Coinbase's David Duong on the Fed, ETH demand and altseason signals

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show where every morning feels like opening up a mystery box. I'm your host, Jay Hamilton. It's Wednesday, August the 20th. Today we are joined once again by David Dwong, head of research at Coinbase. Today we're going to talk about first macro. What's going on with inflation? How is economic activity looking? And really, how does that all play into the Fed's monetary policy? and what David sees coming in September and October at the upcoming Fed meetings.

Are we going to get rate cuts? Are we not? Is that going to lead to a risk on season? Also, we're going to talk about liquidity. What is going on with Global M2, with stable coins, with the market depth, with volume and how is that looking and does that lead to an altcoin season coming? I know we've had a bit of a retrace here. We were looking so hot for a while. Now, we're retracing. What are we looking at when we look into the rest of Q3 and into Q4? And of course, which signals should you be watching in order to find where the the breakout might come? Which sectors are relevant?

Where do we think this is going? Before we jump in, I've got to tell you guys about something really exciting that is happening, which is we are launching a new podcast called Milkro Den, and it launches today. The first episode is happening today with none other than OSF, the founder of RCT. He sat down with LG to talk about the current market, which altcoins are watching, how to spot the winning narrative before it takes off, exit strategies, and a whole lot more. That episode drops today, so check it out. Hit the link in the show notes. Also, two times per week, there will be DGEN episodes. So, make sure you subscribe on YouTube or wherever you listen to your podcast. Today's episode is brought to you by Aura. removes your personal info from the web before

scammers get to it. Also brought to you by Figure Markets. Grow your cash like a bank. No lockups, just real returns. With that, David, welcome back to the Milk Road Show. >> Thanks for having me, Jay. >> Always a pleasure. Uh let's start with macro. It is uh very difficult to find consensus within macro right now. Uh we have what was looking like we were going to have rate cuts in September, but then we had PPI come out and that didn't look so great. Came out real hot. Bit of a surprise.

Talk to us about before we dive into the specifics of macro. Just give us your overall macro outlook right now. >> That's a great question, Jay. Uh I would say that it might surprise some of our listeners to know that we actually haven't changed our macro outlook. We still think that there's going to be two rate cuts in September and October and that the inflation path is still going to be lower. And given the fact that PPI did surprise the upside, a lot of people are thinking, well, how does that make sense? Because doesn't producer price index like actually inform what's going to happen with uh inflation on the consumer side of things? And it does to some extent. I think that's on the services side of things. There's definitely some of that and we can definitely unpack why that is. But if you look into the PC index, which is the

Fed's preferred measure of inflation, actually a lot of things feeding into that from PPI is somewhat muted. So even though we've seen this kind of negative market reaction to the PPI, we think that in some ways this was kind of an excuse that a lot of people use uh also ahead of Jackson Hole and maybe some of the liquidity dynamics surrounding the US TGA balance um that allowed them to kind of just want to take some risk off the table ahead of that. But we still think that this is a constructive outlook uh for markets heading into September. >> Just while I I want to dive more into what you think the Fed's going to do, but and inflation, but first is is what what do you think caused this current pullback?

>> So, it really started on the PPI print data on I believe it was Thursday of last week. Uh because we got CPI like earlier in that week, it was fine. It kind of came in on the screws at 2.7%. Um, and the PPI surprise, I think, really is what kind of drove things to kind of, you know, not go haywire, but actually started to see risk really started to to come down. And there's a few things with that because, of course, we do have the Jackson Hole Economic Symposium this week. I think that some people believe there could be some hawkish signaling coming from the Fed.

Uh, they don't want to kind of get ahead of that or or they're worried about what the what the message might be. So, I think that this kind of, you know, led a lot of people to start to see this as a potential local top. Now, I think that would have happened probably anyway, but people were definitely looking for that excuse of like, give me a reason why I feel like we've had this pretty substantial runup in prices, uh, you know, not just on Bitcoin and ETH, but on a few altcoins as well. Um, and I think that this kind of was it was a a trigger, but not necessarily the one that we were looking for. It just happened to be one that we had.

>> Okay. So, let's lead in now to what you think the Fed You're saying you think the Fed still cuts in September. What do you What do you think they cut? You think they cut 25 bips? And I guess the the so much of the commentary is caught up in Trump versus Powell, which is really leading to this like view that Powell won't cut because he's just so against Trump and Trump wants him to cut so bad. Is how much does that play into this?

