Art of Trading - with Light, Su Zhu, and Hasu

Transcript

Welcome back to Uncommon Core, where we explore the big ideas in crypto from first principles. Today, I sat down with Su Zhu, who is the CEO and CIO of Three Arrows Capital, as well as Light Crypto. Light is a real crypto OG and one of the largest and most successful prop traders in the space. We've known each other for 2 years now, and I have tremendous respect for his skill and clarity of thought. He's usually very secretive, so we are thankful that he has recorded his first ever interview with us.

In this conversation, we go very deep into the process and mindset of trading, as well as Su and Light's current views on the market and how they are positioning going forward. My name is Hasu. I'm a researcher, investor, and writer. If you enjoy this podcast, you can do us a big favor and give us a rating and review on Apple Podcast. You can find the link at anchor.fm/uncommoncore or in the show notes to this episode. And now, enjoy.

I'm really excited to have you with us today. Light, we usually don't ask biography questions on this podcast. We are more about concepts and how to think about them, approach them from first principles. But given that this is your first your first interview ever, and you're one of the biggest anonymous prop traders on Crypto Twitter, I think our audience is very interested in learning a bit more about your history. So, so who is Light? Yeah, I mean, thanks a lot, Hasu. I'm super happy to join, given the moment that we find ourselves in in crypto markets today.

I uh I got my start trading trading equities and equity options. About 10 years ago there was this great opportunity where you know, activist short sellers like Muddy Waters and Citron started out and they were publishing the information on Twitter and so it was sort of an information trade and like a timing trade. And if you saw it first on Twitter, you shorted that thing into the ground and made tons. And that trade kind of survived for a couple years until people cottoned on and market makers started sort of adjusting to it.

And I went back to playing poker which I had played as a hobby when I was when I was much younger and spun up a little bit of trading capital that way. And you know, a lot of people I think have made the active decision to go into crypto trading but I didn't. I got incredibly lucky because back in 2016, a poker site that shall remain nameless would refuse to withdraw me in any normal payment rail and was like, you can either take Bitcoin or you can take nothing. And so I decided that as soon as I got it, I was going to dump this thing. I didn't know anything about it and it just so happened that they sent me this Bitcoin at the bottom in 2016 at around 365, 370 dollars. And so that kind of dragged me into

the space instead of me kind of jumping into it which has kind of changed. I'm a bit different I guess than than most people who made the active decision, right? Because I I kind of got lucky and I'm a bit more cynical about the space. And in 2017, alts happened and everyone made a lot of money and we moved on after alts to trading mostly derivatives and by 2017, 2018, I think at some point we're about 1% per month of all of the swap flow on BitMEX. And the experience trading before in options sort of helped me go down that road. And now continue to kind of trade a mix of alts when when there's meat on that bone

and then also trade a lot of derivatives and including now a lot of options where my partners and I are probably some of the biggest sort of just call buyers in the market for the for the past year so in certain spots. So as many of our listeners know I also played online poker for a long time. So I I've been kind of curious what kind of format and stakes did you play just because when I hear someone played online poker like I usually can't derive from if they were like a a low stakes grinder or played heads up or played one variant over the other I can I can tell so much about their personality just from that. Sure yeah I I I feel that.

I was I started playing cash but I didn't really I wasn't cut from the correct cloth and I moved over to to tournaments and then I ended up being I think maybe top 50 in the world in terms of in terms of ROI by the time that I I retired I guess from poker. So and but you know that tournaments are just incredibly soft compared to cash like the the sort of calculus is much simpler and like you just need to grind to make money. I think it's much simpler and easier to make money in in in tournaments than in online cash. And so that's that's how I kind of spun up capital so that I could actually make money by trading. Yeah I guess that's a very typical story. Yeah I think the I

think the warm up at one point and that was sort of that's what set it off. Someone asked this on Twitter recently and I thought it was an absolutely brilliant question a bit different than what most what most podcasts ask their guests in the beginning so instead of like when did you find crypto when do you plan on leaving crypto? What are your what are your goals that you want to achieve here before you can say I'm I'm done with this [ __ ] That is an incredible question. For me personally I like the idea of [ __ ] you money. Uh, and I'll leave crypto when I stop having a material edge in trading it because I I no longer really trade just for the

money and I never have. I trade because I love playing the game, right? It's much like trading is almost identical to poker in that it's a game, it's a zero-sum game, it's a game of incomplete information, and the one key difference I think between trading and poker that I find to make trading a much better game to play is that the rules constantly change. Whereas in poker, the rules are are fixed and the meta is is sort of the the thing that's dynamic. In trading, the rules change and the meta changes, which is sort of creates these incredible problems that reward people who can get a little bit closer to whatever the concept of truth is in these games.

Yeah, that's a great point. So, I I I I think I've experienced the same. So in I was like such a one-trick pony in poker. Yeah. Like one or two games, one or two player sizes, like heads-up mostly and short-handed, and I would just study the [ __ ] out of that and get really good at that. Yeah. And then you can just play that for 10 years, right? And um, in in trading I started trading started looking a bit more into trading the last few months, and I just find it so much more complex Yeah. Yeah. than poker.

I thought the one thing that I kind of took away from poker that's very helpful is the idea of just having good bankroll management / risk management. Can you talk about that? Yeah, I think that that I mean, it's easy to make money in markets. I think it's harder to figure out the opportunity of cost of capital and where to deploy capital at any given time and how to manage risk and understand sort of what risks you're taking, right? Because there's a lot of unknown unknowns to most participants. Um, and poker teaches you, for instance, in tournaments it taught me like the the value of asymmetry of payoffs, right?

Because uh, like you you pay a buy-in in tournaments and you can win some multiple of that buy-in, right? So, those asymmetric payoffs are very valuable and they also make risk management just naturally easier. Because it's incredibly difficult if you don't kind of situate yourself with that large payoff small cap downside situation because there will always be risks that you are not fully aware of. Um, and so structuring it that way present prevents you from from the floor being pulled out under you, right? I think that's a good segue into how you approach the the crypto markets.

Um, so as as I understand there are many different approaches to to trading, many different individual markets. Um, even inside like what we call the crypto market or the equities market, many different products, many different time frames, so um, what what what would you say is your approach? I think that I agree with with what you mentioned before that specialization in zero-sum games is the way to sort of maximize expected value. Um, but crypto markets are still in their infancy and they're so soft and what I mean by that is that there's so much edge for the taking that I think that if you are strong enough in a variety of disciplines, you can tend to be a generalist. Uh, and that kind of solves

another problem that a lot of people have which is that sort of the man with a hammer syndrome where like if you if all you do is is trade alts, what you're going to do is just continuously long alts, right? But if you can trade derivatives, if you can then trade alts, you can kind of figure out what tool is correct for what time in the market. And um, so from a bird's-eye view, I blend a bit of behavioral economics and sort of the idea that narratives drive reflexive prices. Uh, I have like a decent amount. I try to have a decent amount of asymmetric information and the edge that that generates versus market participants. And then probably my favorite, I think, is actually just the old school of reading the tape and order

flow and kind of just getting a feel for markets. If you spend enough time just sitting and staring at market orders coming in from an aggregate of different exchanges, you'll generally have a feel for certain situations and that will kind of trigger an emotional memory or some sort of pattern recognition in your brain of a of a previous moment that this has happened. And so with experience in the markets, you'll you'll kind of get a feeling and you'll notice certain things and say, "Hey, I've seen that before. Usually, you know, this starts and then something else follows, you know?" And then you start trying to match those patterns in your head and finding the one that fits correctly. And then, uh, kind of determine the different scenarios.

I think that's really interesting and definitely, um, something I've noticed too where where when poker players switch over to crypto, I think there's two big edges that they tend to have. One is that the pattern matching, they can do it on a very first, you know, a very bottom-up perspective where they're they are watching the actual markets, you know? Um. And whereas a lot of people they don't put in the work to actually do that. They don't put in the work to see how is this market maker moving his prices? How are these prices moving on the screen? So I think just the willingness to do that gives you like an edge over 90% of people straight up.

