The crypto market has changed: why not to trade this cycle like 2021

Transcript

GM. Good morning. Welcome to the Milk Road Show, the daily crypto show that evolves faster than your boomer uncle saying, "I don't trust the cloud." I'm your host, Jay Hamilton. It's Saturday, May the 3. This conversation was recorded on Tuesday, April 29th. Every Tuesday, the Milkro team gets together for our weekly research meeting. In this meeting, we take a step back. We look at the big picture and we challenge each other. We challenge each other's investment thesises and we think about where is their signal amongst all of the noise so that we can help you guys figure out what you should pay attention to. So in today's conversation we discuss last cycle crypto total market cap went from 400 billion to three

trillion. What do we expect is going to happen in this cycle and what is our thesis for how this cycle will be the same or different? Hint hint hint. It's going to be different in our view so that you can update your investments and not get stuck playing the same playbook as last time. We also talk about are L1's cooked? Is the L1 traded over? And is it time to put your capital work elsewhere in things like apps which are generating revenue? We're going to break that down also at the end. I really like this take that we got into which is are stocks like Coinbase and Robin Hood the real altcoin trade of this cycle. If you don't know what I mean, listen to the

end to learn more about that. Before we jump in, I got to tell you guys about something really cool that the Pro team has been cooking and they just launched today, Saturday. So, they've just launched their first monthly market pulse. They're going to be doing this every month and this one is, you guessed it, for May. This is a 20page report they're going to write every month, which basically gives you the signals of where the data is telling us to park your investments for the month ahead. If you only were to read one thing a month in order to help your crypto investing, this would be it. Now, unfortunately, all of this alpha doesn't come for free.

You're going to have to be a pro member to get access. You can read the intro for free and then decide if you want to go pro. Hit the link in the show notes. Check out Pro today. You guys are going to love it. In addition to this report, there's also a video to go with this report where we dive into further thoughts on how we came up with this report and why we are so strong on our thesis right now as we head into May. So, check it out. Today's episode is brought to you by Letin Get Cash without selling your Bitcoin. It's also brought to you by Coin Shift, powering top crypto treasuries with their yield bearing stable coin, CSUSDL.

Welcome guys. next pro research meeting today. Not many researchers, just me because Kyle and Adrian are somewhere. I don't know where. But it's just me and Jay today. Um but we'll take that opportunity and I will just try to get um Jay's feedback on our thoughts and perspectives on the markets because he he's talking to many smart people and collect a valuable feedback from those guys and I really want to just run our thoughts with him and get his views on the markets and really just discuss more broader trends and topics we see interesting in the markets. these days.

So, we're going to start um by talking about this cycle. Is it the same like the previous one or is it going to be some different cycle this time or not really? Then we want to talk about Bitcoin and its role for for the whole space basically and for the markets. And then we want to talk about layer ones. Um are they cooked or not? because um yeah we I'm going to walk you through why we think that layer ones might have a difficult times this cycle and then we are going to talk about apps and where the opportunity lies this cycle where we

think that the opportunity lies and then we are going to wrap this up by discussing the idea of where the most value will be captured whether it's in tokens or is it going to stocks like Coinbase and Robin Hood and these type of guys just really leveraging and using um this blockchain technology and bringing this new innovation space to their products and therefore the value will be captured in stocks and in kind of traditional markets if if you will. So yeah, that's the agenda for today and uh I'm happy I can pick up Jay's brain today. So um I'm happy I'm happy you're here. This is a

This is an exciting lineup we got today. Answering some big hitter questions. Forget Kyle and Adrian. Who needs them? Let's go. Yeah. All right. Um, so let's start by talking if this cycle is different than the previous one because it might feel that way. Um, do you have any initial thoughts if this cycle is the the same as the previous one or do you also agree that it feels different this time around? Yeah, I think it I think it's different for sure. Uh, I mean I think I I think like a lot about the the quote that you know history doesn't repeat itself but it often rhymes. So yes, in

yes I think it's different but in some ways I also think it's the same. So, you can't get in the trap of saying, "Oh, it's all different or it's all the same." That'll push you into a a dangerous frame of thinking. The most obvious thing to me that stands out before you jump into your sort of breakdown on the differences is the the number of tokens and how that causes capital to to disperse is is a clear difference in this cycle versus last cycle, right? You've got, you know, I don't even know how many tokens there is now.

20 million, 40 million like there's there is 17k tokens listed on coin geko but obviously they are not listing all the recent meme coins and you know all these coins. There is like I don't know tens of thousands meme coins created every day. So just think about the the amount of options that like people entering the space have these days. It's it's huge. It's enormous. So it's really hard to get like the idea and impression that like everything will grow the same way it did in the in the past cycle. Um so that's kind of one of the the key

thoughts that I I want to highlight is that like in the previous cycle you could just throw a dart on a coin and it probably did well but I think this cycle this won't be the case anymore. Yes. And also like one one point I want to highlight is like in previous cycle before we really took off the crypto total crypto market cap was sitting around let's say four 400 billions and then you know at all-time highs we were some somewhere around like 2.5 all the way to three trillions. So this is in the last cycle in the last cycle. Yeah.