>> Yeah, and I think this is what's going on with respect to the Jackson Hole Economic Symposium as well. I think Powell gives the speech on Friday, but we have an early copy of that uh by Thursday morning, so we'll know what he's he's going to say. But a lot of people think he's going to comment on quote unquote Fed independence. Um and Fed Independence, of course, being a significant issue, but people also think it's a code word for him saying that political factors are definitely top of- mind for him and that he's going to try to be uh reactive to that. I don't think that's the case. I still think that ultimately the Fed's mandate and I think that it's a question whether their dual mandate is going to veer more towards employment data and more towards inflation data. I think it's going to be

more towards employment. Um and that the non-farmms kind of revision that we had earlier in the month is actually more significant than what we're getting on inflation at the moment. Again, I don't think that we've deviated from the disinflationary trend. And I think that that's going to like pressure the Fed to actually cut rates with concern that economic uh data seems to be suggesting that we're probably going to get a slowdown. Now, I think we'll probably avoid an outright recession. But just a slowdown alone means that I think the Fed is going to want to deliver those rate cuts because they're concerned about what real rates say about the economy.

Yeah, that's that was my general take too is it you inflation feels like you can find the number that you want to find to prove the point that you want to prove right now. But it certainly feels like the case can strongly be made and as you said what the Fed is looking at their favorite target to look at is showing that inflation is coming down still and we're not in this growing inflation environment right now. Whereas the economic activity is showing that hey that does set up for you can justify doing rate cuts in September. Do you think give us give us beyond September?

What do you think they do? >> Sure. I mean the biggest question still is how much do tariffs actually affect inflation? And by the way PPI data doesn't tell us any of that and I think this is something that most people do not understand. Like the PPI data purely reflects domestic activity. It doesn't reflect imports. I mean, some of those things have a, you know, pass through effect into those things, but for the most part, it's not telling us anything about whether tariffs are or not actually affecting prices. It still seems that based on what we saw with the second quarter earnings statements from many companies that many of these

companies are in fact absorbing the costs from tariffs. If that proves to be true, then I would be more concerned about the secular effects, not necessarily the cyclical effects uh of things like tariffs. That means that things like job displacement caused by AI, uh the productivity gains led by AI, I think those things are significant and probably have a longer term effect that the Fed can actually react to. Like the Fed cannot do much about like tariffs. They could kind of combat inflation expectations on the basis of tariffs, but that's about it. So, I think that they're probably gonna be looking at what is happening to aggregate demand on the basis of how these secular effects

like AI, like the the advent of being able to do things more efficiently, how is that actually affecting people's pocketbooks? And I think that's gonna be m that's going to matter a lot more than kind of what they're looking at rather these kind of temporary effects. >> Yeah, it's it's a great point. Okay, let's shift over to liquidity because we all know that liquidity has such an impact on all asset markets. Uh when we look at liquidity right now, I'm going to bring up a chart that is from one of your recent reports. This is I think a week or two old, but it gives us directionally what's going on with liquidity right now. What are we seeing when we look at M2?

>> Yeah. So, I think a lot of people have seen a chart like this in the past, this is slightly different. What I mean by that is we actually use a customuilt global M2 index. So, I think rather than using an equally weighted basket of like global M2 money supply for example of like you know the top five or six or seven different kind of regions of the world. We actually say where does liquidity come from in the crypto space. For example, things are heavily traded in the US, but they're also traded heavily in places like in certain emerging market countries like Brazil or they're traded in South Korea. Um, so let's weight those more heavily because we want to know what those dynamics

actually look like in terms of affecting the M2 money supply that pertains trading crypto in particular. Then we actually look at well also the liquidity isn't immediately unlocked and just goes into the market. There's a lag to these things. Takes time for them to kind of permeate our markets. What is the right lag to be looking at? So we then do a regression analysis and kind of look at multiple periods. Um and we start with some very very short periods uh whether it should be like 10 days, 30 days, 60 days, 90 days and we basically kind of hit on around 110 days being the right lag period to look at. Now, if we use those two premises, then basically when you're looking at a chart like this, uh we're pretty much like what's happening

in markets right now is pretty much bang in line with what we're expecting on M2 liquidity because basically we're in this kind of like period of chop and it's going to break out, but the breakout period is really going to happen starting in September if that lag theory is true. So, we think that's actually going to be the case here. Um, we saw some kind of early fits and starts with respect to like alts and altcoin season, but we think that probably the real breakout's going to happen only starting in September. >> And and do you think the just going back, do you think that the Fed cutting rates is the catalyst that leads to that breakout or is that is the breakout going to happen regardless? Because as

