the second half.

Yeah, we have all sorts of evidence over the last month that behind the scenes things are progressing, uh, within and around the market regulators and banking regulators. So, um, I think all that feels firmly intact.

Hey everyone, earlier in today's episode I mentioned Petra, a top non-custodial wallet developed by Aptos Labs. They just launched Earn, a new feature to access DeFi with just one click. Earn lets non-US users deposit USDT directly into Aries Markets lending pools to gain interest and rewards and manage it all directly from the Petra wallet. Petra Earn was designed to make DeFi more accessible for everyone. You can manage your balance, claim rewards, and deposit directly from the app. This is of course not financial advice. Participating in DeFi carries risks. To learn more, visit petra.app/earn or by hitting the link in the description of today's episode. Hey everyone, Jason Yanowitz here. Earlier in today's episode, you heard me mention the weekly CIO memo from Bitwise. In an industry as hectic, fast, and complex as ours, it's incredibly hard to get an easy, no-nonsense stream of what's actually moving crypto. The memo comes from Matt Hogan, Bitwise's Chief Investment Officer. He's been on the show before, and he has this amazing ability to take the most complex topics and break them down with clarity. Trust me on this one. The Bitwise Weekly CIO Memo is really worth the 5 minutes of your time. Check it out at bitwiseinvestments.com/ciomemo/empire or just hit the link in the description of today's episode to get started. Carefully consider the extreme risks associated with crypto before investing. This episode is brought to you by WalletConnect, the connectivity network work shaping the future of on-chain UX. From DeFi to NFTs, swaps to staking, WalletConnect is the backbone of connectivity in the on-chain economy, seamlessly bridging wallets, apps, and blockchains. With over 220 million connections and 35 million users worldwide, WalletConnect is the place to power your Web3 experience. With the launch of the WalletConnect token, the network is taking the next step. Paving the way for a fully decentralized, permissionless, and community-owned future of connectivity. To learn more, follow WalletConnect on X and Telegram, or visit walletconnect.network to stay ahead of what's next. I think on the last episode you said we— it's pretty— you can't outmacro the macro people, right? So you came from the— I think it was like the interest rate swaps world, and then you're trade, you know, running some books at different hedge funds and stuff like that. I forget the exact background, but you know, you're trading against all the big macro people. It's tough to outmacro the macro people, but you did say it's pretty easy to outmacro the crypto people. So what's your, what's your sense of just macro over the next several months and how crypto folks should be thinking about it?

Yeah, it certainly feels like the— it's like the more attention that Um, like if you were to track the amount of macro discussion on crypto Twitter or something, it's probably like a counter indicator.

Well, we can, we can actually see it because we have this Forward Guidance podcast, uh, hosted by this guy Felix. And actually when the, like right now downloads are ripping because everyone's like, it's super like a bunch of fear in the market. Macro, I just think of as bear porn. It's like, it's literally just people love to be like, sell it all, like go to cash.

You should really never listen to it. A macro trader.

Don't say that. Great podcast.

They're always way too bearish.

Uh, well, you'd say like, if you had, if you had such great calls, you wouldn't be doing podcasts all day, right?

Yeah, well, what are we doing here? I don't— I'm not sure. Um, but I would say, uh, yeah, to me, the, you know, the, the macro matters at the extremes. I, I have— I model the closed system of crypto as, as very self-fulfilling. And so it's not like 'Where did, you know, the Michigan Consumer Confidence Survey come in today and you should trade crypto based on that?' Uh, it's mostly about, is there going to be some large macro event which can catalyze, uh, the self-fulfilling nature of crypto to start a new cycle, to Purnav's point, or, or, you know, to, to see, to have an outflow if we had an inflow, or, you know, otherwise. So that's kind of the bar which I like to focus on things. And I do think it's, it's hard to have a, a strong view on, on where we're going because there's so many crosscurrents right now. And so it— I wouldn't, um, uh, there's a lot of people with stronger views than me, actually. Uh, I, I'd say I'm most worried about economic weakness as it relates specifically to, to fiscal. And there's a few different channels on how that could happen. It could be because of Doge or It could be actually because of some of the budget stuff that happens later this year. But I think what's interesting is the way the budget math actually works. There's this concept of fiscal impulse. So it's like the second derivative of the deficit, which matters for growth, which is a first derivative of activity. So basically, if the deficit goes from 6% to 5%, you know, that's commensurate— that's a 1% drag on GDP. So it's not like if you run the same deficit as last year, uh, uh, it's no new incremental activity from last year, if that makes sense. So, uh, the idea that the deficit could go from where it is now to 0% is obviously just a disaster for growth. So, you know, crypto people are like so, um, focused on deficits because I think Bitcoin played a large role in onboarding a lot of people to crypto where there's this focus on eliminating deficit and people celebrating the Doge thing. But just from a pure macro lens, if some of these views are correct in terms of what it's going to accomplish, it's obviously going to be super painful in the short term.