Yeah. That that's last cycle. Yeah. Um but the point is now we are around three trillion and obviously you need much more money and like new buyers to really do the same thing this time around because it's a different when you are moving some asset class let's say from 400 billion to something like to higher and now we are at three trillion today and move it higher you you don't only need like all these you know retail people who got a free money or whatever this is already like a serious class which needs like a big new buyers so I

think that's also like very different from from the previous cycle yeah I think as as well um at the same time there is going to I still think we're going to have an altcoin season right does it mean that you know that's why I say like you you you you can't just definitively say like this cycle is different or this cycle is the same. It's somewhere in the middle. There is a lot of differences, but there is also similarities. So, we will get an altcoin season. I did a great episode that comes out today with Jamie Coots over from over on Real Vision where he points out his thesis for why we're going to have an altcoin season, when that alcoin season will be. But he said exactly what you said, which is not everything will

rip this time though, right? In the past, altcoin season meant every non- Bitcoin co token rips and it doesn't really matter what you hold and they rip for uh for enough time. I think the big thing that is happening with alts now is it's not to say that they won't they all they all could rip at some point. Like garbage ones could rip at some point. I wouldn't be surprised if it happens, but the time that they rip is they're they're much more volatile in much shorter periods of time now. So, in the past, you could bet on altcoin season and you'd probably be safe because you had a few months to like plan your entry and plan your exit and like and time it.

Whereas now, it's it's much quicker and that volatile volatility happens faster. So, you have to be really if you're trading trading alts is just getting I to me it's becoming higher and higher risk for the rest of this cycle because you have to be so on it. it is much harder to time them. Agreed. Yeah. Yeah. Um I want to add this cycle might be still the same one in a sense that you know the the the altcoin season in the previous cycle in 2021. It started when uh the central banks ended up their quantitative tightening and started quantitative

easing and that hasn't happened yet just yet. So like we are still waiting for that liquidity to enter the market. So like this whole idea of liquidity cycles and business cycles is still intact. In fact it's going probably to change quite soon and like that's when you want to be positioned in the market and in that sense like the market is not going to change like we are going to probably correlate and follow that liquidity cycle anyways. Maybe it it's not perfect, you know, four year cycle as it was like in the previous cycles, but it's still waiting for that liquidity coming into the markets and it will

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macro perspective. We are in a a a macro economy where we need to refinance debt. We have debt refinancing cycles and those debt refinancing cycles are happening. There's $9 trillion in the of debt in the US that needs to be refinanced. We all talk about it. That refinancing will lead to more liquidity coming into the system in the back half of this year. I agree with you. I think it's not the typical fouryear. I think we're extending this cycle out into 2026 is the way it feels to me. Like I'm thinking cycle peak is more like Q1 maybe even it goes into Q2 2026 at this point depending upon how how how the next few months play out. Yeah, agreed.

And I think like many people are trying to time their market and like we have no no one has idea at at this point like where the markets will be in three months. So just you know don't try to time the market and play the short short game and try to focus on the long-term secular trend which is like you know if we zoom out from this like you know it's it's like okay there is a huge volatility but like the trend is quite obvious. It's it's heading upwards and yes there are waves but that's fine.

Those are the costs of being early into something. Um so okay moving on let's talk about this phenomenon which is Bitcoin obviously in the previous cycle it was winner until a re at a a certain point and then we saw an altcoin season and this time around Bitcoin is a different different monstrum I would say it's it's already um approved kind with a green light from regulators, institutions and like you know even like Trump and US government is now kind of bullish on on Bitcoin and

really considering like whether they should add it or maybe like they are not actually talking about whether they should add Bitcoin on their balance sheet. It feels like they are right now wondering how they could add it without like necessarily cost associated with it. Like they are not going to print more money to buy Bitcoin. So I feel like they are really looking for ways how they could acquire Bitcoin in some how they they call it like um revenue neutral way. Budget neutral. Yeah. Yeah.

Yeah. Yeah. So it's really becoming a own kind of asset within a crypto which is already like I tend I want to say like Bitcoin has made it as the only currency Bitcoin has made it meaning like Bitcoin is here to stay and yes some people might argue what about the the security budget concerns. I think those are still quite far from here and eventually they will be figured out somehow. We we might You mean like You mean like quantum computing or No, I mean Satoshi's wallet or I think the issuance of new bitcoins will be

diminishing over time and at some point it will be so so small incentives that there might there might not be enough incentives for um miners to really mine new bitcoin. Um, right. Yeah, I I agree with what you're saying though. I think I think all of that security stuff gets figured out. There is enough people in this ecosystem that are very incentivized to figure that out. Yeah, actually I have a good chart here which is just showing like how much Bitcoin is right now held by you know these are financial instruments and ETFs or like different financial products and on the right side here you can see a

different public companies holding Bitcoin as well and like in total it makes like 3 million of Bitcoin is held in in in these companies in these treasuries and it represents like 14% of Bitcoin supply and then if we look if we add a bitcoin government treasuries we are getting another uh 500k which is 2.5% of the overall and United States are leading then there is China United Kingdom so it's like everyone at this point is kind of showing interest at least about Bitcoin and we can see that a lot of companies, a lot of states, nations are all already

holding Bitcoin at this very point. So, it's really just a question of if you have enough time frame and you are thinking about buying some crypto like Bitcoin should be your obvious choice like if your time frame is longer than I don't know I want to say five years at least. though you will do just fine and like you can buy it today and just forgot about everything and you will be fine in 5 years and that's the only Bitcoin I I am not sure you can say the same claim about anything else outside of Bitcoin.