we can see on the screen here in this chart, M2 is rising. It's a big part of it. And the reason why is if you look at things like money market funds and we have another chart in one of our reports uh where we kind of show how much money market funds have grown. I mean we're talking about money market funds sitting around like 7.3 7.4 trillion at the moment. And you know there was a slight decrease I think it was by $150 billion back in April uh with the initial announcements of the tariffs. And then like over the course of June and July, that guy's rebuilt by around $200 billion dollars. So what does this tell us? Well, it's a it's a strange kind of place to be at when you see both equity markets, crypto markets, and money market funds all kind of

reaching newer all-time highs at the same time. Typically, you would expect that those cash balances would drop when you are start to see that the price movements in these other riskier asset classes start to pull up. It's not happening. Well, why isn't that happening? And that's not happening because a lot of people had about a minute to basically get into risk when like the the tariff announcements were made. They were still trying to figure out, oh man, is it the right time to put risk back on? Should is it not? And then we saw the the delay in tariffs by about 90 days. People started to try to rush back in. And some of them got in, some of them didn't. When they didn't, they were kind of just like, well, crap. I I need to put my money back somewhere.

let's go back into like money market funds for example. Um so those cash balances went back up. So I tend to think that this is a very hated rally. I think that there are few participants who were able to get in here and once those Fed rate cuts start to happen they're going to say well money market funds are not going to pay me what I want to get paid here. By the way most of these are retail investors. Those are the ones who are in money market funds and those are the ones those are the the cohort who is precisely not invested in alts at the moment. So I think once it starts coming off I think many of the institutions are still probably going to be in the larger cap names like your Bitcoin your ETH maybe your soul but retail is really going to start to kind

of take off here and they are the ones who are going to say it's too expensive to be in money market funds. I'm not getting paid enough. Let's go back rotate into something riskier. Oh man. Pro tip, don't Google your name in city. I just did and instantly regretted it. They've got everything. My address, my email address, phone number. If you've ever wondered how scammers get your phone number or why your inbox is constantly flooded with spam, this is why. 24 hours a day, 7 days a week, data brokers are collecting and selling your information online, all without your prior consent. And they're making billions of dollars doing it. Now, sure, they're legally required to remove your information if you ask, but they deliberately make that process as complicated and confusing as possible.

That's why I just signed up with Aura. They take care of all the hard parts for me, automatically removing my information from these sites, and more importantly, keeping it off. Aura offers fraud and data leak alerts, $5 million in identity theft protection, a VPN, anti virus software, password manager, and roundthe-clock US-based customer support, all in one place. Try Aura free for 14 days. Go to milkroad.com. >> Why do people invest in real estate? Because it spits off cash flow. But I'm not here to manage rental properties.

That's why I'm looking at Figure Markets. Their new democratized prime product backs your money with real cash flowing assets and returns up to 9% APY. It's the first real world asset for lend pool built for everyone, not just institutions. Ready to lend like a bank and get more than the 5% A is offering you? Download the Figure Markets app today and get 9% on your idol funds. Go to milkroad.com/figurearkets. Is is is retail here right now? You have such a I mean, you're probably the best person, one of the best people in the world to ask this to as Coinbase has such a large retail user base. And one thing that we keep hearing is that

retail is not here yet. that this the that basically this whole bull run, you know, you go back to January 2024 has been really driven by institutional, right? that the Bitcoin ETF was what launched started it all off and yeah retail was in a little bit around Trump getting winning the presidency in you know November December but that a lot of retail got wrecked because they didn't see that the the macro was shifting and tariffs and you know that was such a shock so I is is retail back yet? What are what are the data that you're seeing in terms of retail volumes?

>> Yeah, I agree with you so much. I think that institutions have driven most of this rally and that came from not just the ETFs but really from the advent of these like digital asset treasury companies. Uh that has driven a lot of the demand especially on the ETH side. I mean just in mid July to mid August alone like the amount of ETH buying and you know subsequent kind of buying into altcoin names as well really kind of like sourced from those dads but retail has incrementally started stepping in again I think that it's not been on mass there the cash balances that we're seeing on the sidelines are still very large money market funds are one way to

kind of gauge that so I think that there is still a lot of retail cash waiting to be unlocked here. That is coming. I believe that's going to happen starting in September. Probably a big part of it, the big catalyst will be rate cuts. But there's going to be other things that we have to think about with respect to liquidity. The US Treasury, for example, is going to rebuild its uh TGA balance. That's probably to the tune of 400 to$450 billion. But I think that that could happen relatively quickly. out of the way. Do you think how >> they said their target of 850 billion is by the end of September.

