The ETH Merge Is The Greatest Catalyst In Crypto History | Travis Kling

Transcript

this episode is brought to you by pair swap the leading aggregator to find best prices across various decks you'll hear more about them later in the show each as an asset is going to go deflationary it's going to go yield generating and it's going to go esg friendly and all of that's going to happen in in one fall swoop so i think that's what i mean by the digestibility of the narrative those three things together deflationary yield generating and esg friendly that is an incredibly potent combination uh for large pools of capital and you know institutional type of capital [Music] [Applause]

all right everyone got a the black t-shirt gang here we got mr travis kling of ikigai capital one of my favorite people in the entire industry trav welcome to empire when are we gonna get some kind of black t-shirt sponsorship going on here yeah we got it it feels like the sentiment is starting to be pretty bearish around uh like just nasdaq s p and the markets in general um does this mean like if you're bearish and like you think the rest of the year is not going to look great for things like the nasdaq the s p if bitcoins moved in lockstep in lockstep with the nasdaq does that translate to a bearish outlook for bitcoin for the rest of the year uh yeah it's a good question so

definitely pay a lot of attention to that correlation uh bitcoin's correlation to macro assets has ebbed and flowed over the years um there's been periods of time where it's traded with stocks with gold uh inverse vix uh the remembe the twos tens various different you know more specific you know indexes within stocks like you know maybe the s p or q's or uh the momentum factor for example which is kind of like q's but a little different um right now the way and you can measure a correlation a bunch of different way

like you can you pick a uh a look back in a time frame the way i measure correlation bitcoin's correlation to nasdaq is at 0.95 right now which is to say you know you know essentially statistically the same instrument almost entirely um which is what you what you just showed on that chart um that you know i in some ways that's an expression of it's all one trade in some ways that's an expression of which is a term i've been using for uh how long have been saying that now 18 months probably i've been saying it's all one trade um i don't know if i invented it maybe i did uh but yeah it's all one trade in the in in the

sense that that that central bank you know monetary and fiscal policy actions uh have such a uh they their importance to asset price movements dwarf that dwarfs everything else to the point that like you know it's like those shirts from the 90s where it's like baseball is life the rest is just details right it's like fed policy is life the rest is just details and uh you know people can hate that or they can love that but that is just the sort of state of things right now so in some ways this correlation is like this expression of of it's all it's all one trade um is it though like i guess like when when we talk about like is it just one trade like in

the near term it may be just one trade like everything's so correlated there's these shocks where the market kind of like in october i think we all were coming in towards the end of the year saying okay there's gonna be inflation we've kind of known it but then like once once it's real right it's like okay people like adjust and it's like a temporary shock whether that's six months to a year but like i want to go to something um which is like is this a secular trade and is it a secular trade over like a two three five ten year continuum which is most kind of big allocators of capital i think in crypto now the composition is people that are like more long-term driven these are like 10-year horizon funds like venture funds that are deploying billions of dollars like

do you think it's just one trade or you look at something like the merge and you say like holy [ __ ] this is the next arc of the internet like how could you not deploy and take advantage of this volatility and uncertainty i'm curious how you kind of position kind of your portfolio because timing i don't think anyone kind of really truly understands macro it's like really funky um but like it's if you try to time these markets it can become quite difficult i i i don't know how do you kind of think about that yeah i would say crypto people definitely don't understand macro you know there's obviously a whole class it's obviously a whole class of investor that at least you know try as hard as crypto people to understand crypto they macro investors tried that hard to understand macro and some of them are

better at it than others like like crypto investors um the i i completely agree with you that the the the medium long-term uh investment thesis for this technology and this asset class has never been brighter and there's never been more institutional capital that is uh committed to it that is uh watching it there's never been more eyeballs on this technology in this asset class there's never been more dollars that are uh you know earmarked there's never been more dollars that are a term that a

friend of mine likes to use uh mentally committed but not physically deployed um so and and all of that bodes incredibly well um so so the question was i think the question was like why is bitcoin ticking with cues right that was the question yeah yeah and and and so it's it's uh i think it's this combination of sort of partially an expression of all one trade and and then and partially this institutionalization of uh crypto trading where you know it's it's easy i don't i don't really know exactly how renaissance runs their business but uh i have no doubt that renaissance looks at bitcoin in its

relationship to cues uh in some incredibly sophisticated ways and expresses that as do a lot of different traditional quant focus hedge funds uh and you can start to feel that pressure especially in the lack of with a lack of kind of clear retail demand and i think it's pretty apparent that retail fervor has cooled off a lot over the last few weeks in our last few months in crypto and so i think that allows some of this more quantity stat our relative value you know type of of correlation money to come in and look it's going to hold until it doesn't all of these things sort of hold for some period of time and then they decouple

and sometimes they can decouple and you know in either direction but in a really violent way like i remember in october i think october of 2020 the vix was up 40 and bitcoin was up like i don't know like a lot like 30 30 or something like that and at the beginning of the month if somebody told you this can be up 40 this month you know what's bitcoin going to do and you'd be like oh it's definitely going to be down if the vix is up 40 right and you would have gotten super run over on that so i think so i think you know it's like these things sort of hold until they don't i i agree with you santiago that like uh you know eth specifically this merge setup uh

you know this is gonna sound like hyperbole uh this eth merge setup i think is the single largest the single most significant most telegraphed event driven catalyst in crypto history in the history of this asset class and this technology and that that sounds like a crazy thing to say but um if it's not going to be it either has to be something that happened in east or it happened in bitcoin because there's it's impossible for any other catalyst in any other name to have been as significant as those two names and then you think about the history of bitcoin and there's nothing that has been this significant that was this

