What Institutions are Actually Buying this Cycle | Eric Peters, One River & Coinbase Asset Management

I think eventually it plays out where crypto is ubiquitous from a financial services perspective. But I think, so that'll be way bigger than $10 trillion in the sense that it'll encapsulate all financial assets in the world. But I also think that along that path, you're going to see new business models pop up and innovations pop up that we never even thought about. Anytime you reboot a system, that's where a lot of opportunity lies. And so this is a reboot of the financial architecture of, you know, which doesn't change that frequently. and this is, this is it. And we get to live through it.

It's cool.

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So Eric, welcome back.

Hey, thank you. Awesome. Great to see you guys again.

Yeah, yeah, good to have you back with us. Um, okay, Easy place to start here. Election just happened. Bitcoin at an all-time high. The S&P just had its best week of 2024, also hit an all-time high. Risk appetite is clearly back on, animal spirits back in the market. Would love to just hear, like, very broadly, I mean, how, how are you thinking about the world and obviously markets right now?

Um, yeah, God, I mean, so much has changed with this election. I, I, and I wrote about a little bit this weekend. I think that when, when the world changes this abruptly, it takes time for portfolios to, to reposition. And, um, and I think crypto will, will be even more so than traditional markets. But when you— if you look at the, the pollsters coming into the election, uh, even though the prediction markets were running ahead for Trump, uh, the pollsters were expecting the tightest election in US history, or modern history anyway. And if you use that for a proxy for how large allocators of capital are positioning their portfolios, it just tells you that on average, and these people tend to kind of travel in packs, on average, people are pretty close to home. No one was making big bets on Trump, No one was making big bets on Kamala. If anything, the bets that they had on were for status quo, which meant that their bets were leaning more toward an extension of the Biden administration, right? Just because that's the operating environment that all these investors and portfolios were in. And so to come up with— landslide might be too strong a term to describe Trump's win, but more or less, Based relative to expectations, it is. So now that that's happened, I think people are going to be scrambling and going back to the drawing board and saying, what does this mean for my portfolio? And I think what they're going to conclude is it means that things need to change a lot in people's portfolios. So really exciting period for a macro investor. And then as I mentioned, crypto, I think is crypto, like crypto always is, that reality is amplified for crypto. But it applies to all asset classes.

So, Eric, I remember my impression when you came on the pod a couple of years ago was your ability to crystallize gains in a market. And that's really hard, I think, just in crypto, but just in general. You talk about people really getting the election wrong and just from pollsters. How do you translate that into just broadly investing? Like people were positioned sidelined in crypto for a variety of reasons, but just in general, in markets? Like, does that tell you markets are just incredibly inefficient? It's just become harder to be an investor. Like, we're connected, but the information's just bad quality. Like, how do you think about the job as an investor, professional investor, institutional investor, and how people have gotten it very wrong? And you would think that that would have changed because maybe the information is just more pervasive and whatnot.

It's always hard to be an investor. If you read back, I think the first investment book that I read was written by this really famous, or written about this really famous speculator, Jesse Livermore, back in the roaring 1920s. And the lessons that he described in that relative to kind of the lessons I feel like I've lived and learned over the course of my career, they're kind of the same. So information sources shift around. I think what's happened in Polymarket is really, it's great. It's like, here's this new information source that most people scoffed at. I was kind of somewhat reserved about it because I know markets that can be easily manipulated usually are. But as we came closer to the election, it's easy to manipulate a market way in advance of something. As you get closer and closer and there's a lot of money on the table, markets don't they stare into the whites of the eyes of potentially losing a lot of money for just manipulating it and things start getting honest. So it was really interesting to see how those markets behaved and they were right. And so I think you're always shifting to new sources of information. Some of these quant shops, they started some years ago looking at satellite information of parking lots at Walmarts to see what the sales would look like. Smart people are always hunting for something new. And so I don't think investing has become easier or harder. If anything, things are always getting a bit harder because the competitive environment is more and more. And after many years or decades of bull markets, you tend to get more and more smart people spending their careers in markets as opposed to like, I'm sure I wasn't trading in the early '80s, but I'm sure after the '70s bear markets, a lot of smart people were were going into different industries as opposed to coming into finance. But at this stage, a lot of really smart people are in finance and they use a lot of programming and big data sets. So it's hard. The hardest thing I think will continue to be to try to identify, and this has kind of always been the case for markets, is try to identify something that hasn't really happened before. And this election is kind of a little bit like that, to be honest. It certainly hasn't had something like this happen in a long time. So when, when you can identify something that you think might happen that hasn't really happened before, um, then, and you're right about it, that's where you can make a lot of money. And so, um, you know, maybe that leads to where we are right now.

Yeah. Well, so you mentioned polymarket and you mentioned this is a thing that hasn't really happened before. Can you go deeper into how you're thinking about like societal Overton windows shifting and like what, what, like the magnitude of what has just happened in the last week?

Yeah. And you mentioned just when we were chatting pre-call about the Overton window, which is kind of cool because I didn't even know what that meant about 5 or 6 years ago. And someone mentioned to me, I love learning new things. I was like, that's a, that's an amazing term. And, and I think the Overton window has shifted in all sorts of things across society over the last, you know, 5, 10 years. And I think that process really kind of started with Brexit and Trump and his first term, all sorts of things have shifted. I think what's really interesting that's been shifting over the last few years really is just that affects our markets, affects crypto, affects trad fi markets, is that there's been a shift around is the economic orthodoxy of the last few decades, which is the entirety of my career. I started in 1989. Maybe a few years before you guys were active, maybe born. So I started, and throughout that whole period of time, there have been all these assumptions about how the world works, how economics work, how trade alliances work, the role of global— the importance of and goodness of globalization for society at large and like there have been all of these assumptions that have just, they're just assumptions, but they have been viewed as being givens or reality. And they're very, and so we call that kind of the orthodoxy and that's starting to change, right? So we started to see during the first Trump administration this idea that, hey, actually we can go out and we can put tariffs on China and they're not playing fair. Well, Behind the scenes, I was listening to CEOs talk about how unfair trade was or how their IP was being stolen for years, but no one was prepared to say it because they wanted to make sure they didn't interrupt their sales in China and that things were being stolen at the same time they were getting revenue. No one really wanted to speak the truth in a way. I think what's been happening is people have become much more prepared to call into question that these things that we have expected to never change. I think a lot of that, I think we're going to see even more of that during this next Trump administration. And those are the types of things that really do change markets and change the way the world works.

