Crypto's Biggest Liquidation, DAT Strategies, & The Purification Trade | Jeff Park

Transcript

Introduction

I am disappointed by the amount of wealth destruction that just happened for protail retail investors and it probably means there will be consolidation towards hopefully higher quality assets and I will take that as a win because if more investors are able to kind of build wealth through the Bitcoin lane first and then diversify into alternative exposures, I think that's the right path rather than the reverse. So hopefully this also just means that we'll see more consolidative flows into what I think is the most topical asset today being Bitcoin because it's at the center of global macro. When you see gold and Bitcoin being the top two performing assets year to date, it's really a purification of the cancer of our financial system as it

exists. >> Nothing said on for guidance is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed. >> Fresh off of that panel, manager wrangle and Jeff would be here. Yeah, straight out that felt that kind of felt like um you know that scene in Gladiator when Russell Crowe is like fighting for his life in the coliseum and he goes, "Are you not entertained?"

>> What was the spiciest? I didn't I didn't catch it. What was like the spiciest >> takeaway? I think generally it was pretty civil. If there was a spicy moment, I would say I try to here for the virtues of Bitcoin relative to altcoins as a way to imagine what the treasury landscape should be like >> as opposed to just OTC deals from foundations and fear >> for token funds to dump their coins on retail in a different format. >> Yeah.

>> Yeah. No, that was good. Yeah, it's fun. But uh yeah, here we are next session at D London. Good times. Um, Jeeoff, obviously you are deep in the DOT world right now, but you're also very dialed into the derivatives world and all of that. Um, so I'd love to just like get your postmortem on the weekend. We we had Avi Felman on before this and we were diving into a little bit of it, but I'd love to just hear your story of of the events of the weekend and how you read from. >> Sure. Oh man, at a high level I think it was as a headline and another data point for why DeFi has some superior qualities relative to uh its centralized counterparts. But those higher qualities also come with certain trade-offs and

Crypto Meltdown Post-Mortem

those trade-offs are happening at maybe the social level too as to what their expectations should be to the user experience that investors and traders are hoping for. So taking a step back, I think it's really important for people to understand that the futures market, especially when you apply leverage to it, is a professional environment. It's not really one for, I think, your just kind of casual investor to knowingly come in without understanding all the nuances of how the margin engines work. And in particular to crypto, it has always been the problem as to why it's different from traditional prime brokerage is that the intra dispersion of crypto assets are not vibrant enough to generally have a very well

functioning cross margin experience. The traditional prime brokerage model works because you do expect there to be diversifications of different assets you own between equities and bonds and FX and rates and therefore you can create something a little bit more holistic on a VAR model. But in crypto, we all know when things blow up, it like blows up spectacularly in unison in the same direction. And so there really isn't like a great way to kind of model for that. Um, and then spread trading is also really challenging in crypto, right? Because the ability to kind of take different risks when um the the price oracle themselves may not be like actually communicating correctly in the

way you expect spread tradings to work. that's like another room for disaster. So, so all to say like I think um the these these purpose markets are generally useful for investors to make trading positions but you know I I I'm always surprised by those who have like their full net worth in like a per portfolio like you should definitely not do that and pers are not also in my opinion meant to be like buy and hold positions by any definition you know I think it's one of the reasons why most of the derivatives world that we know in tradi either have kind have duration embedded into the way their instruments expire or they have um kind of reset levels. Uh at the same time like the

idea of like having financing that is so dynamic that is changing against you like every four hours is is like literally showing you that you're not in control of your own destiny. So I think a lot of people learned their lessons. Hopefully it just means that everyone levels up and tries to do better next time. But I think you know just looking down deeper like the way that auto liquidation works for these per market like happened the way I think people should have wanted it to happen and I think some folks are maybe not as happy about that in itself for the effect that it led. Yeah, it was tumultuous. But it in Yeah, in Treadfi, they're circuit breakers and it's something no one thinks about market structure. We're pretty unsexy topic, particularly when