Yeah. I mean there there's a legitimate question that everybody in crypto should be asking which is like every time you make a investment are you confident that it can outperform Bitcoin? And if you're not then just buy Bitcoin, right? Like there's a there's there's a there's a a real I could see a lot of I wouldn't blame anybody if they said right now, you know what, I'm just going to DCA Bitcoin and I'm not going to do anything else in crypto. like that is there is nothing wrong with that investment strategy. You might beat everybody else over the next 10 years because the other investment strategy, don't get me wrong, I still believe that there's more and I think you do too, right, Martin? Like

there is more upside during certain parts of the market cycle, particularly the part of the market cycle that we believe that we're going into in the back half of this year where we will see altcoin season. There is going to be bigger gains outside of Bitcoin for sure, but you have to be more active. You have to be more dialed in. You have to do more research. You have to be more committed. You have to do more work to capture those gains. It won't be as easy. So, you know, I think you you really got to think about your investment strategy and make sure that you're you're in for for the other part of it. Otherwise, yeah, just just buy Bitcoin.

It's that simple. It's that simple. I've never seen a like I've never seen a trade so obvious as Bitcoin feels right now, particularly because of the macro side as well, right? Like Bitcoin is not only a great crypto trade, it's also a great macro trade right now as we can see with it appearing to showing early signs of decoupling. I don't necessarily think that means it's fully decoupling right now. I think that we will see it revert back to the mean in the coming months particularly as there's a rotation into alts. So like I don't know if that decoupling is fully happening yet but it's headed in that direction

for sure. So have have you seen um ARCs uh predictions for Bitcoin that came out last week? No. Let me let me let me share my screen and and show you show you this because I think this is a really interesting way to look at Bitcoin and and answer your question of uh what is Bitcoin now, right? Like it's not a uh it's not just a corporate sorry it's not just a a crypto asset anymore. It's it's truly becoming digital gold and also a corporate treasury reserve and many other things. And what does that mean? So here's here's ARC's predictions for 2030 Bitcoin.

These they put out uh previously in this report they update these predictions. So their updated predictions are actually higher than this. Their bare case is by 2030 Bitcoin's 300,000 base case 710,000 bull case 1.5 million. They've updated these their base case is now 1.2 and their bull case is now 2.4. But I'm showing this because I want to show you this how they they they get to these price target assumptions. So they break it down based upon six categories of the use of Bitcoin. So institutional investment if you assume that the TAM the total address addressable market of global market portfolios is they assume it's

$200 trillion that's managed and then basically what they say is okay how much of that 200 trillion is going to go towards Bitcoin right bare case 1% bullcase 6.5%. That's how they get to their bare base and bull case. Digital gold. Okay. TAM of digital gold is about 18 trillion right now. How much of digital gold is it going to get? Right. Emerging market safe haven using it as a and we're seeing this right now. People moving out of the US dollar as a as a reserve asset for emerging markets and moving into something else. Well, what's the other thing? Bitcoin. Nation state treasury.

That's the strategic Bitcoin reserve and various governments buying Bitcoin. How much are they going to do? Corporate Treasury and then obviously Bitcoin onchain financial services which is actually funny because it's by far the smallest bucket out of all of these. So you can really see like this is this really builds the case for me. I don't know about for you Martin, but it builds the case for what Bitcoin really is in the long term, which is this reserve asset, right? And you can start to see, wow, like we are it it being used as a reserve asset. If that if that truly happens, it's digital gold. The amount of buying that is going to come is is massive. And these these

numbers feel quite conservative to me, right? Like why wouldn't we see, you know, corporate treasuries allocate 1% to Bitcoin feel by 2030? feels feels pretty accurate. How can you not sit there and watch every corporate treasury buying Bitcoin and think, "Oh my gosh, like why am I not doing the same?" Agreed. Yeah, I think um I did a similar analysis like ARC shared their similar report like last year and also one egg. So I took those two reports and basically applied this very same principle and yeah I think like from a certain level you need to think about

who is going to be the next buyer and you know you really need to double down and think about these huge buyers who are now buying you know stocks or gold and or stock or like how big is money supply today and like then you will get a sense of like how much of that whole the whole kind of pie of money could ended up in in Bitcoin and probably the ratio like you know right now like maybe let's say just below 10% of people who are considering buying gold are buying Bitcoin instead. But that trend is probably going to like grow significantly and it's not

just for it's for everything else you know like instead of maybe just holding gold or US treasuries you might just want to hold Bitcoin or like if you are going to invest in stocks then maybe like if Bitcoin is really uncorrelated to stocks you might like okay maybe I don't want to just hold US stocks or like I don't know um world stocks I might want to have something in Bitcoin. So, yeah, I think those make sense. And I think Bitcoin right now at like um 1.8 trillion or something, it's it's actually funny because we like what's the fair value of Bitcoin? There isn't there isn't fair value for Bitcoin

and it's just a consensus trade that everyone agrees on and that's what gives it the that value. Um and I think actually that's a good segue to to the other topic I want to discuss here and that's layer ones because at this point there isn't any layer one which could justify their valuation. So like you can take Ethereum, Solana, Sui, Aptos, I don't know there is like tens maybe hundreds of them but none of them would be able to justify their valuations and I got it like in previous