Yeah.

So the market has reacted pretty— I don't want to say aggressively to the election outcome. You could argue it's not as aggressive, or it is, depending on— you can ask a bunch of people. How do you think about re-underwriting your thesis under the incoming administration? How quickly do you update your thesis? Do you update your portfolio? And I'm just kind of curious what went through your mind when Trump won. And how you're thinking about just positioning your portfolio.

So we tend to not talk specifically about what we're doing in the portfolio, but I'll talk in a very kind of broad way about how I looked at the election. And this is informed by conversations I've had with people who are very close to administration and helping craft policy. It's, you know, drawn on what I read. Uh, uh, and I think X is becoming a more and more valuable source of information. I find myself spending more and more time, uh, on, you know, on X, just looking at— I don't know, could be it's like understanding what Vivek is thinking about and Elon is thinking about. And these, you know, these are people that are going to have a real influence on, on what happens. So at any rate, I think I think what, um, I think basically what's going to happen now that Trump has won is the US is going to make a bet. And I think it's, I think relative to the potential bets that we can make, I think it's a smart bet to make. So you guys, I listened, you know, the last podcast that you just had, you were talking about, um, Paul Jones and maybe Druck and the concerns they have around debt. And those are obviously major concerns for everyone. Like, you, you can't just look at the fact that we're running 7, 8% deficits with an expanding economy and forecast for those deficits to not really come down more than a couple percent over the next couple years, and then they go right back up to the highs. And that's without a recession, right? So if we had a recession, we would end up with deficits that could be like 10, 12, 13, 15%. Depends how bad it is. And this is with debt to GDP at 122%. So we're in a pretty precarious position from a debt perspective. The question is, what do we do about that? And then it's interesting, we can also talk about, if you want later, what other country, how are they thinking about it? But I think in the US, here's what we're going to do with it, or here's what I think the Trump administration will do with it. I think that they're going to push hard to substantially increase the supply of energy to try to push the prices down. There's going to be very significant deregulation that takes place. And I think Trump was pretty hamstrung in the first administration from some of the things he wanted to do. I think he'll be much less hamstrung in that regard this time around. So have a lot of deregulation. There's going to be a big push to accelerate AI to the greatest degree the private sector is able to. And that means providing the infrastructure and the reasonably priced or cheap energy to drive that. And you look at all of the— and then all the tax hikes that might have been baked in, like those are all— or the old tax cuts are going to get rolled out. So, and they're probably going to be new tax cuts. They're probably lower corporate tax rates. It's an incredibly bullish environment for US business. And the hope there Um, the hope there is that if we can potentially get to a place where, um, AI is able to help boost productivity here domestically, then, and, and we're throwing this business-friendly environment at the economy and you get animal spirits going, you might end up in a position where real GDP starts growing, you know, way above where it's been for the last couple decades. And I think they're thinking if they can get real GDP in the 4 or 5% range, even for a few years, these debt issues go away. They don't completely disappear, but they fade from prominence, let's put it that way. So I think that's the plan.

Yeah. I wanted to go to the second part of your statement there, which is discussing other countries and what they might do. A couple of just thoughts here is like, how does Japan dealt with it or how's Europe dealing with it? But more so, also countries that hold a lot of their balance sheet in US Treasuries like China and how they're responding kind of in real time and what that means for kind of the US as a dollar or kind of as a global reserve asset, so to speak.

Yeah. Europe is a super, I mean, Japan's interesting. Europe is super interesting 'cause I think Europe's more dynamic 'cause Japan's been kind of doing the same thing. My entire career, which is their stock market recently took out its 1989 highs, but their stock market peaked the year I started trading and they had a real crash. There are a lot of forces at work there. Some of them are demographic and their population growth really slowed and then ultimately working population started shrinking. They've had all sorts of issues to deal with over the last 30, 40 years. But the first thing that they did when their market crashed in '89 was they basically tried to underwrite it and say, okay, we're going to try to ensure that no one really fails here. And so they ended up ensuring that there weren't massive failures and a huge depression, which they probably, which probably would have been healthy economically for them just to kind of wipe out the excess, but they just didn't. And so they had to kind of grow their way out of that over 40 years and it created a really a non-dynamic economy and pretty boring markets and awful stock market really. So that's what Japan has done. I think they're still more or less trying to do the same thing. They continued on with big budget deficits for ages. They have huge debt-to-GDP ratio. They continue to run large deficits and whatever. Japan is a relatively small player compared to Europe or compared to China at this stage and certainly compared to the US. Europe is really interesting because Europe's a big place. Its GDP is quite large. Population is big and it has really stagnated economically. If you look at the top 25 market cap, I use this as— I like markets as proxies for anything as opposed to economic data. If you look at the top 25 companies by market cap in the world, one of them is European and it's a drug maker and it made Ozempic or whatever, you know what, some amazing drug that helps people not get, you know, get skinny if they're fat. Um, it's like if you can solve that problem or help people who are getting bald, uh, grow hair back, you, you make all the money in the world. So they, they, they have figured that out. They've got one company and that's it. 21 of those 25 companies are US. One of them is Chinese, it's Tencent. One of them is Taiwanese, it's TSMC. One of them is Saudi, it's Saudi Aramco. So it's basically the sovereign. So if you look around the world and you look at this huge pool of population with a large economy and no no big companies really, it tells you that their model is pretty, I don't want to say broken, but it's certainly not dynamic. It's not entrepreneurial. It's not evolving in a way that's bringing wealth into that region. And so Draghi, Mario Draghi, who you guys might remember used to be the ECB chief, and he's a very credible guy, very smart guy, Italian. Goldman guy, he was charged with coming up with a big comprehensive report on EU competitiveness. And so he came out a few months ago and he said, okay, here's what Europe faces. It faces an existential crisis like it hasn't seen since the Cold War. And part of that is economic and part of it is the fact that they've got a war on their border right now. And so his view is Europe economically needed to spend 4.9% of GDP every year in stimulus to just kickstart the economy and bring innovation back to Europe. Now, I sincerely doubt that the government is going to bring European innovation back, but that was his proposal. Okay. On the other side of the table is the ECB, which is the equivalent of their Fed. It's the European Central Bank. And they have come out within months of that report and they said, what we think needs to happen is that Europe needs to consolidate its fiscal balances by by 3% a year. And because of population growth dynamics and things like that, you probably need to add another 2% a year so that they need to fiscally contract by 5% a year. So you have one guy saying they need to expand by 4.9% a year. You've got the central bank saying we need to contract by 5% a year. That's a 10% swing. So to me, that's an incredibly confused region that is dramatically underperforming economically and in markets. And, um, and so now, like, imagine the US put— presses the pedal, which is what we're about to do economically. Imagine what, what's going to happen with Europe. I mean, I'd love to hear what your, your perspectives would be on that. I have some opinions around that, but I think it's— I haven't seen something that dramatically different between the two largest economic blocs in the world in my career. Nothing even remotely close to that.

