The Biggest Market Crash Since 2020, What Next? | Felix Jauvin & Quinn Thompson

Hey everyone, Jason Yanowitz here. I'm excited to announce that today's sponsor, Petra, a top non-custodial wallet developed by Aptos Labs, 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 and manage it all directly from the Petra wallet. This is not financial advice. Participating in DeFi does carry risks. To learn more, visit Petra.app/earn. I wanted to take a moment to tell you about Focal by FalconX, the AI-powered insights engine built for institutional crypto. By leveraging AI, Focal empowers institutional investors to streamline research, anticipate market shifts, and make sharper investment decisions. You'll hear more about Focal later in the show. All right, everyone, welcome back to Empire. We've got the, the macro greats. We've got Quinn and Felix from the Forward Guidance Pod, also Blockworks Pod. Hopefully you guys know that. Felix Quinn, welcome to the show.

Thanks for having us. Happy Friday.

Super excited to be here finally. What's going on, guys?

Yeah, Quinn, you're in like every conversation now that I hear people talking about the markets. And Felix, I feel like I see you on every podcast now. I saw you on the Chopping Block. I see you everywhere now.

It's been a big week. I was on— yeah, this is my fourth podcast this week, and I said no to two others too, because I was just like, I'm running out of things to say, but want to, want to keep them prioritized for the for the Blockworks pod.

So yeah, it's a big bottom signal for markets probably, and a top signal for us.

It is.

It is.

When you— when the crypto people are listening to a bunch of macro stuff, when Empire is bringing some macro guys on the show, that's a bottom signal. It actually is a decent signal. But anyway, I think I want to have you guys on. So we're recording this on Friday, April 11th. This is going to go live on Monday. Quinn, I thought it'd be helpful to just actually take us back to Either the inaugural, either November or the beginning of the year. You know, if you, if people think back to then, everybody including myself was like, 2025 is the year. This is the bull market ripper of a year. Like, you know, all systems go. And, and I think you came into the year, you know, we had record high asset prices and you had just turned bearish. And I was like, look, I like Quinn. I don't know. But like, I don't know what this guy's talking about. Why are we, why are we talking about this? Why are we bearish? Doesn't he know that we just elected, you know, the bull market president? And I think that you were one of the only people who really nailed that call. So I'd love for you to just take us back to the beginning of the year. Like, what caused you to turn bearish back then?

Yeah, it was— it was so starting at the election or around the election, we were in the midst of aggressive Fed rate cuts that at this point kind of generally accepted we didn't need at least the extent of which we got 100 basis points last fall in consecutive meetings. And that powered asset prices because it drove liquidity in the markets. And, and obviously we were screaming to all-time highs into late December and start of this year. And on top of that, you had the Trump election, which really set off everybody's recollection to 2016. And 2017 was the lowest volatility year ever for the S&P 500 up to that point. And some really strong return years. Um, but what I think people missed was the starting point of valuations in the market and where we were beginning this sort of liftoff from was extremely elevated already thanks to a lot of the liquidity mechanics. And, and, you know, we had— we did have a fairly strong earnings growth across corporates, but a lot of this was being driven by unsustainable government spending, liquidity facilities that the Fed was basically winding down or had already drained. And so a lot of these big tailwinds under the surface were coming to an end. And then it became sort of pairing that with the policy initiatives, which the Trump admin was quite clear about. I think people were sort of looking past the actual ramifications of of what these things were going to do and cutting deficits, uh, DOJ, but also the budget reconciliation is likely to even cut more than DOJ will. Um, and then the, you know, reorientation of trade policy and, you know, cutting immigration through the southern border to almost zero overnight. So a lot of growth-negative changes being enacted early on. And I think what most the market missed was the cadencing of the policy initiatives, which I think— I do think there will be some good years of, of Trump's presidency when it comes to asset returns. But thus far, all of those pro-growth, pro-business, positive market things have been put in the back pocket to sort of pain before pleasure type of idea. So that's the general overview. And, and I think as the market sort of realized this over the last 3 months, you had a number of, you know, just big sellers deleveraging their books.

Yeah, I— it's funny, I had a similar conclusion but came to it through different factors that drove that analysis for me. So mid-December, late December, I started to be a bit concerned about a growth slowdown emerging at a point where the Fed decided— they went pretty hawkish in mid-December and took this tilt where they wanted to just sit on their hands and basically be intentionally complacent and slow to react, which is the complete opposite situation of where they were in August September, where they wanted to get ahead of the labor market, which was starting to see some deterioration. So they flipped their, their perspective entirely from going from proactive to entirely reactive intentionally and be as slow to react as possible. So that paired with what I was seeing in the economy was that the economy was actually already starting to slow down. There's some really interesting factors if you look at— so, you know, if you just rewind to COVID-era level spending, all that fiscal spending, it actually ended up in the treasuries of state and local governments for them to spend up. And that is one of the big reasons why we've seen so much government hiring. In the past couple of years in the labor market is they had so much money that they just had to spend and on their book and effectively the cliff of all that spending of when it would run dry was going to be around January 2025. So that was one of the biggest drivers of this like fiscal induced growth that Quinn was just referring to. And that was coming to end regardless of what was going to go on. So that's happening. There's some other crosscurrents really deep in the weeds of the economy that looked like they're starting to deteriorate. So if that's coming down and then you have the Fed that's just deciding to not follow it down and just remain flat, that creates this tension. And then you bring in the expectations of ephora, especially in the crypto market, in terms of, you know, we're pricing in like an all-out strategic Bitcoin reserve, we're pricing in them, you know, hitting the market and just buying and TWAPing into heaven. So that created a lot of these tension points where it's like, I'm not really liking what I'm seeing here in terms of what's expected in the market versus some of the points of reality. Even if I'm not correct on that, it's still like, how do we get better in terms of expectations that we have priced here? So that's what got me concerned. It wasn't even really specific to all that much in terms of Trump policy.

And obviously that's accelerated things since the historical data shows that like after 2 or 3 years of really strong annual returns, the market, there's just a reversion to the mean. And this is a classic. It's not what you believe. It's like what is already priced in because you can look at this is Howard Marks, like put out a great tweet and shall retweet it. Just like, it's just what is the expectations that's been built? And I think that's what most people in crypto miss. That's what most people in traditional markets miss. It's like, yeah, it's great, you know, we have a pro-crypto administration, but you have to look at simplistically what's M2, what's, you know, what's the general market going to do. Like, this is still a risk asset, and you take perhaps a more different perspective that I think a lot of people in crypto didn't appreciate, and also in traditional markets as well, which is we've just— it's sort of a reversion of the mean, so to speak, because it's, it's when things are priced to perfection, it doesn't take much to derail markets. Of course, we've had a, you know, far more than just a hiccup with a trade war, which we want to go to talk about perhaps next. But how do you guys as managers like factor all that in? How quickly do you respond to new information? Of course, a lot of things have transpired the last couple weeks, but going into the year, like, maybe take us back to January. Like, how are you repositioning the portfolio? I'm kind of curious how quickly you respond to information and move your portfolio around.