>> Okay. >> Um and you know it's based on their auction periods. A lot of that is going to be based on uh T bills. They've said as much. So I think that probably you'll see that be done with early at least the bulk of it. Uh at the end of July they actually uh already issued a lot of tea bills. Uh so I would say that probably by the time we get into midepptember a lot of the a lot of this will be done and that's going to open the path towards more retail participation.

>> Again all lining up with your thesis that in September we could see a breakout. It feels like there's just a lot of factors leading to a why we are where we are in this period of chop. uh as you said the the rally was completely hated. A lot of a lot of people didn't see it coming and missed out on it. Uh and it also didn't really make a lot of macro sense necessarily. So it feels but it feels like that the that that breakout is coming later this year. I want to I I just want to bring up a chart uh from one of your reports here around uh volumes on uh on the Coinbase platform because I find this very interesting. Uh it looks like when I

look at this chart, uh this is going back to about midmay or early May. Uh it looks like you can see that we had a real spike through July and then a bit of a drop off, but then coming in August, we've been coming up again again. Is this Let me ask one question and then you can dive into this chart and break it down for us. Would this be more retail or more institution on this chart? So institutions typically represent more of the volumes on our platform. Uh I mean by to the tune of I think if you broke this down and we don't really show it on the chart but you can kind of see it in a quarterly statement it's somewhere around like 3/4 of the volume is still represented by institutions uh versus retail. And I mean that's that's

been the case for a while. This is a new development, but I will say that institutions have been driving a significant portion of the volumes more recently. And this again times very well if you look at this chart with that kind of mid July kind of movement from entities like Bitmine for example or Sharpling Gaming who really started to ramp up their ETH buying around that time. you know even around that time you saw even soul were that people were these dats were pursuing in soul buying as well although that kind of tailed off a little bit but I think that this is what's contributed to uh the moves in price that we've seen over the last

month to six weeks um of course since then I think a lot of people are saying like how much more can we get um obviously like bit mine has now they're $20 billion that they can deploy to this kind of issue, but capital raises are becoming a little bit more challenging. But that's that's kind of a bigger story, I think. >> Yeah. Let's let's let's touch on DATs because you and I haven't talked deeply about DATs yet. Um, and I got I bring up this chart from one of your recent reports, which is just truly mind-blowing to see. If if you guys are listening and not watching, this chart shows how DATs have been purchasing ETH and the amount of ETH held by DATs. And

if you look at June, I don't know the exact date, June 13th, June 12th, it's basically zero. And then you fast forward to uh two months later and it's over 2 million ETH. Like the this is insane the level of buying that has happened. I don't think anybody saw this coming this quickly. Can this can this continue? Will this sustain? Where where maybe first give us your thoughts on stats currently? But I think the main question everyone has like where where is this going?

>> Yeah, this chart pairs very well with the earlier chart you showed on trading volumes because if you think about ETH, uh first of all, ETH's volume is I mean historically been a multiple less than Bitcoin. I want to say something like 5x, although you'd have to look at the data to kind of verify that. Like we've seen that volume pretty much pull in line with Bitcoin at least spot probably over the last month or so. And I bring that up because effectively when you're talking about adding 2 million 3 million ETH like in terms of buying power like the effect on price is a magnitude more than when your volumes

are around the same as like Bitcoin. I mean Bitcoin just has so much more traded volume around it. So I think this is kind of what's contributing to the price move up in ETH and the ETH BDC cross. But can this be sustained? Are we going to see more? It seems for now many of the large entities are able to still raise money in order to to make these purchases probably on the smaller side of things that's not the case. So if you're an entity that's 100 million for example and you're trying to do a capital raise I think it's a lot harder in the current environment than if you had gone back 6 months ago or 3 months ago. And what that kind of tells me is that for the larger entities, they're probably going to stay here and they can sustain the momentum of buying that they

have. Smaller entities, I would imagine that there's going to be a fair bit of consolidation and that could start at any point in the future, but I think that uh it's it's probably more likely to start in the near term. >> Okay, let's zoom out beyond uh Bitcoin and ETH. uh you made a report recently that said altcoin season cometh which I know my audience will love to hear uh for two reasons. One a lot of altcoins are still down compared to when a lot of people bought them unfortunately. Uh so even when uh we have many altcoin seasons like we had this past month basically where a lot of a lot of tokens are up if you got them at their low