Yeah, I think my— what I get excited about is I think the answer to any potential fiscal deficit or precarity, like, you know, budget situation, which we all know is true, is you, you innovate your way out of it, uh, through productivity gains. And the answer to that from a government perspective is just deregulation and let what the US has done best historically to position itself as a leading country in the world, which is, as you pointed out, the best companies in the world have started in the United States or based in the United States. A lot of them started by immigrants. Like, it is aspirational still to come to the US. It has the best system. for a variety of reasons. And so I think you just have to continue to press on that advantage. And crypto is becoming a non-small, non-trivial component of innovation. And so if you, you know, AI and crypto combined, like, you know, now we're going to have hopefully 8 years or just 4 years of less friction to innovate in a space that is really exciting and, and in AI as well. And so Less government, I think, is always a solution. And, uh, are, you know, are allocators going to put a lot of money into Bitcoin and abandon the dollar? I don't think so. I think you just want to beat inflation, and you beat inflation by allocating to sectors that outperform that. And that's likely not going to be real estate or some, you know, like old economy kind of businesses. More likely going to be tech, I think.

Very well said. Totally agree.

Eric, I have a question based on what you said earlier about, uh, you know, I mean, we could be in a historic bull market with, with Trump's victory here, and things are going to go— I mean, maybe animal spirits are back in the market. Do you think the Fed declared victory too early here?

I do. Um, I— yeah, but also remember, the Fed, the Fed is— has been operating with, uh, the information that had at hand, so it didn't know it didn't know what was going to happen in the election when it started the cut cycle. And the Fed tends to just get on a schedule. I think that there's a real possibility that they've made an error and they did move too quickly. There are certainly people within the senior Republican Party who think that as well. And I think that I think Powell, I mean, you saw when he responded, I assume recently with his no and no comment, essentially saying that he wouldn't step down. I mean, he's a very smart guy. I know it's fun to make fun of central bankers and I do all the time, but he's a very smart, thoughtful, serious guy. And I think that's going to set up a real conflict around Fed independence. So you talked about the Overton window shifting, I think, and I mentioned that I think a lot of things are going to change. One of them I think is going to be a question in all areas of economic orthodoxy. One of those is what is the role of the Federal Reserve in this economy? And it's hard for me to wrap my head around thinking that we would be better off with a less independent Fed just because I'm steeped in orthodoxy because it's just been— I'm trying to open the Overton window up on myself, not because I think we should change what happens to the Fed. I just want to make sure I have my head wrapped around what the world looks like if we do change the— call into question the independence of the Fed. I don't know that that will happen. But anyway, yeah, I think that's now— that's now on the table along with a bunch of other things.

Yeah. So what I mean, how does this play into your ideas on— you mentioned the deficit and just this debt crisis, like, you know, we have what, 30, 30-some-odd, $35 or $36 trillion in debt growing, growing by like what, probably I think it's a trillion every 100 or so days right now. Like, where does, where does this go? And yeah, you mentioned, we mentioned Paul Tudor Jones on the show the other day and I'd, I'd re-quote him and just say, you know, he, His take on this is, look, the only way to get out of this is to inflate our way out of this. Buy the NASDAQ, buy Bitcoin, buy gold, buy commodities. Don't buy fixed income. Curious to get your take on the whole solution.

Yeah, I'm just in general, I'm not really a fan of fixed income. And I know I don't speak for all investors, by the way. I just, I don't know. I think in so many respects, fixed income throughout history just reflects a lot— like, people invest in fixed income. This is going to offend some people, but it's just kind of— you kind of lack imagination, so, uh, or ambition. Like, it seems to me the, the best thing that you can do is, you know, build, build companies, build things that have value, um, and If you can borrow money to do that reasonably without overleveraging yourself, that's what you should do. So in that sense, I'm kind of emotionally and temperamentally always a seller of fixed income to try to build things. I think there are times in the economic cycle where it's beneficial to own fixed income, and there are times where it really doesn't make a whole lot of sense to own fixed income. I think what happened was we went through a long period during the QE years where interest rates were incredibly low and yet people bought 'em because they just kind of lack the imagination or you're a large pension plan, you're like, I have to have a certain amount of my money in fixed income. I think those, again, I don't think that that's smart, but I think a lot of people had fixed income that was at very low interest rates. And then we had this big inflation. The people who owned fixed income got destroyed. But then they saw, okay, well interest rates are now higher 'cause the Fed went on this historic rate hike cycle. And they said, all right, well, I was buying 10-year notes at 75 basis points or 1% a year for 10 years. I don't know why anyone would do that. But now I can own them at 3.5% or 4.5% or 5.5%. And so that looks attractive maybe, but I don't think so. I think given what's going to happen in the world here, With both inflation, which I expect to pick up materially, and also with economic growth, I think there are just much better places to put your money rather than trying to guarantee yourself 3%, 4%, even 5% a year. So that's why I don't think fixed income is attractive. I do think inflation is headed higher. So for all the normal reasons that people would stay away from fixed income, I think they should because I think inflation will head higher. I think interest rates for a time anyway will probably head higher. And I think these deficits, I mentioned what the plan is, which is to really boost economic growth so that you can increase the rate of growth in the economy and that increases the tax receipts and that lowers the deficit. And all of those things would be good for longer-term interest rates. I don't think they're going to happen right away though. So the market's going to price in some probability that we're going to do all this stimulus and it's not going to work as well or as quickly as we want. And that could push up long-term interest rates as well. Not to mention the last thing I'll just say on that is I do think that, I forget, one of you guys mentioned the pickup in animal spirits. I think we're going to see that over the next year or so. And then more and more people are going to be borrowing money. And that, not only is the government borrowing money, but corporations, individuals will borrow money and that will push rates up too and push bond prices lower.