telegraphed where it's this much of a step change and and in terms of of uh of what the merge represents and then you couple that with uh the willingness and the ability for very large pools of capital to buy a lot of eth for this uh you know into this this setup and the digestibility of the narrative and the eth btc outperformance trade is so clean that it scares me so um well there's a lot to them back

there one i just want to give a high level understanding what the merge is but before we get there you talk about this idea of what what is priced in you know how how much of how much of the merge do you think is priced in historically like everyone knows these things happen okay it's been delayed a little bit but like even the bitcoin happenings which are programmed like you know exactly which block it's going to happen and then of course bitcoin outperforms after every kind of like uh happening how much of the merge is do you think is one properly understood too priced into the market and then maybe if you just want to address like what the merge why is it so like meaningful yeah so let's see here so so it's just a shift from proof of work to proof of stake um

eth as an asset is going to go deflationary it's going to go yield generating and it's going to go esg friendly and all of that's going to happen in one fall swoop so i think that's what i mean by the digestibility of the narrative and then i think like those three things together um deflationary yield generating and esg friendly uh that is an incredibly potent combination uh for large pools of capital and you know it's institutional type of capital and then another thing this i've been writing about this my monthly update letters for a while now um the market

seems to broadly be one the market seems to want to own the innovation that's happening at the layer one smart contract level and that seems to the setup seems to be that the market is thinking that that's more attractive than uh the moneyness of bitcoin right this term money it's like an austrian economics term right like the hardness of the of the characteristics of bitcoin as a money uh and and we've seen that setup play out in other asset classes if you look at big tech right if you look at the nasdaq

if you look at the fervor of the early stage venture capital uh technology investing landscape uh it's very clear that the market really wants to own innovation and in a world that's increasingly starved for growth that world is willing to reward growth when it can find it and growth comes from innovation and it looks like innovation happens you know on layer one smart contract levels and it's and and and you get this sort of like uh two for one or three for one type of situation where like you know you can own eth and not only do you get this this great

uh you know deflationary yield generation esg friendly innovation but you are you also like you don't just get defy you also get nfts and you also get uh you know gaming and you also get like whatever else comes along that haven't invented yet and that's kind of like owning you know facebook stock and getting instagram and getting whatsapp or that's kind of like owning google and you get search and you get youtube or whatever right and so there i think there's a lot of pattern matching that's probably happening there and the amount the other thing that that i i think about a lot in in terms of this is that there's there's never been

so so like two years ago you know we were just coming off the covid crash two years ago the fed was you know in the middle of doing three trillion of qe in six weeks and you know eth was trading dude no oh my god 800. i mean i went all the way to 180 that was like the the march black thursday or what is it it went like all the way to 100 oh my god two two years ago ethan's trading 200 bucks that's so good um which by the way which by the way you get like let's do a print this is like at that time i don't know if you remember everyone was like freaking out like do you think that like the same

level of like fear is in the market today let's see here the market cap of eth two years ago was 17 billion dollars 17 17 billion dollars so two years ago you know as the fed was doing three trillion qe in two weeks and then you know a month later paul tudor jones writes his letter about bought a bunch of bitcoin it's the fastest horse and all this kind of stuff and you know everything goes off gong show 17 billion dollars large pools of institutional capital cannot buy a 17 billion market cap uh magic internet money they cannot buy that um

and so they could watch it but you had to be some what i call like like like the the the fast smart institutional money like the real you know you're pretty out there if you're if you're buying eth in the summer of 2020 and your institutional capital like you're pretty far out there and and very very little capital that is a completely different setup than the situation that we're going into with this with eth 2.0 okay ethan is now a you know 380 billion dollar asset it's uh super large it's super liquid these narratives have played out a much greater nobody's even talking about the esg differentiation between bitcoin and and uh and any uh you know innovation

none of that was nearly as well understood so like that's what i mean by like the the you you cannot you cannot overstate the importance of the part of this setup that is the willingness and the ability for very large pools of capital to buy a lot of eth uh and i think it makes yeah yeah just it makes this time this time different so that was i want yeah i wanted to finish that point empire is brought to you by paraswap which just reached a whole new level in the defy game paraswap started as a dex aggregator which for those who don't know it's like a google flights or an expedia for swapping crypto you would obviously never just go directly to an airline's website uh same thing with crypto you would never go directly to an

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products are a game changer they've taken d5 to the next level with really one of the first mature d5 products that i've ever seen so head on over to pairswap.io that is paraswap dot io and start swapping trading staking and so much more today yeah it makes it like uh the inve the investability of eth is is higher now i would agree with that i started notice that like maybe a year in when eap 1559 was coming around a lot of big big macro funds started reaching out and saying hey talk to me about not bitcoin actually bitcoin wasn't even mentioned in the conversation hour-long calls tigers of the world were like hey talk to me about and these are guys that are smart in tech are willing to go out there you

know tiger was early investor like can really aggressively move in places like india to invest behind a lot of startups there like flipkart and stuff like that and so they were looking at each but maybe to your point um i guess the question to you is from where from your vantage point it is felt that yeah sure a year a year and a half ago it was 17 billion it's it's you know after you cross like 2 000 it's it's it's a much different animal which you could argue with eath has been investible for over a year now because it crossed sort of this 50 billion milestone i don't know what your heuristic is around like for these type of funds but seems to me like around 50 billion it starts to be you know pretty investable for a lot of folks we've been in that

setup for you know call it nine twelve months um and we've seen eath kind of go all the way up to four thousands now at three thousand um and so the question for you is like from from your conversations with these with these large pools of capital how much of that do you think is kind of like sitting idly waiting for this to actually go through and then invest like how do they deploy like do you deploy now because you have good certainty that it's happening sure delayed but you make the argument to deploy now or do these guys are like buying into the market slowly and just cost averaging in or are they gonna wait after the merge uh so it's probably a combination of all of those i i mean it looks to me like ethan's being

