Coinbase's outlook on Ethereum and corporate treasuries

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show for people who bought the dip and are now tweeting like profits. I'm your host Jay Hamilton. It's Wednesday, July 16th, although this episode is being published on Thursday, July 17th. Today, we're joined by David Dong, head of research at Coinbase. Why is David back on the show? Well, because Coinbase just put out their seventh edition of Charting Crypto. This is their quarterly report that is just jam-packed with alpha. It's one of my favorite reports to get caught up on what's going on in the space. We will link to the full report in the show notes, but if you don't want to go read 45 pages of this report, you can just

listen to us for the next 30 minutes as we walk through everything you need to know. We're going to talk about Bitcoin's all-time high. Is it just hype? No, it's institutional. Where is it going next? Why Coinbase thinks this rally has legs? the spot ETF super cycle that is just getting started. ETH, where is ETH now and where is it going? Stable coins as a big part of the core infrastructure of the future of crypto and so much more. Before we jump in, got to tell you guys super exciting news. I've been telling you all week, but we just launched a new product. I'm talking about Milk Road DGEN Pro. This is our premium membership to get you into the trenches, the crypto casino. If you want

to take a shot at a 100x or a 10,000x and you have no idea where to put that bet, then you should check this product out. Hit the link in the show notes. 20% off this week only to celebrate the launch. Today's episode is brought to you by Letin Get Cash without selling your Bitcoin. It's also brought to you by Definitive, the multi-rach chain trading terminal trusted by Funds, Dows, and Wales. Without further ado, David, welcome back to the Milk Road Show. >> Thanks for having me, Jay. >> Always a pleasure. Uh, let's let's start with you put out this report. You put it out every quarter. One of the things that you always do that I love is you give a intro, an editor's note or summary at the beginning of the report.

Give us the the highlevel overview of Q3 or sorry, Q2 uh 2025. >> Sure. Uh I'd be happy to. So overall I would say that we are constructive on crypto markets. Uh our thesis for most of the year had been that we would see the low in prices sometime in the first half of 2025 and then we would see new all-time highs being made in the second half of the year. Obviously, we're just getting started in the second half and it seems like our prediction has already kind of materialized uh a little bit sooner than we had expected and we can definitely go into the reasons why some of those things are happening. But I would say among our institutional clients, Bitcoin dominance is surging.

Uh we are still bullish on Bitcoin, but I think that increasingly uh more and more people are looking to some of the altcoins. It's not quite an alt season per se, but definitely some of the higher cap names are getting more attention at the moment. We're seeing that the cost to build onchain is no longer a barrier, but is becoming more of a catalyst in our space. And I think that at the moment, uh, you know, what's happening on the regulatory side is definitely giving things a boost. In your market overview in this, you talked about um the factors that would change your view as you look ahead to Q3. What are the the factors that you're paying attention the most that could

make a a shift in the next quarter? >> Yeah, I think that on the macro side of things, certainly if we see additional liquidity being our markets, uh that would be a huge positive. Some of that can come from the fiscal. We've already gotten the one big beautiful bill act uh for example which I think over the medium to long term should mean more liquidity flowing into risk markets in general. Uh there is of course a bit of a caveat around that just in case we see that now with a higher debt ceiling limit there could be the potential for the US Treasury to actually rebuild its TGA balance for example. I think it's currently around 300 billion. If that kind of goes up they borrow more to rebuild it. Certainly that would actually have the perverse effect of actually sucking liquidity out of the

market. But I think the other thing too is >> can I just double tap on that quickly because it seems like that's happening but that's short term >> is the timeline on that >> like what's the when is that that's happening right now and likely to happen for the next few weeks the next few months. >> No, I think it's a very shortterm development. I mean, typically like uh the TJ balance should be somewhere between like 800 billion to maybe a trillion dollars. They're at 300 at the moment. So, I would say like once they borrow enough to kind of refill some of that, then we should see that that risk probably uh gets moved to the background. But I would be you know paying attention to what's going to happen to the US Treasury yield curve as

well because if there is steepening in the Treasury curve. I think that there is a risk that actually that could be uh painful for businesses individuals to borrow mortgages for example. At the same time I think that we need to think about what the Federal Reserve is going to do because I still believe that the they're going to deliver on those two cuts that had been priced in earlier in the year. probability of that we've been seeing in the futures market has been declining >> way down. >> Yeah. But I still believe that from the Fed's perspective, what they care about are real rates, not nominal rates. And I believe in the disinflationary trend on on inflation. So ultimately that will force the Fed to deliver on those cuts.