around the uh the tariff drop but they're still down. You know ETH is still not at those all-time highs. Salana nowhere near it alltime highs right? A lot of them are still not at their all-time highs. So, everybody wants to know like when when are are we going to still see everything go into new all-time highs? When's that going to happen? And like what are the signals to watch? I know there's a lot of questions in there. Sorry, David. Uh but I'll let you take what your thoughts are on altcoin season. >> Sure. So this was a big change for us because most of what we've uh kind of published in that report is still founded in what we argued earlier in the year. So back in March, our thesis for

the year was we're going to see uh new lows in the first half of the year, but we're going to make new all-time highs in the second half of the year. And we said that a lot of that would be centered on Bitcoin, ETH, probably some of the large cap names, but we thought that only select alts could actually do well. We thought that it was still going to be difficult because so much of this cycle was going to be driven by institutions. But in this report, we basically take a different approach. Uh we think that that has now changed and a big part of it has to do with how liquidity dynamics look to us at the moment. And we kind of already talked about global M2. We talked about how money market funds actually could see a rotation. So I think that that's a big

part of what could drive a new altcoin season. Um I want to be very careful here because we never publish anything that we don't believe in. I think that some people say like, "Oh, it's it's Coinbase. Like of course you have a lot of alts. Uh this is kind of important to your business." Yeah, Coinbase doesn't make me say anything I don't want to have to say. So like I I do not I I do not I'm not here trying to shill things. I say things based on the analysis that I see. A lot of this is predicated on my macro view. A lot of it's based on what I see in terms of liquidity ending entering the system and how it's going to drive things. But also when I'm thinking about what's going to happen on the regulatory side, I think that there are still a lot of catalysts waiting to

be unlocked here. I think the Clarity Act could be done by the end of September for example and that's going to accelerate things. uh you're already seeing that people are not waiting for that. A lot of institutions, not just ourselves, uh not just Coinbase, but other places as well are trying to kind of capitalize on the momentum by trying to figure out how to, you know, issue tokenized securities or or other things. Um and maybe that's not available in the US, but certainly I think that those kind of dynamics do drive what's happening uh on our side of things as well. So, if you're looking at alt for example, people are looking for innovations in DeFi. What is new out there? For example, oh, you're telling me I can swap fixed uh uh perpetual

futures funding rates for for floating? Like, awesome. Like, tell me how to do that. That seems like an actual creative innovation. Who's doing that? I I think people are looking at this and kind of saying like what sectors kind of make sense? Maybe what's tied to real world assets? What's tied to stable coins? what's the thinking behind some of these newer L1s, for example, what do they compete against? So, I think that this is absolutely going to factor in when we're thinking about September because so far we've kind of ignored some of those idiosyncratic stories, but I think those narratives are going to start uh featuring more prominently.

>> It's I mean, the the stable coin narrative is is is so obvious. The challenge that I think a lot of investors have is knowing where to get exposure to stable coins. You know, it it feels, you know, sure, you could you could go invest in Circle, uh, but Circle had such a big pop that it's hard to know if that's still a good investment. And it's it's also, you know, it's it's an it's so new that valuing these these stable coin companies is difficult to do. And and even you could go you could go to the the decentralized stable coins and you could get into like an Athena which has had an incredible run recently. Uh you could look at like a Maker or or Sky as

it's now called. But it feels the stable coin side feels like it's like obvious to all investors. We're all like yeah like let's go. Stable coins are here. They're the future. Everybody's saying it. You got Stripe. You've got all these players acknowledging that we're all going to use stable coin rails to move money. Even banks acknowledging it. But it's not clear who the who the winners are. Who the like and it's even not clear maybe actually let's talk a little bit about this. Is is Ethereum going to be the stable coin winner? It's the dominant chain for stable coins right now. Uh will that will that continue? Do you have any thoughts on that?

I think that a lot of people are starting to question that premise in part because we saw the announcement last week from Circle and Stripe suggesting that they create create their own L1s. And I think it makes sense for them to want to do so because they don't want to be beholden to the transaction control on Ethereum or any chain really. I mean like right now I mean it's the blessing and the curse of blockchains, right? like you cannot undo transactions. And this is great for most of us who actually are worried about, you know, the ability to kind of undo transactions. But from Circle's point of view or maybe Stripe's point of view, they want to say like, well, sometimes

people make mistakes and if people make a payment and they want to retract it, they can't do so. They could do it if they were running their own chain. Now, what's important to note is that the proposals from Circle and Stripe are actually for EVM compatible L1s. And I think they did that in part because they still realize that liquidity exists onchain in places like the Ethereum ecosystem for example, not just the Ethereum ecosystem, but that's been a big one. Uh you can see the breakdown of it and Ethereum still takes a lot of the pie. Um, there's also Tron, there's other L1s, but I think that they're thinking about, hey, maybe if this is going to be the case, then we need to be able to kind of slot ourselves so we