Just to give people a context of how elevated, uh, we were in terms of risk asset valuations, the equity market forward price-to-earnings ratio was at 2021 highs. So like peak, like big-time stimulus liquidity expectations. And on top of that number, the E, the forward earnings estimate, was year-over-year growth expected to, to match basically the last time Trump was in office when he enacted those huge massive tax cuts. So we're talking like incredibly high multiples on top of incredibly high expectations. So there was just a ton of, of room if, if the plane did run out of jet fuel to sort of re-rate lower to a more normal steady state. So for us, these things take a long time to form. I mean, we could even still be in a massive, you know, 6-month topping process across risk assets. That's definitely not out of, uh, the potential, you know, outcome probability distribution, but very— they take long. So, you know, coming into the year, we were very patient and, and just taking very small high-risk-reward shots on goal, I'd say, on buying massive sell-offs for, for some reversion, and, and even taking some things from the short side or pair trades like short ETH, long BTC type of things. Um, but yeah, I do think we're due for some reversion back up, but it's still unclear to me that it's off to the races from here. But we'll see.

Yeah, Santi, I mean, what you bring up, I think, is why it's so important for just the everyday person to understand the time horizon that they're operating on. And you guys, like, you know, and Santi, you guys both do such a great job of really hitting the nail on the head that, like, if you're an investor, act like one and don't try to, don't try to shift your time horizon in the heat of the moment just because VIX is at 50. So Yeah, going into these big events, you need to understand what part of your book are you trading, what part of it are you investing. And when you're allocating, are you allocating for a one-day flip, a two-week hold, a multi-month swing, or are you just completely tuning it out? Because that reflects on how you operate through this. Because you can take a more trader lens where it's like, okay, I see Liberation Day, like, you know, as soon as that chart hit, because at first going into it, I was like, oh, okay, only 10%. And then 2 minutes later, It's like, okay, that's actually like way, way, way, way high, like a 30% effective tariff rate. So as soon as that hits, you have to decide how do you operate through that. If you're like a long-only investor, do you just weather the storm or do you decide to override it in terms of, okay, I'm just going to buy some downside hedges? Or do you, you know, are you just a pure trader and you decide, okay, I'm just going to hit sell on my entire book right here, right now and try to actively decide that. But in the heat of the moment, you know, you only have a minute to decide on that. So you need to understand the time horizon you're operating on before those big events take place. And you guys both do a great job of really making sure people understand that, which I think is important.

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. I wanted to take a moment to tell you about today's sponsor, ZenRock, the permissionless decentralized custody network backed by one roundtable partners, 10T, Maven 11, and Spartan. Now available on Jupyter, ROCK is the native token for transactions within the ZenRock ecosystem and secures ZenRock's decentralized custody network. The first application launching on ZenRock is ZenBTC, yield-bearing Bitcoin on Solana. ZenBTC will be live in April 2025. To find out more, you can follow ZenRock on X or click the link in the show notes.

We mostly say because we forget about it sometimes. Yeah, but let's go back to, of course, just doing a quick recap of what happened over the last couple of weeks, the last week, Liberation Day. What was going through your mind? Just walk us through maybe that process and maybe overlay that with your general cautiousness, nervousness going into the year. Like, what did you observe there and how did you reposition your thinking around what's going to happen over the next 6-12 months?

Um, yeah, I mean, this is— so the way I was going into it was I was already concerned about the US economy in terms of the growth outlook and a complacent Fed, and also a Fed that is already upwards re-rating their inflation forecasts and downward re-rating their growth outlook. So within that context, yeah, we went into Liberation Day and it seemed like the bull case was if there'd be a 10% flat tariff effective rate. And that's why we saw that, that jump up initially in markets, because the market thought it was just the bull case coming forth and the market probably, I would say, priced a 15% effective tariff rate. And then once that, that sheet came out, Obviously, it's hard to do the numbers quickly in that moment. But it was very obvious to the market right away that this is way, way, way bigger. And, you know, by the end of that day, we got some analysis out that, yeah, the effective tariff rate was around 30% when you do all that. So, yeah, as soon as that came out, any, you know, any longs that I had, I quickly got out of because, you know, this is, you know, the one unique benefit of not running a multibillion-dollar book is that, you can get out in 2 minutes versus some of these big, you know, you know, multi-strat pod shops and stuff. It takes a few days for them. So you can, if it's clear to you what's happening, which it was to me, I was able to get out really quickly and dodge most of that and basically wait for, you know, the multi-strat pods to unwind their books and for the margin calls to hit. And it's really interesting going through the motions of those days and since is the cross-correlations between different asset classes have been really interesting. So basically leading up until that Thursday of Liberation Day, you were seeing bonds rally, US dollar down, equities down. So this more classic flight to safety. And then Friday and Monday, we started to see US dollar rally and pretty much every asset class start to sell off. So we saw gold sell off at the same time as US equities, for example, as like rest of world equities like Europe, which was outperforming the US quite significantly going into that. So suddenly you started to see the margin calls get hit. And then you saw the classic flight to safety into the US dollar. So that was where you could tell that, okay, you know, these multi-strat pods are degrossing, they're getting out, you know, they're hitting their risk limits. And so you can just wait for that. And then by Friday evening, you know, Quinn and I were on a roundup with Tony Greer and Jared Dillian, we kind of talked about how, okay, you know, this is the time where you got to, at the very least, close out your shorts. Start to think about some longs. This is part of that capitulation. It's, it's the pawnshop capitulation. So that starts to create irrational prices to get into. And then it's been really interesting the last few days since is that we've seen this reversal into what is actually capital leaving the US. So Jim Bianco posted an interesting chart an hour ago just looking at, you know, we've seen the bond market sell off really significantly and the, the Dixie, you know, it's, it's at $100 right now and testing a pretty key level. It's been, you know, pretty much crashing at this point. So that's capital leaving the US, and I'm sure we can get into some of the dynamics of why we think that's happening and contrast that to tariffs. But yeah, Quinn, maybe you can add any color there.

Quinn, Quinn, one thing I'm especially curious about to get your take on is I've been listening to Ford guidance the last couple weeks, and one thing I keep hearing you say is, look guys, this isn't a surprise if you've been listening to Bessant. And even I think it was either today's roundup or last week's, you were mentioning, you're like, look, if you even just paid attention to COVID and the minds and like the mindset coming out of COVID was, look, we're all overexposed to kind of like this globalized nature of trade here. Maybe just following up on what Felix said, but also like under this light of, yeah, you know, Bessant's been signaling this, I think, in your take.