I think too you like it's also interesting where we mentioned there's so many of a variety of games. It's quite similar to the experience that we had where when we came in we wanted to do certain types of trading and just do that only cuz we knew it very well. And then as the market, you know, as we got sort of more comfortable with the markets, we kind of saw opportunities here and there uh, for, you know, long only style stuff or for more all illiquid strategies. So I think I think that's definitely the right approach. Like you said, we don't in this space now, we we can't even agree on what is the base money of crypto. We can't even agree on, you know, what is the value accrual of smart contract platforms. Uh we we can't agree on what the governance value of a token is. So,

you know, it's it's definitely it's definitely too early to be a specialist of any one of these games cuz this game may not exist. I mean, the the 2017, people said, "Well, I'm an ICO specialist. You know, I specialize in pricing the pre-sale round or pricing like these rounds." And so, it's it's good to always have your like a zoomed out view, for sure. Yeah. Yeah, and regarding what you said about watching the market and kind of becoming this pattern matching machine, building this kind of intuition over time, uh Robin Hanson, the economist, on Twitter had a great great advice the other day. I think he said, "If your profession doesn't have this kind of What's the right way to put it? This kind of um study that's equivalent to a musician just training the notes every

day, then you're doing it wrong. Because every profession has this kind of thing where you can just get incredible at the basics and you should." Yeah, I think that's that's well said. Uh one thing that kind of makes that very tangible for me is is watching something where the the constant ritual of improvement is is visible, right? So, uh a documentary that I I tell people to watch all the time when it comes to trading is Jiro Dreams of Sushi, right? That slow process of of becoming a master at something. Um and I think you're dead on when you say that if if if if that doesn't exist or if you can't dissociate and see that in yourself, then I don't think that you are approaching it in in the correct way.

And I'd like to kind of add one more thing, which is that in markets as in life, there's nothing new under the sun. I I that most of my trading ideas don't come organically. I've I read books about markets and speculation, especially pre-regulatory before the the turn of the 20th century, because I think that crypto markets, you'll see, they follow incredible parallels of what speculative markets have looked like for centuries. Like, for instance, there used to be in Reminiscences of of a Stock Operator, there used to be this part about painting the tape. And that just meant back then that the ticker tape would would print every single trade that happened, and people people who ran campaigns to promote their

stocks would just keep making these wash trades back and forth with themselves. And when you take a look at CoinMarketCap these days, that's literally what happens with alts, right? On a big red day, you'll have a coin with like a very tight circulation, and these guys will just rip it 50% because it's free advertising, and it makes everyone look at your your alt and consider buying it, cuz what do people like buying? They like buying alts that are going up, right? Yeah, um I think what you just said about um basically studying pre-regulatory, {quote} raw markets, where you have the kind of raw um emotion uh animal spirits that you have in crypto um to then s- basically uh uh

predict what prices are going to do in crypto and what what people are going to do ultimately. That is an incredible concept that I hadn't expressed before, so I will definitely pick up on that. Um and um regarding your earlier point, so I'm very interested in learning how to hold myself accountable for trades. So, I I I can say very bluntly that I don't have this kind of feedback loop yet where where I can um make a decision that is closed in itself, and that when the decision is done, I can at some point say, "Okay, this was a good or a bad decision."

Um and I I have no I don't know how yet how to approach this problem, and I feel like it's really important to to become a good trader. So, I have two of the best traders in all of crypto here. So, I'd really love for you two to like walk me through how how I can do this like conceptually, how I can make this process. I think it's a great question. It's obviously the holy grail because um it's much easier said than done. So, so anything I'll say right now I probably myself can't do half the time, right? But But But I think one important concept is um I think you have to have an idea of what your thesis is going into the trade, and you have to have an invalidation

uh both from a price point of view and from a thesis point of view. So, I think some people they get into the spots where they don't have an invalidation for their idea uh from a price point of view. And that obviously just means that you can go bankrupt in trades, right? Because no matter how smart you think you are, you're still going to be wrong like all the time. And that I think is the hardest part about trading for so many people because the way that we've structured society now is we don't like feeling wrong, right? Like like everything is about not making you feel wrong. So, like you know, like in school, you know, you the teachers tell you you're right, you know, your friends tell don't tell you when your fly is down, you know, like no one wants to tell you that you're wrong

usually. So, So, so when the market is telling you that you're wrong via your profit, uh if you have built in an invalidation for your thesis, that saves you a lot of money because if prices start moving against you quite heavily, likely it A, it could mean that it's a a better buy opportunity, but in general it doesn't, right? In in general it means that you misread the market. And And so, just having invalidation is super key, I think. I think on the flip side of that is you should have a rough idea of what it would look like if you're really right. And how much do you plan to make when you're really right? And that gets back to what Light I saying about, you know, asymmetric risk reward, right? Like in general, it's a cliche in crypto, but you should still try to target a reward

that is higher than your risk, right? Whether that's an arbitrage trade even or or a directional trade, you want to be in a spot where you can be right like half the time or more and make much more than than than than one verse one. You can if you can make three verse one when it's 50%, that's a great trade, right? So, I think that with that in mind, you kind of get a sense of where people generally tend to go wrong in crypto. I mean, you think about 2018, you know, people buy let's say they buy a pre-sale and then they start holding it or they buy it all and start holding it and then they're obviously down money cuz the thing bleeds out and then they're like, you know what? I'm going to buy more cuz it's a lower price than where I just got

it. And soon you end up owning like a lot of it and the liquidity just dries up as well, right? Um and so I think being able to to be willing to be wrong is is a huge part of the battle and I think the the by far the biggest leak that beginners have. Yeah, [ __ ] me. That's the biggest leak I have. Uh so, I mean, hearing you break it down is is always good, right? Sometimes you kind of remember these things and then you forget them and then you rediscover them and and then forget them again as you go through your career. Um I mean, to kind of build on that, I think that there's there's sort of three ways that I think I I found to be helpful.

Um the first and this will be near and dear to your heart, Jose, is that every successful poker player at some point learned that it was always about optimizing the process, never never the result, right? And that's what we learned about about expected value versus outcome. Um because when you put in aces into kings pre-flop, you are going to lose what? 19 20%? I've forgotten the math now, but if if he banks a king on the river, does that mean that you made a bad decision? No, but in poker it's a bit easier to see this, but in in markets because we have such incomplete information and the outcomes are so so different than anything that we could reasonably expect a priori.

The a lot of people conflate the volatility and the addiction to volatility and the actual result that happened and focus on that instead of the result. And that kind of dilutes them, I think. That's That's where the market sort of tricks the participants. And that's I also think why you can have guys that are 50 or 60 and they're still making the same [ __ ] mistakes that they were making for 30 years straight because they never focused on the process and introspected the process and tried to improve it. The other thing that I'll say is is that people often conflate time frames. And I think that maybe that is kind of similar to what Sue was saying, but you start with as a trade and then suddenly you become a bag holder, right? And there's nothing more dangerous than having that happen to you because the human mind is

pretty amazing in what he can rationalize, right? And the the like if it starts as a trade and the market starts moving against you like Sue said and you start adding on weakness in a market that where returns are heavily auto correlated, you're you're just going to get absolutely demolished. And then I guess what Sekota said, right? Like everyone gets what they want out of markets. Most guys want to come into the markets and they want to be right, right? They want to prove that they're smart, that they know what they're doing, uh and they're going to get that every single time because you're always right if you want to be. Or if you want to gamble, which a lot of people do, you can come into crypto and you can gamble cuz I think that they're just one giant gray area casino.

But if you want to make money, making money is boring sometimes. It's tedious. It requires patience and discipline. It's not fun. It's the same way when you play poker, playing fun poker where you have a few drinks with friends, you uh you VPIP 50% of your hands and you splash around with your boys. But playing good poker very rarely involves that, especially on a nine-handed table, right? So I saw something that I took from poker. And it's basically how I I'd say when my career in poker really took off one key insight that I had was that it's all about simplifying the decision tree.