A lot of times when we talk about crypto and what it will do and try to predict, the future, we get all caught up in innovation and how important it is and how it's a secular trend. And, you know, Bitcoin moves up $5,000 and it's at $80,000 and it's going to $250,000. But if it goes down to $70,000, it's going to $40,000. And so we have these kind of different moments in time. You know, we believe in the technology, we're excited about it, but then we— but then there's, uh, someone more skeptical or cynical that puts up a chart of the correlation with crypto prices and like, like global liquidity like M2 or something, and it's like it's perfectly correlated or very correlated with high beta to the NASDAQ. Um, how much of that do you think will continue to be true, or how much of that might decouple? And because we have now a more pro-crypto administration in a way that I don't think we've ever seen before— you have a president that launched an NFT collection, there's been talks about having Bitcoin as a reserve asset. We might be able to get some regulatory clarity at a, you know, policy level that might allow us to innovate on what tokens can or can't do, um, and calling them for what they are, and perhaps getting a lot of companies and institutional investors that have been sidelined forever to get into the space. So you combine all of that in your thinking, and how much of crypto will continue to just be a levered NASDAQ or how much might it be just a pure secular trend and really realize kind of its full potential in a way that it's beyond a $10 trillion digital gold kind of benchmark or like target?

It's a great question. Can I ask you a question before I answer that? Sure. Sure. So when you say its full potential, Because your idea of its full potential and mine might be different. I'm curious, like, how do you think about what the full potential is?

Yeah, well, what I'm doing now is I just appreciate the crypto will be used by every business eventually. It will likely be invisible. It is a continuation of what the internet has allowed you to do, but it introduces a settlement layer, and that we haven't even started to think about or appreciate how much friction— like, anytime you look under the hood of a lot of these systems, take payment processing, you appreciate, like, it is incredibly, incredibly inefficient. And crypto offers a very tangible, credible solution to that. And so I just think that we haven't even gone there. But for me, that's the true potential. Like, we'll know crypto is no longer early when most businesses start using it, when the amount of just speculative activity becomes less than 20% or so. And that involves things like Polymarket that actually are just really embedded in how we, you know, how we operate as a business or as a society. And I think like we're seeing early innings of that, but we're still very, very early. And it's in my mind greater than $10 trillion, greater than digital gold.

Yeah. Okay. All right. So we're thinking similarly. Um, I, I I think that in many respects, I think that crypto will have achieved its potential when every finance, you know, more or less every financial transaction in the world is running on crypto and no one even knows it. And, you know, when we first got involved in, in crypto in November 2020, I just kind of arbitrarily said I'm I'm going to be in this trade for a decade. And that's an arbitrary number, but the reason that it was more than a year or— and by the way, that doesn't mean you can't buy and sell throughout that period, of course. But the reason for coming up with that is I thought that the reason that we got in in the first place was, and it's a view that one of our clients, our biggest clients had, and Jason Yanowitz and I shared as well is that we thought that we had entered a period of real monetary debasement. And when the catalyst for that had been COVID and this huge increase in government spending that we thought would kick off a long period of monetary debasement, essentially where we take on a lot of debt, we do a lot of things. There were a lot of things to spend money on. There was spend money on COVID, we spend money on environment, spend money Didn't even know about AI really at that stage. I'm going to spend money because the world is becoming a more hostile place. It's become even more hostile. There was a lot of things to spend a lot of money on, not to mention the baby boomers are really getting ready to retire and there's just not enough money to go around. And so those are the reasons. But crypto seemed like a highly convex way to express that theme. But the question was, well, how will you know what's the right price? How will you know when that theme has played itself out? And I think that you won't even be in the zip code until everyone who has any kind of banking relationship or account has a crypto wallet. They might not call it a crypto wallet at that stage. It's just an account. But at that stage, then all the things that are crypto-native like Bitcoin, can anyone who would have any inkling to buy something like that would have the ability to do it very easily without any frictions. And so I figured that that process would probably take a decade. Now maybe it happens in 7 years from 20, maybe it happens by 2027. I doubt it. A decade's probably in the zip code. Maybe it takes a little bit longer. But once, once that happens, then I think all the things that you just described will have been achieved. So I think all money transfers, everything will be done on crypto rails. And at that stage too, you will have seen some amazing companies build and flourish like Coinbase, for instance, is obviously I'm talking my book, right? But I mean, anyone objectively would look at Coinbase as one of the big infrastructure providers of this whole new technology. And so anyway, I think that's how I think eventually it plays out where crypto is ubiquitous from a financial services perspective. But I think when you look at— so that'll be way bigger than $10 trillion in the sense that it'll encapsulate all financial assets in the world. But I also think that along that path, you're going to see new business models pop up and innovations pop up that we never even thought about, um, that, that are going to be— I'm just so excited, you know, so excited about— I, I republished my Case for Digital Assets this past week, and I don't know if you guys saw it, but, uh, you know, that was— I wrote that in, in, uh, January, early January of 2021, and that kind of captured what I was thinking, where I, I was thinking this all could go. And I feel like we're really on track, like we're really on track, and they're going to be You know, not everything will be right, but I think there'll be all sorts of new innovations that are built on top of this that we just didn't even— like, we couldn't have even conceived of. Um, so anyway, I'm— I think we have a long, long way to go.