Yeah, it's the classic, like, No one wants to actually do the work to go listen to Besson doing all of his interviews. Yeah, like, everyone's like, what are you talking about? You? And yeah, okay, if you just read the headlines of a snippet of someone's interview here and there, or what, you know, CNBC or whatever puts together as the summary, you know, you're not going to glean the root sort of strategy, what they're trying to do. But it's, it's— you just got to read between the lines. But yeah, it's— I think it's been pretty clear from their direction as to what they're trying to do. And I think there was this sort of like, uh, everyone was sort of looking past the actual ramifications. It's not that Trump and team wants to crash the markets in any stretch. No president, no person ever wants to reside over that. Uh, but it's that they were willing to take the medicine and, and endure pain in risk asset markets to achieve what they deem to be more important long-term sustainability goals of balancing the budget, which is growth negative because we're spending less, of reshoring trade, key, uh, national security and, um, critical, uh, infrastructure, you know, trade components. from China and this actual sort of bringing forward of the potential threat that lies out there that no one really wants to address and was never addressed in the last number of years, which is China maybe making a move on Taiwan. So I think, um, it's, it's disruptive, you know, it's definitely was, was a very boisterous week in terms of communication and how they went about implementing and how they went about trying to negotiate and bring partners to the table and and affect their goals. But if you put that all in the context of actually how massive these changes are that they want to get through, you kind of have to swing pretty big and, and ruffle some feathers in order to do that. So that, that was kind of our— and as Felix mentioned, pricing in the markets is— and investing and trading is all It's a combination of what the market believes, what you believe, and what's priced in, and then what's actually right. And you have to triangulate what's priced in with what you think, uh, where you think consensus is, and then where your view sits in the middle. And, you know, the— we were just priced to perfection, um, and all these signals and communications pointed to a lot of bumps in the road. It's not that we need to tip into recession, but a lot of byproducts of these policy changes in the near term are growth negative that increase those chances.

I think a lot of it comes down to like your investment horizon, as both of you guys were saying. Can you, um, you talk about in investing like this expected value, there are multiple scenarios as we go from here, right? And, and can we just entertain the most bearish scenario, call it in the 12 months. I think a lot of our audience, just generally the market is like very—

let's talk, let's talk rest of year, like probabilities for what happens.

Rest of year, let's entertain, spend this chapter of the pod like talking about most bearish case, middle case, uh, most bullish case, and then overlay that what you think, and then what again the meta, what the rest of the market, Jamie Dimons of the world, hedge, hedge funds and foreign investors think? I know it's a difficult exercise, but let's just spend a moment on that.

I think the most, uh, so the most positive to me would be this lockstep, stair-step approach to affecting the growth-negative but sort of long-term sustainability viewed, uh, initiatives like reducing the budget deficit which when the government spends less, that's just bad for stock prices and GDP growth. That's just the equation. So they need to slowly bring that down over a year or two while— and that will help calm the bond market. That will help, you know, lower the cost that the US has to pay to finance their debt because people will be less concerned about fiscal sustainability. They need to do that in kind of conjunction with some of these positive pro-growth tax extensions from, from their previous bills. And then the deregulation initiatives, which they've already started on the energy front, cutting deals with the Saudis and opening up additional drilling and sources of energy, which helps anchor inflation, bring inflation down to offset any near-term impact of tariffs. That might be inflationary, because you reduce the input costs, and do this in a, in a balanced way throughout the remainder of the year. I would say the most bearish is one where they feel too pressured because of maybe midterms in '26, or, you know, that, that, that would be the date, really midterms '26, where they say we need to tear the Band-Aid off and tear it off quickly because not only does it become a threat to our long-term initiatives, uh, if this is running into and around midterms in '26, but the longer this goes, the more likely there's problems either in actually achieving what we want and/or cutting into the economy deeper and a worse and worse recession or growth outcomes. And so if they have that view, they might want to really, you know, cut once deep type of thing now and be more willing. I think Trump showed he was more willing to eat pain than anyone, even myself, who expected this sort of scenario to be. And they really want to put these things through and really backload all the tax and pro-growth pro markets things into the later part of the year. So I think that's most bearish. The problem there is you really hurt receipts, you hurt growth, you hurt the labor market, and you almost tip us too far negative growth that you have to then respond with bigger stimulus, worsens inflation, etc. So the, the most optimal outcome is really long-term for asset prices to be pretty range-bound and choppy this year. Not blasting to new highs where inflation's an issue, or, you know, cratering where recession is a scare, but just sort of maneuvering it in a responsible way. Um, but I call it the controlled burn effort, with the risk being that controlled burns can become uncontrolled, and, and then you have to do things you didn't want to do.

Felix, before we go to you, maybe I just want to entertain Quinn, I didn't hear any about the geopolitical risk of like just China, Taiwan that could really just derail. I mean, just for context, Taiwan sort of produces 60% of all the chips in the world, 90+% of all the very specialized chips. There's— there's a facility in North Carolina that actually like produces high— like high purity quartz, which is actually the chokehold of the world. But Taiwan is, for all intents and purposes, like geopolitical, I don't know if you didn't talk about it. I've— you or Felix want to talk about it.

The reason that he needs, or their belief is that they need to get the Western world all together, is if they want to go after either the decoupling or confrontation against China in some form or another, they need everybody on board for this. Because look, we're at 150% tariffs on China now. When we get to those levels, we start to see diminishing levels in terms of the calculus for rerouting shipping. Regardless of where we're at now, we're already at the calculus where, you know, that trade is going to be rerouted through Vietnam to avoid those tariffs. So it's not a coincidence that if they want to get all on board on isolating China and actually having these 100+% tariffs actually be meaningful, they can't just reroute through the other countries. So they need every other country aligned there. So if that happens while we get marginally lowered net trade impact, let's call it, these Western countries, and then they all focus on getting this deal done with China that could potentially lead to, you know, these, these lower— lowering of tariffs of 150%. I think that provides a really good off-ramp for this whole situation, and hopefully we can recalibrate the, the global, you know, economic trade order within those realms. And that's, I see, the key goal. So the issue is getting to that point without people losing faith in the US bond market and US capital as a whole. And that's where we're starting to see some, some, some testing of that right now. So I've been really focused on the bond market this week for the last few days, because what we've seen is that there's a lot of leverage built up in US Treasuries. We have, you know, something called the basis trade that hedge funds put on where, you know, they buy Treasuries and then short the futures and collect the spread. Similar to Athena for crypto natives. This is the original Athena, and hedge funds lever that up like an insane amount. And then there's also some more idiosyncratic and more technical trades too, and around like swap spreads, but similar ideas. So the idea is there's a ton of leverage within the US Treasury system. And then as we start to see this question of, you know, there's a lot of people coming out with these, you know, I'm still going to call it a conspiracy that China is just, you know, selling all their bonds onto the open market right now. These crosscurrents are effectively creating a lot of volatility in the bond market. And during this dynamic, if they start to see the long end really start to question, you know, the faith in this trajectory, that is the bull case I just panned out. You can get to a point where the comparison that's being brought forth right now is what happened in England a couple of years ago with Liz Truss, where, you know, they brought in some fiscal concerns, you know, huge deficits, and that caused the bond market to basically go on strike to the point where the Bank of England had to step in and do temporary quantitative easing overnight. So the risk is that this accelerates further down that path and they lose the bond market because this goes against, you know, the entire goal of Scott Bessett, which is, you know, he says focus on the 10-year. We want to get the yield of the 10-year lower. So you have to basically try to toe this line of getting to that endpoint of these negotiations and squaring in on China without losing the bond market. And it's, it's, it's a tough one. I'll be honest.