heavily accumulated right now um it makes it interesting that because of the specifics of this setup expressing the view through derivatives doesn't get you the same you know you can't get a yield on a derivative basically which makes that set up in terms of the expression of the trade a little bit a little bit different um a derivative in this case being like uh like a like a grayscale product yeah yeah yeah that's right yeah because it feels like some sometimes i feel like the market wants to be bullish we always at least crypto people always want to be bullish always want to find reasons to say no it's correlated now but like give it give it a second like it's going to grow like everything you're saying like it

sort of makes sense i think this very much appeals to music to my ears and everyone in crypto but what is the scenario where like we see eth back at like a thousand post merge like is it because like scalability there's nothing there like it's just you know because one of the things emerge doesn't solve is high gas that comes through layer twos um which you know you could argue are very much developed and uh but still like could there be a world here where we see back below a thousand so the the way that btc underperforms in the coming months from here is uh the fed goes hard in the paint uh

and uh the market you know sort of equities get spooked into you know like bringing the vix in alignment with the move index would be like one way to think about that or maybe like equity is you know doing some sort of capitulatory type of move to come more in line with like what the fed funds futures rate is uh fed funds futures are are sort of pricing in uh that's not my base case but that's that's the possibility if if if if i'm incorrect in my read on the fed and they are just going to drive this train straight off a you know recessionary and asset price crash cliff

uh it would be my base case that would be bearish ethbtc and that the strength of this narrative would not would not be able to sort of overcome that macro you know dark cloud so to speak uh again not my base case but it could happen and then if there's something technically that actually goes wrong with with the merge right and there's i think there's certainly some amount of capital that's waiting to see how that goes uh and is willing to buy higher afterwards as that risk is diminished um in terms of of the technical execution of this and i guess we all know it's

just it's it's not it's not everybody knows you know it's not one one step and done right it is a multi-step multi-year process but this first step is obviously you know a very a very big important step so i think there's there's there's a technical sort of sort of uh aspect to this as well too and and i think the the thing that's so captivating to me about this trade is that going back to the first part of this conversation about the macro setup uh it looks to me like the merge is probably going to happen right around the time that the fed slows down its tightening and the market starts to

come to the realization that there's not going to be nine hikes this year that they don't want to drive the train straight off a recessionary and asset price crash cliff and that they were actually doing maximum jaw boning uh trying to spook the market into having inflation roll over you know maybe you take gdp growth you kind of go and kiss a zero gdp growth line and then curb it back up that's what they're incentivized to do that's what they've done before that's what worked so well in this you know the fed's constituents the fed has become completely politicized and their constituents are boomers and think about how good of a period of time uh 2009 to 2020 was for boomers this is a tremendous time

to be an asset owner to be a boomer and you know it's like you own anything it was it was an outstanding time and and and it was the slowest pace of economic growth in u.s history slowest u.s expansion you know gdp expansion u.s history it's just that slow and steady why would they not want to recreate that and i think that's probably what they're going to do and when the market comes to that realization there's nothing on planet earth you want to own more than crypto there's like there's nothing on planet earth that you want to own and you're some traditional guy and you've had a [ __ ] year in traditional 60 40's gotten smoked activity's gotten smoked and and you're sitting there and you're trying to make up your whole year in the back four months of of of the calendar

year the fed just went on pause what do you want to own more than eth into this merge like are you are you serious you're saying to the choir right i mean like but but i will say this okay so like you saw as in tangent take like a pershing square like akman went uh you know balls d buying nasdaq no sorry netflix and then quickly chopped it because for the first time ever they've seen subscriber numbers go down and the market was like freaking out about that realizing that you know content is hard to create right you need hits like i don't disagree with you i want to believe that but there is a thinking probabilistically there is one version where and the question goes back to these

allocators of capital so okay they're buying all this eth if they're feeling pain in other parts of their portfolio and this correlation holds true well they're sure as hell gonna chop crypto as well like i even the setup of the like all these things i just and tell me if you disagree here but like and and by the way like persian square like chop their netflix position really quickly i mean they sort of exited the trade it could be a good trade maybe in two years time but right now like they're feeling pain they're gonna chop if if crypto is not a meaning meaningful part of their portfolio i would think that it's no more than five percent of their book don't you think that they're going to chop that as opposed to trying to double down and like try to make up the year they're

like nah hell no the correlations holding i'm out because the bait on this thing this puppy's going to be 2x nasdaq adios yes yes potentially maybe the only thing that saves you as a and i'll stop talking is like these these more traditional venture funds that have attended horizon and are not not marking to market and don't have redemptions and all this stuff so i think the setup is the cautiousness is in the coming months the cautiousness the potential downside risk is like may june july and there's like uh i think there's real sell in may go away type of risk um in traditional and in turn in in crypto uh and then i would say

then the setup after that then becomes our inflation indicators not rolling over so that the fed has to keep going you know they're going to go they're highly likely to go 50 bips in may and then i think there's a decent chance they're going to go 50 bips a g you know in june that's that's much less priced in but there's a decent chance but like if if these numbers just start staying really hot uh you know do they just keep the foot on the accelerator uh you know crank up the balance sheet roll off get up to 95 billion a month is you know sooner rather than later and the the the jaw boning is remains very hawkishness and so that's what i mean by

the markets can be laser focused on leading inflation and growth indicators because the market needs to see of those rolling over so that they can start to expect the fed to start to take their foot off the accelerator a little bit because the fed is saying they're going to be data dependent you need those those those steps to fall in that place and if they don't then the market's going to say well then it looks like they're going to keep hammering this thing and it's going to be a sort of like rough landing sort of deal and you know look if you uh if the fed's really going to hike nine times in 2022 you don't want to own any of this you want to be sitting in cash