So, you have this insanely huge decision tree, but you don't you don't know which of the decisions actually matter, which of them make you money and which don't. And um I feel like I got more into this process as we started to to study using um solvers. So, solvers are like chess computer but for poker. So, you create these like toy games, these very simplified versions of the real game of poker which that then the computer can solve and you can study the results. So, this kind of gets you into this output of hmm So, the kind of the human mind doesn't actually work that the all that different from the kind of regret minimization algorithms that we use to solve poker. Um with a machine. So,

um maybe I should just a just borrow this mechanism and apply it like to I study poker as well. And um and and and like one obvious way of that is okay, so maybe these these 50 hands are basically all the same. So, it doesn't matter if if if if like ace king or king queen or king jack, you know, maybe all top pairs are really the same on this board and it doesn't it doesn't matter. Like they they you can all treat them the same and thereby like dramatically simplify your your decision tree. Or another example is there there are many spots where for example, the opponent open raises pre-flop, you call out of position and then you have a lot of boards where the

kind of the the opponent's range hits this board so much better than you do and so you should never lead out into the pot. You should always check and um and then see if the opponent bets or not and and then react. And this is a thing that a lot of players do right In this kind of very simple situation on the flop out of position but um scenarios like that exist all over the game tree, um actually. And if you can find them, you I think you can do a really good job. So, I want to I would like um like like to learn more about how I can apply this thing that I think it really should apply to trading, but I don't really know yet how I can apply it. So,

um do I, for example, set all of my trades to be the same time frame? So, I basically have to say they are validated or invalidated after a fixed time unit? And do I make all my trades the same size? So, just to remove the these kind of complexities where I think they may not be all that relevant, but really like stress me out and make thinking about the trade so much more difficult. Yeah, I mean I think that there's a lot to unpack there, but the the sort of the abstract concept that you're sharing just hit like a struck a chord in my brain because I remember learning something from poker, which was that you noticed that a lot of the mediocre players that never made it would kind of come to you with these very specific

hand histories where they're like, I have uh second set on the turn, I bet, the guy check raises, there's like an open-ender. And this is like a decision that's so nebulous, that has such minimal EV between the the different options that you're talking about, you know, a couple bigs, maybe per hundred. But then this guy is like opening ace-jack off under the gun uh nine-handed, right? On a hard table, and just just hemorrhaging money, right? So, just finding the leaks first is super important, and and I think that what you need to do is also the ability to evaluate looking backwards. So, you need to record your trades because there's all sorts of cognitive biases that are brought on by volatility in markets,

uh by sort of the addictive nature of of information and price movement, and the pain of losses and all of those cognitive biases that come from prospect theory that behavioral economists have been talking about for a couple decades. And so first, you need to have a recording of what you've done, why you did it, right? So trade journals and then reflection after after the fact, especially if you're a discretionary trader. I think if you if you are mostly delta neutral, I think that it's a different game, but for people who are directional in nature and discretionary, um it's incredibly important to be able to look back on trades and break them down and have some sort of recording because otherwise you'll keep making the same mistakes

over and over. Um and then that way you can also leak find, right? The equivalent currently of just of just firing off on different exchanges and being able to bet millions of dollars on some random hunch that you have or just because you're angry at someone that day is like the equivalent of playing poker without poker tracker or hand histories. Like it's insane when you look back on it that way, but like I think that's what a lot of guys do. Um and it's still works because it's like kind of like poker in 2000 and I don't know, 2005, you know, where you could sit out of a sit and go, go to the store, get yourself a pack of cigarettes, and you'd come back and like five people will have busted and you'll get a min cash somehow, you know? Like that's where we're at still. Um and the

game is just going to get harder and harder and the goal for you as a trader is to improve your edge versus the market in a zero-sum game faster than your competitors and your competitors who are coming in the space. Like I knew in 2017 that that this [ __ ] would would happen, right? But I didn't I underestimated how fast and how quickly incredibly sharp people would come into the space and just deteriorate edges. Um especially on the delta neutral side because I think a lot of the legacy finance guys came in and that was a trade that they could port over. Like the cash and carry sort of stuff.

Directional is still there's still like they don't want to get burned cuz they don't really fully trust it cuz it's it's super scary where the risk is not really definable to them and stuff like that. And so the edge I think has been more robust, but even that I think obviously is going to disappear slowly as the markets move towards more efficiency. I think one way too that has helped us simplify is you can kind of bucket crypto markets into you have Bitcoin regimes, you have application layer regimes, and you have sort of you know, like older alt style regimes, right? And I And I think that that there's not that much sample size yet, but the human psychology has been such that

um if you have a structural view on some of these sectors, that helps in inform what kind of spots you're looking to get into, right? So like in 2018, like one of the things that like impressed me the most about light was that like here like people were still trying to find what alts to buy whatever and we're talking about like, you know, shorting alts or talking about because like like the beauty of BitMEX actually was not that you could trade like even perps per se, but that you could short alt BTC, right? At that time in 2018, open interest was massive, right? You had people buying XRP BTC at like 20% contango in May 2018, right? EOS BTC at 15% contango, right? And

like the opportunities in 2018 for being short alts versus Bitcoin were tremendous, right? It was a tremendous time for that. And so I think that in retrospect now like everyone looks at it and says oh it's so obvious, but very very few people were actually looking at it then thinking that way. They were still thinking about okay, like I remember Novogratz he said, you know, the public markets may be coming down, but private markets are still great. He was still trying to buy SAFs, right? He He was still trying to buy ICOs. So I think the one way that I I think is really important to simplify like always is like what is your baseline view on various things? Because then you can take trades that you believe you can be asymmetric at, right? And you can have an have an edge at. If let's say like

everyone is bullish um on alt or on DeFi coins, but you think you know something that they don't. You think you know that uh you can recognize uh when it's starting to top or when when there's no new money coming in. That gives you a huge edge because it's quite asymmetric. You can sell uh knowing that you can be invalidated quite easily by more money coming in. And if you're not invalidated, then you know that like that that that gives you a nice half-life, right? Where you kind of can simplify the trade, say here's my thesis, here's my my schematic that the market always does these cycles and we're in this part of the cycle.

Um you can kind of be very provable about do you have a feel for that market right? Um So, I think you you probably want to um have an idea of who you are, what information you have, what what kind of studying you've done, right? Um if you're studying the tape a lot, if you're studying the markets a lot, you can probably guess when Bitcoin's about to break down more than half of the time because you'll say there's a lot of these signs, right? There's like a it's about to nuke. Um And if you're looking at alt a lot, you can probably know when like a small cap is, you know, going to a hard fork, going into an an event. So, there are all these ways to make money, but you have to be able to define what your general schematic is

and and how you're planning to be better than most people at it. Yeah. Yeah, that that sounds dead on to me. I think one of my friends floored me a couple nights ago at dinner when he said He said He said the following. He said it isn't the things that you don't know that that get you, it's the things that you think you know that you just ain't so. And people get in trouble all the time here because they have these sort of frameworks that are overly convoluted. Um and like more is is much worse in complex systems with a lot of risk.

Um which which I think markets are are dead on. And so I think that making distinctions between investing and trading are really important because I think most people kind of lump them together. And investing requires a different set of questions. It requires sort of almost ontological questions in this space. So what is Bitcoin? What is alts? Um whereas trading doesn't like how do we value these things? Whereas trading doesn't really require that, right? Because trading just requires making having something go up when you're long for an appropriate amount of like risk taken, right? And then running that back over and over and trying to capture that expected value.

Yeah, I I I I think with DeFi as well, especially. Like I remember when DeFi like made a blow-off top and then I was saying a lot of people like I think it like some kind of top is in at least for like a couple a couple weeks uh plus, right? Like not like not a normal top where you like you you buy the dip the third day and it's up. And I remember people saying like well, these assets are bad and they'll go down, but I have the blue chip ones and but those are be good. And I think like there's a lot of composability on the way up with alts with with with coins and there's a lot of composability down, too. So people recognize the composability on the way up and they're like, okay, yeah, this total value locked ties with this. So they all go up

together. No one that starts coming down, they're fast to say how their bags are somehow decoupled from this reality, but the other bags that they don't own are the bad ones. So they basically believe in this decoupling when to an outsider looking at it, there is no such thing, right? Like they it's it's for sure So, I think I learned that very early on from the stock market because I started in 2008, 2007 where we all know in stocks on the way down, they correlate. Correlations go to one. Uh and in a bull market, core correlations can disperse a bit, but on the downside, it it goes heavily correlated. So, I think just being aware of these kind of very basic truisms uh can get you like just to get outside

your own head and say, "Okay, what what do I have to do here? Do I have to hedge? Do I have to, you know, be prepared? Like what would a what would a panic look like? Will people be panicking what I own, right?" Mhm. To hold yourself accountable, you need to hold yourself accountable to to to to something, right? And you have to decide whether you're investing or speculating or trading. As an investor, I think that you're targeting some sort of equilibrium value that is that is hidden from you, right? And price oscillates around this theoretical number driven by supply and demand and sort of investor psychology and the cycles of narrative and emotions of euphoria and depression.