Felix, what's the— or Quinn. So I mean, like, if you look at what's happened since Trump got elected, right? I mean, the 10-year has fallen from 4.8 down to 4 and everyone's all happy about this.

Why is—

why have we spiked up so much? This feels counterintuitive to me. What's the—

Yeah, so that's where I think like 70% of it is this leverage blowup. So, you know, we talked about the pot shops blowing up. There's also this basis trade that's been unwound. And then there's the speculation of our foreign central banks also selling their treasuries out of some sort of, you know, protest or escalation of the trade war. I, I did, I discount that idea quite a bit, but I think for the most part it's, it's been leverage, but it's just about, you know, oftentimes these things have a technical catalyst that leads to a fundamental acceleration. So it's, it's trying to figure out where are we at within that.

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. I wanted to take a moment to tell you about today's sponsor, ZenRock, the permissionless decentralized custody network backed by one roundtable partners, 10T, Maven 11, and Spartan. Now available on Jupyter, ROCK is the native token for transactions within the ZenRock ecosystem and secures ZenRock's decentralized custody network. The first application launching on ZenRock is ZenBTC, yield-bearing Bitcoin on Solana. ZenBTC will be live in April 2025. To find out more, you can follow ZenRock on X or click the link in the show notes.

How much of this, how much of it— look, we're not political experts. It's hard to read, especially someone like Trump, which just sort of like goes counter to all like diplomatic handbooks that you might get in any policy school. Art of the Deal is not in like, you know, the United Nations handbook, so to speak. Um, but it is something that like I think about a lot, which is thinking about like extreme scenarios and having cash available, like what Buffett has done. I mean, like, you know, you always want to make sure that you like insulate yourself from what could kill you, like, uh, sort of Taleb Turkey. In a scenario where like this escalates, Taiwan, like, I, I just want to— my appreciation, I read Chip War and then a couple books that talk about this, but like To put it in perspective, COVID is, is, is a minor episode. This would halt all assembly lines. Everything relies on a chip, and it's just like, it would halt everything for, for, for hospitals, airplanes, cars, smartphones. Like, everything just comes to a halt. Inflation shoots up dramatically. You're basically wrecked the market. Forget about any bearish scenario in your book, probability weighted. This is like extreme tail scenario. So what do you do? Like, you, you invert, you pull it forward now and say, okay, how much cash do I actually want to have? Because volatility, I hear you, is going to continue to persist. So how do you express that view? And how comfortable— I guess I'm— the direct question is, how much cash do you have in your portfolio? And how much are you willing to just hold? And, and, and, and for this type of extreme outcomes?

Well, let me give you an example of when I say Bessant listen to Bessant and everyone says you're crazy, like Trump doesn't listen to him. Remember the line a week ago when he said this is not a MAGA problem, this is a Meg7 problem? And everyone's like, how could he say that? He's like cheering on, you know, our largest company's stock prices going down. No, what he's doing is if China invaded Taiwan and we were running into that situation with what we had earlier this year where 40% of the S&P 500 was in Mag 7, the S&P 500, Nvidia would be down 60% the next day. The S&P 500 would be down 30% in a day. And everybody'd be looking around because they all piled into this stuff at pico top saying, well, what Fed, Treasury, what are you guys going to do to bail me out? Well, you just bought these like crazy expensive, overvalued, overpositioned companies ahead of like this massive event. He's actually— by, by putting this message into the market, he's saying, hey, think about this. Like, you know, there's a, there's, there's a problem here that we're over-reliant. Our stock price, our indices reflect that. So for me, it's a positioning for your longs as to things that benefit. You could think about defense, you could think about commodities and energy and key minerals or key resources. You could think about industrial, mission-critical industrial manufacturers that in the worst-case scenario, okay, this year a war might put us in a recession and we need less widgets, but we still need widgets. So I think it's thinking more about, because you're never going to be able to predict that. It's, yeah, almost the Buffett approach. I mean, he's got to raise this cash very slowly because he's moving such size. But if you look at his portfolio aside from that, he's leaving the Apples. He's going into the Oxys. Like, he's rejiggering his, his underlying sector exposure to try and account for some of that risk, knowing he's never going to get it right.

So the big question at hand for me now, as especially as we see the bond market, you know, start to accelerate, is we're all asking, when does the Fed step in on this and, and, you know, provide us the off-ramp for quantitative easing and all our bags go up? And one of the big questions at hand right now is, you know, the, the bond market selling off, like 30-year yields increasing, is is not exactly— it's more of a political decision than like a financial stability decision until it starts to affect liquidity. So when we talk about Treasury market liquidity, the big distinction is, you know, for those that are in the weeds on bonds, there's on-the-run bonds and off-the-run bonds. Off-the-run bonds are all bonds that have not been issued in the most recent issuance. The on-the-runs are the ones that are the most liquid. So oftentimes, like in March 2020, what we saw is that the off-the-run market seized up there was no bids, no asks, there was no activity whatsoever. The Treasury market froze. This is a big reason why we've seen, you know, we've heard about the Treasury doing Treasury buybacks. Now they're buying back those off-the-runs and doing that on a neutral basis because they are also issuing on-the-runs at the same time. And that balances out, but the liquidity improves. So the 30-year increasing is not too concerning for the Fed until the liquidity starts to seize up. So how do we measure this liquidity? Because everybody thinks the Fed just looks at equities and when it goes down 15%, they step in, but they don't actually really care about equities. They care about these very important parts of the plumbing market. So I'll just bring up my screen. This is one, you know, here's some alpha for the Empire crew. But here's a couple of indicators that the Fed actually looks at and cares about. So this first one is SOFR to IORB. So what this is, is the secured overnight funding rate netted out by the interest on reserve balances. So for those that aren't in the the deep world of monetary plumbing, there's basically bands of different facilities and offerings that the Fed does to keep the Fed funds rate within the band that it actually wants for monetary policy. And when the SOFR— so the top of that band is IORB, which is basically the interest they pay on bank reserves to banks. And that sits up there. And so SOFR is the floating rate of the Fed funds. And as it gets higher and closer and potentially above interest on reserve balances, What that shows is strain in the funding markets, which is the most important thing in the world for the Fed. This is— it's on them to keep this functioning. So what we saw this week is that we got above zero for the first time outside of quarter-end dates. So you can see there's a few times here in the last quarters where it was above that, but that always happens at the end of like these quant— this is very directly related to quantitative tightening. As we get to the end of this whole phase, you start to see this at the end of quarters. Now what's interesting is this week it's the first time where you can see we got above zero, not at those quarter-end dates. So these are— this is, you know, we've seen it come off a little bit yesterday. This is lagging data. I don't have a fancy Bloomberg terminal where I can see this live, but effectively we've, we've seen that strain start to show up. So if we start to see that, if we start to see, you know, those off-the-runs trade with terrible spreads, these are actually the things that the Fed starts to care about. Or, you know, for example, I have the high-yield credit spreads. So this is also another important thing. So you can see, you know, we've increased quite a bit But we're still, you know, where we're at in terms of, you know, a lot of like the duration crisis of 2022 is what I call it, where inflation just destroyed bonds. But if this, you know, if high yield credit spreads start to accelerate further, these are the type of dynamics that the Fed actually looks at. And that's what I'm looking at to gauge whether they step in or not. So as of right now, it's mostly a political decision of if they want to step in and cap the long bond. Um, but as of right now, there's some, you know, funding fractures, but it's still operating. So it's this weird moment where we either need things to fall apart further or for things to improve. But yeah, it's, it's a weird one, but that's how I'm thinking about gauging when the Fed actually steps in.