and you want to and this plays into the setup as well too for the longer term people the you know the people that are willing to think not quarters but years and willing to dca and when someone's you know bitcoin or crypto broadly 50 off the top that's when the dca kicks in and they just keep dcn basically and there's a lot there's a lot of capital like that and the thing that makes this setup you know you got to remember about that setup is like if they are going to drive the the train off of the recession and the asset price crash cliff what's on the other side of that well it's more qe than they've ever done before it's rate cuts and more qe than they've ever done before and so it's and don't get me wrong near there'd be real pain in the near term

and i it wouldn't be a coveted style crash would be my base case but it could you could have a you know go look at like q418 uh in traditional asset classes would be like a decent corollary type of thing um and you know crypto had its november 2018 moment you know right right in the midst of that but um that's the the thing that makes even that what i would say the bear scenario still bullish is the amount of cap the cats out of the bag about what you want to own in a loosening monetary policy environment and the cat is out of the

bag in terms of what comes after tightening and the more aggressively they tighten the faster and more aggressively they're gonna have to loosen things back up and that may be after you know some really nasty price action um or they may try and do like i said more of this shallow type of of uh you know kiss the zero gdp growth and pull it back up to manage inflation type of stuff which that is my base case of of what they're going to do but in any case the sort of like long-term medium-term outlook the crossing the rubicon in terms of the capital coming into this space that sees it as

you know the next major leg of uh growth and innovation on planet earth in general like we've covered so much ground in such a short amount of time and the the thing that that i always that helps me frame this you know i write this monthly update letter and at the beginning it's got these you know monthly highlights these bullet points for the most most sort of significant things that happened in that month and then because on our content website i've got a page that has just the monthly highlights all in a row right it's like last month month before a month for that all the way going back through 2020 and you can look at that page and you can see in one spot and it helps you frame the

uh just how much room or how much ground the space is covered in general but specifically the capital raises the the project raises and the the fund raises and in in in the month of march a hundred million dollar project raise was the sixth largest project raise in the month of march and a 100 million venture fund raise was the sixth largest venture fund raise in the month of march like that that is ins that that capital is raised that runway is already there there's there's a couple hundred projects that have multiple years of runway already and there's billions and billions of dry powder in venture

capital that if not another dollar of venture capital is raised you're sitting on years and years of deployment that ends up uh uh funding the innovation that leads to the adoption that gets even more of this traditional capital into this thing yeah that's a big that's a massive point party i think like 2017 what people forget is what's different now um is the capital formation side of things a lot of 2017 was just rotating eth gains into these projects it wasn't really like permanent more permanent long-term capital in this case you do you have external capital that is that is is deployed is looking to deploy and i think that the two things that i've looked at recently is the the rounds

themselves like traditional venture um you know secondary markets have come down 20 percent in locks up the nasdaq like the the rounds are getting smaller or harder to finance i think people being more disciplined in traditional venture but crypto you've seen these rounds is the pace hasn't really slowed down in many ways which is very very encouraging and you have more funds looking at it and so and the other thing that i like to remind myself is like you look at the mvca data top quartile venture fund traditional venture fund was like 2x 2.25 x and that would have put you in the top quartile like last couple years that's embarrassing if you're in crypto i'm sorry but like like and so you look at that and you say look i'm

not telling you to like deploy all of your capital in a crypto but how do you just deploy it again if you took like a moskowitz approach and you would have deployed like a a slice of your portfolio like i've known many venture funds that returned their fund on one investment like flow or openc or i mean it literally is what saved their ass because the traditional software like they just are i don't know it's very competitive and it's almost like you're left wondering like i think more of that this is i think aligned with what i'm trying to say is i think if they feel pain and traditional kind of value like you know we work to the world or whatever then you're kind of forced to look elsewhere like what is the next where am i going to actually deliver and clear my

hurdle i mean yeah it's it's crypto i agree with you it's what what don't control f crypto in in any traditional crypto pitch deck you're still like you're a heretic but web web three is is okay how great was that this is so good got it amazing yeah an amazing it's really it's really good travis what is um what is your it's a i i love hearing this conversation between you two by the way because when i met travis he was 100 of the portfolio was in bitcoin all in on bitcoin so i want to flip that into a question travis like what is your like put your money where your mouth is like what does your portfolio look like today it may be helpful to uh

just a minute on on kind of history for eki so the large majority of what we've done over the last few years has been systematic models driven exposure to bitcoin with the purpose of outperforming just holding bitcoin so we build proprietary statistical models it's not high frequency it's like mid-range so over like a multi-week time frame you know you try and buy when you know you think it's undervalued and sell when you think it's overvalued and you don't even have to you certainly don't have to be perfect at it if you can do if you can be okay at that as the months turn into quarters you can start compounding your out performance versus just holding bitcoin and so when you look back over our the history of the fund we've outperformed holding bitcoin by a lot and and the large majority of of our of our capital

has been exposed to either bitcoin or cash you know in this in this kind of systematic strategy um so i think a couple things happened over the course of of uh you know last year we bought a little bit of solana and it turned into a lot of solana because the price went up a lot that was cool to a lesser extent we bought a little bit of ftt and it turned into a lot of ftts the price went up a lot and so this sort of like you know 85 percent of our aum that had been deployed into this btc systematic strategy it got to the point where that you know we didn't have 85 percent of our portfolio deployed in that anymore uh because of these these very small bets that sort of

went up a lot um and then we just started specifically acts after axio infinity happened last summer we started doing a lot of work on metaverse and play to earn and i got very compelled by the long-term horizon for that uh and uh that it just looked like this concept of played iron but it looked like that was the top of the second inning that it was going to be a multi-trillion dollar total addressable market that it was uh going to be transformative globally and it had the potential to make