Like I don't think the next move coming from the Fed is going to be a hike. Uh it's going to be a cut. It's just a matter of when. Yeah, it seems like I mean almost 0% chance we get it in July at this point. Uh and even I think even less than I haven't looked at the updated numbers and I know we got CPI uh just yesterday and it looks like even September has gone below 50% I believe. I don't know if you have updated numbers on your end. >> No, it's the probability has been been dropping. I mean at the start of the year it was like 100% or close to 100% and it's been dropping since. Um, and of course some of that was tariffs. People are concerned about the price impact of tariffs. Uh, and I think from the macro perspective that's not wrong per se

because there's this effect of inflation expectations becoming realized and that being a major concern, but ultimately when you're talking about inflation, what you care about is aggregate supply and aggregate demand. You're not talking about one-off shocks. And I still think that even like with everything that we've seen over the last two months, like the the impact of trade on the downside would be more towards aggregate demand lower. And if that's the case, that's a disinflationary trend. >> Okay. Let's uh I feel like you and I whenever I get you on the show, I always just want to go deep into macro because you're so knowledgeable on macro, but I'm going to today I'm going to stick keep us in the crypto onchain world. Uh, and so I want to talk about one of the

themes you wrote at the beginning. Bitcoin dominance continues to climb. Let me pull up uh the a chart on the performance of Bitcoin and other assets. Walk us through this performance recap and what you're seeing and maybe talk let's talk a little bit about what you expect for the rest of the year around is Bitcoin dominance peaked or does it still continue to climb? >> Yeah, Bitcoin dominance is surging. We're currently around 63%. And I think the question around Bitcoin dominance really kind of is the alternative is like what's going to happen with all these altcoins because as dominance on the Bitcoin side of things climbs, it means that less and less uh kind of money is or capital is kind of flowing onto the altcoins. And part of that has

to do with what we've had over the last 12 to 18 months, which is we've had a very strong influx of capital into memecoins into those longer retail alts. some of those didn't perform very well. Uh, and I think either some of those retail investors who bought those were burnt. Uh, or they're just more reluctant to kind of get back into the markets at the moment. This is why I think we're seeing the markets and especially from institutional clients, but uh, even some of their professional traders like I think that they're mostly anchored on Bitcoin right now. And maybe some of those select altcoins have performed better than Bitcoin, ETH, or Soul. It's just that you're talking about selective bias at this point. No

one's trying to kind of be a hero and just say like whatever else are available have been under underbought. I want to get into it. Like I don't think anyone necessarily is holding their breath for a big altcoin season to kind of materialize because of the factors I just mentioned. Mhm. A couple other factors to mention here. Let's talk about the ETFs and the impact of the ETFs. Uh because what you can see when you look at this chart is it's it's Bitcoin's world, but it's also becoming Ethereum's world and Salana is is still in the game of the the big majors here.

Is this because ETF flows and the public market flows are different than the onchain flows and institutions are buying the m what is leading to the dominance that we're seeing from the majors? Yeah, ETH is a super interesting one because ETH had been so unloved for such a long time, you know, like people were using ETH as a funding currency for around like like 12 months to 18 months there and they're using against uh using ETH against like longer tail like assets. So, you know, it made sense because so much of those uh you know, longer tale altcoins were asymmetric in terms of their riskreward. But I think now uh we're seeing that turn around.

Now a big part of that happened in May because many of the like shorts were liquidated in early May. Um I think that you can kind of see that in one of the charts that we have. Uh you know previously I think Ethereum had actually seen probably like around 400 500 million in like monthly short liquidations. In May alone that was somewhere to around like 800 to 900 million. So it was a very very big move. And as a result, uh the liquidations kind of forced a lot of short positions to get squeezed. There was regrowing. Um I think that this has also limited the uh amount of people using ETH as a funding currency against other

positions. Now, we're also seeing that yes, as you mentioned, like ETF inflows have actually been there being they've been very very supportive on the E side of things. I I think we saw somewhere around like like $1.7 billion dollars worth of net inflows uh in Q2. The only thing I would want to mention about that is a lot of that is still kind of paired against short positions and CME futures because there are a lot of institutions who utilize the ETFs as a way to play the basis trade. And for anyone who's not aware, the basis trade is uh being long spot and being short in the futures. So I think that that was that also accounts for some of the moves that we've seen.