Yeah. How do you guys think— maybe flipping from cycle conversation to us, like specific assets, I'm sure you guys can't like talk about what you're buying and stuff like that. But, but how do you— but how do you think about like what to buy. And, um, you know, this market's, this market's funky, right? Cause like, you know, some things are up, SOL's down 50%, Bitcoin. So maybe let me start with actually one question. Bitcoin dominance is at 61%. Do we end the year higher or lower for Bitcoin dominance?

Go, David, you go first.

Now nobody wants to talk when we get to specific predictions. Yeah.

Lower.

I'll take a prediction. I think, I think slower.

I think like, whatever, if you, uh, if you believe that altcoins, um, have the potential to go through a capital inflow-led cycle, then of course it's going to be lower. So probabilistically, I would put a, a greater chance of that happening than, than not happening later this year. So, so that's true. I mean, I do think there's this, uh perception at, at this late in the stage of the cycle, as measured of like, there's the Bitcoin stage of the cycle. We're probably in time at a pretty late stage of that where there's a very strong belief that Bitcoin can be the only thing you do in the space, which feels very vulnerable to FOMO making people feel differently, and then a rotation out of Bitcoin into the rest of the stuff. And then obviously, like, if you take a million dollars out of Bitcoin and put it into Token 143, that, that has like 20x the impact on Token 143. And so it can really help fuel, uh, a Bitcoin dominance move lower, even if Bitcoin doesn't go down. Like, you know, money comes in Bitcoin, Bitcoin still grinds up to $120K, which may not be a bad forecast over the course of this year. And then if the money's flowing into the rest of the stuff directly in and out of Bitcoin, yeah, Bitcoin dominance can go down quite a bit. A lot of money that like Despite the point— just one last thing— the point I was making earlier about like people doing the basis trade, having different preferences, I think there's a lot of money holding Bitcoin right now that is not in crypto to make 20%. It's in crypto to do the Jason Yanowitz thing of 10x your money or whatever. And the best thing Bitcoin has going for it is its momentum. And so it does feel like very vulnerable to rotating if given a real reason to.

And Jason, I think to your other question on sort of how do you think about allocating, investing in the space. We've kept it generally simple, which is let's own the bottom of the stack and let's own the top of the stack, right? So anything in between, I don't really see like doing much in. Like anything that's too infra, like especially in token form, is going to struggle because the, the most, the most of the participation in the market today is still primarily retail. And, and the retail that's the sleep at night, I'm going to own this thing. Retail has like a very specific behavior and you kind of observe it from Hyperliquid or any of the other ones that performed well last year. The one common thread we saw across all of them was great founder, like a visionary founder, great community, great product. There's some moat around the products that's defensible and that project is able to increase mindshare and attention. Like, I think crypto is one of those things where Every morning, any participant in this market is woken up to like 10 other things that's trying to compete for their attention and capital. And you need to be reminded every day why you're holding the thing you're holding and you want to like continue to hold and maybe add to it. Right. And there are very few projects that can do that while at the same time having a great product. Some people can play the attention game really well. Some people can build a great product, but there are not many people that can do both. So when you find the guys that do both, those tend to be good investments, in my opinion.

Yeah. Do you think that there's— I think there's an idea that historically these prices have traded on narratives and that maybe we move into a fundamentals-driven— it's kind of become a meme at this point. Yeah, fundamentalers. But, you know, you can kind of build these like models around these tokens and maybe the SEC lets you pass the cash flow back to the token and boom, you've got a nice pretty model that an institution likes. What do you guys think about that thesis?