And you can kind of think of of price oscillating around this value as, you know, the the beings in in Plato's cave, right? That are that you can't see, they're obscured from you, and price is the shadow that's being illuminated, right? But as an investor, you have to have some sort of uh philosophical framework for what value is, how it's reached, etc. As a trader, though, if you are a trader and you hold yourself to that standard of accountability, having those beliefs that are absolute is only dangerous, right? And so, you you have to hold yourself to something different. There were these sort of incredible stories where guys would say, "Hey, I think I think so-and-so is is cheap value-wise, but they don't have a valuation model, right?" Like how how

can you say that compound is cheap at say, you know, $50 or $80 when it's impossible we currently have no satisfactory evaluation models with which to value them. Even with Bitcoin, we're struggling kind of reaching into the dark, but at least we have something a bit more stable. And you know, a lot of guys, I think, just they try to prove their hypothesis. So, which is that the most ass-backwards way to do something in trading and the thing that's going to lose you the most money because they say, "Hey, I have these bags or I want to buy these bags or I'm long already."

Uh how can I go find 13 good reasons why I should continue to do this [ __ ] right? Whereas, the correct way to do it has always been from even in from the scientific process is to try to nullify the hypothesis, right? That's Whenever I I have a a a trade idea that that feels good, the way that I actually spend time playing with it is by trying to figure out all the reasons why this this is a a terrible idea. And then if I can't come up with something conclusive, if I can't nullify the hypothesis, then I feel more confident, right? And that requires you to put yourself in the shoes of the other participant on the other end of your of your trade and say, "This guy is wrong for these He believes this and he is wrong for these reasons."

Um and I think that if you can't say that or if you even haven't haven't thought at that level, then you're you're doing it uh the wrong way. And then you There is no accountability because you can always find other reasons to rationalize your behavior, especially because of all the sort of behavioral foibles that humans have, right? Why can't people sell on the way down even though they're supposed to hold all the way through the whole cycle and then sell once it's obviously cracked? Well, it's because they regret not selling at the top. And then the next time it spikes, they hope that it goes back because they have in their mind a snapshot of their highest AUM or personal balance. So, they can't sell on the upthrust. What do they do once it crashes again from the upthrust that didn't clear the high? Now they

sell the bottom because they panic, right? And that's because they keep trying to find reasons to justify what they want rather than what what reality is. And your job as a trader is to kind of just listen to the market and try to reduce those biases that make it so that, you know, 99% of people will will end up being losers in in their participation in in markets. Oh, yeah. It was It was a few weeks ago. I don't know what it was. Some kind of bearish event. I think it was was BitMEX. BitMEX the the lawsuit going up on on Twitter and I I asked one of you. I forgot who, but I asked this this should I panic?

And Bitcoin was already down a fair bit and I think the response was no, it's too late to panic now. This kind of illustrates this whole like you you don't skate where the puck is is is is at right now, right? Either you you panic immediately or you shouldn't panic at all. Yeah, that dovetails pretty nicely into sort of figuring out the sort of like the state of the market, right? Because I think that the way that the market behaves when it comes to news is pretty telling about sort of it's almost like market participants kind of show their hand and you get a a bit of information because you see how they react to events and then they kind of tell you what

their line is going to be in the future by given how they react. So, when you have so all of this slew of bad news and I think this was sort of the party line in a lot of places that people realize you have this non-stop series of bad news and the market barely budges, right? So, and then you have like a few pieces of like excellent bullish news and the market just absolutely rips. Now, was it the news or was it the market structure? It's probably a combination of a bit of both, but um I think it's really important to kind of take those signs and people kind of missed the forest for the trees sometimes like they say that like right, bull markets are made by climbing what the stair a wall of worry and bear markets are built on on on hope and you can see that,

right? When people clung onto narratives like backed or product launches and [ __ ] like that when when prices are tanking. This is a reflexive asset. It's built on narratives. When people aren't making money, some people are going to dump and there was this old story about, you know, every time a journalist has to write an article about about why copper did so and so and they all they pull out all these reasons, right? There a lot of the Bloomberg reporters are like this in crypto. They have to come up with some [ __ ] reason to explain why something happened. And then one guy couldn't find a reason one time and he he just said, you know, the market went up because there were more buyers than sellers. And that's what's happening in risk assets today, right? Like you have a reflation trade that's occurring and people need

to deploy their fiat and stuff and and Bitcoin is sort of a shelling point for all of those arguments about about that start that made it created in 2008 in the first place. Yeah, I I do want to talk to you about the macro like Bitcoin against the word a bit later. Um, but I also want to explore kind of the the crypto market and um So so how how are you currently positioning crypto? What what is your thesis for maybe the next couple months? So I um a few months ago I was I was an honest farmer, right? Because the opportunities there were were absolutely incredible um in terms of sharp ratios. Um and the narrative was there basically that this

thing was new and exciting and that it it had like unlimited potential. And then you kind of saw you kind of saw that breaking down and maybe maybe people like putting putting the cart before the ox at a certain point when you had, you know, part-time students and like uh uh other like promo- promotional men uh releasing products that people were piling in hundreds of millions of dollars into and then those are some of the things I think Sue you mentioned it on a previous on the one podcast that I've listened to this year about once you start seeing the mimics and and like the con men come in, the supply it it the supply of these things is just increasing at such a rate that demand can't possibly match it, right? Because the cost of creating SAFE or some other mimic is basically

nothing. And so, who's who's going to buy these things? And so, you could see sort of the euphoria and like the the new paradigm sort of views, and then the market kind of softened and it crashed and then it couldn't reach the high. And people I think kind of got lost because the Uniswap launch kind of obfuscated it and made people complacent. And that was There's always a little trick like that that happens, right? Which makes people hope against hope or the reality. The other thing is that I think that they they they held on because they wanted to believe that cuz they everyone wants something more. They want to make more money rather than what the market gives them, right? They want the market to give them what they want. But, anyways, I In I think in September I

dumped the last of my alts. I think it was on the Uniswap launch day. Cuz it was just incredible exit liquidity on things that you wouldn't have otherwise been able to get exit liquidity. I felt like a fool the next Saturday and Sunday because I think after that there was that big rip um in alts. And that that also gave exit liquidity. And people who are very disciplined, those were the days that they were selling. You don't sell on the way up because these things always go way further than you can ever anticipate. You sell on that first up thrust once it's clear probably that the market has topped and then you have an invalidation because if it hasn't topped and you just get back in and that's okay, you know? Um but my positioning ever since then, which I I kind of said I think, was that I rotated into stables

and BTC. I thought the market was fairly uncertain back then and I was worried about alts and DeFi being a contagion on Bitcoin. Then I saw that Bitcoin wasn't going down uh and so I started adding a [ __ ] ton of just naked calls outright. And I want to kind of talk about a a about that because I think it's really interesting and it's a source of alpha for a lot of people even if you don't feel comfortable trading options, which is that if you understand the way that the flows work in the options market, they come from two sources. One, people who are hungry for yield, right?

So, these are traditional macro dudes who are like buying spot and then selling covered calls because there's no yields and they feel comfortable enough to do this. Then, there's structured product flow that has been used as a lure to minors and other whales who are fairly unsophisticated financially and they say, "Hey, I love I would love to get, you know, some consistent steady income stream." And especially when markets are quiet, they're willing to sell that for the stream, but when you sell those options and or they're repackaged as a structured product by some of these companies that are operating and catering to these people, like you give up the whole reason that you own an asset like Bitcoin, right?