So, let's take a look at you guys have a couple great charts here that tracks the performance in past cycles of Bitcoin and then ETH. Walk us through I love this chart and the way it maps out the cycles. Walk us through where we are now, how you compare to historical cycles and maybe if that gives us any indication of a trend that we can expect for the rest of this year. Yeah, what's been interesting is so we've kind of mapped out four different cycles in Bitcoin and up until probably end of Q4, early Q1 2025, this cycle which started back in 2022 seemed to map pretty well to the 2015

2018 cycle. And we don't measure these cycles from peak to trough by the way or or trough to peak. We actually kind of measure it after that peak kind of starts to to come back. So you know like looking at this what's interesting is that Q1 that's when we started deviating from the previous cycle that we had been tracking. Now if you're looking at the price just in terms absolute terms you're saying like yeah but look at where Bitcoin is because you know we've we've seen like all-time highs get hit again. We've seen it kind of kind of breach that 120,000 level. So even though like we're not meeting like following this meteoric rise like this this gap higher like we're still trending very well as far as Bitcoin. I

think we have every opportunity to converge back to that. But this constantly raised the question of like are we seeing a difference from previous cycles because you know we have different demand drivers inside of Bitcoin. Things are changing. Capital market assumptions around Bitcoin are changing. Um I think that we'll absolutely know like probably only expost whether we're still kind of following these same demand supply cycles due to the like you know changes and the having other other things. Um but for the time being I'm still very optimistic about the prospects for Bitcoin.

>> The other thing that stands out to me in this chart is the timing. Typically uh in past cycles uh or at least in the 2015 cycle and the 2022 cycle, we would have peaked by now. Uh the 2018 cycle peaked a little bit later than we are right now, like about we're about 32 months into this cycle. A lot of people talking about this being an extended cycle, a different timing. What are your what's your thoughts on that? I think it's it's that's a really good point in part because we now have different sources of demand. Corporate treasuries represent one of those. I think that uh you know we're seeing of course a lot of people take a page out of the Michael

Sailor playbook. Um and you know a question we get asked a lot is like well who's buying those like those corporate treasury vehicles for example like who what's the demand for it? I think that it's from different sources. Certainly, I think if you're talking about like um companies that are getting in on the ground floor when it's in an MNAV of one, uh I I think that the fact that many of these can trade in a multiple of MNAVs of like two, five, 10. I think that that's part of the reason that that we're seeing more demand for those. But also, you know, like there are entities out there that still can't get access to the real thing. either you're they're a foreigner who basically can't buy like things like the the Black Rockck ETF or other like ETFs. Uh maybe they're unable

to like get exposure to the real thing if they can't even get access to the ETFs. So they tend to use some of these corporate treasury vehicles as a proxy for Bitcoin or for now even other assets ETH soul. we're seeing that there are corporate treasury vehicles for like um you know XRP and and TA like which is bit Bitensor's uh token even hyperlquid so I think that we are seeing more of that demand coming from those business sources uh beyond the fact that of course you have the ETFs you have like uh growth of institutions who are buying those you also have more so sovereign demand sources so I think that this is a big part of the change in the current

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How how much room does this corporate treasury trend have to run? Is this a a a narrative in the moment? I mean, it's all anyone is talking about right now. Like, it is the every show it gets brought up. I can't like I can't get around it in any possible way. And I and I get it like you said it is it does give access public markets have way bigger pipelines than you know buying onchain which a lot of institutions can't do. And then even a lot of humans don't know how to do or don't want to go take the time to learn how to do. Uh shout out to Coinbase. Go get a Coinbase wallet. You can figure it out yourself.

But uh is this where are we? like are we at the beginning of this corporate treasury strategy? Walk us through like where you think we are and how how much bigger this trend could get. >> Yeah, I think this is the beginning of this trend and you got to remember why this happened in the first place. I mean, yes, we had like Michael Sailor bang the drum on this and certainly the performance of Micro Strategy uh actually I think raise a lot of like uh eyebrows about this because Mic Strategy was actually outperforming the Mag 7 for quite some time. I think that right even right now if you look at pull up a chart you can see that. But I think for the most part, what's really important about

it is that Fazby uh so I think that stands for the financial accounting standards board also didn't make the rule changes until December 2024. That rule change into US GAP rules finally allow corporate treasuries to actually include crypto on their balance sheet and they were allowed to put it as not as intangible assets that you can only write down but as assets that you can mark to market. And that matters because previously if you're a company that had crypto on the balance sheet you said well like if it raises well if price goes up I can't mark to market on my balance sheet I can't say that the price went up I can only write it if it went down. So because of that rule changed uh

it effectively allowed more of these uh corporate treasury vehicles to exist. But also, I think that we're seeing that we're moving away from those people who are just buying Bitcoin, for example, to buying other stuff. And I think that those things serve a completely different purpose. So when you're talking about altcoins, when we're talking about ETH, when you're talking about soul, when you're talking about TOAO, I think that these are things that are probably harder for your average person to buy and not just buy in custody, but also to stake and earn yield from. So I think that because a lot of those corporate treasury vehicles are actually doing that, they are actually providing a vehicle for your

average consumer to actually get exposure. Now you can put in your 401k, you can actually like buy some of the longer tail things that you think it actually has really strong asymmetric risk reward. Um, so I I think that this is what's also changing about this trend. >> Are there risks building under the surface here as a result of this trend? >> I think there are and they're medium to long term. I would say that there are two primary risks that I would note. Number one is, and I'll probably phrase it like this could be a potential systemic risk, but I mean systemic in so far as like what could hit our markets, what could happen inside the crypto market, not so much like what would happen to like broader risk markets, but