Yeah, but before recording the pod, we were talking about Jamie Dimon and his comments. Um, you, Quinn, talk about Bessant a lot. Who else do you pay attention to? Uh, is it Jamie Dimon? Is it who, you know, there are a lot of people coming out and, you know, having an opinion on this stuff.

Uh, yeah, I think there's a lot of— I mean, Twitter is awesome because there's just so many smart people who, you know, maybe they worked at a big bank, maybe they worked, you know, different places and got sick of the bureaucracy and just take their talents to Substack or other, um— so there's a lot of good people on there. Like Andy Constan is good at this, this plumbing stuff, Joseph Wang, and, um, I think Warren Pyes and some, some people like that. So for me, you know, we get bank research and, and all that, but a lot of it, that's good for the data and, and kind of numbers. But in terms of like interesting opinions, I'm usually, you know, kind of scrolling Twitter sometimes to get alternate views. When it comes to policy, um, I think Bessant, yeah, kind of forget everything else. Hassett, who's on his team, is also really high quality and pretty transparent. I mean, Jamie Dimon, like him, there's people like Chamath and others, Ackman, who you might even listen to for contras, where once they start getting into something, it's time to look the other direction? Because for Dimon, right, like, this reminds— this is very similar dynamics to the March banking crisis in 2023. So to rewind the clock there, what was happening was a bit of an inflation scare that was sending long bond yields higher, uh, and, and stock prices lower in conjunction. And, and it got so bad that all these banks who had been sitting on large piles of treasuries they bought in much lower rate environments, higher bond price environments. Their balance sheets were deteriorating in value rapidly. And so there's nobody worse off than the banking system, the US banking system, when, when bond yields are doing what they're doing. And that's actually probably part of the reason you're seeing Bitcoin trade so well right now, because and gold for, for sure, because gold can do— can trade even better when, when shit's hitting the fan. But it's because it's becoming apparent that before S&P hits 4,500 or, you know, some other crazy risk-off things occur, it's apparent that the bond market and yields are going to rip to a point that's unsustainable for a healthy banking system, and the Fed will likely have to act. So it's tough, you know, you got to just take a bunch of opinions. Dimon is usually talking his book, but, you know, it is a— it's a data point. It's a signal you should be aware of.

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For tariffs, it's the latter because yes, for, because tariffs are hurting as evidenced by the bond market, their goals of bringing yields down. For me going into this year, actually setting aside the conducting of their messaging around tariffs. Tariffs ranked like third on my list of things I was concerned about for risk assets. So I was a little— I misjudged even how poorly the market was going to receive tariffs. Granted, some of that was due to the manner in which they were delivered. And, um, but getting the bond yield down is more correlated to Doge and the deficit reduction, which when a country is spending way more than they can afford to spend, they have to issue way more debt than they should be, dilute, you know, diluting the amount of treasuries in the market and, you know, increasing the price they have to issue at to the next marginal buyer. So, um, their core focus is the deficit, the budget deficit, not trade deficit. Uh, and, and that is what they need to get that down in order to bring yields down sustainably. Tariffs actually sort of hurts that effort in the near term because it is slightly inflationary, many say. But it's more strategic, I think, on the tariff side.

Yeah. I think the Trumath view that tariffs' goal was to decrease the 10-year was just a convenient coincidence for him. I don't think it was really— I view those as separate goals. And I think it made him look pretty dumb because he double down on that idea that tariffs were the causal factor of the 10-year going down. It was just more so the pricing and concern of a recession, and then that quickly got reverted by leverage blowouts, etc. But yeah, I view them very differently. I'm more in Quinn's camp that there's different policies focused on lowering the 10-year. So obviously the goal of decreasing deficits is one, and I probably fade Doge a little bit more than Quinn on that regard in terms of the effectiveness of it. But overall, I think, you know, that is where the goal is, is to lower deficits. It's to deregulate. This is probably the one that I will overindex in terms of the potential for it. I think there's a lot of bank deregulation that's going to come down the pike over the next year or so, and that's going to help banks to buy up more Treasuries and it's going to help with collateral ratios, etc. So I think that is going to be a very significant factor in lowering the tenure. And, you know, maybe a couple of years down the line, if on that we end up with lower tariffs than when we started with this whole thing, that would also lead to, you know, more effective and more efficient growth for the world. And generally speaking, when you have, you know, productivity-led economic growth, so, you know, positive real GDP, not inflationary growth. To Quinn's point, like, just listen to Scott Bessant. He said this many times. We want non-inflationary growth. Which is basically saying we want productivity-led growth. What's one of the best ways to get productivity-led growth? Unleash capitalism, you know, unleash deregulation. So, uh, AI, uh, yeah, and AI, yeah, exactly. Just, just letting it rip, you know. And, you know, this is, yeah, where AI comes in, where crypto comes in. And, you know, just the efficiencies of like stablecoins, for example, too, you know, when you have instant global settlement, uh, for the whole world, like that does wonders too. So I think it's more about reordering global trade around China and getting everybody's ducks in a row. And then there's also the revenue thing. You know, I think the 10% is, is just going to be permanent to some degree. And I think they're trying to use that to fund further tax cuts, which is an interesting proposition. But yeah, part of it is also the revenue idea.

Yeah, well, hopefully we don't poke a bear too much where we go into full out war and chip freezing. Uh, I want to transition this next chapter into what I came here to learn is, should I be punting Bitcoin and all alts right now? Should I be holding cash? Or what, what the hell should I be doing, gents? Because, you know, of course, like, you see people come out of the woodwork on Friday and say, look at Bitcoin, it's holding up exceptionally well. And my reaction was just like, for now. And then of course You know, it's still a risk asset, and I'm kind of curious, as you package all the stuff that we've talked about throughout this pod, what's your current thinking around crypto and your appetite, uh, your term horizon? What are things that you like? What are things that you don't like? Kind of curious.