cycle that's when we really kind of discovered smart contract platforms and the potential was enormous and it's still enormous but now we are really learning learning like how they are going to capture the value and who is going to capture that value and like we are now much smarter than we were in the previous cycle but yet people tend to look back in 2021 and say like hey Ethereum topped up I don't know it was um I have it on chart here actually it was around 500 billion mark market cap and so should we Now assume yes there is

there was a technological like innovation and development ongoing. So Ethereum right now is like technologically speaking in much better position than it was before but it's still like 60% below those valuations. And why is that? Well, I think it's because we are assigning this huge value, this huge premiums to layer ones because we are still assuming they all have that huge potential to becoming another trillion dollar asset. But is that really true or like should we value them or just solely on on cash flows they generate?

Um my take is I don't think we should value them just based on on fees they generate. I think there is a part of them which should also have that premium like you know we we were just talking about bitcoin and its valuation is just because of there is a whole consensus that bitcoin is um digital gold. So I think all these layer ones, all these smart contract platforms are all fighting for getting a stamp of being you know world supercomput and like everything is running and depending on that specific blockchain and then if

that's true and there is such a blockchain in the future I don't care if it generates you know I don't know millions in in fees only but the importance of that blockchain for the whole world. What's the value? Like how do you assign that value? And it's super hard to quantify, but that's how pretty much all layer ones are um able to justify their valuations today. But like I would I would say that only few of them has a really chance to kind of succeed and become that trillion dollar asset. Um, and also like in previous cycle this was something new, something

like you could really sell and like the story was so sexy and so attractive. So I get it. So everyone was buying layer ones back then but what about now? like we are really challenging these kind of value acrruel questions and there is so many chains today and we don't know what's the best design for these blockchains in the first place and we see like you know there are modular approaches there are integrated approaches and then there are app chains so like what if like this cycle smart contract platforms won't see as much price appreciation as something else. I

think that could be the case obviously, but is it going to be the case this time around? I am not sure to be honest. But put it like putting my investor hat on. I would say all later ones should be repriced and should be traded like much much lower than they are today. But it doesn't matter what I think like the market is now saying that okay Ethereum should be worth 200 bill you know there is Solana which price-wise did much better than Ethereum but yet it's you know also 76 billion and is it a fair price or not

like I don't know I I still think that layer ones might still do well but you need to be cautious because like the the idea the end game like not everyone is able to reach that point and only few winners will be uh in this space I think and not all smart contract platforms will see these gains from the past cycles. So I think that's the shift that people need to make for for this cycle. Yeah, I think there's a few themes that I'm I'm hearing from you which I I definitely agree with. Is one is um the L1 trade

is is is a different different in this cycle than it was in past cycles. It was a very lucrative and a somewhat easy trade in past cycles. Uh that has changed. it is not necessarily the case in in this cycle and in future cycles. Uh also the there's been a there's been a change in risk, right? Like as an investor, I think you always view everything through the the lens of risk and there's a big change in risk and that you have higher risk with the L1 trade because there's a lot more competition, right? Right. And so when

you have a lot more competition, it's hard to know who's going to win. There is we are still early enough that yes, Salana and Ethereum have significant moes and significant network effects that will be very difficult to catch up to, but it's still early enough that we don't we can't say this is here's here's the number one winner. Now I will say I think you and I will both agree that there will be most likely there will be one chain that is the supercomputer of the world. It won't own 100% of smart contract platforms, right? It'll have somewhere in the range of probably like 60 to 80% would be my guess and then there will be a few others. So there'll

probably be like one main winner, probably a sec a second place, and then probably like maybe three to up to five general purpose smart contract platforms that stick around for the long term and power the world supercomputers. So I think you and I agree on that, but it's too early to know which one it is. So that makes this trade also difficult. And then the other thing is this trade is difficult because you have a it's impossible to value, right? you said like if you value it on fundamentals so you're valuing it on this premium that who knows what that and and we're also so early the other you said we're so early in the tech so we don't know the way the what's the best tech setup for an L1 smart contract

platform and how is we also it's very early in tokconomics right what's the best tokconomics setup for this whi who who is going to be able to figure out the way to allow value to acrew through to their chain when you have most likely more and more app chains that are going to launch in the future and they want to capture value. So it is there's just it's there's so many questions which make it a very high-risk trade. Big big upside though, right? Like if you get it if you pick the one. Yeah. Now let me let me ask you this Martin though. Are you saying that the the that L1's like Salana, Ethereum, or even go further down the

line, uh, Sooie, Aptos, you know, pick your L1? I'm not trying to necessarily point out specific L1s right now. Uh, are you saying that they don't do well in this cycle or are you just saying that the the risk is high enough that you're not sure if that's what you'll bet on? Um I think some of them will still do well and even though I said that probably Ethereum Salana like they are probably all overvalued at this point like what's overvalued you know it's again we don't know the fund they're fundamentally overvalued right like that's what you're saying right like using fundamental

traditional valuation metrics for how you value companies or assets That's they are overvalued for sure. But then you have like so many new layer ones who are like just launching their own super fast, super cheap blockchains, but they don't have any users. They don't have any liquidity and their tokens. they need to issue so many incentives and rewards for you know devs and users to come in and build on top of them and use their apps and like I just don't know why sui or like so many new chains like how that would make sense for for me as