I mean, I think that's kind of partially— I personally think it's like a waste of time. Uh, but also I think, um, that, that approach still doesn't really work in like trad fi as much either, right? Like look at all the value investors that have just underperformed like the big tech stocks for the longest time. It's because like, you know, most people, like as retail participation in all asset classes has generally increased and like you have in public equities, you also have this indexing phenomenon, but like in general. I think more retail approaches it as like, I like my iPhone and Apple seems like a good company. I will look to buy some Apple stock, right? That's— they don't sit there and say, all right, I'm going to go build a DCF right now. So I think that whole thing is like some, like a little bit of like the past. Now I think here's where the fundamentals matter, especially in tokens in my view, which is if a token can generate cash flows from people using their product, and those cash flows can be used to essentially, you know, do a buyback on the token of some form, then that creates an external source of inflow of capital to that token itself. Going back to, like, you know, David's, like, outflow-inflow model, that creates theoretically inflows, right? So someone uses a DEX, they're bringing fiat to trade on that DEX, they're paying fees from that fiat they brought in. That's the inflow, and that is being used to essentially buy the token back. you know, some buy and burn type thing. So again, as that— as the— as— so I think the fundamentals matter in that perspective, which is it creates a new buyer, which then results in that token outperforming everything else, which then gives other people faith that this token might be one worth holding.

Yeah, I think that that's probably the, the best rebuttal to the current market critique of altcoin supply would be to move in that way. I'm not sure it's great for long-term sustainable economics or whatever. But yeah, I think like on the fundamental question, Pranav's point is right. The, the value investing thing, like when you think fundamentals, you think of like Warren Buffett or something where, you know, we're trying to, um, look for something like a PE ratio. And I think the, the form of actual fundamental analysis which probably works best here and in parts of consumer internet is people are just looking for network effects. And actually, like, straight revenue, um, you know, pre-revenue is better, but whatever. Like, revenue is, uh, uh, um, can get— if it's getting in the way of that, it isn't a priority. But, uh, one of the reasons crypto has this boom-bust pattern is that people are just trying to own a piece of the network which is growing the most. And a lot of times that, that growth is episodic as a result to price going up. And so basically have these price moves up, so the network activity increases, so people chase that and, you know, try to play for this to get bigger. Uh, you know, I still have open questions about how these tokens should be used to, to arrive at something which isn't so boom-bust. But certainly right now, the fundamental work the market is doing— I don't think this will change even if you get like 10 more traders coming from Millennium to, to open liquid funds or something— um, uh, is to, to do something like just focus on revenue versus floating market cap. I think it's going to be more of the, like, where the— which networks are growing the most in users or whatever metric you want.

Hmm. Posted this thing, it was like, if you could only buy 3 assets right now, what would you buy? And, um, I, I try to do that like every 6 months because like it kind of tells you, it gives you a sense of what people on Twitter like. And it was the biggest, basically the biggest drop-off of confusion between people basically was like Bitcoin, Solana, ETH were like obviously mentioned a lot. Then it was SUI and HYPE, and then there were like 800 other answers that were just a hodgepodge of like random tokens. And usually like it's kind of— you can start to form like a top 20 based on those replies. So I've never— it was like a massive drop-off after those top 5. How do you guys think about— I like, again, I know you probably can't say like what you're buying and stuff like that, but how do you think about this question of like what to, what to start buying.

That's interesting. I think, I think when, when we're in, um, like, it should be— there should be more obvious answers. Like, the narrative, like, for there to be, uh, like, you shouldn't own altcoins until there's more obvious answers, maybe, is a different way of putting it. And that's like the momentum characteristic here, where it's not like you have to be super contrarian and find the answer before anybody else knows it. The better trade, sort of probability times magnitude, would be to wait till the market has more consensus answers, and then not feel like you need to play the PvP game anymore. The other conclusion around this cycle is that it's always just going to be PvP. But if money's coming in, it doesn't need to be. Like, when you buy an altcoin, it's not because— it's not because the only inflow into an altcoin isn't because someone sold another altcoin. So there should be more persistent outperformers. And if not, yeah, maybe you should just stick it in the majors, would be a macro view.