And you you you you give it up for pennies on the dollar sometimes. And so, I think structurally those forces have made it so that implied volatility is consistently mispriced in the market and it it has that like it gives the opportunity if you're selective about the times that you buy volatility and you also get to buy cheap leverage on Bitcoin. Uh it it makes for an incredible opportunity. I don't know how many times you've just run over people by just buying a [ __ ] ton of calls. Like, I think in 2019 in April, it was mind-boggling that people were just religiously selling upside.

And uh you can always tell like the heuristic that I use is when people get really gung-ho about selling uh volatility. So, there was this article that I always tell people about which was that ran in Bloomberg that was like, "In crypto bear market, survivors find a rare lifeline." And that lifeline was selling Bitcoin calls, covered calls at $3,000 to $4,000 in the bottom of the market in 2019, right? So, when those guys start selling a bunch of those calls because they don't think that there's upside, is when the market has the most upside and it's being sold to you for the cheapest prices.

I've I think Sue, you've kind of convinced me that that like basically in these markets, because it's such a money game and there's constantly flows between alts and BTC and back and into stables, that the pain trade is usually like it has a higher probability than it should have of happening because part of the game is that a select few people of like who are strong holders, kind of just get into something beforehand and then wait until everyone else starts running into it. And then they dump their bags near the end of that cycle and then they rotate back, right? And people won't really talk about that because we rely on alts to drive action. Exchanges need it. We need it as traders. Um ICO teams need it

because you can't sell tokens unless people need it. And no one's willing to say it, but it's the greatest lie, right? Like that at the end of the day, we all know that if you were to go into a coma tomorrow for 10 years and you you had now one chance to set your crypto portfolio. Would you would would you own Bitcoin? Yeah, you'd probably own Bitcoin. Would you own Filecoin? Would you own Compound? Is that the things that you would put into your portfolio if you were to go into a coma next year for for 10 years? I I don't I don't have the answer to that question, you know?

Or maybe I do, but I don't want to say it. You know, like the beauty of the beauty of options, right? Is that you don't have to look at it the same way. It's a lot like poker. If you're a fish playing poker, you don't have to care about EV, about like VPIP. You You just play your hand, right? And there's also a lot of hope that happens there, too. Like if you're a fish, you actually care about hitting your flush. Like you want to like hit a flush. You want to hit your hand. Whereas I remember like when I first started trying to get better at poker, someone told me like you You never be hoping for any card. You should be thinking about how you play on different cards. And I'm like, "Yeah, but I wish I had it in my hand." And so

options is very much like that where the like the people that are trading it not like from a directional view, they just it's from a it's from a vague hope. It's it's from a vague hope that they get their yield and like they they can keep rolling it. And you don't the like the biggest way I first understood this is that people prefer the physically delivered options in the OTC market. Also in part because they never have to think about the P&L. Right? Because if you sell calls on your Bitcoins and the price goes through the roof, like on Deribit, it shows you you're down a little money, right?

Because your unrealized P&L is super negative. But if you sell an OTC physical delivered call, nobody's sending you like any statement showing you you're down money. All that happens is that at expiry, you send your coins. And you're like, "Yeah, but I would have sold them there anyways. If I sell a 4K call, I would have sold there anyway as it went up because that's that was my level for those coins." So you see what I mean? You can It creates these tricks of the mind. And that's what That makes a great two-way market because then you have people who are saying, "I think the probability is good for this trade." And you have people saying "I I like the way that this trade I like the cash flows and I like the I like the risk profile of the trade,

so." That's how they get hit all the time, right? Because everyone wants the consistent high probability payouts. They [ __ ] love that [ __ ] And they don't like losing consistently, death by a thousand cuts. So there's like And these these markets are so so emotionally like they they tug at like the heartstrings or whatever you want to call it. And so people are making these gross errors in term from an expected value calculation because of that, right? Because they're just satisfying a primal like a an animalistic need to feel good rather than going back to that say quota quote, right? Like if you want to feel good in the markets and have like a small and consistent wins and then blow up or like literally pass up on a once in a

lifetime opportunity sometimes by selling upside volatility, you can do that, you know? And people are going to some people are going to be happy to soak that up. Like I think we've been probably one of the largest buyers of some of this covered call writing that's been happening like every single month, you know? We show up, people message us cuz they know that we're like the the marks basically, right? They say, "Oh boy, boy do we have some more calls to sell you?" And you say, "Yeah, [ __ ] yeah, sell me those calls again." And like I've seen it now, it's almost shocking. I think Sue and I we talked a couple months ago. I asked you, "Is it really Is it really going to be this easy again?"

Right? Like are people really doing this again where they're overselling this stuff and they're just like selling it because it's working right now and because realized vol is coming in like below implied and they just assume that it's going to be pinned forever. And I think you were saying the same. It's like how do people not remember previous regimes, right? It's almost like the market participants get tricked into thinking that whatever is now will continue to happen in the future without ever thinking about, you know, things that could change. I think you're you guys are both quite good at kind of sort of thinking about what could happen in the future that is different from today. And I think that that always makes good like macro and directional guys who kind of anticipate what could happen

and what things could change and catalyze those changes. When you have a view on the market such as Bitcoin is probably going to go up in the medium term, how do you How do you figure out what is the best way to express that view with with a trade? What kind of instrument and so on? I think I structure most of my positioning based off of a couple things. One is liquidity and the second most important one is is is how how to approach the risk of the trade. So, um on the first, in terms of liquidity, I think that when you get to a certain size, it you

have to start selling sort of in sub-optimal spots um and buying in sub-optimal spots. Like, for instance, if you look at Polychain buying YFI, I think that some people who are like big, they just have to do certain things. Like, they have to buy on the way down. They have to uh sell on the way up because they can't really time it. And that impacts ex ante when you're deciding to enter a trade whether or not the liquidity will be there for you to exit and exit cleanly because like the slippage and price impact all hurt the EV of the trade. So, the more the the bigger of a position that you take, the more the the higher the threshold has to be in terms of expected value or sharp of the of the trade.

Because if it's very marginal, the other price impacts are going to just eat up any edge that you have and then you're just flipping coins with people that you don't know. The second, in addition to liquidity, is sort of risk management. And I'll kind of walk you through an example of this year. So, in March of 2020, after the the market completely imploded, uh going margin long on BitMEX with 100x leverage on multiple accounts was an incredible play because the mark price that you is used for liquidation was trading at 4,000 when the swap and futures were trading at 3,000, right?

So, now you have It wasn't I think it was actually not 4,000 and 3,000, but it was there was a 10% discrepancy where the thing that was being used to liquidate was 10% higher. So, if you buy longs, you have a 10% buffer instead of the usual 60 [ __ ] basis points that BitMEX normally gives you on a 100x long. You open a [ __ ] ton of accounts. You margin long all of them. You have capped downside. And you just destroy when the market rips, which will it will inevitably probably do unless we were unless Bitcoin is going to zero, which it very well could have that day. But and you get to collect funding and you get to do it on 100x leverage on all of these accounts, right? So there that trade has that sort of risk management. Now later now when we get to like 9 to 12k and on

the pullback, I hold spot and instead of holding margin longs that I get trapped into with with no liquidity if I'm wrong, I want calls, right? Because now I've developed another way to cap my downside but allow myself to have the exposure in case my macro thesis is correct without having to get stuck with everyone else in a sinking ship if we're wrong, right? And so that's in in combination with the fact that people were selling these calls for dirt cheap, it ended up being incredibly alluring as an opportunity because you say, "Hey, I can capture all of the upside and I don't get trapped if I'm wrong and people are letting me take their upside for free, basically."

Like it just ended up being this incredible, incredible trade it and like it it's why having Deribit come into into the space and grow a lot has been so important because it affords you these abilities to sort of tailor-make your own sort of risk profile of your trades, right? So you can give yourself some more room to be wrong if you want to. You can take bigger positions and that pay off when you're right. Um that's sort of the like I guess I don't know what you would call it, the institutionalization of the space or like just the development of the space that gives people more tools uh to trade and express their views in a way that makes sense from a risk management perspective.