an investor like those are very just very new startups who are just launch their own chains there is nothing going on and if so those are just like forks or like you know the very same things that works everywhere everywhere else. So like I don't have I have zero incentives to go there and use like I don't know um Barra chain for example over I don't know Bass or Solana. So you really need to think critically and like yes there might be some data showing the TVL growth or something but it's because like all the the projects launching there they are issuing new tokens and incentivizing users to launch the bridge

there liquidated their use their products. So this is like it feels like going back to the previous cycle where like all DeFi space was very experimental on Ethereum but now we are not in that experimental period anymore like we have so many good defy apps which are on on you know Ethereum Bana like all these like huge chains existing chains but like we don't need more layer ones. So I think like again back to your questions I think Ethereum Solana those might still be winners because they have all these network effects and well there might be some other layer ones which

might get some I don't know narrative or some hype and their valuations might just skyrocket I don't know but you you will be just lucky if if you catch some of them but like fundamental mentally you cannot just underwrite the the the valuations they have or even like they will have. So I am bearish on like layer one space in general but like if I should bet on something I would still bet on the winners within the the specific like different approaches. So like Ethereum is choosing modular approach and like Solana is choosing the integrated approach. those are the winners and I don't think that they market share

within these specific approaches will change dramatically in the next few years and that's why I think those are two main um layer ones leadersh so everything we we've talked about so far with L1's is all fundamental based if we talk about sentiment and uh and more the the pumpamental side, the narrative side. One thing that you and I both know is L1's are very good at catching the narrative. Very good. Probably the best in the space. Like they're so good at catching the narrative, we don't even talk about the L1 narrative. Like that's not even a discussion we have. But when

you step back and you think about it, that's really what's been happening for the past what, eight years, right? is there's been this ongoing narrative that you have an opportunity to invest in the world supercomputer and holy like holy [ __ ] what an opportunity and we all want it right so I the the thing I I I always my view right now in L1's is I don't know if I'm not as bearish as you are on L1's I would say I'm still bullish but I'm like bullish with a an an appropriate risk assignment to it that's the key here is the risk assignment because the reason I'm bullish is I do think that they will get the narrative again, right? I do think in this cycle there will be this like big narrative of

like, oh my gosh, Bitcoin is capturing digital gold. Oh, and there's this other technology in in crypto that is the world supercomputer or the internet and it's going to be the foundation of all that. Like I see that narrative catching again and then therefore a bunch of L1's rising. So, but the as there's more the risk is just is very high. I think that's the the number one thing I I think. Agreed. Yeah. And like um yeah, maybe I I want to share one one this chart. Go ahead. It's like you you you were talking about tokconomics that that's still something we need to figure out and like we are now just looking at blockchains and seeing the fees they generate and it might feel like you know

Solana had some really good month uh I think at the end of the last year and if you analyze their fees it was like couple billions so it was like wow that's pretty huge but then you have the other side of it and that's the token s they still need to issue new tokens to incentivize the validators which kind of validate the network and make it all work right so those are kind of like costs you you you can count them as a cost and so it's not like they are making billions and like that's super profitable business in fact it's not like they are still issuing a lot of money to incentivize like these you know

validators and it's not Solonites, Ethereum, it's it's pretty much all layer ones today are running uh on a proof ofstake um consensus and yeah it this costs a lot of money. So it's not like for free basically and and the ratio here you can see the fees or um real economic values um divided by issuance is also going down. So it's kind of signaling like okay we might be expecting that more fees are really captured by these blockchains but in fact it's not and like the fees compared to issuance is is going down. Is that trend going to continue?

Well, most likely because um yes, transaction fees on all layer ones are expected to to go down over time, but like even for Ethereum, they are now suggesting that Ethereum should scale 10x their um block space. So, it means that the transactions could be 10 times cheaper, but the demand for the block space is not getting bigger 10 times in a you know, in a short time frame. So like you need to discount these things. And the last thing I'll say here is we cannot only look at the data and numbers like again we started this conversation about layer ones and what's the value of um you know black rockck and um Revolute

and Deutsche Bank and like all of these guys are now experimenting or trying to build something using Ethereum. So like I don't know but uh I think people it's really easy to fud Ethereum these days and I think there is some shifts in the Ethereum foundation and I don't want to show Ethereum but you need to see these kind of qualitative metrics that are changing there which are not seen on the blockchain but that's what's is going to define the future. I remember we had a conversation last year about the Bitcoin when um there was a

conference in Nashville and everyone was basically talking about is I don't is US going to announce that Bitcoin will be you know added on their balance sheet whatever and I was like hey it doesn't matter if they are going to do it or not just the fact that it's happening that's huge and you need to reflect that and now I think that something similar is happening with on Ethereum and that's those builders and investors who are now talking with Ethereum Foundation and the new executive directors are like super bullish and you can you can feel that the the vibe the the sentiment around