I'm thinking about it from the perspective of most of these corporate treasury vehicles are issuing convertible debt in order to buy it. Actually, I shouldn't say most. There's actually just probably probably 10 or so who are doing this. There's about less than 50 of these real corporate treasury vehicles who have employed real financial engineering to do this. So if you look at, you know, some sources, they say there's like 200 companies, public companies that have crypto on their balance sheet, but like you know, there are Bitcoin miners. There's there companies that like they're the primary like you know business is holding crypto. Yeah. It's not the treasury strategy, >> right? Like there's 200 of these companies that have crypto on their balance sheet. Yeah, it's like Figma

just came out with their latest kind of filing and said like, "Oh, they have crypto on their balance sheet, but Figma's job isn't to like accumulate Bitcoin, you know." Um, so I think that's important to mention like corporate vehicles, it's really like less than 50 of them. >> But of the ones who are actually issuing convertible debt, could this be a problem? So, we actually did we take we took an inventory, saw how much debt is outstanding on this kind of stuff, put it on a map to see like when is this stuff coming due. The good thing is that actually the big payouts and I'm talking about like a three billion payout in December 2029, four billion dollar payout in uh March 2030 like that's four to five years away. Um also those are from the bigger entities like Micro Strategy like Marathon Holdings or Maro

Holdings. These are the large entities that can also refinance uh if they needed to. you know they are using that convertible debt because effectively they're giving people the option so that they can pay them out instead of in cash in equity form. So I think that that's the first thing like yes there could be a debt crunch as we as we're looking at this path but also there are ways to kind of alleviate the pressure of that if your company like a lot of people compare a lot of the corporate treasure vehicles to what we saw with Grayscale Bitcoin Trust for example back in the day which traded at a premium and then it traded into a discount and it's not the same in part because you can buy and sell these Corb Treasury vehicles there.

So you're not stuck inside of these ETVS. It's very very different from what we saw with Grayscale Bitcoin Trust. But with that, I I would say that the the comparison kind of ends because if you're a CTV, you could actually go in, sell some of your assets, and end up like buying back your stock, which would help you bring it back to parody if you ever dip into a discount. So it's a little bit different from that perspective. I would be concerned about a second issue which is what if there is concerted selling pressure that gets called for the wrong reasons. For example, what if like some of these entities need to sell their ETH or Bitcoin or whatever in part because

they're doing cash management operations, business operations in general. And I'd be worried about people getting the wrong signal from that and trying to frontr run them if they're trying to sell ahead of those kinds of uh developments. But again, I don't think that that's something that we really need to be concerned about in the very short term. I see that more as a medium long-term kind of issue. >> Okay. Uh that's great. Thanks for bringing that down, David. The let's let's shift to to ETH because I mean a there's a nice tiein because ETH is really captured the corporate treasury narrative right now. Why is ETH capturing the corporate treasury narrative when as you said they're not the only ones? There is there's hype.

There's there's you know vehicles for hype. There's vehicles for tow like these public companies are are going and doing this with you pick I top 200 tokens. I think we're going to see all of those have corporate treasuries and many of them are coming. But why is ETH capturing the narrative right now around this this theme? >> Yeah, I think there are a few reasons. Number one is the idea of staking being incorporated into ETFs is actually a lot more present at this point. previously like we weren't sure whether the SEC would actually allow it. I think that the idea of that has since passed.

I think it's very likely now to see staking actually get incorporated, but there's going to be some need to actually have a liquidity sleeve if you're talking about those ETFs, right? Like not 100% of those things can be staked in a way where if you're talking about these corporate treasury vehicles, they can. So they can actually offer a bit more efficiency when it comes to actually staking, offering those rewards back to the end user. Um, also I think that it's been an opportune time because the ETH price had actually been suppressed for so long. A lot of people are looking at Bitcoin hitting all-time highs and they're saying, well this I mean why not these other assets? Why not ETH? when we're talking about all these

stable coins, tokenized equity products kind of making their way on chain like ETH is a great proxy for that. So I think thematically this is also capturing the zeitgeist very well especially when you're seeing things like circle kind of having their IPO moment and actually doing very well. I mean the tokenization theme and the equization of tokens. I mean they're they're part and parcel of the same kind of like theme in in a lot of ways. And I think that Ethereum has been utilized by many people as best way to express that. >> Yeah, I heard uh Tom Lee say that uh the circle IPO is the chat GPT moment for crypto which I thought was very interesting because it is it feels like