For me, um, I believe we are, for the remainder of the year, going to be in an elevated volatility regime relative to the past number of years, meaning the VIX is not going to settle back in at 12, and it probably settles back in, in the high teens or at 20 or something. Um, but that is still a meaningful decrease in volatility from, from the recent weeks. And that on Friday, there was a lot of hoopla made around that, the, you know, the potential for decoupling. Between Bitcoin and, and U.S. equities. But there is actually a kernel of truth in that if, if you look at how they've been trading over, over, you know, sort of like a multi-week horizon. And I think a lot of that has to do with gold strength because I, I do believe Bitcoin is sort of a 50/50 NASDAQ-gold-ish combo of, um, it doesn't do so well in the midst of the mayhem as gold does Uh, but it doesn't— but it runs the fastest when the mayhem is solved and liquidity is provided to smooth things over. So for me, after coming into the year, I put a tweet out saying there's a very good chance that Bitcoin has been— is topped for, for 12 months. Um, seeing how things have played out and developed in the way they have, I'm actually more bullish on Bitcoin than I, than I have been since probably no, pre-election, probably since October. So whether that's, you know, a trade back to 93 to 100, or that's new all-time highs, let's see. We got, we got some ground to chop before needing to make that decision. Um, but there is a very strong case to be made here that the, that the powers that be are going to have to step into these markets and fix something. And if you believe that have a view as to what the future looks like, it's probably more beneficial in most cases for Bitcoin than it is stocks earnings.

Let's say, Quinn, if you, um, if you think Bitcoin is going to hit an all-time high this year, how do you think about pushing out on the risk spectrum? Are you like, oh, Bitcoin, okay, like maybe I'll go into SOL, or maybe I'll push into HYPE? Like, do you start looking at other crypto assets, or it's just too— you're not, you're not there yet?

Um, I think I'm, I'm sort of, uh, in the fundamentalist camp. I'm— I obviously know we— that crypto does not trade on fundamentals, you know, in short-term horizons, but I do think there's a long-term gradual shift towards that because for me, you know, a lot of these things when they're compared to other valuations of things you can buy are still very overvalued relatively speaking. So, you know, one of the big things you learn, and it's a macro, uh, people talk about is like when you have a view, you, you might be right, but a lot of times people get the expression wrong because they're saying, oh, I think rates are going to fall, I'm going to like lever up on home builders because I think if rates fall, housing activity is going to boom and home builders are going to rip. And it's like, this is a case where, am I bullish volatility maintaining at high levels? Yes. Am I bullish on Fed and Treasury having to step in to provide liquidity and support markets? Yes. Am I bullish on the dollar weakening as, as the structural decline? Yes. And then you say, okay, well, that's Bitcoin and digital gold. And yes, there's bouts that alts do really well. But I think if you maintain that 2021 mindset of like, oh, we're in a bullish environment for Bitcoin, just sprint to the furthest out the curve thing, you're going to run into what we've had I continue to believe Bitcoin dominance just goes up and up and up. So for me, I almost think in a lot of these cases your risk-reward like is almost better. People want alts for leverage Bitcoin a lot. You almost might be better off if you look at the stats and run the ratios of risk by leveraging your Bitcoin. I don't— I'm not advocating for that, but I'm just saying in terms of creating a volatility or beta-adjusted position you know, these— a lot of these alts have proven to have much more downside with maybe similar or slightly more upside. So for me, it's— I'm trying to stay true to what my view is. And yes, there's assets in crypto alts and crypto equities that we think have gotten to levels that are interesting, but it's definitely not a like throw the dart at the dartboard on the, on the ticker sheet thing.

Felix, before we go to you, on this point, um, of expressing the view. We're talking about this on the pod, um, the roundup yesterday, which is there are now more vehicles and mechanisms to express this view for crypto. You're gonna have more IPOs, presumably, maybe not, but like you have the ETF, you have Hood, like Robinhood, that is getting more into crypto and might trade on that. There is Coinbase. Going back to this nebulous risk-adjusted way to express a view, levered Bitcoin versus alts, and maybe you buy Robinhood or Coinbase, you can you know, maybe more tax-efficient ways. Felix, maybe you want to overlay that thinking into how you would express your view on crypto going forward.

Yeah, I'll tie that up in the second half of my answer. But the first half here is that, yeah, I'm bullish Bitcoin and crypto on a mean reversion basis. But for an explosion past all-time highs on— let's focus on Bitcoin because I do think, you know, our asset class is getting old enough where we— I think it's worth start piecing those apart separately. So for Bitcoin and what its correlations are relevant to, any further upside past all-time high is to me actually a bet on the failure of Trump investment policy. So it's a bet on increased fiscal deficits as opposed to reining them in. It's a bet on them losing the bond market and the Fed coming in and doing quantitative easing in some form or another. It's a, it's a bet on this third one is a bit more difficult because it's a bet on recession, but obviously it's going to go lower first and then the Fed comes in in full force. So I think really meaningful upside in Bitcoin is— oh, and also just like, yeah, losing the lack of faith of the bond market and the US dollar as a whole as well. These are factors that Bitcoin was born for. So it's almost for the meaningful upside, it's almost a bet on a lot of those, which is an interesting one because it's also, you know, President Trump is crypto president and he's super constructive about it. And this is where I get to the point of separating these asset classes, because I think regardless, there's also the technological innovation that's happening within, you know, stablecoins. I'm insanely excited about. I think it's, it's one of the most interesting things in decades. So I think those components and also, you know, Robinhood and etc. coming in as well, this, this more the technology side of things, of the innovation, not the hedge against, you know, reserve currency type stuff is, I think, going to do well regardless because you have the deregulation, you have the promotion of stablecoins and the uplifting of it by this administration. So I think regardless, that stuff does well. But for like all-out Bitcoin dominance outperformance, it's actually a bet on the other side of things.