Yeah, I think I, I do this exercise with my team. So, so in most times, I think we're in the regime of it's already contrarian to be in crypto, so we don't need to necessarily be contrarian in crypto, right? Like, we're in this space, it's already contrarian, so we're just betting that this contrarian idea of crypto becomes less, you know, it becomes more mainstream. So that's starting baseline. Then we do this exercise where we say, if there's 3 things you can buy and not look for the next 2 years, what is that? And oftentimes that doesn't really change that much. And we all kind of arrive at the same answers because we all kind of gen— like, if you just close your eyes and you're like, I can't touch this, like, we all will probably answer the same thing. Um, so those tend to be like sort of like core holdings for us. And then there are periods of times when like, they're like these, as I said, microcycles that happen, right? So in Q4 of last year, you had the crypto AI cycle and we see a microcycle happening. We generally approach it with, there'll be great shorter term trading opportunities. Where there's a ton of upside volatility and can we do some pattern recognition and capture some of that upside volatility? And again, just recognizing that like this microcycle might end at any point because a lot of it is, you know, vaporware and, and things get overdone. So right now I don't see an obvious microcycle, so we just sort of focus on long term.

So if something—

yeah, yeah, we don't, we don't do the short-term stuff necessarily, right?

What is your job?

Just to tie this together, sorry, in the last Because this is sort of the conversation we're having just a few minutes ago, which is, is there— is it microcycles or is it big cycles? And to me, it's not like deterministic, but like the— if there's a greater amount of money coming in, I think there will be things to do that aren't, aren't microcycles, like one-day cycles or even one-month cycles, like the AI agent thing. So, uh, I want to remain pretty open-minded to the open— the opportunity set shifting. Um, some good sectors would help. To reinforce the narrative, to bring capital in. But that's how the snowball works.

Pranav, what's your job? Is it to pick 10 to 20 tokens and you're trying to 10x like a couple of those? Is it to like do maybe— I think what Dave was trying to say earlier in the episode, which is upside but in a volatility range, like what is your— how do you think about your job?

So I start with like, you know, who's my customer, right? My customer are the investors in our strategy. And then why are my customers taking my product, which is the thing I do? It's because they can't do this themselves and they want exposure to the space. So as in, when I say the space, I say to folks, crypto today is like a $2 trillion asset class, give or take. I mean, if you take Bitcoin and stablecoins out of it and even Ethereum out of it, it comes to something like $600 billion or $650 billion. Ultimately, the $650 billion asset class is trying to replace global equities and global fixed income over a very long time horizon. It will just take market share from those asset classes. So the upside, if the thesis were to play out, is pretty massive. And again, that's all outside of Bitcoin. Do you want exposure to that? If you do want exposure to that, do you want it in early-stage venture form or do you want it in liquid form? I think most people should pick both because I think there's great opportunities in both. And, and so if, if these people have made all those choices, aka my customer, um, then my job is to give them the best risk-adjusted returns. So whatever that does that.

Yeah, fair. Um, Dave, on the last time you were on here, you said, uh, crypto is— well, you usually in liquid markets you have a lot of efficiency, and crypto is really interesting because it's very liquid but also very inefficient. Is— are there any like, um, obvious inefficiencies you see in the market right now?

Yeah, I think they're the, the, the greatest. I mean, there's like a lot of short-term inefficiencies. I think that, uh, that requires a certain amount of sophistication and technology to apply to them, and, um, there's some pretty strong groups focused on, on those. Uh, the inefficiency I like discussing and is very obvious to me is related to the idea that most people in crypto are just doing some version of the same thing all the time. So, um, you know, a venture capital approach certainly is just trying to identify long-term winners, but this concept of liquid venture is also just trying to basically pick, uh, altcoins the entire time. And to me, there's, uh, a very specific time and a place to be trading altcoins. Basically, the within these different regimes in crypto, the boom-bust and the period in between, and I could characterize those by the nature of reflexivity. You should just be doing something different, like, in each of these periods. And the ability to rotate with— from one regime to the next, to rotate your portfolio, uh, in most asset class, there's no edges to do that anymore. Like, this old-school macro approach of just trying to kind of, uh, find good convexity and rotate into those things, you know, that doesn't really work anymore, in some part because there's so many different people trying. And in crypto, you have mostly people focused on like the next 7 seconds, and then you have people focus on the next 10 years, and not a lot of people in between repositioning. So I like that inefficiency. Um, I think it creates quite a bit of opportunity for those who are focused on an old-school macro time horizon.