there is renewed energy for all the all the L1s, everything but Bitcoin. And a lot of that is coming from Wall Street and coming from institutions who all of a sudden saw circles IPO and were like, "Okay, wait, whoa, whoa. What's going on here?" Like, we we can't miss that again. We need to pay attention. And as you said, okay, where where are most stable coins? They're on Ethereum. So, there's a pretty easy connection. And Ethereum's always been all these smart contract blockchains, they're difficult to understand like to for an average finance financial investor, somebody working one of these institutions, like they got to go down a deep rabbit hole to get this.

But now it feels like they can understand this in more simple ways. Uh let me bring up let's talk about let's dive into Ethereum for a second here because it is you you and I were talking before recording. It's like the we can't not talk about ETH right now. Uh here's here's the chart same chart we're looking about for Bitcoin above the chart of Ethereum mapped out over previous cycles where we are and walk us through this and what you see and where you think we might go. Yeah. So, this is kind of this chart is is kind of showing what I was saying earlier, which is we've seen this pretty large divergence of ETH away from previous cycles. Like up until like you know about a year ago, we had been more closely tracking the 2018 2022 cycle. But that changed in

part because activity changed right like if you're looking at indices of crypto adoption for example or blockchain adoption i.e. like the people who are actually actively working on this stuff. You saw that Solana started to capture a lot more of the mind share. Now they some people can be very gloo about that and say like oh that was all like memecoins and they're not wrong like memecoins were a big part of that because a lot of people kind of got off Ethereum and saw that like you know you had this faster cheaper chain that had all this activity kind of building up like pumpf fun launched in January 2024 for example. So right around the time this chart started to diverge. So I think that those things definitely

factor in but right now I don't think people are focused on the developments that are happening in terms of hey what are the upgrades that are going to be taking place like is it going to be EIP 9698 versus Alenlow and Salana? Like I think people are strictly talking about hey where are tokenized equities going to live? What is the world in the future going to be like? And I think that definitely as real world assets becomes the topic that everyone's wants discussed particularly among institutions I think they are constantly turning back to Ethereum and saying like this this is where people are going to build this is where like things are going to go. So is what where is ETH headed next? Is you know is it is a new

narrative emerging for Ethereum that can give it legs throughout the rest of this cycle and can it the ETH Bitcoin chart has just been a a very uh sad chart to look at for Ethereum holders for a while. Uh past past few weeks all of a sudden that's changing direction. We talked a little about Bitcoin dominance earlier. Can Ethereum start to catch up now or do you think that Bitcoin dominance continues for the short term? How do you see that playing out? >> Yeah, it's funny because if you roll it back to like 2020, 2021, remember the conversations people would have about the flipping and like ETH flipping like Bitcoin. No one talks about that anymore. No. Um but I think on its own merits I think ETH definitely has uh

pretty strong prospects ahead and certainly I think it's going to be more technically driven in the very short term i.e. it's going to be more supply and demand. Um certainly like if we see narratives around staking being incorporated ETFs that will help but I think that we'll need to see the activity drivers actually come in and fill in the gaps. meaning like we need to see more of these entities actually launching stable coins and actually using Ethereum as the rails uh more real world assets kind of making its way on Ethereum and I absolutely think that could happen Salana by the way I don't think is going to try to be content with with playing second fiddle um I think that you've already seen that they have like the Salana accessation service uh they put out a white paper saying why

like some of these tokenized securities should live on Salana instead uh but I absolutely think that you know that that tends to be kind of a a false dichotomy in a lot of ways. I think that they can probably live on both chains and like activity can actually can find a way to kind of be like on both Ethereum and Salana. Uh but certainly it's going to add to that competition. Let's chat a little bit about um the onchain economics for L2s because that has also been when we talk about Ethereum, one of the biggest challenges with Ethereum was the the economics in order to build the cost of the fees.