things are fine and then exposed on a Friday night low liquidity. No one can get, you know, banking rails are are shut down. So it uh people forget that maybe these things aren't, you know, quite the in institutional quality infrastructure that everybody likes to tout in the investment pitches. I love that word institutional because I've heard other folks kind of point this out too like oh hyperlquid is not institutional and prime time for in institutional investors. What I think though they really mean and this is kind of I think what you're picking up on is like institution means guarantees like it means that you want to call somebody or you want to know there's a margin of safety or you want to be able to kind of

have negotiating leverage and you know apply soft powers of like being a human and that quality of institution is exactly what sometimes crypto is trying to fight against and so you know I I always find it kind of com like a little bit ironic When crypto investors talk about things not being institutional in the exact definition of what they're supposed to be in the way that it's defined, >> you can't. Yeah. The thing the problem arises when you accept things to be that and ignore the the there's margin of safety that's removed because they're not there. It's the same thing with the wallet address where if you send a wire to the wrong thing, you get refunded. Wallet address doesn't work that way. So you as a user of the

product have to incorporate better margins of safety that in times of high liquidity people like to you forget about >> or ignore purposefully and >> yeah 100%. So Jeeoff where do you think we go from here if it feels like you know we just had a huge wash out um but you know we bounced back a little bit here but uh yeah what's your high level of greed from here on out? Well, on one hand, I am disappointed by the amount of for protail retail investors and because so much of crypto euphoria is built on the back of these uh capital, uh I am a little worried about that kind of scorched earth dynamic. At the same time, um it probably means there will be

Where Do Markets Go From Here?

quality assets. And in that sense, Bitcoin, I think, does finally now have the chance to maybe frontr run alts in the ways that is historically not usually how bull runs happen. Um, and I will take that as a win because if more investors are able to kind of build wealth through the Bitcoin lane first and then diversify into alternative exposures, I think that's the right path rather than the reverse. So hopefully this also just means that we'll see more consolidated flows into what I think is the most topical asset today being Bitcoin because it's at the center of global macro that is so unique for 2025 that almost no other altcoins really have the narrative for. So on that sense maybe it's a blessing in disguise and I'm bullish for Bitcoin.

Evolving DAT Strategy

Can we talk about uh your gig and how much we can go into that, but I I would love to hear it personal update what uh what your day-to-day is looking like and and uh how things are going. >> Yeah. Yeah. So, uh ProAP is a Bitcoin Treasury Co. and we are in the process of getting our S4 effective and we are hoping that as soon as the government reopens that we can begin that process in earnest and get it through. So, right now we're in a bit of a waiting period. Um but in that timeline we accomplished getting our team together and getting the you know blocking and tackling uh readiness for when we are able to go live. And so yeah it's been a lot of preparing and also just trying to share

more education around what the opportunity set is for investors to understand what digital asset treasuries are relative to other crypto access vehicles that are available. >> Are you guys differentiating? Can you get into that or are you not allowed? Uh, I think we will be able to talk about that as soon as the S4 goes effective. >> Fair enough. >> Don't want to put you on the spot, >> but >> what you can share. No, it it uh Yeah, I just think it's it's topical cuz I mean you guys just did a panel with, you know, DATs have become uh sort of like everything in crypto is a derivative of a derivative. you know there product market fit is reached and

then a million derivatives pop off most of them fail and then people are reminded why uh the original concept worked in the first place and so I just think it's interesting if you have a personal opinion outside of procap what the debt lands maybe you guys covered this but you know what like the de that landscape looks like a year from now >> where um sure if if it resembles your alt versus bitcoin framework I'm you know curious. >> Yeah. Yeah, for sure. Uh I believe year to date now there's close to $90 billion that have been raised to DATs and that's across close to 200 vehicles uh globally speaking. So there's a great amount of attention and coverage now in this

space. On one hand, what I am excited about DATs as a meta is that because it's led by operators who are able to be more uh front-facing to tell the story of exactly what the digital asset play itself is. There's an education element here that I'm pretty excited about. So historically, these ETF issuers do go on an education campaign to help investors understand what Bitcoin is, Ethereum is Salana is and all that, but it's a little bit restricting about just the asset because ultimately that's the pitch, right? You're going to buy Salana because you think Salana is interesting, but you don't get to really experience all the like value acral mechanisms around the ecosystem of Salana from just hearing the ETF pitch. It's part of it,