So we have we've talked about um the thesis for for Bitcoin and um why you see DeFi maybe in a in a in a in a downtrend at least for for the next few months. So what about Ethereum? Su, especially you're you've been very vocal um on Twitter that uh that you're you're you're very constructive on Bitcoin but actually very bearish um on Ether in comparison. So, what uh what is the reason for that? Especially in now that the the last the last few days Ether has actually kept up uh quite nicely.

Yeah, I think first I should preface by saying that I just [ __ ] post a lot. So, I think as Ether was going up I also [ __ ] posted a ton. Uh and I think almost like every Bitcoiner I knew I would ping them once a week and be like like just sh- sh- I'll just show them like a chart. Like I was doing this to Fidelity and stuff. They're They're not pleased. They're not pleased. Uh but um yeah, no I I look, I think I think that Bitcoin is the clear um denomination for the biggest players in crypto.

Uh that's you know, whether you're CZ, whether you're you know, um the big miners, the big exchanges, the biggest players. It is the It is the base currency in my view. So, knowing that I think that there's a big foundational understanding which is that when Chamath said he was going to put his family office into three assets, Bitcoin, Amazon, and the LA Clippers or did it was it Golden State Warriors?

Sorry, I think it was Golden State Warriors. Golden State Warriors, yeah. NBA's number I think they play. But but but the point is like he he's not he's not going in and being like I'm I'm buying like [ __ ] a basket of coins. I'm not going in and buying a basket of internet stocks, right? He and and Michael Saylor talked about this point a lot too where he says, you want to buy the one that is the clear dominant factor here and bet on the rest of the world coming to see that. Because that's how you get a the effect to work for you, right? That's what the Bitcoin Cash people didn't understand, which is that you can say you're better on utility on this, but if you don't have the network effect, then you have nothing, right?

You you can't possibly compete. So, I think Bitcoin has the network effect as the base money. Um that is very hard to overcome. I think Ether right now it's still pricing in too much of a base money effect where people think that there needs to be two base monies. I don't think that there need to be two base monies actually in crypto. I think there only needs to be one. Uh and and so I think 2017 also has created some really high wicks. So, because of those wicks people now look at those wicks and say it could get there again. And I think that's dangerous for two reasons. One is that the first big wick of May 2017 was in a period of before the Bitcoin having I mean before the Bitcoin um

uh hard fork, right? Where people were very scared about flippening. People were very scared about you know, what would Bitcoin become? And people were quitting Bitcoin left Right? I remember Raoul Pal, he said at 2000 he's selling all his Bitcoin that this fork is too dangerous, right? Like maybe it will buy either. And then you had you know, lit- later on in 2017 where you know, you had BCH BDC at 0.45. You you had, you know, a lot of questions about that. That environment is not the same as the one we're in now where you know, Bitcoin 3 years later is far more Lindy than it was then. It's 40% more Lindy, right? Uh roughly. And I think in terms of years that normies have seen Bitcoin, it is like 10x more

Lindy. I'd almost never hear anyone say Bitcoin is a scam anymore. I only hear them say, you know, did I is it too late? You know, how much is left? Or you know, when can I get in? But there there's no one that will even say it's a scam anymore. They they'd be sheepish to say it now. Even the even the the the people who used to call Bitcoin a scam, like a lot of people from the Ethereum community especially and the altcoin community, they now say Bitcoin Bitcoin is a {quote} "meme coin" or a "religion coin." And they don't even realize like how bullish in itself that that statement is. So, they they think they say something is kind of denigrating Bitcoin, but in reality they just make the point. Yeah. Yeah. The Robert

Shiller, and this is the Nobel laureate, this isn't a joke, that this is his name, wrote a book that uh uh a colleague Vance recommended to be called Narrative Economics, and the first chapter is is on Bitcoin. Like the guys who are inside the crypto bubble, they're lunatics if they think like that, you know, uh like your average 50- or 60-year-old family office manager, he's we've we've just spent 10 years convincing him that this thing is not a Ponzi and a pyramid like and that it's not a stone-cold fraud, and now people are like, "I wonder I wonder which corporation will be the first to put ETH in their treasury." Like that's that that's a bridge too far, right? You know, these people have barely signed on board for for owning like magical

internet money, let alone something like Ethereum. Um that Like my views haven't changed on this since John Pfeffer wrote an institutional investor's take on crypto assets. Pfeffer's paper is probably the most lucid sort of attempt at valuing both Bitcoin and Ethereum that I've seen to this day, and I've yet to see a a compelling rebuttal to it. That said, I think that Ethereum, whereas Bitcoin's valuation comes from most the narrative now mostly that it's a store of value, with Ethereum and alts more broadly, I think that they've always just been

speculative vehicles for a transfer of wealth and for the ability to gamble. Um and that's what that's what really gives them value also because they're kind of trend following, and that those things the narrative is so important, right? Because with Ethereum you have this F 2.0 narrative and sometimes that narrative breaks down, right? When they don't deliver and you can see the narrative breaking down and then the price starts following and then price ossifies that narrative further and further because we deal with so much uncertainty in how to value Ethereum. It is what is it's is it's a dark forest, right? That's one of my favorite terms of phrases that I've heard in this space and no one knows how to no one knows how to value it. So, we have to resort to narratives and to looking at price,

right? So, there's a full reflexivity there because no one knows how to value it. So, if the price goes up, then Ethereum is valuable. If price goes down, Ethereum is a piece of trash, right? And we're currently in the stage where Ethereum is underperforming. It's not even underperforming just on a risk-adjusted basis. It's actually underperforming just straight up on just a on numbers on CoinGecko basis, which is insane, right? Because you demand you need to demand so much more return to take on the risk of owning Ethereum versus Bitcoin and you're just not getting it now and people are realizing it and the best part is that as they realize it, they start piling into Bitcoin out of alt out of Ethereum, which just makes more people capitulate into Bitcoin, right? And that was sort

of the metaphor with the sinking ship when everyone's on one side of the ship except a few people who got ahead of the crowd and then everyone starts running in and I think people are going to make this mistake where they people I got a bunch of messages in the past week about what I think about alts now, right? Or whether is it time to rotate back into alts, you know, now that Bitcoin has had a move up. I think that the burden of proof is on people to prove that you should take your Bitcoin, move out of an asset that has an incredible macro backdrop and is currently outperforming everything else on a risk-adjusted basis and for some reason buy alts because you think that that trend will change. It doesn't make sense to me in a reflexive asset and I haven't heard any sort of compelling

argument as to why Bitcoin will stop outperforming. So, it just it seems like people just want to be contrarian for the sake of it rather than because they have a pretty strong reason, and you see it literally today Bitcoin kind of paused at like after it touched 13, and people started punting on alts again. And like like it you know, those short-term rotations I think usually get punished, and everyone wants an a continuation of the alt season right now. I think that like trade could just be that like alt season is uh is is a year or two away.

Although, I still think that DeFi with the caveat that I think DeFi will at some points some of it will do very well again because I think that there is some something really transformative happening that allows like a pretty valuable regulatory arbitrage to happen, and I think that if Peffer updated his paper, he would probably say that, you know, maybe we're getting closer to having value capture mechanisms on these tokens that make at least some sense and capture some of the value. Whereas, before in 2017, there was nothing there, right? That could be valued in any way, I think.

Fantastic points, and and I think another thing, too, which is like crypto natives, they massively project their own views on normal people that are coming in. And they're incredibly um they're incredibly like unaware of how normal people think, right? Like a lot of the Bitcoin buying over the next few years, I think will be people not trying to get rich, but people trying to keep pace. Right? That's actually why people buy most things in all markets because they want to keep pace. Like when people buy equities, it's cuz their neighbor buys equities. It's cuz everyone they know buys equities.