don't fragment liquidity too much. Now, to the question, what does this mean for Ethereum? I think that so far what we've seen is that for at least Circle and Stripe, and Stripe also uses USDC. It's it's not as much Tether. Like actually it's interesting because Ethereum actually is is weighted more heavily towards tether transactions than they are uh USD uh USD transactions or rather around I think if you break down the the level of supply I think it's 7030 tether more than USDC it's actually places like Salana that might get disrupted early on because Salana is actually the reverse Salana's around 8020 uh USDC to to Tether and given that these L1s that are

being proposed by Circle and Stripe basically compete on the basis of high throughput low fees which is Salana's advantage. I think that this is where things could be potentially disrupted in the first instance i.e. in the very short term medium longterm I think it's hard to say. I think that probably Ethereum uh will see some of that activity kind of taken up by these L1s, but we don't know at this point, especially since so much of already has already migrated to those L2s in its ecosystem. So, I think that there's a pretty good chance that Ethereum is going to maintain its mo for stable coins and real world assets. And

definitely in the short term, I don't think that's going to be the case. I think probably it's going to be other L1s that are going to be right for that disruption. >> Just quickly, can you explain to our listeners what what the difference is between EVM compatible versus an L2 in terms of the way that that chain connects with with Ethereum and whether or not it uses E the asset in any of its payment forms. >> Sure. So L2s or layer 2s are actually part of the Ethereum ecosystem i.e. they don't necessarily inherit their security from Ethereum. Uh but they are part of it which means that effectively if you are uh and layer 2 transactions happen

on those layer twos and they gets rolled up into Ethereum periodically. Also now you have uh a layer like they're called like the the binary large objects or blobs that actually allows those layer 2 to store their data temporarily on the L1 on Ethereum itself. So this they're they're kind of part of the own of the of the overall ecosystem. You can kind of move freely through it. Now, a lot of those layer 2s kind of rely on their own kind of systems to allow those movements of ETH uh from the L1 onto the L2, but the point is that transaction data that is sitting on those L2s ultimately makes its way back to the L1 at the end of the

day. So, you actually have a record of it. EVM L1s are basically uh L1's that use the Ethereum virtual machine. And so they're basically uh have the same kind of compiler engine that uh allows them to kind of work with uh Ethereum, but they're their own chain. Like Ethereum doesn't have any insight into like what those transactions are sitting on those L1s. It doesn't have any insight in it. it would never would u but it makes it easier to actually have a bridge between that L1 and Ethereum so that you can kind of move things like back and forth if necessary but it otherwise doesn't

mean anything as far as like Ethereum's like insight into or visibility into like what transactions are in those EVM L1 >> and no economic value flows to Ethereum in the case of an EVM compatible chain But it is a signal that you believe that Ethereum is the future where you're you're essentially choosing to build in a similar codebase to to Ethereum the and the Ethereum virtual machine because you say, "Hey, I think a lot of assets are going to exist on Ethereum and I want to be able to connect into that ecosystem very easily." So that's essentially what EVM compatible means.

So a bit of a a thumbs up to the long term of Ethereum, but no economic value flowing it. Okay, very interesting. Thanks for breaking that down. Uh, okay. Before we wrap, I just want to touch on as we go into uh these next uh the next month, which I think is going to be very telling to where we're going to go for the rest of this year. What are the the signals that our listeners can be looking at? And I I'm going to bring up Bitcoin dominance first because we haven't touched on that chart. I think it's an important one. and then maybe we can talk about any other signals that you think are important to look at in order to understand whether or not an altcoin season is coming.

>> Yeah, this was the first big one that we were looking at when we were thinking about whether or not altcoin season could happen. And this is not one that we've created. This is one that I'm sure your listeners have heard of before, but when does Bitcoin dominance actually break below its 200 day moving average? It did so convincingly over the last month. And I think this was the first big kind of chart for us to look at to kind of say, okay, but what does this mean? What is driving the decline of Bitcoin dominance? So far, it's been predominantly ETH. And I think that this is why when you're looking at an altcoin season index versus the altcoin market cap, the altcoin market cap is like shooting towards new all-time highs, but

the altcoin season index is actually uh in low levels that don't suggest that breakout because there is that divergence due predominantly to ETH. Of course, I think when you're looking at the altcoin open interests uh relative to the Bitcoin open interest and you know that looks across like der different derivative products. I think that we saw that spike up in August where it crossed above that 1.4 threshold that we commonly look at that kind of tells us okay are people over their skis or do we have more more momentum here? We broke up to 1.6 And I think that typically kind of signals that actually we're kind of gotten uh too extended on risk and that