many many people's lives better in a single generation and specifically people that uh most need their lives to be made better and the combination of all all of those things uh you know got us super interested in that so we've been the the portfolio has had pretty limited exposure to uh the hedge fund portfolio has had pretty limited exposure to the metaverse asset class but we've been doing a ton of work on it uh there's honestly not all that much in terms of liquid tokens today that's that compelling uh we do like d5 kingdoms shout out d5 kingdoms we think there's they've got a lot of cool stuff that's

going on there but we've been doing a lot of work in terms of understanding the landscape doing a lot of frameworking in terms of you know trying to understand what innovation looks like in this space and and and when new things come down to pipe you know is it we think these new things are going to be sufficient to to um attract the the the adoption uh that's required you know to sort of get these things uh scaled up in terms of user bases and that sort of deal but you know what i think what we have sort of come to the conclusion of is that uh you know one we're going to have we're going to be doing a lot more emerging crypto sector investing in general at ikey guy and i think you'll hear more from us on that

uh and then specifically on this sort of like layer one smart contract and owning the innovation there relative to what's going on with btc i've never been a btc maximalist i think if you go back to pomp's podcast in 2018 i said that exact same thing then and it's been true the entire time we had a btc-centric strategy because we're trying to figure out a way to scale up the aum of of of ikigai to get to the point where we're going to make sure we weren't going to go out of business like we had we needed to create a business and we did that and you know we got a nice business but then you know you get to that point and now it's like okay what's next and

you know my assessment of the risk-adjusted return opportunity in crypto broadly for you know systematic btc relative to a bunch of other things out there there's just other attractive stuff to do and we're still going to be trading large caps systematically we're kind of broadening the kind of quant research horizon in real time so it's going to be this kind of the hedge fund is going to be this kind of mix of of uh kind of 10 or 12 large cap systematic plus you know i'd say significant exposure to just emerging crypto sector type of bet but boil all of that down uh the fund has about a one percent position in bitcoin right now so you've gone from 100 100 allocated to bitcoin with system trading

like trading it systematically to now you're one percent in bitcoin yeah yeah that's right and we've got a decent we're sitting on a decent chunk of cash and we own a lot of ease yeah what percentage of the liquid portfolios in eth uh a lot you and santiago both i mean like okay like i'll jump in here but like uh listen from my perspective like 98 of everyone in crypto okay sure there's a lot of asymmetry in privates which you could argue is not very scalable not very i'm super active on the private side it's not scalable as an institution level like the most of symmetry happens in sub sub you know two million dollar raises like good luck trying to deploy more than 20 30 40 million dollars in that strategy still you do it because you outperform

and some of these can can literally return a fund like something like step in for instance or eluvian now but for the most part it's really hard to outperform eth in the long term like historically it is just very hard and you can argue that like now with the merge and you're earning a nice yield on that like i mean as simple as it sounds like people like to like justify to their lp's doing all these complex esoteric strategies the reality is sometimes they just pay you to hold the underlying because they don't want to custody deal with all that stuff look at the the gray scale premium that was just the market telling you i want someone to just hold this for me stake your earn eight percent at 10 12 i mean holy [ __ ] then and there you're you're out performing inflation okay fine use that

capital then to rotate and invest in some of these private deals and fine like honestly that strategy alone if you do that you're probably going to be in the top quartile crypto funds and yeah most importantly don't blow up because to your point travis there is a probability in crypto and we will see every time i was like are we ever going to see eth below 2000. there's like a 20 probability that that happens you want to be there to to hit the bid you don't want to be there and get liquidated yeah yeah and and i i agree with with all that um definitely staying in the game is paramount the beta value creationist asset class is

going to be so you know i mean the asset class is going to 10 trillion like that's the most you know it's 2 trillion right now it's going to 10 and that you know that's that's like the most attractive risk reward on a 5x that i think i could possibly imagine and it's going high you know it's highly likely to go high it's not going to stop at 10 trillion but but you get my point and it's like you definitely want to make sure that you're just in the game for that uh and that yeah you don't you don't blow yourself up on leverage um and and and that sort of deal i think another thing that i i'd like to hear your thoughts on is like how the competitor layer one smart contract

platforms come into play and this is a conversation i've been having with with you know other investors a lot about in this we're in this setup where btc looks like there's a clear path to you know i would say you know testing all-time highs if not breaking all-time highs uh you know it's about a 400 billion dollar market cap right now a little little less than that it looks like you know one of the one of the cleanest doubles this year from here that i could possibly imagine one of the safest highest rr doubles from here i think i could i could possibly imagine you're

going to need a little help from the fed but but but to my point uh i think there's a decent chance you can get it but it's like if eth is sitting there chilling at like 750 billion dollar market cap and you start looking at some of these other layer one smart contract platforms like how is the market going to be looking at these these sorts of things and and and what is that that competition you know going to look like yeah i think if i understand the question quickly is like the the eth btc trade is clean and then you say okay should i also like rotate away from other l2s into eve or how do you play that like what does it mean once emerge goes in like what does that mean for other l2s and that narrative which has always been

if theorem doesn't scale ethereum doesn't deliver us quickly on this on the roadmap i'm going to invest in a more perhaps centralized team that's going to execute and sorry just so just to clarify i think l2s would be one trade but then there's like saluna saloon of axe right and yeah yeah yeah i don't think i don't think the larger institution so travis i completely agree that i think that this is a massive catalyst for ethan i think what happens is the institutions come in and start buying eth for the first like in in in bulk like in the way that they did it after paul tudor jones after the having in 2020 and after paul tudor jones kind of took away the career risk for bitcoin that same thing happens with uh with the merge but i think what ends