So, that is what creates the shelling point. Like people normies don't wake up and think they can outsmart everyone and like buy like, you know, the Bitcoin killers. Uh Plebs do, and and plebs might be able to get away with it in some parts of the market, but like in in general, you know, with the you know, with the 50-year-old family office guy example, he's not just trying to save his job by not taking risk. He's also trying to make sure that he's coordinating correctly with people, right? Uh he's trying to go to the right party. Um cuz if he goes to the wrong party, not only does he lose money from that thing going to zero, he also didn't go to the right one, right? So, the loss is is

absolute. Uh so, he needs to first buy enough where he's at the party, then maybe he can gamble with some other stuff like you know, if he feels a big wealth effect, I think you always get all seasons. I don't think you just like get alts dead like ever, but I think that I don't think any coin can track Bitcoin as a base money uh going into a more hypermonetization phase. Uh because there's no reason for it to, right? You're not comparing two different things. And so, I think my personal view on Ether especially now too is like you're in a it's actually in a far more precarious situation than people realize because one, you have the ETH 2 road map being very complex and they're kind of realizing that a lot of it the research has failed.

Um the roll-up road map is is I think promising but will not deliver the things that people are hyping it to be. People always hype it way too much, right? And then they realize you can't actually do that much with it. And this is in a backdrop where you have very credible contenders now for D5 for for for smart contract chains. You have Polkadot, which is three years in the making. You have Cosmos, which is several years in the making. And these are all live mainnet projects now that have serious developers, serious people. Uh and and so, I think what will tend to happen is that Ethereum right now still being valued as a base money by a lot of people. I think eventually it it'll be valued just as a smart contract

platform, same as Polkadot and Cosmos. So, it'll leak a lot of value to Bitcoin from that base that that kind of base money demonetization and then it will also have to compete for this nebulous smart contract market cap pie which no one really still understands how to value what this overall pie should be worth, you know, and moreover, people only now are starting to realize that the application layer of Ethereum and of all these coins should be worth the most actually. And this is something that I can get behind and you know, speaking with some of the smartest minds in Ethereum, you know, you like you know there's something challenging about the ETH thesis but the smartest minds in Ethereum believe that you should buy the tokens that build applications on Ethereum, right? Because they they would say, you know, well, in

Web 2 you had Zynga and Zynga had a lot of problems making money because they were the platforms and all that kind of stuff. So, Web 3 enables like radical, you know, app building, you know, like anyone can build an app and get tons of users. Well, if that's the case, then you would you would assume that the apps are going to accrue more of the value uh in crypto than the base layers. If If they didn't, I mean, this is still capitalism, right? If they didn't, then why should we make any sense. It wouldn't make any sense. So, I think the vision of where you have massive application layers that are on all chains that are on Solana, they're on Polkadot, they're on Cosmos, they're on ETH and they work really well and users don't even know that they're using

blockchain, like that I think makes a lot of sense. Uh I think it makes less sense that a smart contract platform can achieve some kind of maximalism which people are trying to assign to it now. And I think that this is quite short-sighted and is is part is primarily a bag holder thesis, I think. Uh I think if you I think if you zoom out and you explain it to other people, they'll just say, "Why does Ethereum deserve to have the smart contract mantle? Is it because they're the nicest?" I think that's what they'll you know, it cuz it can't be that they're that they have the best community. That can't actually be the real reason um fundamentally.

What people don't realize is that every roll-up chain is in itself a different blockchain. There's really no difference between apps and users coordinating on going to Cosmos, going to Polkadot versus going to the same roll-up. You have the same kind of coordination game with being on the same blockchain, being on the same shared state. And that's one reason why I'm pretty structurally bearish Ether right now. And the second is um the second is that you have this competition for where the value is going to go that you you also touched on. Someone who's who who's maybe constructive on DeFi, right? So,

are they going to buy Ether as a sort of ETF on on basically the whole DeFi space? Are they going to buy any DeFi tokens? And in the future, I mean, every roll-up surely is going to have its own token as well, right? Because these are all VC-backed and VCs all want their want to make their their exit. So, you're going to have roll-up tokens, you're going to have application tokens, and then you're going to have Ether base layer tokens. So, that's if you compare that to Bitcoin, Bitcoin is the shelling point for so many different narratives, and there's for all of them only one option to buy BTC.

And if you look at something that's happening inside Ethereum, even in in this narrow space, Ether is basically one of many ways to express a constructive view on that on that kind of event. And that's that's kind of like the a reverse shelling point almost. It's that's what's what's really worrying me right now. Yeah, it Now that you guys have kind of put it this way, it actually scares me for anyone who has like Ether exposure because you have this enormous narrative problem, right? The fact that this discussion, I'm in this space every single day, and some of the points that you guys made on the tech side are complex enough where I don't fully I don't fully understand them even though

you conveyed them decently like that points to a marked narrative problem, right? Bitcoin's current narrative is incredibly elegant and simple. Everyone can agree on it, as you said. With Ethereum, I don't even know what the narrative is anymore that can be sold to people and like that that narrative is key for price appreciation and it currently doesn't exist or it's conflicted. The fact that it's it's so complex and convoluted means that it cannot be spread, right? Quickly to people that could potentially buy this asset and that seems to be incredibly worrying from a trading perspective for me. The other thing that I think is fairly simple is that Ethereum is just underperforming

Bitcoin. Like the market is clearly signaling that you should be in one asset and people I don't think many people really think for themselves in this world and so, you know, and I don't either. You know, when I see that Bitcoin is outperforming, I I'll come up with a reason to explain that and I'll make sure to be long Bitcoin, you know, and you just don't want to be the last guy who catches on or or fights his his like mental biases last because you were holding out hope that maybe something will reverse in the trend. These are trending auto correlated markets and for good reason, right? Because we don't know what these things are worth. So, prices are leading variable for value.

And so, you do whatever the smart money and other people are doing by voting with their wallets and buying stuff and right now that is buying Bitcoin. Yeah, and um I think that I mean the the the the last Bitcoin soft fork was 3 years ago, right? That's hard to wrap your head around and people people say Bitcoin is stagnating, right? Bitcoin is not evolving, but I think what's really happening is that the normies, right? The kind of the the the people who are not watching crypto so closely, nothing happening in Bitcoin is actually the best thing that can happen to Bitcoin.

Yes. Nothing happening, no news, nothing. That is except like you know, people buying Bitcoin. That is that that is what it takes to build the kind of Lindy effect that we I I don't even I mean with the different with sort of the volatility of of alts in terms of their monetary policy, in terms of the technology, I feel like you almost can't establish sort of any sort of Lindy effect uh because it's it's constantly pivoting, right? There's new faces, people leaving.

Um actually, I guess I kind of walked that part back. I don't think that the people really matter, but the fact that it's constantly changing at that rate means that it's difficult for that effect to take over and to to demonstrate solidity, which is what these guys want, right? Because they're taking an enormous reputational risk. Right? Like if Michael Saylor is wrong, um he might not care, but other people in his shoes are going to be the that guy who's like the uh you know, the crazy dude who who bought this thing that was obviously a scam and 5 years later it's down 95%, right?

And so Bitcoin being around and being kind of similar and and predictable is super important for these people because I think that they know what they're going to get and they don't have to worry about you know, Vitalik deciding to skip F2.0 and going to F3.0. I actually saw on Twitter today um Paul Tudor Jones going on CNBC and saw the clips being shared and um listen to them and I saw uh him say something that nobody had pointed out until that point. And he said, "I've never seen a store of value where you also have such great intellectual capital behind it." And I'm paraphrasing. "But when you short the

bond market as an inflation hedge, you're really betting on the fallacy of mankind rather than its ingenuity." So, he he What he's saying is that other inflation hedges are fundamentally bearish on humanity, whereas Bitcoin is it's kind of bullish human ingenuity and bullish humanity. And even though I've kind of always felt that, I've never seen it expressed in such a way. Bitcoin is always sold as when when when the Bitcoiners are right, the world is going to [ __ ] So, if you buy Bitcoin, you're you're buying Doomsday, pretty much. It's at at best you can you can say, "Okay, maybe it's like a small like Doomsday hedge or whatever." Um and that shift, what do you think about that? I think

the optimism, actually, you can even see it in the way that the average Bitcoiner view something like the uh subsidy problem, right? Like I've always kind of believed that the people who think that Bitcoin will have a fee problem, I think it's like the middle of the bell curve view, because I think like like the very low side of the view, they'll just not even know what a fee subsidy is. They don't even know, and they won't care, and they'll just be like, "I bought Bitcoin and I'm up, and I'm going to buy more." And then on the other side of it, you say, "Well, there are all these ways it could get fixed, and um the market will find a way, because these are the things that we've all collected together, haven't we?" So, we've all come together as a world and collected these things and and stated

that this is our numerair, this is the way that we distribute value, this is the way that we collect value. There like like there's an optimism on both sides that humanity will find a way to preserve this value, right? So, I think like the the idea of where, you know, they just won't figure it out, and then all the value will go to zero, like that actually is like the ultra pessimistic view of human ingenuity, which is that we spent all this time buying all these coins, doing all this proof of work, but we couldn't figure out the fees, we couldn't figure out the stuff. All goes to zero, buy some other coin, right?