but it's not really holistic. I think that six months from now, a year from now, when you have DATs that are being led by executives who are actually touching the plumbing to earn these value curl mechanisms, they're going to find ways to share these stories in a way that everyone can understand. So, I think on a net like that's good for crypto because so much of it is onboarding new investors to touch and feel and smell all the different things that are available without necessarily um being kind of unaware of what you're doing. And in that sense, it's a little bit more uh proactive than an ETF because ETF is a passive holding vehicle. And with that, you get to experience a little bit of that uh in in greater detail. So, I think I think that's pretty exciting. Um I think

beyond that, people will start to just realize what what the um different outcomes that can happen even amongst like one single spot asset. And that divergence of outcomes will help people understand what is possible and what is not possible. What is value acroval? What is value destroying? And those kinds of things are all pretty helpful for investors to get their heads around. You I want to ask you a good a question because you you've been vocal around the DAT space for a long time and and understanding of the the benefits and what it brings and the opportunity set um dating back you know micro strate while back and stuff. What is your response if someone says, "Okay, an

altcoin wrapped in a data still, you know, lipstick on a pig, whatever." Okay, that's an easy one to understand and I think most people agree that it's a it's another kind of scheme to dump on retail for the bag holder VC funds. Um, what about the when someone says, "Well, and I don't think you've always been a just more of like a Bitcoin." It's nuanced to all these things, but one of the things people say is, "Oh, the Bitcoiners just uh basically became, you know, altcoin people by wrapping their Bitcoin in dads and and shilling that."

So, I I want to know what your what a good, >> you know, rebuttal is to that. Yeah, I think that Bitcoin is such a fascinating network because you truly get so many personalities involved and even though we're all in the same cause, at times it really feels like we're not. And you see that with like the spam filter debate on Opturn. You see that with how people have division around core versus not and these these these things that are not part of like the institutional conversations that are happening behind the scenes for when Vanguard for instance is adopting Bitcoin as a possible solution for wealth advisory.

And so I think um these things are important though because in the end I think most Bitcoiners understand the terminal sustainability at least for Bitcoin has to come from some fee generation outside of block subsidy in the long run. I don't think people agree what that timeline is. Maybe it's two years from now. Maybe it's 10 years from now. But we all know deep down inside there has to be like a way to advance this conversation. And so I see the role of a Bitcoin treasury to be a steward in the space in being able to have these conversations intelligently and share the possibilities of capturing some of that value acrruel uh in a in a professional way. Um so so in that sense the reason strategy is successful is not

only because it's first but also because it's the biggest and there's benefits that come from being the biggest which is coming from its volume but also the ability to diversify the capital structure over different types of instruments but we also know crypto is very scarce when it comes to alpha opportunity itself and I think there's rooms for dats that are like smaller or more nimler that can therefore capture that alpha cruel because they're just not nearly as big to consume the entire ecosystem and actually deliver that opportunity to their shareholder much more efficiently. In other words, there's really not a way for Strategy to go do things on chain to earn yield at

their size. It's simply not possible because Bitcoin DeFi is not that big. Also, strategy can't really go out there and engage in the lending market at its full size because they're going to be the whole market. So, so there there are reasons why strategy is built the way it is. And it's a it's a it's a great um conduit to institutionalized Bitcoin risk, but it's not the only way. And I think there is a lane for treasury companies to operate in a different fashion where the idea is actually to just get more network activity, garner more interest, and build ecosystem partnerships to help people understand what the actual network that you're purchasing in addition to the actual spot asset that you're holding.

