Half the Fed Wants Rate Hikes. What Does It Mean for Bitcoin?

Transcript

Hi everyone. Welcome to another episode of Bits N' Bips, the interview. My name is Steve Ehrlich. I'm the head of research at Shapeshift and also your [music] host. And uh we have a ton to talk about today. We just got a Fed rate decision, um whole lot more. But before we do, just a couple of uh quick notes. Uh one, as always, nothing that you hear or see on this uh program should be considered investment or financial advice. For full disclosures, please see unchainedcrypto.com/bitsnbips. >> [music] >> And secondly, let's take a brief pause to hear from one of the sponsors who makes this show possible.

>> Fidelity has been investing in blockchain since 2014. They're not wondering if digital assets will shape the future. They're hiring the talent to help ensure they do. Explore opportunities today at cryptodotfidelitycareers.com. Fidelity is an equal opportunity employer. This episode is brought to you by Cape, America's privacy-first mobile carrier. Same premium service you'd expect from any other carrier, but designed so your number, your location, and your data actually stay yours. Get 33% off 6 months at cape.co/unchained.

>> Heads-up, everyone. We've now fully transitioned Bits N' Bips [music] to its new dedicated channels. So, if you're not yet subscribed to the new Bits N' Bips [music] channels on X, YouTube, Spotify, Apple Podcasts, or wherever you get your podcasts, go there and subscribe now. For the next [music] few weeks, we'll play segments of the full interview on Unchained as a reminder, but for now, you'll only hear those short segments of [music] Bits N' Bips on Unchained. No more full episodes. You can get links to all of the [music] dedicated channels with the full episodes at unchainedcrypto.com/bitsnbips, [music] spelled b i p s. Thanks again.

>> All right, welcome back. So, uh a lot going on right now. Um we're in a week [music] where the um, it looks like there might be a long-term permanent, hopefully permanent ceasefire in the Strait of Hormuz, [music] and equities are up, but gold and and Bitcoin have been on a little bit of a of a wild ride. Um, but the most important thing that has happened is we just got a Fed rate decision. Um, it's 2:00, and Kevin Warsh just finished his first meeting, and Zach I I didn't introduce our host. I forgot to do that. I just realized. Um, I'm here with Zach Pandl, the head of research at Grayscale. Um, Zach is a a repeat guest on the show. He's a former senior economist at at Goldman Sachs, and and

frankly, the perfect guest to have on this week to break down everything that has happened in Kevin Warsh's after Kevin Warsh's first meeting as Fed chair. So, Zach, with that very unprofessional introduction, welcome welcome to the show. And well, why don't you break down what we just learned? >> Yeah, thanks, uh, Steve. >> Always great to be on a couple of heads of research talking about the Fed and and crypto sounds like a great time to me. Yeah, as we're jumping on, we're just getting the FOMC statement and their projection materials. And I would say it's a pretty big surprise, actually, and unfortunately for for our asset markets, you know, maybe an additional

headwind for the short term. The main news is that the FOMC had been guiding towards lower rates for quite some time. What Fed watchers will call it an easing bias in the statement. So, the post-meeting statement explicitly talked about further rate cuts. They have pulled that easing bias out of the statement. So, the FOMC is saying, at least as as a group, they have no necessarily tendency to hike or or or cut rates at anytime soon. And this is a big shift on the back of inflation. We should talk about that.

You know, what why why what they're reacting to and the changes to their inflation forecast. But removing the easy easing bias, the big news here. And then the other closely related things is quite a a number of Fed officials now writing down a rate hike in the dot plot projections that came with the with the official statement. So markets now pricing in a full rate hike for the Fed this year. That doesn't mean it's going to happen. But you know, there's been a big swing in expectations for the Fed in the run-up to this meeting and and continuing them now. So higher rates I expect this to be somewhat negative for risky assets including crypto and somewhat positive for for the dollar

short term. >> Just for completion point of view, I know this is happening real time. What was the decision? Was it to keep rates steady? >> Yeah, rate rate steady. So no no change in rates. I should have led with that at at the outset. So no change in rates, none was expected. It was really about the guidance. You know, where do we go? We have a new Fed chair of course and we'll talk about all that. New Fed chair starting today. And they offered a lot of guidance in the statement and in in these forecasts. And and what we've seen is I think a big shift in their official guidance about where things are headed. You know, had been guidance about lower rates now a little bit more equivocal on whether rates are coming down and and at least a decent chance that they need to to raise

rates. Now there's a lot of moving parts. You know, the war in Iran and its impact on oil prices are an important part of this story. But no cut no cut or increase at today. No change today, but a hawkish shift in the bias for sure. >> Yeah, and I'm curious your thoughts. I mean the big news was sort of the removal of that that easing bias, but I think that was pretty well telegraphed to to certain degree as Um the war in Iran happened and oil prices shot up, etc. There there were lots of inflationary pressure. So, uh despite the fact that um Kevin Warsh is is there, and no longer Jerome Powell, that was expected.