I look, as far as I can remember being in this asset class, people have talked about Bitcoin being a hedge against macro and irresponsible fiscal policy and all this jazz. But time and time again, as we look through and we lick our wounds every cycle, we say it was all an M2 trade. And so Bitcoin will continue to be a risk asset. And I hear you on it is like a small—

treat it—

maybe it's a sizing thing. It's like treat it as a very maybe cheap insurance policy in case You know, it's an escape hatch to all this shit blowing up, and maybe Bitcoin at that point shoots up to crazy amount. So you want to have it in your portfolio. Get off of one, get off of zero. It's more of the, the, the go back to how much cash you have relative to Bitcoin. I think for me is more of a question that I've thought about more and more, which is I want to hedge macro. I'm not a macro guy, but I do want to have I've always felt that you factor in two things that we've talked about on this pod. One is what is being priced in. If it's 20— if the S&P is at 23 times all-time high, the expectations are high, there's going to be some mean reversion. That's just how markets work. The pendulum will swing back. The Howard Marks of the world kind of ascribe to that thesis. The other part of my brain says what gets us out of any rut is continued technological innovation. So go really long over a longer period of time So like over a 5, 10-year period, I want to be long stuff that I think gets us out of all this shit, which is AI and crypto and maybe some biotech stuff that I really like. So I have a portfolio that is centered around that, but I am mindful of these dynamics that are constantly evolving in real time. And the part of my portfolio that is a bit more short-term and a little bit more backing and solving for my psychological state where if this stuff really happens, I want to be in a position where I want to step in and have cash. It's never hurt to have cash in crypto or just generally. And if you— Quinn, I agree with you, like long vol. So like I factor all that. So I guess the question that I'm trying to get at is how do you compute all that? And I guess the ratio of how much Bitcoin you want to have relative to just cash, or maybe other like industrials, rare earth mineral stocks, like shit like that.

Yeah, the, the problem with cash right now is, well, depending where you're at, if for me, I'm in the US and the Dixie just went from 107 to 99 or 100. So I just lost 7% of my global purchasing power. Uh, you know, gonna have to pay up for those Aperol Spritzes this year over in the Med. But, you know, like, I'll sponsor Quinn.

Like, but how much are you buying? Are you gonna buy like these equities? Are you gonna buy like most of— like, I guess, where is growth gonna come Are you gonna, are you gonna go buy stuff? I think Europe is dead as content.

Yeah, it's, it's, um, I, I think, I think mission-critical industry and resources, like, an example is looking at the things that, okay, we just, like, in all these things there's opportunity. Everyone wants to talk about, oh my God, we just cut ties with China and it's a bad thing. Well, it's like Well, why don't we— why don't you, instead of talking about that, you spend the next week digging into every single industry sector and company that we relied on China for that now needs to be done here, or Mexico, or Canada, and understand where huge opportunity is? I think oil and energy and natural resources is going to be a very interesting place. We've obviously got smoked recently as some supplies come out on the market and and, uh, uh, you know, growth expectations have gotten hit. But I think, you know, in times of war or geopolitical conflict, that's one that's a pretty, you know, uh, defensive position. Um, and you can also look at pairs in terms of longing something and shorting something that gives you, uh, maybe is more exposed to it. But it's kind of a, you know, for, for the funds, it depends on your strategy. We will move in and out of things within weeks. So we'll, you know, we're happy to go 100% long Bitcoin for a couple weeks and, and be out if, if our objectives are met or we're invalidated. Um, but in, in terms like a long-term investor, yeah, I think it is, it is prudent to— probably not at these levels after the big mess, but, you know, on dips, raising cash and just being ready because It's easy to forget after two back-to-back record 20-plus percent S&P return years and 100-plus percent Bitcoin return years, you know, it's, it's easy to forget that things can get cheap and stay cheap. And it will feel like, oh, this is a great buying opportunity. And then it's like the dip, the dippity dip dip dip. And it's like, yeah, so, so, you know, people just remember that that can happen and things can get worse before they can get better. On and be thinking with that long term. So I think it's kind of one where if you have the ability to actively manage and raise a little cash when things rip up, sell a little when, uh, and then, you know, deploy a little when they go down. I expect a big range-bound market, to be honest. Like, I expect like S&P range-bound for like multiple years maybe type of thing.

So Felix, how much, how much of Bitcoin gold, cash, defensive, and, and max 7, like innovation, kumbaya, are you buying?

I'm gonna do $30 gold, $20 equity, um, SPX. Yeah, just index.

And then the remaining 50, 60, SPX 6900, right?

Yes. So, okay. So that covers gold and equity beta. And then the remaining 50% is— I'll put another 20% into Bitcoin. So that gets me to 70. Then the remaining 30% is what I call, and I think this is what you guys represent so well, is the, uh, the high beta technological optimist trade. And I think that's what, you know, you guys both do so well. And I think that aligns really— like, if you want to, that's the one that really gets me most excited. The other stuff is just cross-correlation hedging, basically, in terms of, like, you know, sometimes gold does its thing while Bitcoin doesn't. They trade differently during different regimes, but then also kind of have this confluence thing. So yeah, the 30% one, that's the one where, like, fundamentally I'm the most excited about because it ties in nicely to what we talked about earlier in terms of like the Scott Bessen goal of let's get non-inflationary growth, real productivity-led growth. That's that technological technologist optimist trade. And I think that's the most powerful one that has the most upside. But again, it's highly volatile. It's high beta. It ties into this, you know, what you're saying earlier about do you just sit in Bitcoin because it's lower beta versus the alts, or do you just go into the alts but lower your position size? And how do you manage the vol versus the fundamental catalysts. And so yeah, I think you have to size it effectively, but I do think there is, there is some, you know, meaningful upside to the, to the optimist trade as opposed to the, you know, buy Bitcoin because of the failure of the US dollar trade.

That's interesting. Quinn, I don't know if you want to respond in this allocation game, but I find it interesting that you took 30 gold, 20 Bitcoin. So, so you're more perhaps your outlook— if I read into that, I'm like, you you're perhaps a little more cautious about the rest of the year.

Yeah, it's just a, it's just a beta thing. It's just the volatility. Like, you can, you know, gold has a lower beta, so you can size it bigger. That's really it.

And something you mentioned is that the name—

why, why I feel like— what do you, what do you mean by that, that you can size it bigger? Is that because you're not comfortable taking on volatility? Like, you don't want to something to go down that much because you're, you're playing a short— like, if you're playing a longer term game, like you talk about these time horizons, if you're playing a longer term game, the volatility doesn't matter at all, actually.

So it's true. Yeah, I mean, that's where like I sort of end up deferring to like the traditional portfolio management theory stuff where it's just like, I want to size up my, my bets versus the expected volatility of it. And you know what I respect about crypto natives is they don't give a shit about that. And it's just like, let me embrace the volatility and just like go all at it. And I respect the hell out of that.

Look, it's backfired several times, I'll say that.

What about, uh, like structured products and that? Like, of course, like the expression of all these things, like you're gonna— I found them to be an interesting pocket to, like, if you go long vol, you could— moments where the market's puking or whatever, you can clip some really interesting coupons and, and reinvest that cash flow into way higher beta stuff. Like, that, that for me, as I think about like how I've managed my portfolio over the years, is like I want to have uncorrelated cash flow producing assets that I can then pile into the giga, like, all right, I'm going to invest in the, you know, seed round for a project that might be 100x or bust kind of thing.