>> Yeah. Yeah. Well said. Um, on the show a lot, we've been talking about this whole debasement trade. Feels like everybody's talking about the debasement trade these days. >> You mean you mean the purification trade? >> Well, that's what I was going to get into. You always have these awesome oneliners. Um what you had you had the radical portfolio theory which was super good. Um but yeah you've been calling the debasement trade the pur re repurification trade and I want to understand how what that means and how you think about it versus what everybody's talking about the debasement trade these days. >> Yeah. I mean, I think it's a little cheeky uh in essence, but the the basement trade itself makes it feel as if the unfolding is negative because we're eroding value in something that people expect it otherwise to be durable

Debasement vs. Purification Trade

and there's some sense of like loss associated with the word's abasement, whether it's a moral one or whether it's a financial one. And the way I see it is when you see gold and Bitcoin being the top two performing assets year to date, it's really a purification of the cancer of our financial system as it exists. And in a way, it's shifted the Overton window maybe a little bit to help people understand that this is a positive outcome because sometimes I think the debasement and kind of crypto and anarchy and all this stuff feels so negative and it's hard to like truly like get people to be invested and interested in something when you're talking about like the world's going to end tomorrow. Yeah,

>> but really like maybe this is all for a good thing which is like we're actually really trying to understand what money is, how to store value and rediscover like first principles basis of like what that should be and moving away from like a fiat based understanding of like the financialized world as it is today. >> That's I want to get there. I'm not when you look at the two sweet econom if you're in on the if you understand this well you are it is >> you're the upper part of the cave not the downward part of the cave >> you're on the purification but you're still drinking the dirty water if you're not on the boat it's but it I like I like how you phrase it true I mean

you're seeing we talked about it on the last one where that you don't normally see these safe hab safe haven uh outside the system assets rising in tandem with the system aka stocks S&P 500 assets at the same time and it's a it's a it's showing how people there's an alternative that people are bidding at the same time and it's it's a it's a new dynamic really something gold's move I mean Bitcoin we all know is a one in a centuries thing like it started this century and didn't exist but gold's move this last 5 years for an asset that's existed Burke since

time is it's a one in a handful thing and I think that is what people are trying to explain and describe by the debasement trade where it's just not something that really has comes around in decades and decades and decades and I I don't I think we as a crypto experienced group have a propensity to uh underestimate the time it takes for these to play out. And I know for me anyways, fighting biases that have been built earlier in the crypto years is is is a constant battle where you feel like you're late, but it's actually

>> early. >> We haven't even started QE again yet, right? >> You know, like it's it's like geez. Like there's a lot of wood to chop still. Yeah. No, it's true. I was uh before I got here chatting with uh one of my son's classmates parents and uh they were telling me they actually have tons of physical gold in their apartment. And um it was kind of amazing to hear like a non-crypto person talk about actually that being a part of their wealth preservation strategy. Um, and I don't know if that story would have come up unless it was so topical to find yourself reading the Wall Street Journal, the Financial Times, and people

are like normalizing the discussion. And I think that's generally a pretty healthy thing. That being said, like there's still probably a lot of education to be done on kind of what the long-term like reflexive effects of all those things can be and whether that's good or bad ultimately for society and and kind of wealth distribution. Um, I also found it hilarious. There was this Financial Times, I don't know if you guys saw, it was an op-ed piece by like a former um ECB director slash uh city uh head of like banking policy or whatever. And the the headline was um basically the gold bubble should be monetized by central banks by selling.

>> I haven't seen that. No. >> No. It was pretty hilarious cuz that's the headline and you're just reading it like wait like tell me you don't know anything by telling me you don't know anything. Like why would the buyers be the sellers, the creator of the bubble? Like >> 100%. Well, that's what I'm curious how you both think because this idea of debasement isn't actually new. Like fiat currencies have been going downward down only so for decades now. Obviously, we had the the QE decade of of 2010 to 2021. But I'm curious how you both think about what's different this time because obviously during that time we didn't have gold running like it is right now.

What’s Different this Time?

Is it just that every fiat currency and then even if you look at the Dixie, right? Like it's been flat for quite a few months now, but gold is surging. So it's like >> where do you guys characterize and figure out where the Canary coal mine is within all of that? Because it feels like something's different in the last year. >> Yeah. The pace the pace. >> The US deficit chart is not normally >> We're 7% for four years running in a boom economy. And that's the other thing. We don't we do not comprehend how problematic that is for the currency.