I'm here, maybe we can end actually with something that has nothing to do with the prices of any of these things, but actually it's something, Dave, you talked about on the last episode, which I keep mentioning, folks could— should go listen to that. Um, it was with Jeff from Bitwise. But Dave, you mentioned there are no— they're the superheroes of like macro investing and of hedge fund— in the hedge fund world, there are these like superheroes and there are these superheroes of the venture space in traditional like Web2 investing and stuff. And there aren't really those superheroes yet in crypto. And I think you— when I think about what you think about when you think about those superheroes, it actually has nothing to do with finding the right prices or anything like that. It's Identifying cognitive biases, talking about— you talk a lot about like, what am I missing? What are my emotions when I'm making this trade? Why is that the— it's something that no one else on, you know, 5 years of hosting Empire Podcast has ever talked about, their cognitive biases, their emotions. And maybe that is a signal of where the market is undeveloped. But can you just talk about that?

Yeah, no, I think— I mean, to be clear, I think there are some some people with excellent skills in the space on the venture side, um, crypto, you know, that deserve quite a bit of recognition for, uh, performance so far. I think, yeah, the, the thing that, um, we haven't had a lot of quote-unquote superheroes, people who are very in tune with their cognitive biases and are able to use psychology as a strength in this market, which is the skill I would say most inherent in a good trader. Um, you know, I think it's like, it's sort of saying this the same thing as the last point about there not being anybody focused on this time horizon. I think in this market in particular, which is like the double black diamond of trading because of how it seems most real at the top and the biggest scam at the bottom, and there's— you have months like February of this year I think it requires a very healthy set of psychology, and the only way I've ever seen that being developed is through a long career of trading. You know, it's like you just develop scars, you understand that you, you can be psychologically weak at times, you make a plan which acknowledges those weaknesses and incorporates them as part of your strategy to make sure that you're not putting yourself in, in a potential sign of weakness. So a lot of the, the asset management on the trading side I don't see as having that experience. There definitely are some people that are better than others in doing it. Not everyone's made to be a trader, obviously, uh, but, you know, I believe that it's something that's, you know, if you look at commodity hedge funds, it's just as volatile, and the people running those funds have a certain skill set which, uh, is pretty unique.

So how do you think about emotions when making these trades? Like, is there like, do you have like a process you follow, or—

I mean, everyone's, everyone's different, so it really comes from a recognition of like when you, when you think about all the potential things that could happen, really solving for the one which you would be psychologically the weakest, and either having a plan now around what you would do in that moment to kind of reduce the, um, the intellectual weakness on your decision-making, or just set up something, set up a way where you don't, you don't enter that, that position. But it's really hard. It's like, you know, some people Uh, if, if the market goes 50% against them, it's, you know, they want to double down. Some people want to, want to get out, and maybe you're supposed to be staying in, you know. So designing a process around, around that. And you can figure that for trading. You go to the craps table and see, you know, what happens if you go back to the ATM after you lose all your money, you know, and whether that's a good decision or bad decision. But, uh, having actually those experiences from trading, uh, becomes pretty clear when you do this for a little while.

Yeah.

Pranav, how do you think about this?

Uh, no, David brings up a lot of good points. I was gonna put David's— put words in David's mouth, which is he looks at all these widgets and like they're completely unemotional about it, which is part of the right approach. Yeah. I, I, I was actually having a version of this conversation with one of my team members recently, which is him and I are very similar in the sense that, um, and I've, I've slightly evolved and I'm trying to get him to get there as well, which is We either love ideas, certain ideas, investment ideas, or we hate certain investment ideas. And it works in your favor when you love an investment idea for the right reasons and it goes against you because it gives you the conviction to add. So there's a positive to that. The negative on the other side is like when you hate an idea, you often might give up on a bunch of returns. So, um, one of the things that I've worked on for a long time is, is like when I hate an idea, I actually want to go spend more time on it to understand why I hate it. And maybe I'll end up. Loving it or at least liking it or realizing that it can generate a return.

I saw you do this last week with Mike.

Yeah.

He's trying to learn.

Yeah.

Yeah. I was just trying to learn.

And I think that's been the approach we're taking, which is like when we hate something, let's really go spend time there because there's something to explore. And again, just reminding ourselves that we're in this for returns and not to be like, you know, tribal and emotional about something.

Yeah, yeah, yeah.

People can start there with respect to good psychology is not making this your entire identity. That does not lead to rational thought.

Well, I think a lot of people are reflecting on that comment saying, tough one for me.

But yeah, yeah, Mr. Crypto over here.

Yeah, yeah, there you go. For now, Dave, thanks guys. I appreciate the time.

All right, see you later. Thank you.