up happening is like they don't do it for tech technology reasons like i think santiago's like uh maybe a little more ahead of the curve when it comes to just like what this eth merge actually does and like layer twos i think just like any bull market and crypto for the for all of time they just they buy eth and then they want to push further out on the risk spectrum yeah i don't think it's a i don't think it's a tech trade i think it's just looking to push further out on the risk spectrum and i think the difference is like in the last l1 bull run you had like selenavax and now there's some other l1s that could be interesting that like you know obviously like like near is starting to get really in the narrative and so i think that the the l1 space is just gonna be a little

like bigger and more established this time around i i was i was going to ask you like do you have any view on the relative competitiveness of any of those alt layer 1 ecosystems versus another and let's not let's let's put eth versus in in the rest of them aside let's just look at this basket of uh seoul luna avex near dot adam uh you know i don't know if that that's probably the basket and like just how's that slugfest gonna gonna sort of play out you know in a world where ethe is like approaching a trillion dollar market cap i think

people always want to replicate trades and if you were if you missed eth sometimes the best investments are just copying a trade right if something like for me it was i saw what axi did i pass in the seed and i still think about that and lose sleep over it and then i invested in elluvium right after because i said okay the market's telling you there's something here do people appreciate like it's a very like like very deep question that is seems to be a point of contention in the industry is is it a winner take all market like is eath gonna suck the air out of the room and and obliviate the need for other chains like are you gonna have and we're having this discussion like uh i think it was with ilya and other folks is like where do you like ilia the founder

of nier which is like is this a multi-chain world um do you believe that and we were talking about layer zero guys and the layer zero guys would tell you no no no it's gonna be multiple chains and we're just gonna route to the more efficient one and i think like that's like to me that feels like a narrative that a lot of venture investors really understand um and so i think a lot of people are going to want to replicate the trade and say okay ethan's clearly i think the correlation between ethereum and this other basket for the most part is going to be very strong um you know if eth does a 5x you know then probably some of these other ones people might think that's going to probably do more than that it carries more risk but you know people don't

really kind of like conceptualize that trev have you looked at uh the electric capital developer report have you seen this before yeah i'm familiar with it i haven't looked at it yet but this is the big question right so like eth is run like if you look at the developers building like eth is the runaway right and then kind of second up you have polka dot has the second most monthly active developers the big the like this is really what we're talking about though like this range where everything's just kind of stacked together and nothing's been breakaway right like this is where i think a lot of the money will be made is like which one of these ecosystems like they're all kind of floating around the same you've got like avalanche and terra and like you've got flow and like near and they're all kind of approaching it

differently um and like that i think this basket is where it starts to get really interesting yeah and then because like you know as as an investor do you just not get cute and just own the basket just just and some of them some of them are going to underperform some of them are going to outperform but the blended return of the basket is going to be super attractive basically and then you know and then i think you end up arguing like okay how much each do i own versus versus this basket of alt layer ones and i've been thinking about this a lot like why doesn't bitwise or grayscale just create a rebalancing index of the top like 10 and like in a similar way like if you're

not like a very deep like if you're not sequoia it's kind of hard to outperform the nasdaq like even mark and recent's been asked like if you had like 10 million dollars today where would you put them is like honestly i would just buy now is that going in the s p why because it auto rebalances to the top companies so in a similar manner like i feel like you know there's a lot of stuff in the top 10 that is absolute crap dog [ __ ] um which i think is going to go away over the next five years 10 years as people kind of as as as there are certain l1s that different from other times in in the history of this market there's usability there's applications like there's games being built people are using these things and it's going to be harder to justify to people why would

you own cardano or ripple when you have an ecosystem like near terra avalanche that are actually getting usability and traction and so from that perspective like you almost want to own like an index that constantly rebalances and is giving you exposure to whatever gets adoption um because yeah i don't think anyone is smart enough to understand how this ecosystem is going to look like five years from now let alone 10 right and if you're not doing this kind of full-time which is even hard to keep up with you kind of just want to own the index that rebalances you can even be really keeping up with it and and uh still have a hard time i think i think out performing that in a lot of cases one one thing one thing i

wanted to mention you know after that after that uh eth versus btc portfolio allocation comment there is the medium you know i would say this would be kind of the second half of this decade type of trade i think is that and i think about this a lot like uh so i think the way that bitcoin goes to like 500 000 and beyond per btc is just it slowly starts to be adopted as pristine collateral this this moniker pristine collateral is the it's the way that for the last year or

longer i framed like how does btc you know go a lot higher from here and it has the characteristics to be pristine collateral uh the us dollar is the world reserve currency but u.s treasuries are the uh you know in a in a debt based global financial system like we have it's collateral that matters treasuries are the collateral foundation of that global financial system treasuries as a financial instrument have a challenged outlook in the course of this decade and the next um i think just most recently the uh sanctions that you saw happen with ukraine again puts this like interesting next step on

you know what do fx reserves really mean for sovereigns and i think that that you know over a longer period of time that's another sort of feather in bitcoins cap i think uh as pristine collateral although i guess in theory if you know you know if you know if the central bank of russia were holding their their 20 billion dollars or whatever worth of of of bitcoin on their treasure treasure and chain analysis has that marked as russia's bitcoin and then they can't move it in the same way that uh they just sanction russia's fx reserves like i i don't know exactly how that happens but anyways bitcoin is pristine collateral

and the adopt that and that can be very slow adoption that's just like slowly marching towards that over the course of of this decade and it's not like it has to get to the end of this decade and it's like oh you know bitcoin's not replaced us treasuries that's not what i mean at all it's just this sort of like slow march towards being accepted as pristine collateral the pipes and the infrastructure being built for it to act as pristine collateral both on the uh on the institutional side but i think also on the the uh individual side as well too like just holding some bitcoin borrowing dollars against that paying some reasonable rate of interest to do that at a reasonable loan to value and as long as that's just a better alternative than a credit card