Yeah. When you, when you think about, um, entering and exiting a market, you know, at times, you know, the end— we kind of know what the 10-year plan looks like, but of course how you get there is, is very, uh, not easy to predict in any way, shape, or form. There are some folks saying, "Hey, look, if you've been sidelined, that window is closing very quickly here. You've got to update your priors to the election outcome and just really kind of get on the bandwagon or you're going to miss the train." I sort of think that if you take a longer-term view, you appreciate that we're still very, very early. How do you kind of marry those two concepts? Like, how do you think about— I know you can't like necessarily speak what you're doing, but like, as an investor that I, you know, think has done very well just kind of managing the market cycle, like, what, um, I guess if you had, I don't know, a portfolio from scratch, like, how much of that are you just fully risk-on, fully allocated, or how do you think about just playing out the market in the next couple of months, so to speak?

So I think we haven't yet come close to appreciating what this new Trump administration means for markets broadly, which I mentioned earlier, and that applies to crypto. The hostility that we experienced in this industry over the past nearly 4 years is pretty mind-boggling. And I won't comment a lot on it and disparage some of the people and the tactics that they used, but I think a lot of that will be revealed, I suspect, in the courts over the next 6 or 9 months. And so maybe they'll be over the next year or something like that, but I think the new administration that's coming in rightly views this industry as just a technology. Um, and, and it— the US, the US financial services is a, a huge sector of this economy, and we have the deepest, most liquid markets in the world. We have the world's reserve currency, and these technologies are, are well suited, or, or maybe even more directly, just, you could say like they're designed to basically fulfill all of, all of the Infrastructure and the guts of, of a financial system. And, um, and so there, it would be, it really would be a huge mess for the US to not lead in this industry. And I think that that's going to start happening. A lot of people moved abroad. I think a bunch of those people start moving back. Not, not all the regulatory changes and political and, um, and policy changes will happen overnight, but like directionally, they're all happening. And they're going to happen. And so, yeah, I think that we'll start moving in that right direction. And then from how that affects markets and market prices, I think people over the next, let's call it a couple months, will start to really realize that institutions really have not allocated to this space yet, which is amazing, by the way. I mean, and when I say they haven't allocated, hedge funds trade it. There's a pension here or an endowment there, but in the biggest pools of capital in the world are totally unexposed to this. They might have had some VC that ended up owning some crypto and then mentally they're like, well, we own some because we had a teeny sliver of some private or venture fund, but they don't really own it. So, and I don't think that they're going to come en masse over the next 3 months. It just takes them too long. They're going to go, you know, they're going to, they got to process this and go into year end and then they got to go into like their quarterly reports and they got to get, they have to now get their, um, uh, their trustees to wrap their heads around the fact the world's changed. Like there, there'll be a cadence to this. So I could see depending on where prices go, I could see the market getting ahead of itself. Expecting huge flows that don't show up in time and then the market comes down. That's kind of what happened, by the way, in 2021 into '22. It was amplified with a massive rate hike cycle. It was amplified by blowups in crypto, by FTX. That bear market was amplified, but you could see volatility around people just getting too excited too early and then it has to come off and then people get apoplectic about it, really depressed. So they'll be trading up, like nothing moves in a straight line. But I think we're now on the institutionals. This is the institutional cycle because like, look what BlackRock did with the ETFs. Like the institutions now know that they're going to have to build on these rails and they're going to, they're investing a lot of money to do that. They just haven't bought the assets yet, which is really interesting to me. But anyway, that's how I see it playing out.

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Um, yeah, I, I don't— I suspect that as we, as this, um, as this whole market industry becomes more institutional, that kind of the— some of the cycles that dominated when it was really retail will, will shift. I don't— like, I, I suspect that'll be the case. I just— I think that as, as institute— as more institutions come in, and they, as I said, like, they're hard— they have hardly come in at all, but we've got years of them coming in, and I think As they, people tend to follow price up, so there's always more buying into highs than there is into the lows. But I think that the downside fall will get dampened by institutions that begin to take up their allocations of this. Just look at, say, look at, if you look at gold, this is, I hadn't really thought about it quite like this, but if you look at gold, In 2015, central banks, foreign central banks held 1.5% of reserves in gold. It's about 5% now. So that's, it sounds like, I mean, it's a big percentage move, but you're like, "Oh, 1.5% to 5%, that's not that big." But that's been a lot of gold buying that's taken place. And I think after the Ukraine invasion, after Russia's invasion of Ukraine, the West locked up $300 billion of their reserves. And that made all of these big players say, "Hey, wait a second." The Chinese, I'm sure, are saying, "If we ever invade Taiwan, we can kiss any money that we have sitting in treasuries away." Which is why I'm sure that they're just to mitigate risk and increase their leverage and and negotiating power around any situation, they're cutting treasuries. But you see what happens when there's a catalyst for big institutions to move their portfolios around. Gold has rocketed and the declines aren't that big. And so I think as big institutions want to take on crypto exposure to balance out their portfolios, there will be downside because markets never go in a straight line, but I think it will be more muted than it has in the past. And I suspect that will shift its cycle too. I don't really know.

Yeah, there was a—

get that right, right now.

Yeah, it's a lot of— there's a big institutional allocator survey done by this firm MV Capital that I was reading this morning, and I was actually surprised by the lack of upside conviction. And these are folks who allocate to crypto. Particularly, I was surprised by the lack of upside conviction in BTC. And so the survey, I think it was like, oh, I don't know, roughly 100 allocators, they saw BTC peaking somewhere between $100,000 to $150,000. Now, this was pre-election, so that's obviously a massive impact. But I'm curious how you think about just like the base case, the bear case, and the bull case for, for just Bitcoin in, in this cycle. You mean between now and And, uh, let's call it the next, like, by the end of '25 or something.