Ethereum is changing. it's still not like very broad consensus and like crypto Twitter is still very negative and we should sell all ETH and those kind of stuff and maybe the the best way to play it is like you might stay like um kind of conservative for Ethereum you don't need a huge exposure but like monitor the market closely and the more companies the more institutions are like launching on top of Ethereum or somehow how interacting or issuing their tokens on Ethereum like have have a close eye on that and if that's changing don't wait until the the crypto Twitter is

super bullish on Ethereum it it's going to be too late you need to look at these fundamental metrics that are now in question but those are the main drivers for Ethereum price going forward I think yeah it's it's so interesting you know you can here you are. We started this conversation saying very bearish on the L1 trade and now we're ending it saying bullish on Ethereum and feeling good about it. So it's it is it shows how difficult this trade is, right? Like we we we at the start of the episode we said and again I keep coming back to like it's all about risk and your how much risk you're willing to put your put your capital under. And that's why I say the Bitcoin trade feels like it has such

low risk. Look, I I see only win-win on the Bitcoin trade, right? That's all I see right now. So, uh whereas the the L1 trade higher risk, but I think you said, as you said, I agree like I'm still heavily invested in Salana and Ethereum, right? And I believe very strongly and I'm very I'm I'm tempted to to invest in a few other L1s like a sooie or a near just to get some opportunity on that upside because now obviously I'm talking about small dollars but I won't deny that I'm very tempted to do that right now because let's let's shift because I think that uh then this is a natural

okay so if if we're so bearish on L1's and if L1's are cooked, what are we doing with our capital then? Where where else can we put it? So if layer ones are cooked, what's who's going to shine this time? And I think the answer could be apps. And by apps you can think of um maker or a or unis swap or coinbase or like whoever is building and shipping and making sure that they they have a good product. They have a users. They are you know growing in in in terms of market share. they have revenues because

at the end of the day if you are a serious investor in this market and someone you are going to show someone your portfolio and you are going to underperform the benchmark let's say Bitcoin or something and then you are digging down deeper into your portfolio allocation then if you hold layer one And we were talking about layer ones for some time. You might still feel like an idiot if we are looking back and say like why have you held I don't know Ethereum when it was valued 200 billion.

maybe like everything I said wasn't really true and like Ethereum is super overvalued and it will just slowly go down and it will just settle around I don't know let's say 20 billion so it's like 90% going down from these levels so what about Solana like again you might have a hard time to justify holdings of these assets for someone else and what is Something much easier to hold and something much easier to understand and to justify is applications because they generate revenue and if something

generates revenue then they are most likely making some profits or at least they have some product that's working clearly and if they are growing its market share then that sounds like a business I want to hold. I want to get exposure to and I feel like we are getting back to the roots of investing. That's what really investing should be about. You should find businesses that thrive. And I'm not saying there are hundreds of them in crypto. Not at all. There are just few of them. But at the end of the day, that's how you should look at the market and where you should be looking for investment opportunities within application space. I think and we

can see on this chart that applications are already generating more fees than blockchains itself. So again maybe layer one was a good deal good trade in the previous cycle but what if applications are the best trade for this cycle that is going you know I don't know it's it's going to happen eventually and I really think that the infrastructure the blockchains the bridges like all these things are in place we don't need more in in that regard But we need more users. We already have a lot of user, a lot of applications that are really good. We

only need to bring new users to these applications. And maybe in the past we also thought like, hey, if Maker is going to bring to build something cool, everyone is going to, you know, create a MetaMask wallet and buy ledger and use Maker. It was such a naive way of thinking like I I wish no one had like this is something we should get rid of. Like no one should be really using Metam Mask and like connecting leisure. It's so it's a [ __ ] nightmare. Yeah, it is.

Yeah. User experience is so poor. Oh man. So like I said there are good apps, good financial products within D5 space. We only need them um bring to the users. So like users are not coming on chain. They are not downloading MetaMask all that yada yada. But what if all these cool apps are integrated within an existing apps that like exist today and have huge user bases. So that's where I think we will see a next wave of adoption. How is it going to happen? And it's going through, you know, these existing apps just tapping into the existing DeFi apps pretty much. Does

that make sense? Yeah. It's the apps feels based upon the conversation that we've had apps feels like the more obvious. It's the fundamental trade right now, right? you know they they have real revenue they have real users they have real adoption you can look at these numbers and their valuation in comparison to their revenue is nowhere close to the valuation of what LLN's are in comparison to their revenue so you say okay great I'm a fun fundamental investor so part of what I would ask is who who's the next buyer right because if the next buyer is fundamental-based investors where are they going to look they're going to Look

for the fundamentalbased tokens. Where are those? Those are in D5 mostly right now. Those are the and I mean I think you and you could even you could you could maybe split out stable coins. You could maybe like have stable coins as its own category and then like the rest of DeFi as its own category because I do think that like stable coins are almost their own thing now. Um so like that's that's one way to look at it. The the thing that I struggle with on the app. Okay. Let me ask you this obvious question Martin. Are you saying that you would allocate your portfolio more to apps than to Salana or Ethereum? Yes.