and um and then interesting to see what's happening with you know as a reserve asset um with with some of these stable coins that's a totally different ball of wax but the the the question or the comment i was going to say and maybe the question i was going to pose back was you run down a handful of years and bitcoin wrapped bitcoin works seamlessly in all these layer 1 smart contracts and it's cheap it's safe uh it's you can you can bridge really quickly and cheaply it works really awesome and you can use bitcoin as

uh you know the engine to go do all of the innovative stuff that you want to do where the innovation has happened on these layer one smart contract platforms and does the market start to realize that in that world that in that seamless world do you actually want to just hold the thing that has the most money-ness and then does that end up going back to bitcoin and there's some chance that that happens in my head there's uh uh it's not near term and and it would be my base case that layer ones would massively outperform over uh you know pro you know

probably many years before the or multiple years before the market starts coming to this realization that like you know where do you actually want to hold bitcoin so i'd be curious if you hadn't if you've ever thought about that before yeah i think these are all really good like the i really love your framing around pristine collateral especially in given sort of the geopolitical situation it's good and bad candidly uh you know there is a version of this world where it becomes problematic and i think the european kind of union has been a little bit slower i mean i think it's been very encouraging on the regulatory side of things from what i hear in the us and the uk the eu has kind of struggled to get around it

um but pristine collateral i mean this is something that i tell my my friends from like they're so skeptical in this industry i'm like hey give me an asset that is perfectly collateral that is perfectly transparent 24 7 365. in real time you can inspect it and you have full custody over it like 2008 wouldn't have happened and they're like yeah and you can build a whole street of products around that um so i don't think that narrative is actually i hope that i i think it's it would be wise for bitcoin to kind of adopt that narrative uh more and more um as opposed to just like we're gonna blow up like the world as we know and this is gonna be the new utopia uh which you know it's difficult i mean but i think you're starting to see it with like what what doe is doing

like what lfg is doing like that's that that is the pristine collateral narrative right there in in effect yeah yeah but i wanted to get i want to get your pulse on like bitcoin and you've been close to it travis uh just given your exposure like there is this camp within the bitcoin community that says wait a minute i know we're gonna build smart contracts here like the sovereign there's we can build um you know applications on top of the bitcoin network you have lightning you like do you think about that do you think it's credible it sounds like obviously you're more excited about you know ethereum and other smart contract or generalized smart contract platforms to take that role but is there is there a play here where bitcoin might

catch up and then and then some because it has a network effects it has it's still the king you know e i do not have a view on the viability or the timeline of smart contracts on top of bitcoin i don't um and i don't have i don't i don't have a view on the developer talent that's working on that like as we all know there's a there's a trip there's a massive lack of you know the folks that can actually build this stuff and i'm always very clear to point out i am not one of those people uh and and hats off to them because if it wasn't for them you know none of us would be sitting here doing that and we need more of them but but i i don't

i yeah i don't i don't have a view on it that that feels like the biggest contrarian trade in crypto right now is that bitcoin defy actually works yeah yeah i mean you post these weekly update monthly updates quarterly updates to your investors you're on top of the market how much do you rebalance your portfolio to what extent are you willing to make big changes to it or are you more kind of methodical your processing information but it takes you time to kind of reposition the portfolio um i'm curious if if it's if you consider yourself more an investor a trader because crypto allows you to do both um

i don't know to what extent successfully but yeah uh kind of i would say kind of both yeah i think there's we have done sort of little bits of of liquid venture type of of exposure in the in the hedge fund we're going to be doing more of that we've done some sort of qualitative fundamental based exposure um and are going to be doing more of that and then we've done a lot of systematic models driven uh btc type of exposure and that and that exposure can move around a lot a lot you know so like that that can get pretty pretty whippy yeah um you know

especially during periods of of high market volatility yeah and i guess maybe the last question for me is how do you how do you see the kind of landscape from here on the investing side capital formation side like um do you worry about rent tech coming in more sophisticated like folks than traffic coming in and um what does that do to returns what does that do to your edge um and maybe even perhaps in more general like what is your edge as an investor [Music] the hard question for the last one yeah

yeah that's that's a great question i think from before we even launched inky guy we launched the fun december of 18 from before we even launched the fund we knew we wanted to be really dying we knew we're going to need to be very dynamic and so we wrote the offering documents of the hedge fund to be super broad where we can kind of do whatever we want to with very little exception because it was just like we were big believers in the asset class and in the technology and uh we're also just big believers that we were gonna need to shuffle our feet a lot and so i think we've been having that as

you know uh a central part of how we approach the market for that entire period of time i'm i'm also i'm i'm risk averse as a person i'm risk averse as an investor and people would think that was crazy i had like a career in traditional hedge fund investing and then i left 0.72 to go start a crypto hedge fund which people think of that as being like a very risk seeking behavior but like i i really like i would never go bungee jumping or skydiving or i don't like a gamble i've never been to a horse track i've never been on a sporting event with a bookie in my life and like i don't know when i looked at crypto i thought it was the most attractive risk adjusted reward in 2000 summer 2017 i thought it was the

most attractive risk adjusted bed i'd ever seen in my life and that's why i left traditional or come do this and you mean you you feel that you feel the safest owning crypto as volatile as it is but it feels safe yeah just just you know backed in i thought it looked incredible and and uh you know it still looks incredible um because it's the the numbers have gone up a lot so sort of the expected return has gone down some you could argue but the risk has gone down so much like in some ways like the risk adjuster returns like the best it's ever been right now with like you know all these you know a lot of this stuff 30 40 50 plus percent off the top depending on where you look at

uh but the outlook is so apparently obvious about where this is going but i'm not to get sidetracked from from from your question so i think we always thought that we could have the the analogy we like to use this like courtside tickets to the basketball game and we've got courtside tickets to the basketball game being real close to this ecosystem and we don't know which team's gonna win yet and the team that may end up winning the championship may not have even come around yet potentially um but we've got front row seats and that we can kind of see the game develop and that we we can kind of you know move