Yeah.

The next 12 months.

Yeah. Um, I mean, my, my bull case is way higher than, than $100,000. Um, and you could get there, you get there really quickly because it, I mean, it's at $85,000 today. Yeah. Like what, what people don't really realize is just, you know, prices can move so much just on the marginal the marginal buyer, the marginal seller. And I started my career in commodity markets, so it's just been part of my whole career is just seeing just a little bit of demand around the edges can really change the price of something. So I think, I don't know, I mean, between now and the end of 2025, could Bitcoin triple? Number one, it could do anything. And that really is the truth. But I don't see any reason why it couldn't do that. It's a big number, but again, if you look at the US saying, "Actually, we're not going to do everything possible to try to destroy this industry and the players in it." And actually the US looks at it and goes, You know what, the dollar's a reserve currency. And by the way, we've been advocating for this from the outset. The dollar is a reserve currency. Dollar stablecoin is the killer app in this space right now. I know you guys have repeated that multiple times as well. And dollar stablecoin could, in a way, rewire the global financial system in that Dollar usage could become ubiquitous just because it becomes so easy. In a world where everyone has a crypto wallet, you can just hold money in dollars. And that feeds back to, I think you mentioned it on your last podcast, it's like stablecoin issuers could end up owning massive amounts of US treasuries. And what does that, how and why would that happen? It's like the whole world starts saving their money in dollars via stablecoin that flows through to Treasuries. So I think that— anyway, I think tripling between here and there, that could happen in terms of Bitcoin. Downside, I don't know. I mean, downside, you can always fall 50% in a market like this. I don't think that we're going to between here and there. I think that the risk-reward is skewed way, way more to the upside. I mean, even saying down 50% versus tripling is very skewed to the upside, but I just don't think we have that kind of downside unless there's some type of really big geopolitical event that takes place. And that's on the radar, but I think there's way more upside than downside. And I think just the last thing, just around the administration, I think Once the administration starts getting behind this theme of these technologies being in the US best interest, which by the way, that is what the insiders believe and that's the advice that Trump has clearly gotten because you can see hints of that in his statements. I don't know. Imagine what happens if the US really doesn't just get out of the way, but kind of gets behind these technologies, I think people will conclude that at some point Bitcoin's just going to be worth more tomorrow than it is today, and they'll just be buying it. And I don't know what will happen to that price, but that's a pretty good risk reward, up 3x versus down 50%. That's pretty darn good, particularly if it breaks to the upside.

Yeah. How do you think about other assets, other crypto assets, Ethereum, Solana, and then farther up the risk spectrum in that equation?

Let's go. I've got two charts I want to show. One is ETH/BTC and then one is SOL/BTC. So Eric, I'd love to get your take on both of these charts. Maybe we could start with ETH/BTC.

Yeah. I think what's happening and I think what has happened in in ETH relative to Bitcoin is in some ways it's actually really healthy. I know that everyone's so negative on ETH and, and I get it, by the way, because, you know, when you, when, when you own something and you want it to go up and I own ETH, I don't get emotional about it, but like, I know what I know, the emotion behind like you, you, you buy something, you own something, you want it to go up. And it doesn't, and you just get depressed about it. Um, and then it makes you want to sell it. And I think we're kind of in that, we've been in that zone. So, but here's what I think is positive about ETH. I think that, uh, the global financial system will be built on ETH. Um, it might be that it's in part built on Solana. I'm not sure yet. I'm not sure about ETH either, by the way. I have a very high conviction that that will be the case because it's been around for a long time. So many things have been built on it. A lot of the bugs have been worked out. It's gone through a lot of upgrade cycles. It's a pretty impressive technology. I think that the global financial system will get built on ETH. Yet, the way for it to be built on ETH, the, the cost of transactions had to collapse. And, and so these L2s have been built and that's pushed, that's pushed the price of transactions to extremely low levels. And then it will go down even further. And I think what has to happen is you have to start seeing wider and wider spread adoption of ETH and things built on it that actually start transacting. And then Then you'll start getting this picture of, okay, well, in the future, there are going to be so many transactions pumping through the system that for essentially for providing the security, um, the value should just be higher than it is. And people will start putting money into it and it, and it probably goes up more than it should. And that makes transactions a bit more expensive. Uh, and it'll just be this perpetual race of technology to kind of keep transaction prices down. But I think—

so you think it trades more on this, like, you know, global settlement layer security premium, basically, less of like, uh, you know, it's trading on the fees that it's spitting off or anything?

I think that they're connected. I think that those are connected. And so you have to have— you know, the, the problem is the world hasn't transitioned to this system yet. The global financial system hasn't yet not yet transitioned to this system, but I think it will. And this, again, this political change makes it a lot more likely that it will because as goes the US market, so goes the rest of the world essentially. So if all of these things are now more likely to happen in the US faster than they would've otherwise happened, I think that they were inevitable in the US, but I think if Kamala had won, I think it would all have been a lot slower, but now it's gonna be a lot faster. And so I think all these things are coming sooner, but there's just this disappointment trade in ETH for the time being. I think ETH will at some point be quite a bit higher and will probably be quite a bit volatile. And then Solana, I just think it's just kind of a, it's a higher beta trade. It's just, it has a much lower market cap and it's playing catch up and people are more excited about it and it's going up. So people buy it and I don't know. I think that's what's going on.

So let's say, Eric, I'm just gonna ask the question that I, in my mind have thought about for a while. Like Solana currently is a third of ETH's market cap on a fully diluted basis. If you look at across a number of KPIs, do you think that that is appropriate, um, too high or too low?