kind of foreshadowed some of the liquidations we then got. But what we're seeing at the moment is that this is a more or less orderly kind of de-risking phase. And that actually I think uh isn't a bad thing. like orderly derisking means that there will be the opportunity again for people to kind of trying to buy back in here. It's just that we're kind of in this kind of cyclical part where people are are are starting to take off risk because they're uncertain about what uh what's going to happen. Of course, you know, like some of these assets have broken trend. Even Bitcoin if you're looking at it from a technical lens and I think a lot of traders on the crypto side tend to trade things with that technical kind

of kind of dynamic to it. We have seen that Bitcoin broke trend when it kind of crossed below that 114 kind of figure. But I think probably there's the ability now that it can kind of stagnate here or at least kind of chop around these kind of levels between 114 to 110 and probably try to recapture that trend as we uh enter probably midseptember is is would be my guess. I'm kind of just putting a finger in the air to be honest. It's going to depend on like when the dynamics kind of shape up. I can only look as close as I think it's going to happen in September, but my guess would be mid to like late September is kind of what I'm looking at as far as timeline.

>> Okay. >> But if it breaks below 110, then I think that would be the risk. Oh, sorry. I didn't mean >> that that that's exactly I was I was just going to ask you this exact question. So, uh so your your medium-term view feels pretty clear. you you're you think, hey, we're we we're lining up for what could be a pretty good NQ3 Q4 from the macro perspective, which could lead to an altcoin season risk on. I I fully agree that that feels good. The the question is like, have we are we at a local bottom yet or do you think we still could see more of a drop from here?

So far, honestly, uh, and people are not going to like this answer. The technical data doesn't tell us. I mean, like it it below like 114, it's not clear whether the end point is going to be or the floor is going to be 110 or 100. I do think that it probably will hold at 110. Uh, but that is more of a guess. I mean, the statistical analysis doesn't show us anything on that side of things to be honest with you. It's probably going to be more of a psychological level. Um, that said, you know, like I don't think that we're talking about five digit Bitcoin anymore. I think going forward it's going to be, you know, it would be nice kind of picking things up cheap.

Uh, but I don't think we're going to be able to to find that, you know, a discount on this anymore. I think that we're talking about six figures or above on Bitcoin going forward. >> Okay. Okay. And then my guess is that you think that the the ETH and the rest sort of will will follow and stay somewhat in line with Bitcoin or do you think that ETH could see further pain from here because it had such a big runup? Do you think where do you think E4 is?

>> Yeah, so you definitely need Bitcoin as a precondition for the rest of the alt to kind of do well. I mean it it cannot like you cannot see a drop in Bitcoin and see other things kind of perform well but I think ETH probably could sustain uh these levels maybe see a bit higher again when we're talking about a lot of these DATs for example like BitMine did another additional $20 billion raise >> that's crazy >> that's a lot of money now they that they're not buying that yet though they're just they're still doing the raise as far as I understand is that correct >> yeah the ETH buying hasn't started on that. But I think that uh given the pipe deals that you we've been kind of hearing, at least that's what's been

published to publicly uh given even like more recently what we've saw with like Sharplink and Ethzilla. Um I think they changed their name, but like you know these things I think are still kind of I I don't know why they did. Um but like I think that these things are still going to be driving demand on the ETH side of things. So I don't think that's done yet. I think there are still opportunities and um the question I have though is whether you need to see ETH continue to go higher in order for people to kind of move down the risk curve into a lot of these alts. I think that these things are somewhat more independent these days and you can kind of even see it like you know like for example when we're looking at the ETH betas relative to uh ETH daily

performance like I would have suspected that you would have seen a lot of that performance correlate pretty well uh because if you're trading at a 1.5 beta to ETH uh it means that or at least the common thinking is that well typically that means that if ETH is doing X then you could get like a 50% return uh above that on this. That's not the right way to think about beta by the way. Like beta really tells you about volatility more than anything else. This chart actually does a good job of showing you like that's the case. I mean like a 1.5 beta doesn't mean that you are getting like more upside uh on by buying that coin. It's worked out for Lido for example, but Lido also had a narrative around it around liquid staking tokens.