around accordingly and i think doing that in the context of being you know somewhat you know reasonably risk-averse and with the understanding that there's going to be tremendous beta value creation of the space so just being in the space and you know avoiding the landmines avoiding the blow ups avoiding the the hacks that if you had outside exposure to a hack could be potentially you know uh existential risk to your to your business right if you got 30 percent of your fund farming ronin or

something like that then like potentially that could be existential risk to your business right uh and and so avoiding those types of things and being willing to move your feet along the way as new information becomes available you know i always just thought that was going to work out well for our investors and work out well for us i think that that continues to be the case and and um i think it was really last summer that it was my you know which certainly wasn't particularly early but it was really last summer that it was like i started to think about owning the innovation that was happening at smart con at the smart contract layer and

that versus like you know the digital gold narrative of bitcoin and how the market was going to think through assigning value to that uh and um i mean we like i said we haven't even talked about metaverse or play to earn yet but we think there's there's tremendous opportunity there as well too and we have been and we'll continue to be spending a bunch of time there maybe uh i i would say it's the last question but i just have the converse of that which is you've been in the space for a long time you're here you've survived adapted your thesis um what's been the worst mistake [Music] wow

i've certainly made a ton jason probably too none no mistakes for me flawless execution so it's uh the one that comes to mind i've made so many that it's you know it's got how much time we have the one that immediately popped into my head that i think so so the way we generally in our systematic strategy the way we generally manage exposure is it's like models that tell you where your exposure should be and then a discretionary overlay that sits on top which is like my discretion basically and so a lot of what i do is like

read our models like i trade our models kind of and my discretion the manner and degree to which my discretion has been involved in our investment process has ebbed and flowed over the last few years there's been periods of time there's been very little discretion there's been periods of time where there's been more discretion um late last year was a period of time where we had i would say more discretion than less and i think a mistake that i would say was uh in late november when when jay pal came out and said it's time to retire the word transitory like i i should have just gotten the [ __ ] out and just like like just sold a ton

right then and uh i i have if i think if you line up a hundred crypto fund managers in a row i think i i'm not trying to toot my own horn here i think i understand macro better than like i don't know 95 or so of like crypto hedge fund managers i've just spent a lot of time on it it's where my career path was before crypto so it was something that was like right up my alley to understand and we just didn't get out of the way of it uh nearly as much as i would have liked and it was a combination of like not seeing in the quantitative stuff not seeing like because if you look at the chart bitcoin went down 50 in a straight line

after after that and uh we didn't see the stuff in all the quant stuff we look at we didn't really see like a down 50 percent of straight move in a straight line that kind of move on the table uh and i kind of saw you know some you know i thought maybe we could have a decent january with a bunch of new inflows type of stuff happening and i just uh we didn't take nearly as much of our exposure down as i would have liked and the fact that it happened from like a macrocentric move i just would have thought that we could have played that a little better so that was the first thing that came to mind but it's like you know certainly didn't blow the fund you know we're in a totally fine spot so it's like yeah we didn't win that one but

like we're in a completely fine spot at the same time too and so it's like you know you always want to make sure that uh you know you're certainly around to keep playing the game so you know you could have said like oh [ __ ] i could have done this could have done that and crypto i mean there's so many things i shouldn't have sold that [ __ ] coin that solana at one point was a shiko and then a boom like i feel like if you if you recriminate yourself too much you can just like paralyze yourself like do you think about these things a lot or do you kind of say okay you know you know what we're gonna learn from this time to move on yeah it's much more so the latter it has to be the latter uh public enemy

uh the rap group don't let a wind get to your head or a loss to your heart there's a really really good one um but but i think you know if you're running a investment process and a fund then you have to be able to like let it go but then at the same when you're when you're when you're existing in this shuffle your feet world like i just talked about it you also have to be like okay is there something that we need to shift about our investment process you look back and you go okay what happened there good or bad and then like is there do we need to do more of this do we need to do less of that are we being and it's part of what makes this so challenging because you have to be responsive

without chasing but like sometimes you sort of like want to chase because if you if you realize that you should shift if you if you shuffle your feet at the beginning of like some secular shift that's happening in crypto then that that that feet shuffle that chase you know it's like you know it's like oh i'm gonna like chase nfts in august of 2021 well if you've been chasing nft since august 2021 i think that's probably worked out really well for you right like uh and so it's that's part of what makes makes this challenging and uh yeah so it's it's like existing in this dynamic landscape where you know you you need to evolve your investment process while

you know simultaneously you know yeah you cannot you can't you know all if you let it eat you up it'll you'll go crazy yeah trav man awesome podcast awesome conversation we thought this was going to be a weekly update this turned out to be a philosophical discussion and more about ikigai yeah we had this book for our weekly roundup and uh man you know for better for worse can continue to be front and center in in in all of what we you know think about affects crypto to think that it doesn't is delusional so let's get you on you know as many times as you want we can talk about macro all day long and i can't because i'm not an expert on it but you certainly you certainly know your stuff so we'd love to have you on the pod again and and

it's been a good true delight i think for anyone that wants to get access to your letters do you publish those or where can people get a peek into your brain and more of what you have to offer yeah twitter's always good travis underscore cling and uh the you can sign up for the monthly update letters and we have a content depot called kana and katana which is the pen and the sword in japanese uh so that's where you can look you can sign up for the monthly update letters you can see all the historical monthly advait letters there so um yeah that's it that's a good spot for that stuff pre appreciate the time guys i enjoy the conversation i'll get the link i'll get the link awesome man trav be well always a pleasure and i will talk to you soon stay now my friend take care

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