>> Yeah, >> that is the we talked about this, but I think Jeeoff, you'd probably agree. The um the nothing ever happens meme and mantra is pervasive in all of life and society now, but it's a factor of central bank intervention. That's why because happens all the time. like our president almost died before he you know and we forgot about it because but >> it's because there's a central bank globally that steps in and fixes everything. So it never becomes a market event that used to be clearing. There's a reason you have controlled burns to and so stuff does happen. And it just it gets

papered over and and every single time and what I just don't think we comprehend and I literally re write about this every day to try and cement it in my head every week um about these numbers. Nvidia is 4 and a.5 trillion market cap. That's two bitcoin market caps. That thing can not fall more than 20% in a multi multi-month stretch without carnage in the US economy because we all know the economy is the market.

>> Aka 4.5 trillion of market cap for one company that has 34,000 employees needs to be supported in perpetuity on a nominal basis. So real returns are probably going to be But you're not going to see 4.5 go to two. It's going to be 4.5 stays at four or goes to three and three and a half or four for 10 years effectively wiggles. But the amount of liquidity that needs to be supplemented to enforce that outcome is massive. And then when you look at gold and 80% of it is locked or or illquid or held by non non-ellers etc. That's why you can see parabas in gold. And then

you look at Bitcoin and it's onetenth the size. >> Yeah. And there's this this just baton handoff because these numbers are astronomical. We like four and a half trillion in one company. That's one. >> And you have three and a half at Apple, three at Meta, like these numbers don't make sense. And it's a factor of we just can't comprehend the size of this debasement problem. >> Yeah. Yeah. No, and I would also say it's part of the grand bargain where you actually then have foreign investors come buy US equities, right? And that's kind of the full completion of the circle, which is actually kind of I think how um the whole like trap exists for for for America's benefits. Um but I

think what we're all saying here is like what's changed really is this is definitely a war that's happening that we're not calling it a war. And war just has taken on a different form of things that isn't related to like human loss and deaths. it's actually just being done at a much more strategic level. So even um even when you think about China not only just like buying all the gold but like they just opened up like their stock options market for the first time for foreign investors to come in like they didn't do that out of charity.

They've never wanted like invest flow to go but now they do they want foreign capital in because they know that's part of like how they're going to counterbalance the Nvidia problem. And and then on top of that, you add like how these like um eminent domain type activities are happening with foreign companies across the world. Like just today, the Netherlands announced that um the Chinese ship company is being seized. >> No longer Chinese. >> Yeah. No longer. And the H was like great. And like you know the H stands for peace, but that was definitely not a peace move. That's definitely like a wartime move. And so I think all of this is basically showing like the the the debasement is unstoppable because if you know the greatest surplus holder is your

enemy, then you're just going to debase the crap out of it's a race to who's going to debase as quickly as possible to inflict the most amount of damage. And so I think it's kind of written in like this is the path of like how they're they're engaging in warfare at this point. >> Yeah. The the thing that I find most interesting that of course no one really thinks about it too much because it's a once every couple 50 70 80 years thing is that the the long-term chart correlation of US equity multiple premiums to rest of world is effectively one to one correlated with the dollar strength relative to other currencies and that's that's the crux here where like you said it's the it's an extreme

The Cost of Years of Debasement

benefit privilege of the dollar, but it's also somewhat a curse because you can't let that down slowly. And that's why this it's written in the it's in the stone because you can't let that down slowly. Therefore, you have to let it down in real negative and not nominal negative and paves the way for this trade, the purification trade to run for years because this is a years and years long. It took 20 years to blow this bubble.

It's going to take >> you can't undo it in real returns, maybe 10, 15. And that's what frustrates me about the the discussion about you know you have one side which is Elon being like US government is going to go bankrupt and it's like well no they can't go bankrupt but then you have the MMT side of things which is just like well you know we can print as much currency as we want because we are the sole monopoly issuer of it. It's like yeah but the cost is inflation the cost is social inequality. Like there is cost. So yes we're not going to have a treasury auction failure but we're going to have people in the streets rioting if this >> continues. No there's a huge social cost. I think it was actually Michael Howell who posted one of the most interesting stats I had never seen

before which was the correlation with gold price to >> fertility rates insane. >> So if there's one reason why we might not be able to call it a purification trade is because then we're not going to have people left. Household sizes have are are almost below two in the US and that I mean that just fundamentally is a problem for population. He can't sustain the economic that's what brings it down. I talked about it at the monetarium. You have household formation falling below two people per house. There's no and then, you know, you have the AI technocrats that are like, "Oh, robots."