Yeah, man. I mean, long vol is the golden goose of portfolios, right? Because for the most part, we're all short vol, and the hard part is how do you get long vol without it just, you know, dragging on your portfolio? Like, there's no free lunch in finance. So either you just, you know, you just buy out-of-money puts and just roll those every year or whatever, and that's just the cost of doing business for those tail risk hedges, or you try to do something fancy like the long vol funds do where they try to basically get like a positive carry on a long vol hedge, which is also the golden goose of finance. And, you know, that's like what Nassim Taleb always talks about. Like, that's his whole idea. It's difficult. I think, like, you can't just buy VIX calls and just sit on those, you know, and just wait to cash them out because markets are smart and the options will price those effectively. So it's— the idea is good, but the execution of it is awful. Maybe Quinn has a cooler idea, though.

Around it.

Yeah, it's— there's no— there's no replacement for cash. When you go to the— when you wake up and the market's down 5% and you're in cash, you know, you're not wondering if that's going to get hit too. I mean, when the dollar's down relative. But I think, um, I don't like sovereign bonds of any country because I think the cost of capital globally rises when you have this decoupling and multipolar world regime. So I look to other income sources. One could be like, um, there's an ETF, I don't own it right now, but it's an example of AMLP, which is energy-focused. It's an MLP, you can look it up. But, you know, high dividend, uh, you know, fairly stable as long as obviously oil prices don't go to zero, uh, cash flows tied to what I would consider a mission-critical good, and infrastructure being, you know, oil and gas. So, um, there's those things. There's also high dividend equities, that there's lower volatility equities. So there's, you know, to your question, Jason Yanowitz, around like the gold versus Bitcoin split, it's part of that answer is also to do with how close do you think we are to the end of this mayhem than the beginning. Because part of solving for lower volatility is just saying, hey, I don't know, I know But if I think there's higher chance that we do drop big or we don't, you know, because presumably Felix, you know, there might be a time where everyone threw in the towel on Bitcoin. He goes, okay, zero gold, you know, all of it in Bitcoin. So part of that.

Let me get your guys' take on one actually specific stock that Santi and I talk about a lot, which is Coinbase. Um, Quinn, I feel like I used to see you talk a lot about this. I don't know if you're still a holder of COIN or if you just had a nice little run there, but so there's this Jeff Dorman tweet. He said, I honestly don't know how Coin survives. Robinhood and bulge brackets are going to win the trading biz. Custody has no moat. Stablecoin interest income going to zero. Their customers hate them. Parentheses: look at the comments. Acquisitions have been flops. Management makes baffling decisions like buying back 0% debt.

Quinn, are you—

do you remain a Coinbase bull or did you get out of that trade?

Yeah, I haven't. I've been on the other side of that trade. More in the last 3 months than I have long it. Um, I— yeah, the— they have— they've— what's really good for everybody in terms of opening up the regulatory umbrella and support and new people rushing in, traditional finance rushing in, that's a negative for the people who benefited from regulatory capture and being able to charge rip-your-face-off level of fees. For years on end without any competition. So you're already seeing it with Robinhood on the retail side. I think you're seeing it, uh, with many players on the institutional side. You have traditional prime brokers like StoneX who are public and large getting into crypto trading now that it's kind of approved. You're going to have all the big banks. So yeah, I mean, when you look at, you know, they charge like 25% on staking. I mean, staking is about as commoditized of a product as you can have in crypto. They're charging exorbitant fees on retail trading. It's tough.

I will push back on that because the stickiness of the staking deposits is something that in finance in general, the stickiness of the depositor base is high. And so I would just, that's the only, when I hear you say that, look, I want to run this validator business way back, but I think the thesis there, if I take the alternative is these can persist higher, unlike like your Bitwise, like your Grayscale products, because the stickiness of this base is probably higher. But yeah, I mean, they're gonna— they're getting hit hard on a number of—

and it also just goes to what is being priced in. And I mean, the multiples come down obviously a ton with prices, but— and then also, if you— I'm not sure I want to be like super long, uh, crypto trading volumes right now either. So yeah, there's a number of other market—

I like it more than Coin, but for a couple other reasons. But I am, I am curious, um, it's just a more diversified business. But also just, I guess, how much of Coin and the trading and the expectation— there's been like the, the, the MicroStrategy premium, which is there's a scarcity value attached to some of these assets where historically it's been hard to express a view in a traditional construct, which is— and that was like Coinbase, MicroStrategy, now maybe Hood, maybe Nubank to some capacity. Like public companies have started getting more into crypto, but Coinbase has been like that premier kind of blue chip, call it, of let's go long crypto in a very pure vanilla career risk low way. But as we have more, you know, as we have more options available— the ETF, man, is what I think about— the premium just goes down. They're like, that demand, um, goes down, so the, the multiple comes down. You know, just don't recover.

This is going to end up being a bit of an echo chamber because like one of the biggest things I bought at the lows here in this recent crash was Robinhood, and I finally felt like I got my entry into it. And so I'm definitely on that side of things as well. But yeah, I, I will say that I'm pretty bearish on just this idea of branding of exchanges, you know, like you compare it to TradFi where it's just like you just have your brokerage and, you know, you don't really care about the routing that it goes through. You just care that it gets settled and it's, and it's in your brokerage. Obviously you care, but you care which brokerage it is.

Like you're either a TD Ameritrade user or a Charles Schwab user. Isn't that branding on the retail side?

On the institutional, you're saying you don't care and then the fee compression goes down because they can't—

on the institutional side.

I see. Yeah. Yeah, exactly. So yeah, basically you're fighting that battle on one side, which is that if you have this branding premium of the likes of Coinbase, etc., that's pretty bearish. So it's more about, you know, what extends their runway. I'd mentioned in our, in our pre-chat kind of chat there about this, but I think one of the only saving graces they might have is there's those rumors of them acquiring Deribit. And, you know, options are such a different beast in terms of the liquidity required to make them effective, just because there's so many strikes, there's so many different expirations, and, you know, the spreads can just become so wide so easily. So, you know, I've been a huge bear on like on-chain options for years because all of them, like, you just go and look at the spreads and it's just like, you know, as a buyer, I'm not walking that. It's just insane. So, you know, obviously Deribit has become the de facto place for all crypto options and you know, there's some stickiness there in terms of a moat. And I think if they got that, that would differentiate them against other crypto exchanges. But then you're also once again fighting the battle that if you look at like IBIT options, those are the tight— like it's going to be really difficult to fight those spreads. They're just always going to be tighter because you have institutional market makers there versus— there's a lot of people, there's a lot of institutions that still can't even touch Deribit. So it's— yeah, it's tough. Yeah.

Felix Quinn, great chat. Anything that you guys want to cover that we, that we haven't so far?

We touched on a lot.

Yeah, we did a pretty good job, I'd say.

Good. Well, shout out you guys. You guys have done an awesome job covering just my prediction in this.

This pod might be the most popular so far this year.

Uh, so damn, that's a top signal for us.

Short, quitting, feeling short macro, long technology optimism. That's what I exactly—

whoever controls the Polymarket markets, let's spin one up.

Yeah, exactly.

Cool.

All right, guys, great pod. Thanks for listening, everyone. See you. See you Friday for the roundup.

See you.

Stay safe. Don't get liquidated.