You you Okay. You are interesting. And you you think that's lower risk? To me, the challenge with apps is like it's easier it's easier with with Ethereum and Salana. I know that they're going to be around long term. I know that they're going to win at least for the at least for I should I shouldn't even say long term, medium term, right? I know that they're going to continue to do well for the next several years, right? With apps, I I have it feels harder to pick the apps because there's still is they're still new. They're there still competition. They don't have the same moes. I don't feel like I mean, unless you disagree with me. Um, so the risk feels higher on apps. What what's your

thought? Um, what do you think that would be easier sell to your neighbor or some friend of yours? like when you show him Ethereum or Solana and what what it's doing and or something that generates revenue and some of them are profitable today and then you say like okay assuming that they would pick apps over um layer ones then you would be like okay but what are the alternatives I have so you you could pick um I don't know some some stock from NASDAQ or S&P And you would be like if you have no idea how these stocks are valued, you

can just look at price earnings. That's the most simple way to value stocks today like not today. It's like uh the standard approach basically most of them have P ratios around 30 and that's fine. Um so now what if there is something that has P ratio of I don't know single digits and it's growing on a in hundreds of percent per year like should that be valued before 30 or should that be valued much much higher. So like think of the people that manage money and they their only goal is

to deliver some good performance and they want to outperform some benchmark. So they might use S&P or something. So they are looking for these opportunities like okay we are interested in something that's that's growing the the the high growth in the last month or years. So that's DeFi right there. it. We want to see a revenue that it's already generating a decent revenue. So it's not just like okay they are growing but they are not charging anything. So like okay what if they are going to start charge some money for their products and the users will disappear. It's not happening. There are products there are services that generate a significant amount of revenue. And another point

I'll I'll say here is they are all software kind of businesses. So they don't need to scale their costs with their revenues. So maybe I I'll use maker as an example. They're making hundreds million in profit today and they can just scale their product which is um yield bearings stable coin to um let's say 30 billion in circulation but their cost of like people that they need to pay they have let's say 70 people today and they don't need to scale the amount of people they need like

proportionally to the amount they are making. So you can think of they can still be just team of 50 people who is you know managing 30 billion uh worth of assets and they are making a billion profits. That's something like that effectivity you you won't see anywhere else. And like there are all the pieces that all these people managing the big money could put together and say like okay yeah that's interesting that makes sense and that's where we want to have some allocation to but that's but that's not my neighbor though right like going back to your

original question this is where it's interesting you're talking about institutional investors right which I agree which is why I think that you are more bullish on the app thesis this right now in comparison to the L1 trade is because you're seeing new buyers, right? In the past cycle, the buyers were retail, right? And as a result, what was retail buying? Retail wasn't buying DeFi because retail doesn't understand DeFi. It like who what's easier to explain, DeFi or an L1 to retail? Honestly, both are [ __ ] hard to explain. So I don't really know that either is but but you know we started this conversation by saying hey there is 17,000 tokens today and okay if retail

is coming what they are going to buy I have no idea and like the odds that I will select the right asset that they will choose as well is just so hard like for some some people Cardano is worth zero for some people it's worth I don't know 30 billion or whatever it is today like I don't know I don't have any edge here but where do I have edge is I think we will see a a more sophisticated players entering the space and they are going to think the way I'm thinking about the markets and they are going to buy my bags because like I am trying to think through their perspectives and I'm

trying to frontr run them and now they might be still on the sidelines because of the macro and Like I like Yeah. Yeah. I agree. They're not risk on right now. They're all risk for sure. But once they do like Yeah. I'll be waiting for you guys and you know. Mhm. Yeah. Yeah. It's it's I mean it is a it's a solid thesis. What is um which which apps? Is it just DeFi? Is that is that the apps? Are you looking at anything else else? Yeah, I think DeFi is probably the the most exciting and like deep in it's still too early and anything else really is exciting at

this point. So I I would stick with DeFi and yeah I think there are like many great apps today and u I was talking about sky there is a there is morpho there's um a how do you how do you decide between going salana versus going to me that's the real question right like okay so great I agree defi apps let's focus on that there's really two ecosystems you either pick the salana ecosystem or you pick the ethereum e ecosystem how do you decide Um well the Ethereum ecosystem has a huge advantage and that's that most of the these DeFi are OGs. So most of their tokens are unlocked. So there isn't any

investors delution going forward versus on Solana most of the apps there launched last year. So there is a lot of unlocks and obviously you know like if all the CD investors are making huge gains they are going to sell then there are airdrops those kind of stuff. So it's just creating a lot of sell pressure on the token side. So I think that's why Ethereum D5 is going to win. And my only question I have and I'm still not able to answer is because we started that total crypto market cap is about 3 trillion.

But how much value is leaking to um non-crypto market cap which is Coinbase or Kraken or Robin Hood or Revolute or like all these guys who are going to leverage yeah the products and the technology but the value is going back to stocks and not in tokens and therefore it's not accounted in this total crypto market cap. That's something I don't know. And like if you think about the the ratio, I would say that maybe naively we we thought in the past that everything will be captured on on the token side, but now I tend to think more

that the the the value captured in stocks is going to I I don't want to say higher or lower, but just the way I think about it is that debt ratio is increasing for stocks versus versus tokens. Yeah. I mean, if we're talking about apps, you know, investing in Coinbase is an investment in in an app as well, right? It's it's it's a different it's different than a DeFi app, but it's also an investment in an app. It's got users.