What are you seeing when you look at the onchain economics and break that down the the fees and uh the transactions that are happening between ETH and L2s? >> So, this has been a story for some time now. In fact, many people attribute the L2s to the reason why we started to see like uh ETH start to underperform other L1's or L1 tokens I should say. I think that's more of a red herring to be honest with you. Like I think one of the good things this chart shows is that we didn't see activity on Ethereum L1 really kind of drop off. It's just that the growth of activity happened to be more on the L2 side of things. Um once upon a time that was arbitrum and

optimism base has since really taken the line share of that and I think that we're continuing to see that development on this side in terms of trying to get new users on chain actually has really really helped. Now, of course, like someone could argue, well, yeah, but isn't ultimately like the the end goal of most of these kind of chains to kind of trade tokens and and yes, you know, I think that like DeFi is one big part of that. Um, and even there like many of the DeFi incumbents have kind of moved on to L2s are is now capturing most of the liquidity on those L2s. I think as those layer twos also start to solve the

fragmentation problems in terms of trying to be able to get from one L2 to another, being able to like kind of pick up assets from other chains like Salana being able to be bridged over onto to Ethereum and and vice versa. I think that some of those issues will also start to be relaxed, but um many people much smarter than myself are are currently at work on those. Okay, let's shift gears uh to stable coins uh because you guys talked a lot in the report about stable coins and where they are at and the excitement and energy for stable coins and the growth we're seeing there. What's your outlook on stable coins and the impact that you

think that is going to have in the in the quarter ahead? Yeah, this is super interesting because institutional capital has been anchored on stable coins and I think total supply is now at an all-time high of around like $232 billion. Uh at least that was the case at the end of June and you see monthly transactions actually now surpassing $4 trillion. So this is one of the finest cases of product market fit in the crypto world. And I think the surge really kind of reflects the growth of using stable coins for settlement crossborder flows. A lot more DeFi liquidity provisioning as well. Um certainly that some of these transactions volumes are related to

trading as well. And so as trading has grown, stable coin volumes have also grown. But I think that if you talk to anyone in the incumbent space of like like Mastercard, Visa, PayPal, all of them are being asked right now, do you have a stable coin strategy? And I think that Wall Street is paying attention. This is absolutely in like, you know, a theme that we're seeing alongside corporate treasure vehicles and other things. But as stable coins become the core infrastructure on which crypto is being built and attracting users into our space, I think that we absolutely need to pay attention to this theme.

>> The two things that stand out for me of stable coins which I'd love to get your thoughts are on. One is to step back to the macro perspective. One of the big issues that the US has right now is who's going to buy all the Treasury bills as this debt continues. is the big beautiful bill only going to increase debt even more and stable coins appear to be a possible solution to that. What are your thoughts there? >> I think that's right. Certainly, we've seen that stable coin issuers are now one of the top 10 buyers of US treasuries. And you know, I'm not saying anything new to your listeners. I'm sure they've heard that uh thrown around like you see people on Capitol Hill actually talking about this. Paul Ryan, who was

the former speaker of the house, uh, famously kind of mentioned this last year. And I think that with the, uh, advent of the Genius Act or a stablecoin bill likely to be passed very soon, the idea of actually using stable coin issuers as a way to actually handle the debt issues that we are that are piling up uh, on in Washington. I think it's definitely one path. What we've seen is that a lot of the borrowing has kind of shifted from longer duration stuff to the front end of the Treasury curve and the challenge of actually trying to extend duration back towards the other direction actually increases the debt

burden, increases the interest costs and many of the stable coin issuers themselves tend to buy those T bills. They tend to buy the front end of that curve. So I think that there is a way where we see that stablecoin issuers could actually fit in to what's happening in terms of the debt concerns that we have. >> And then the other thing that I really see with stable coins is the the growing narrative in terms of web 2 businesses starting to adopt stable coins. So we're seeing Stripe and as you mentioned uh Visa from how how quickly do you think that adoption happens and do you do you

see stable coins doubling in the next half? Like are we on a meteoric rise of stable coins? >> I think the market cap of stable coins could definitely be in the trillions of dollars and I'm not saying anything new. Again, I think many people have posited predictions on the side of things, but the reason I think that is because if you just look at M2 money supply alone, like we're talking about like 21 trillion dollars worth of like M2 money supply in the US. I think that if you even capture like a small percentage of that, like you're already up to that trillion figure. So, I'm not seeing anything particularly innovative with respect to that. But I think that the growth of stable coins being used in

every our everyday lives in terms of people using stable coins to pay for things online, pay for things like uh you know like on Amazon or other things and I'm not saying that those you know entities will actually be able to have their own stable coin depending on how the genius act kind of shakes out but I think just being utilized for those things it's going to be massive. We see that the cost to like uh you know pe merchants cost to people who are using uh you know traditional rails to actually send money back and forth between different countries remittances it's somewhere between 4% to 6 and a half%. Whereas with stable coins you're talking about like 10 bips to 50 bips.