I don't know. I really don't know. I really, I think, and I say, I say that because By the way, I, I try hard just as a general discipline to say I don't know as much as possible because for two reasons. Number one, most of stuff is unknowable. I think it's premature for any of these technologies to really know what their ultimate value will be. And so even if there's a framework that looks sensible right now, I think in 3 months or in 3 years you look back and be like, that really wasn't the right way of of looking at it. So I think there's a big momentum trade going on in this right now. I think if you look at the market caps of both of these, you should kind of look at on a probability adjusted basis. Does it seem kind of right, this ratio? And it's like, yeah, I think I could see that. But I don't believe that there's a really great complex pricing model that, should spit out what this relative value trade should be. I think Solana looks to me like it's going to keep outpacing ETH just because it has been. I mean, that's not very sophisticated, but I think at some point that probably flips around as well. I think finance gets built on ETH.

So Eric, let's say you're sitting down with someone who's got $1 million to allocate. There may be, I don't know, they have strong risk appetite, 30 to 40 years old, so they can take some risks. They've got $1 million to allocate. They're not allocated to crypto right now. They're looking at these markets. It's ripping. How do you suggest they allocate? Is it a 1/3, 1/3, 1/3? Is it— how do you think about this?

I don't get asked that question. So I'll take a— I'll take a flyer on it. I'll take a flyer on it. I mean, you say— you say high risk appetite. Like, what does that mean? I think that's probably the first question I would ask someone who asked me that. It's like, what does that really mean? Does that mean you'd be cool with losing half your money and then having it just deadline there? Or is 3/4, is that what it means? 'Cause most people, when they say they have a lot of risk appetite, they don't really mean it.

And they panic. Until you get punched in the face, you really understand how much risk appetite you have.

Yeah.

Yeah. I mean, I have had my face ripped off multiple— like, I kind of— when I say I have a risk appetite, like, I'm pretty well calibrated. Like, I actually know what that means to me because I just, you know, I've gotten hurt. I've taken a lot of lumps over my career. But look, I think that most people, when they say they have a lot of risk appetite, they don't really mean it. And so if you had a 30, 35-year-old person, I would advocate for them to be overweighted to Bitcoin and ETH, but have some exposure to Solana. So maybe that's like 50, 35, 15. That adds up to 100, right? Maybe something like that. I think if you're right on that trade, you're going to you're— at least for a period of time, you'll wish you'd, you'd had a million bucks in Solana. You'd be like, why didn't I do that? I have such a high risk appetite. Like, well, yeah, maybe. Um, um, like, that's okay.

How do you, um, think about just, uh, the sequence of, of how the market unfolds? Historically, it's been Bitcoin-led, then trickles down into other assets. Do you think that's still true in this environment? Just as you think about the larger institutions that have been sidelined, uh, of course now you have an ETF, so they may have expressed that view now through an ETF. It's probably easier, but capital going into managers that are investing these tokens— like, I'm just curious how you think about the intra-asset allocation correlation, which has been very coupled, and also the sequence of the rally, the cycle itself.

Yeah. The institutions, it is easier for them to invest in these assets right now for sure with the ETFs, but they really haven't done it. I mean, not in size. So kind of the question is in this cycle now that we have institutions that are getting involved, what are they going to do? And I suspect that they're either going to just buy Bitcoin at first, a lot of them, or they're going to buy some ratio of Bitcoin and ETH. I think if Solana keeps doing well, you probably get an ETF. You guys were talking about an ETF sometime next year. I mean, I don't have any inside insight into that, but that wouldn't surprise me. Then you'd see flows if that were the case into all those. Some of them will go directly into the coins themselves, but I think as institutions put capital work, they'll probably still focus on Bitcoin just in the first instance because that is where it's going to be easiest to get their boards and their trustees to understand what Bitcoin is. And ETH is just, I know it seems a little nuts for maybe you guys and for me and the people listening to this to think that people can't wrap their head around ETH or Ethereum, but a lot of people can't. So at least not yet. And by the way, I look at that and that makes me excited because if you have complete knowledge in any market, it becomes the most boring thing in the world. Like the best thing for long-term bull market is to have a whole lot of people who don't understand something who are going to gradually, you know, who are gonna gradually learn about it. And I think that is what's gonna happen here. So anyway, that's what I think that Bitcoin, it's probably to a degree, and it's not the institutions that are driving it right now, but it probably is more retail. High net worth people because of the ETFs, whether they're buying it directly in the ETF or buying it with Coinbase or some other account. I'm guessing that that's why Bitcoin is kind of outperforming.

Yeah. I mean, I still to this day, to this day, it's mostly self-directed accounts, not managed accounts, right? Your JP Morgan private bank is not, can't actually recommend the ETF. You have to call them and say, I want to I want to move stuff. And so that is friction. Not to mention, just going back to the discussion earlier that we're having, right? I mean, most of the world is stagnant. Most of the best companies in the US have been built— most of the best companies in the world have been, you know, are US-based. All this to say, the world— most people can't invest in the US stock market. Now, I've always felt that crypto allows you to diversify your portfolio. If you're in some of these markets, your only alternative is investing in local real estate and government bonds. And I think crypto is sort of a possibility for people to invest in a proxy like the US market that has more risk. You mean like diversify their portfolio? And it starts with holding a US-denominated stablecoin and then transacting in this digital economy and investing. I'm excited to see tokenized stocks. I mean, hopefully we can get that in the next couple of years. And that would just be explosive for the US market. I mean, talk about just continuing to double down on the dominance of the US as the leading economy. Like, why couldn't you have a tokenized stock that is settled in real time, not T+2 or 3 or whatever? Um, because yeah, I think most people don't really appreciate, like, most of the world can't buy Apple stock. And if they can't buy Apple stock, then you kind of say, okay, what else are they going to buy if they have the possibility to have a US, like, a stablecoin that is dollar-denominated, then what's the menu? What's on the menu? It's going to be Bitcoin, it's going to be Ethereum, and then it's going to be Solana and all the meme coins and all the other stuff. And so like I felt in 2018, like ICO boom, that it could be, you know, kind of reach the level of liquidity that you saw in like the dot-com, um, bubble or more now because, you know, the world, like, you mean like, but we never got to that. And I was like, Well, why couldn't we? Hypothetically, actually, it was only a fraction of it. But now this time around, of course, the limitation is local people in India, China, at times it becomes hard to interact in crypto. The government's really making it difficult. But it's always— every government in the world always looks to the US for inspiration of what they do at the policy level. So because now Trump has an NFT collection, goddamn it, you know, then governments really say, okay, the US is fine with it, then I can be fine with it. Like, I'm not going to look like an idiot. So I think that's like that hyper bullish drink.