Like that's actually hyper nihilist in a way. And and so I think like the like the fact that Bitcoin buyers don't even need to know as much about it, but believe in this shared like concept of a digital money that was the first incipient blockchain, I think that that is why like the guys like him, they see it as inherently optimistic, whereas um like you said in the past, people didn't quite see this optimism as clearly. It's a It's a strange It's a bit of a strange place because it it attracts both some of the smartest and and some of the stupidest people that I've ever encountered, and I'm not quite sure exactly why it does that. Maybe maybe for different reasons.

But it's almost it's almost actually quite fitting because I think I think Ben Hunt had a good point about how like narratives, he says, "You don't want to be too smart by 1/2." Um because then you don't get anything, and that's similar to sort of that that meme, right, where you have the 120 IQ dude who's just sitting there just getting just getting demolished on both sides, and then you have the guy with 80 IQ and the guy with a 140 IQ, and those guys are doing the same thing as well. Um and like you like you have like people like just commenting on Paul Tudor Jones, like a guy like that that level of thought is is fairly unique given the valuation in the space.

And there's a there's a few other people I'd like to think in my in my opinion, including you too, that like compose some similar quality of thought that like it just seems like just based off of the ratio of of valuation of the space to the amount of people who are who are kind of participating in it that seems on a relative basis very cheap compared to a golden Peter Schiff, you know? It's very hard to have a constructive view on something like gold. Like on the very on the very long term, it's it's it's an inherent inherently regressive bet. Yeah. I think it I think maybe that's why it attracts some of these people because there is a way to both on a normative basis

feel positively about the space, right? Like I keep my philosophical bent at the door because I'm a trader, but like it's unquestionably compelling to me in a lot of ways that I agree with them that they kind of highlight like uh like the positives in humanity, right? That it's unshackled from some of the the the things that we've developed as a society and governments that we may not have intentionally done, but yet here we are, you know, and this offers potentially a a way to rethink the system. It seems I never found those arguments that I would want to hold Bitcoin if the financial system collapses. Financial system collapse, I don't really give a [ __ ] about, you know, eating cans of cat food. Like uh that's not really why I'm here. I'm here

because I think that it's a a potentially a step forward towards like a problem, right? And it is a humanistic solution in that way. Yeah, and so you and I we in 2019 especially, that was kind of the the center almost of our of the articles that we wrote, kind of skeptic series on Bitcoin, that humanity kind of advances with cooperation, and you get cooperation via this kind of social institutions, and they work by by res- actually you restricting human behavior, right? That is what enables trust and cooperation. The knowing that the other guy can't screw you in in ways that you you can't predict, and you

can't insure against. And that's fundamentally the thing that Bitcoin and can cryptocurrency and smart contracts enable, and why I think it seems so because they seem restrictive to people, but people don't realize that restriction is actually the driver of cooperation and the driver of growth of humanity. Yeah, I think trust minimization is a huge concept there, and I think that also gets back to the question of, you know, can there be another base money in crypto besides Bitcoin? And I don't think you can get that kind of trust minimization anywhere else. Very hard to replicate the fair launch.

Uh some people will say it's unfair, but I mean, nothing is like a truly fair, but as far as you can get, um I think you can't replicate it now given how much attention there is in crypto, and you can't replicate the idea, which is that it's going to just be the store value, right? You You You can't come out and say, "I'm also just going to be a store value anymore." because there's a cardinality uh which guys like Chamath understand, and I and I think the wealthiest people in our society understand as well, right? Where, you know, let's say the ultra primary of a city, right? The real estate there, the ultra rich in that city, they can all agree easily on what is the ultra prime of their

city. It's not something that they can have different opinions on. We can all agree that, you know, the parts of Manhattan nearest to Central Park on the south are the best parts and need to be worth the most, right? And so, wealthy people are very used to this idea of a shelling point for money, for stores of value. And so, because of that, there's money thesis and tech thesis in crypto, and I think the tech thesis guys, they've done a lot of good stuff, right?

We We can use a lot of cool blockchains now because of what they've done, but I think that the value accrual of most of the native tokens of crypto ultimately will go toward the money use case, where it has now enabled trust minimized currency to exist. Um and so I kind of see all the you know, all the other chains, they're ultimately feeding back into Bitcoin and and making it more viable, showing people what its its properties are and why they're valuable and why they can't be replicated easily. So.

I think you've mentioned you've made a pretty compelling case for sort of that sort of shelling point argument for Bitcoin and I think that it's it it it warrants kind of asking the question of whether that thesis can be wrong and whether an alt or some combination of them can achieve can achieve that sort of game theory solution as well. And I think where a lot of people kind of get it wrong unless I'm kind of straw manning them is is that they they say within an alt system that alt within the Solana system that alt is quote unquote scarce. Maybe less scarce than other things, but still scarce. And they just view the system in a vacuum rather than understanding the whole

context of the space where there is no scarcity of within alts versus Bitcoin because so many exist, right? That that removes the scarcity. Each of these separate sort of universes impede the claim to scarcity within other universes, right? Or rather not universes but solar systems, whatever you want to call it. And so it it it becomes orders of magnitude more difficult to reach a shelling point as an alt uh because of this lack of scarcity and differentiation. Whereas whereas there's only one Bitcoin, right? It's always been Bitcoin versus alts. That narrative has been maintained ever since you had Feathercoin and it also continuously

becomes like reiterated when things like Feathercoin, Litecoin, and other projects like this become dead projects usually and then they become replaced by something else. And we've seen so many cycles of this that it almost becomes impossible after your first alt cycle, after you kind of say I want to find the next Bitcoin because I need to catch up to these people that have been around for a long time, right? This the sort of plebeian mentality of wanting to get money quickly versus the mentality of those who have been around in the space for a couple turns of of the wheel of time and have seen they've seen these things die over and over and I it goes back to that idea that if you go into a coma tomorrow, there's no [ __ ] way that your

portfolio is going to be made up of Ripple, okay? Like that portfolio is it probably made up of Bitcoin 95% of it potentially or maybe maybe a a market weight allocation between Bitcoin and Ethereum if you feel very strongly about it and then maybe a few speculative type bets, right? Like that are like very small percents of the portfolio. Like that would be the construction that Gunter had right now I would have to to to put myself in. Now, I'm not even sure if that would it might just be 100% Bitcoin at this point. Um and I I feel like I'd be kind of embarrassed to tell some of my friends from traditional finance my views, but I think that it's it was an it's an interesting time to talk about this because I think that we're clearly out

of the analog of the Nikkei in the '80s now and I think conclusively on Bitcoin, right? And again, I say price ossifies narratives and you see that Bitcoin is clearly not sort of having a uh a death rattle the way that the Nikkei did, right? Because people were hoping that it would run it back. Like I look at it now and the way that it's moving and sort of the macro backdrop it would make me embarrassed, but I think it is it is more more likely than not that we clear the all-time highs at this point within within let's say this year or the next, right? Which seems like an outrageous claim to make because I think that you know, based off of skew's model, I think

you look at those options they say 20k or over a is is priced at 7% currently, right? With the with the simplifying assumptions that they're using. Like that seems ridiculous to me. Like it seems ridiculously cheap to me. And like but it's hard to say something like that with strong conviction because it sounds I sound like a lunatic, you know?