So it's massively >> that's insane. That is insane. >> Insane difference. Absolutely. And these things are instantaneous. this we're talking about atomic settlement. You're not required to have multiple entities. I mean, this partly adds to the cost, right? Like, this is why things cost so much because you have like banks and correspondent banks and entities in the middle all passing money along and they're all moving ledgers and they all need to get paid for those services instead of just being on chain. Um, and you know, this is one of the reasons why people in the in the crypto world are so bullish, this theme, and we've been bullish for a very long time. Uh but what's interesting is that now a lot of the incumbents are starting to recognize

it as well. >> Okay, I want to wrap up with uh a few uh slides that uh came from some of your partners in this report. One of them from Bitwise who we have on the show all the time and they pointed out a very interesting stat around the BTC supply of mining supply versus ETP or ETF purchases. uh walk us through this chart because it's very interesting. >> Yeah, I think that this is one of those stealth themes that have gone under the radar. But if you look at the ETFs, the ETFs have actually claimed probably like I I think they 225% of all the newly mined Bitcoin that are out there like i.e. like the net new

Bitcoin that are being mined like have like more demand for them than they've had at any point in in the past. So I think that this is what I mean when I'm talking about there are new demand drivers for Bitcoin that were not there previously. I think like between the ETFs and corporate treasury vehicles, I think this is what's been putting a lot of cryp crypto assets, mainly Bitcoin, in very good standing. Okay, the other one I want to chat about is is AI. We haven't talked a ton about AI recently. I won't deny it. Uh at least crypto AAI. Talk about AI every day. I think you know everybody does now. Uh but crypto AI, it had the

narrative and then it it really was a bubble. It was a big bubble that popped at the end of last year, early Jan, early 2025. What's your outlook for crypto AI? >> Yeah. when it happened back in November of last year and it had a short two three month kind of window where it did very well. I mean our argument was that we felt uh this is a a big theme that was going to take years to play out and the initial kind of players in the space that people were buying I I think you had to be selective about it but we weren't necessarily that sure about it.

we were kind of saying actually like in one and two years time we'll find out who the real winners are going to be as this kind of develops but the technology that was being developed at that time even right now I would say that you know it it was fairly untested uh it really wasn't making like optimal use of uh what we believe AI could do in conjunction with crypto that's starting to change we are starting to see much like bigger AI agents kind of really develop in the space. I still think it's important having an AI agent who would be able to plug into different APIs, look at the news, look at like a new like corporate like balance sheet as it kind of like gets reported, put into the

SEC and immediately kind of react to it because they're going to be onchain. But I still think that the big use case for this is probably a year away, maybe two years away. Uh so I think this is still an important theme and this is why we're people are tracking it right now. Rayscale is definitely like trying to get in on the ground floor of it, but I think that it's it's very much like a lot of the other ones that have had product market fit in our space like deepen and other sectors. Like I absolutely think it's important. I absolutely think it's going to be like transformative for the crypto space, but finding the demand for it probably is going to take some time.

>> Yeah. The thing I can't figure out is so uh the thing I can't figure out is do people want decentralized AI? like how how much of a product market fit is there for decentralized AI because there's clearly a product market fit for AI. There's no doubt about that, right? Like we all use chat GPT or Plexi or pick your your AI app that you use every day and if you don't then you should probably start because it'll make you much faster and it makes your life so much easier. But there is the the obvious problem with that is we're giving all of our data to these just more it's like web two all over again, right? like we're trying to get to decentralization, but I can't figure out if the market really cares about decentralization because there is

decentralized AI out there, but they don't have very much usage. Like, nobody's really using them. So, I I I don't know. Like, it feels to me like it's still years away is is my view. I don't know what your thoughts are on like actual market demand for these products. Well, that's a good point you're kind of bringing up because I kind of just spoke with a very broad brush about AI and and crypto as as a theme, but there's absolutely like multiple themes when it comes to AI and crypto. Number one is having decentralized AI models. Number two is having decentralized marketplaces that deliver the data to those AI models. And then there are themes that I

think were really big in November of last year, which are AI agents. And I was just kind of talking mainly about AI agents. But yes, like it's it's good to kind of question what about the other stuff like what's actually happening with uh the themes of AI and crypto. I think that you're seeing projects like Bit Tensor really kind of starting to pick up in part because they're creating a marketplace that allows people to, you know, kind of more broadly play different types of themes, test them out, be a sandbox for like how is AI and crypto really going to interact with each other. I think that there could be an opportunity, especially on the decentralized side of things, to actually be a place where data lives on a decentralized blockchain that you

know, like hopefully that'll make it more resilient. Uh so that if you're a model that needs that kind of data, you can feed yourself through a lot of those kind of venues and I think it could be very very profitable, especially if you're talking about, you know, some of the smaller models. So, when we're talking about theme one, like what about decentralized AI? Who who needs those decentralized AI models? Be honest with you, it's not going to be the big players. It's not going to be the large companies that are going to want them. They're going to be probably small research firms, uh, you know, maybe universities, other places that do have a demand for that in the same way they have demand for like kind of open source models and other things. But I think