The SEC's announcement that basically they don't think liquid staking tokens would be considered um uh securities under certain conditions. So, I think those kind of elements are definitely uh factoring in here. And I think that it's going to be a lot more important as we get into the new alt season that we think is coming. >> Just just because we're talking about ETH and uh and liquid staking tokens so much, I've got to ask quickly about the the ETH staking queue. It is that is that a concern? Maybe we we haven't really talked about this on the show.

Can you quickly uh give us the like a four-year-old explanation of what's going on with the ETH staking queue and then tell us if you think that's a concern? >> Sure. So, if you are staked into Ethereum, i.e. you're a validator, uh which means you actually validate those transactions, then if you ever want to withdraw, um you know, the entry Q is actually what you have. So, if you've gathered 32 ETH, of course, actually now the max effective balance for that is around 248. Um but if you gathered 32 ETH and you want to become a validator, you can actually enter the queue and actually become a validator. Now if you don't have 32 ETH, uh you can also do so through a lot of these third parties and

that's what we call liquid staking or at least liquid staking entities. But if ever you want to stop being a validator, you're exiting. And also there's two types of withdrawals. There's partial withdrawals and full withdrawals. full withdrawals are what we're talking about when we're talking about people fully exiting from being a validator. Over the last, I would say month or so, we've seen that the execute has extended, meaning that there are more people trying to now get out uh and take their their ETH that they've previously staked and actually park it wherever, bring to the market, sell it, or maybe just put it into a a wallet and just kind of have it sit somewhere else. We don't know. But uh the concern that a

lot of people have is is this a signal that there are now more people trying to get out of the ETH market? I.e. are they trying to take profits? We do think so. We think that that's part of it. Um a big part of the story in fact probably is the fact that these DATs are buying ETH and they're trying to source it from different places. and maybe some of the, you know, long-term holders of ETH might be saying like, well, if you know, Tom Lee or whomever wants to be buying my ETH, this seems like a good price to do it. So, like maybe I should unstake and sell it to them. So, that could be a part of the reason. But we've also seen that the other component is that when you're looking at borrowing lending platforms, the cost to borrow and actually run looping strategies on

liquid stake ETH tokens has actually gotten very very expensive. In factly, I think the utilization rates on a have actually hit somewhere around like 90 95%. Um because uh a lot of people are saying like, well, I can't run the looping strategies anymore. It's just not lucrative for me to do so. If that's the case, then maybe I'll actually have to go to whatever third party provider that's like providing me these liquid state tokens and actually withdraw from that. And so that's also the other part of the story. Part of that might also be driven by these stats as well. So I think that these are the reasons that's kind of contributing towards that. Do I think that this is going to be a longerterm problem for Ethereum? No, I

do not think so. I think that people are misinterpreting this as a huge negative kind of signal like it is not some kind of existential risk for Ethereum. Um but I think that this will probably factor in as you know staking is probably going to be included in ETFs. staking is being considered by a lot of DATs. Um, it might, you know, factor into thinking about like what makes sense, how much do you need to kind of keep in a liquid sleeve versus how much you can actually stakeh. >> Yeah, that's that would be my general take on it as well is that it's a lot of FUD right now and it's easy to jump on the FUD bandwagon. Crypto Twitter loves to do that. Uh, but it does feel natural. East had a an incredible run.

And so there's a lot of investors who want to, as you said, make a move and most likely take profits, which is completely understandable. So, I think we're just in that situation, but I don't see this as some systemic risk in the long term. David, absolute pleasure to get you on the show today. Thanks so much for joining. >> This is great. Thanks so much. >> If y'all are making swaps or trades right now, highly recommend you check out Milkroad Swap. This is a DEX that we built in partnership with Cow Protocol. Why do we build it? Not to make money, just honestly so we could have a place to do our swaps for the lowest fees that we could find. This is the fees on Ethereum, Arbitum, and Bass are only.15% fees. Uh this is a huge difference from

uh other centralized exchanges that charge half a percent or even up to 1.2% fees on their swaps. Also, you can swap on Salana all at swap.mmillgrow.com. Check it out today. You won't be upset and you can join me in my favorite place to make swaps on chain. As always, if you liked today's episode, please hit subscribe and make sure you follow us so you don't miss out on the next one. There's also a link in the description to our free 5-minute daily newsletter where we simplify crypto for you while making you laugh. And if you're willing to step up your crypto investing game, we're going to also leave a link for Milk Road Pro. You get access to our portfolio where you can see exactly what

we are buying. This is your number one resource to help you invest successfully in crypto. One final note, this show is for educational purposes only and nothing we say is financial advice. Investing in crypto or any asset is risky and you should never invest more than you can afford to lose. Thanks so much for listening in my friends. Have a wicked awesome