It's like career risk from a government perspective. It's like, you know, Eric Yu buying Bitcoin and, you know, Paul Tudor Jones in what, May of 2020 when he said, you know, it's the fastest horse in the race that wiped away the career risk for hedge funds. It's like Trump is wiping away the career risk for the government.

The El Salvador president's up now $100 million on his trade. He's looking like a genius, but he He was ridiculed for so long, you know what I mean? Like, that's going to go away.

Let me ask you the— okay, on this note, what about Fortune 500s and corporations buying Bitcoin? Because I think everybody is watching what Saylor is doing. And but he's basically turned MicroStrategy, you know, they used to— I used to compete against them. I was in the business intelligence world. They were a data analytics company. Now they're just a Bitcoin company, obviously. What do you think about the idea of corporates holding Bitcoin on their treasuries?

Everyone's looking at Microsoft right now, right? So what they're going to do. I think that they will. Are they going to do it right away?

Does it make sense and why does it make sense?

I don't think they're going to do it because they've seen how it's worked for MicroStrategy. It's just a totally different investment thesis and the people that are making that decision at any corporation, obviously know that. So no one's going to do that. He's the only one who probably should do that. And he has, and it's worked out really well for him. But I think if you are sitting on a huge corporate treasury and you wanted a reasonably diversified portfolio with liquidity, I don't know why you wouldn't look at at crypto. I don't, but I don't, I don't expect that there's going to be a large flow of that money that's coming in. I think it'll be really interesting to see when, you know, I, I don't doubt that there will be a company that says, yeah, we're going to approve of, you know, whatever, some couple percent, few percent of our, of our treasury we're going to, we're going to put in these assets. Um, I think that'll, that'll be new, you know, newsworthy. I don't think that's what's going to ultimately drive these markets higher, but it's probably part of the narrative that goes there. By the way, before we get too far away from the previous comments, I do think that equities will be tokenized. And this is an example of how crypto just kind of takes over the world. All this becomes actually pretty easy once you build these rails. So imagine the trading activity that happens. I don't know about India. Maybe Maybe India ends up being a bit further behind the curve than others. But the cool thing is that I think that the big developed markets, because the US was shooting itself in the head when it came to how it treated this industry, I think there were a lot of other regions that said, okay, this is an opportunity for us to beat the US in this whole space. And so we're going to We're going to race ahead. So I think what will happen over the next few years is that the US will begin to lead, but there'll be some regions that have advantages in one area or another, which would be great. There'll be a lot of competition between regions, but at the end of the day, rich countries by definition are the ones with all the money. So when you open up global trade and finance to US equities or global equities that are tokenized, there'll be plenty of money that will flow into that from abroad because those rich countries are the ones where people actually have money to invest. So—

Who, Eric, in that scenario, who wins the most? Obviously, it's always in investing, the relative trade. Is it the BlackRocks, Coinbase, the base asset like Solana or Ethereum or Bitcoin. I'm curious as you think about a portfolio construction or just who the major winners in the scenarios that we're talking about might be.

I definitely think that the infrastructure providers win massively. And to my knowledge, I don't know that there's a better infrastructure provider than Coinbase, uh, that has, you know, the number of reps that they, that they have, meaning like the number of cycles that they have dealt with all sorts of, um, you know, difficult technological challenges, security challenges, um, scaling challenges. So that should be, you know, massive winner in that world. Um, but any any provider of infrastructure. And some of those are probably still private too, right? So people should figure out how to make those investments. I think the reason BlackRock has been so aggressive is because they didn't want to lose out. BlackRock looked at the mutual fund industry and said, we can do this better. And they did. And they're now a massive company. I think they looked at crypto early. When we were looking at crypto, they were looking at it, but they weren't really going after it at that stage, but they were curious about it. And I think it's because Larry Fink's a smart guy. And when you get a founder CEO who has disrupted an industry once in his career and you're hungry and you're smart, which he is, He probably looked at it and he's like, I do not want that same thing to happen to me. So I think that's what they're doing, but that doesn't mean that they have all the best expertise and they'll need partners. And so, but I think BlackRock could be a huge winner. Absolutely. But yeah, that's kind of how I look at it. I think what's going to happen over the next couple years is now all the other financial players, the TradFi players who haven't really been involved, some of them have been making either no investments, modest investments, or reasonable investments in this infrastructure. They're, they're, they're now going to just go on a hiring spree and they're just, they have got to make sure that they don't get, um, that they don't get wrecked in this next transition. And, uh, and so, you know, that'll be really exciting. Um, and there'll be a lot of interesting partnerships that form, I would guess. But yeah, I'll be— look, any time you reboot a system, that's where a lot of opportunity lies. And so this is a reboot of the financial architecture of, you know, which doesn't change that frequently. And this is it. We get to live through it.

It's cool.

I think that's a good place to end it.

All right.

That might be the clip of the app. I mean, all right. God, if you don't get excited by hearing that, like, you know what I mean? Like, there's This is a generational trade. Totally reboot of the financial system. Like, you don't get that often.

Yeah, yeah, ever.

Yeah, it's pretty exciting.

Yeah, yeah. Eric, appreciate you joining us, man. This was awesome. Yeah, fantastic conversation. And yeah, no one else we'd rather speak with about, uh, state of the global— just the, as you said, as we said earlier, the Overton window is shifting on anything.

You said it. Yeah, I agree, I agree with you, I agree with you. Um, yeah. Look, look, a real pleasure. Thanks for having me on. And yeah, and, you know, it's— let's hopefully all make a lot of money here.

Dude, absolutely.

Eric, thanks so much for joining us. I appreciate it.

Yeah. See you guys.

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