And and then you're like, "Okay, what world are we living in?" >> Yeah. Uh it's it's funky. I I just I I try to stress to like our investors and people I talk to about markets how weird this time is because it truly is. And and you can always say that and macro people are particularly prone to always say that and it doesn't need to be a doomer thing although it's sort of the I'm so bearish I'm bullish thing but these nuances of it's truly something you have to approach from not previous 10 years 20 years. Yeah. And that's what throws people off because they're like how can you be so structurally bullish gold or Bitcoin? I even argue with older market participants who on gold and

they're like, "Dude, that's that's a like wartime safe haven, like everything's going to hell type like." And I'm like, "Well, guy, it's the best performing asset for three years straight with no volatility." So these just it's like breaking down decades and still markets. I mean, one way, and this is a little bit fantastic to imagine, that this will all play out is if you believe that general human productivity is going to be kind of less um proprietary with the rise of AI and everyone's kind of becoming a little bit more flatlined in their ability to contribute, then the national champions of your countries

like the Nvidia of the world becoming so big where they're kind of like also not just a private company, but a public like government that can subsidize the population for like different dividends. It's it's a weird concept because America doesn't operate this way, right? We don't think of Amazon as like a government like or public good really. It's a private enterprise. But if you look at kind of other models, especially like in Asia and China definitely, but also in Korea where the private enterprises can play more of a public role as well to support society. you you find different ways to like bastardize the concept of a market cap of a company. Like now it's not just the fact

that it's four trillions of like any like revenue multiple thing like that. It's actually just like what is like the value of the thing that distributes its goods to its people and becomes like almost like a public account. You need the boomers out out of power to actually effectuate that though because right now it's the one side where every time Nvidia's stock price falls 20% we step in print benefit the shareholders >> right >> and then that economy higher >> and and at the direct >> unequal distribution and so you need some I don't know a tax or I guess Norway is similar where you know everyone drives a electric vehicle in Norway but they pump their oil and it's like a cheap >> oh my god and it's the funniest.

Final Thoughts

>> Have you guys ever been to Norway? It's in Princeton. >> Have you been to Stavinger? Their uh oil museum. Oh my gosh, dude. It's a kick. So, you go there and it's like where they also house a display for the sovereign wealth fund. It coexists in the same museum, >> which is hilarious. >> One to one correlated. >> But they also show this movie and like my wife and I watched it kind of as a way to like just get into the museum. And it's like a 40-minute documentary about this guy who like basically is confessing his like moral guilt of like basically being Norwegian because he like he just like has so much like angst

about like not having to do anything. And it it's kind of funny >> society. You feel that when you're there in society. There's like a million art studios. >> Yeah. But he's also just like angry in this whole documentary like oh he's like you know like I just like like and and then he's like driving like yeah like a BMW >> BMW and he's complaining like oh life is hard placement it's interesting man >> that's wild >> it's well they I mean they're so about the fund they got the gig they're loaded the gills in mag seven >> at some point you'd think they start getting ahead of the train and moving some of that >> to national bank they're in mag seven too >> just Norway's loaded to the gills in Mac And yeah, you'd expect that to I mean they but when you're that big in it,

it's hard to >> move. >> Yeah. Um all right, guys. That's all the time we have. Jeff, awesome to have you on here. Um we're going to take a quick break for 15 minutes and then we're going to have uh Jeff's old co-orker boss Matt Hook. Was he your boss or co-orker? One of the two. >> But uh yeah, we're going to have Matt on after that. Uh should be fun. So yeah, break for 15 minutes and then we'll be back here. Thanks Jeff. >> Love it. >> Enjoyed it. >> Thanks for having me. >> Thanks brother. >> Yeah. Yeah, it's fun.