It's a for it's a user-based product, right? So, yeah, it's So, you think I I don't know. I I I mean I don't think either of us know the answer for for for this cycle for this the rest the next year. You lean more towards the stock the equities like the Coinbase, the Robin Hood or do you lean more towards the DeFi apps? Well, you can hold all of them, you know. Um let me say it this way. I think that the stocks they they are less risky and they have therefore they have less upside

potential. they will still do well certainly but I don't have any edge there like my only edge is that I think that crypto activity or blockchain activity is going to increase and therefore Robin Hood revenues Coinbase revenues are also in going to increase because of that that's my only idea but then you have apps like Sky or Maker or a and going down the rabbit hole and really understand what's going on there that gives me the edge that's the edge I have over you know people in bitwise or van

or whatever they are not going down that rabbit hole as I do so that gives me like okay there might be a little bit more risky but the upside is much much bigger Yeah. Yeah. I love how much you always focus on your edge. It's such a uh it's such a key part of investing is to figure out what your edge is and really lean into your edge and stay disciplined and stay focused on that. Uh because I mean that's the hardest thing about about investing and particularly I think the hardest thing about crypto is there is so much noise, right? So so much noise

and you can just get totally taken away in that. What do you think about this? I got to ask you a question. Uh in um in the episode uh with Jamie Coots, we were chatting chatting about he has just allocated to Tron because he sees it as a beta play to stable coins and he's really really bullish on stable coins. He thinks regulation coming with stable coins in the US is going to have a big impact on particularly on USDT and USDC because it's likely that that legislation is going to be non-yield varying stable coins, right? Which I think you and I both agree on. So, hey, you want to get exposure to USDT. You believe it's the biggest stable coin.

It's running away with it. You want exposure to that. Well, the way to do that is to invest in Tron. Well, I don't know how the token acrew the value of that activity that's happening on Tron. So, um yeah, I don't have any any opinions about about Tron. It's something like I I don't really have Tron even on my watch list. So, and even like all the people I follow on Twitter, like no one talks about Tron. So, it's very easy to FUD Tron, right? It's very easy to fud Tron. you know, you've got you've got keyman risk with a a founder who it's it's basic it's centralized, right? Like you have basically one person who's controlling it all that's kind of a nuts

crazy person. Um that being said, he's coming on the show soon, so I'll I'll ask him a lot of these questions directly. Uh but it is there there's certainly there's the risk associated with it for sure. But the the chart that Jamie was showing me was daily fees on Tron right now $9 million a day in fees. Nobody's even close to that. No chain is even close to that. Like next closest is like Ethereum and Salana are around a million a day. So I know you like fundamentals, you know. I you you think about it, you come back. Let me know what you think in a few weeks.

Well, I I also think that like Tron, if you do some transaction there, you pay uh 10 cents. And I think there are much better alternatives today than Tron. And yet, like I I get it. They have like a huge advantage of being integrated elsewhere. Like all big crypto exchanges are using USDT in pairs with most of their tokens. So they have a huge network effects for sure. But like if I see a better product and I I I kind of struggle to invest in it, you know. So, and again like okay you might have transactions volume on

your chain but eventually what will drive more value is like if if you are just kind of payment network where like people just send money to. I think that's not the ultimate ultimate winner of of this stable coin thing. I think the winners will be like where these stable coins are issued on which chains and like because they they will be issued there and used there because like think of stable coins as on boarding tools into crypto because that's what they they really are like yes they are they are giving access to US dollars to some people and some hedge against like

volatility of bitcoin or other crypto other crypto uh tok tokens. But I really think that the winners in this stable coin bus or like stable coin trend that we are about to see are going to be and again uh one one more thing sorry I know we are going over time but let me just uh say this yes is against yield bearing stable coins today but that's where I think that the ultimate demand will be like step one I need to get access to um stable coins in the first place. Okay, that's figured, checked. The other thing is what can I do with these stable coins? And I want to do something. Okay,

I want to buy stuff, whatever. But one of the the other things that people are going to uh kind of demand is yield because okay, I can hold US dollars, but I want yield. There is inflation, there is like new money soons. So, I want to hedge against those those things. So I think the winners will be well we can we can already see it like the the the trend of yield bearing stable coins is growing and while it might not be kind of approved by the legislation this year it will eventually be I think and I would rather kind of try to frontr run what is going to happen and have

exposure today because like maybe today the winners are kind of in the works and they are already building today. Yeah, great take. Okay, let's wrap. We're way we're way over time, but great conversation. Martin, are we just going to do this, the two of us from now on? This is nice. Yeah. Yeah. Well, awesome. Maybe some, you know, for me it's um sometimes it's really good just to sit down and really just talk with you and not with Adrien or Kyle just push pushing new thoughts, new ideas and just really sit down with you and really get your perspective, your thoughts and it helps me also to like okay what what questions you have.

I am listening your comments and like it's it's really valuable for me as well. So um really appreciate it. Let us let us know everybody listening in. Was this valuable for you? Did you like uh just me and Martin or do you prefer Kyle and Adrian on the show? We won't be offended. Let us know what you feel and neither will they. Thanks so much for listening in everybody. Appreciate your time. Uh and uh have a wicked awesome day and a great weekend. We'll see you guys back next week. Thanks guys. Bye. Thanks for listening in today's episode, folks. Truly appreciate your time. One question I get a lot is which crypto card I use for my spending. And I use the Crypto.com card and I highly recommend you do too. Here's why. No annual fees, cash back in crypto, tons of benefits, Spotify, Netflix

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