that there are other opportunities that are happening in terms of the AI crypto theme. And that's kind of where I was thinking like AI agents for example because those agents that are connected to our rails, our decentralized exchanges >> being able to respond instantaneously to data. I think that's probably also going to be a pretty big winner. But I don't think that that's so far away. >> Yeah. And that's that's how I feel too. Like it the when an AI agent can go book my travel. Heck yeah. Like I don't need to find the cheapest, you know, much of a pain it is to find the cheapest flight, you know, like nobody wants to do that. Great. I can give an AI agent the ability to do that. And it can do it because it has crypto rails so it can actually make the purchase and do all

the payment and everything like that. But that just feels that stuff feels far away. Like a crypto AAI still feels very speculative to me. I wish that more AI companies would launch tokens so that we as investors could get access to the upside of AI which is mostly private market funded right now. And that part I I wish but that's not really happening because every VC and institution in the world wants to give money to AI. So you don't need to launch a token to do that. You can go raise the more traditional ways. So yeah I just I don't I don't know where it goes in the short term. I mean, I would say that even AI right now, I mean, like obviously we've had it for a few years now, but or you know, in

in in a real sense, we've had it for a few years now, but like we're still in the middle of disrupting software as a service, for example, like a lot of AI where like we're seeing that getting uh excuse me, displaced, but it's happening slowly. I mean there's still a demand for certain on like online services that you're not necessarily replacing with AI just yet. But it is happening. More and more people are starting to realize oh well why do I need to put like this on online when I can just use AI to like do it for me? Like for example like oh like you know people who would pay normally for services to to tutor their kids online. Well now they're just like well I don't need it. I can just use AI

directly and and have it do it for me. So I think that's happening. Uh one is a behavioral change certainly like people are are are you know need to kind of adapt and kind of figure out for themselves like how do I use this stuff and like I still talk to friends all the time who are just like hey Dave how are you using like AI and like what are you doing what are you using in your your your daily life? I think that if that is still an intermediate step for many people, like I think that for sure like the AI onchain theme is kind of one tier below that in terms of people trying to use this and really finding that product market fit for it, but it will flip and it's it's like, you know, like an Earnest Hemingway thing like these

things are like slow at first and it'll be all at once. >> Yeah. Yeah. It's very that's very well said, David. Just to bring it all back together when you look forward for the rest of Q3 and even maybe the rest of this year, what give us a summary of your your expectations and what you're going to be paying attention to the most. >> So, I think that there are two main things that we're going to be paying attention to in Q3. Number one is what's going to happen with the macro environment. And again, a lot of what I've been very optimistic about has materialized a lot faster than I would have anticipated. uh that's on both fiscal side and very likely going to happen on the monetary side as well. And I think that the liquidity injection we're getting is going to be very

supportive of that. But also the regulatory side of things, I think that people right now are discounting how transformative and how quickly these things are moving on Capitol Hill. Uh, I think that ultimately we're gonna start seeing these things kind of trickle in and then they're really kind of gonna see a really big flow coming from the Genius Act, coming from the Clarity Act. So, I think that those things are definitely going to be giving crypto a boost in Q3. So, I remain very constructive in terms of what's going to happen for crypto performance. I do believe though that most uh of our institutions are going to be anchored on probably the blue chip names i.e. the higher market cap over some of those alt

names. >> Yeah, it's completely agree with your take. So, uh, wonderful, David. As always, a pleasure to get you. Thank you so much for joining us today. >> Thanks so much. I I love being here. >> Appreciate it, my man. As always, I got to remind you guys that none of today's episode is financial advice. I'm not your investment adviser. Dave is not your investment adviser. You should always do your own research and if you need help, you should speak to an investment professional. Thanks so much for joining in everybody. Have a wicked awesome day. We'll see you back again tomorrow. And finally, I've got to give a shout out to our partners over at Nexo have just partnered with the DP World Tour, one of the leading golf tournaments in the world, 45

tournaments across four continents. And they're going to have the Nexo Championship debuting this August in Scotland. So keep an eye out for that because this is one of those things that feels very marketing talk, but I get super excited because when you think about sports and the crossover with the attention that it has and how many leading global brands are sponsoring massive sports tournaments, it's pretty exciting to see crypto brands sponsoring large sports tournaments as well. So hat tip to Nexo, way to go, guys. Thanks as always for doing what you guys do in the space. Thanks for tuning in y'all. Have a wicked awesome day. We'll see you back again tomorrow. As always, if you liked today's episode, please hit subscribe and make sure you follow us so you don't

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Thanks so much for listening in my friends. Have a wicked awesome