>> I I think that's right. Yeah, I think it that's a big piece of news, but maybe maybe not quite as surprising. I think if there's a surprise element to what I'm seeing uh right right here and now, it's that nine of the 18 people that submitted uh forecast wrote down a rate hike uh for for this year. So, half of the FOMC, at the at least the participants of the uh of this meeting, uh not necessarily the voters, but all the participants, uh around half of them are saying we ought to hike rates uh this year. And and I think that is a surprise relative to consensus expectations going into the meeting.

>> And that leads to a really I guess like a a tricky Excuse [clears throat] me, a tricky question that uh economists and Fed watchers have really struggled with for for years, decades. I mean, we all remember the term transitory when it came to inflation during COVID. That proved to be anything but. But, there's some very conflicting signals in terms of what uh what inflation is telling us. Cuz on on the one hand, sort of like the like the top line inflation, it's up I think like 4.2% in May, which is clearly going the wrong way, and and more than double what the Fed's target range is. But, if you strip out the volatile items like like like gas in particular, um the core CPI, which um like the Fed's preferred rate is is much more is more stable. So, it's kind of like a Rorschach test, where

whoever wants to see what they want to see Anyone can see what they want in those two different numbers. Like, how do you sort of uh uh detangle those two things? And and how does that kind of lead into what you saw from um like the the rate forecast that you just uh mentioned? >> It's a great question, uh Steve. And look, I think um this whole question about whether inflation is transitory or not was of course the center of the debate in the years after COVID and you know team transitory I think turned out to be a bit too optimistic and and it did require quite a lot of a Fed Fed rate hikes in order to to keep the economy in

balance and keep inflation contained and so I think there's some hesitation to to frame things as transitory today for people that lived through that post COVID experience. That being said, I do think there is a case to be made that a lot of the inflation pressures are transitory. I don't think that we have a wildly overheating economy. We know that energy prices have been an important part of the story. And they are turning over now and not just at the front end of the of the oil futures curve. So so one of the things that happened with the war in Iran is that the short dated prices of course went straight up but then as things

dragged on longer dated futures prices, you know, one year, two years of forward, those also became elevated as markets became concerned that the Strait of Hormuz could remain blocked for a long period of time. Now that we've gotten at least the sketch of the peace agreement between the US and Iran, those longer dated prices have now started come down fairly dramatically. So I do think that one of the reasons the Fed didn't hike rates today is that there still is a case to be made that inflation pressure is at least partially transitory and that with longer dated oil prices rolling over we can hopefully start to see a little bit softer inflation prints over the over the coming months. But you know, the jury is not out. I would say

mostly transitory but jury's not out and that's a reasonable time for the Fed to remain on hold and just sort of watch how the story plays out from here. >> Do we do we know what the the vote count was for this decision? Has that been released yet? And and forgive us those of you watching this is all happening in real time. >> I I will I will answer momentarily if there were any dissents. Just just pulling this up in front of me. There were no dissents at this at this meeting and they offered a extremely brief statement. So >> Why don't you read the statement just for >> Yeah, happy to do that. Um So they're maintaining the target the funds rate at 3 and 1/2 to 3 and 3/4

percent. And kind of the the core piece of the statement is economic activity is expanding at a solid pace despite elevated uncertainty that owes in part to the conflict in the Middle East. Productivity growth and capital investment are strong. Job gains have kept pace with the workforce and the unemployment rate has changed little. Inflation remains elevated compared to the committee's goal in part reflecting supply shocks that have driven price increases in certain sectors including energy. So Quick take would be of course they removed the easing bias but also I would say this has the mark of Kevin Warsh in this statement. This is quite a bit briefer than what we've seen from FOMC

statements in in the past and I think that that could be considered a step by Kevin Warsh just tighten up the communication. No you know no reason to see I don't know what happened behind the closed doors but it does look like a bit of a change here. He's focused on the communication side of things and this is his first meeting. It does seem like maybe he has edited down the statement just to keep it really fact-based and brief and to the point. >> Yeah and that's a big thing. I know you and I have I think at least spoken privately and and I've covered this in some of my other episodes on the show kind of like what What's going to be the communication style of Kevin Warsh? Like he's been he's been a vocal I guess antagonist towards the sort of forward guidance and and the Fed trying to use I

guess like hearts and minds to sort of manage markets and and he wants to be much more data driven than I guess he's seen the Fed he thinks the Fed has been in the past etc. And I mean as you kind of mentioned in that statement and it's a really tricky time to figure out what to do because inflation is up and people feel it at the gas pumps and and even though like you said the long like like the long tail of the oil futures market is going down we still might see things filter in during the next couple months especially if this 60-day ceasefire doesn't last 60 days or whatever I mean it's hard to predict exactly what's going to happen especially since we haven't even seen the text of the document or the MOU that that has been signed but at the same

point I mean the labor market is very good I mean I think at 172,000 jobs in May I think there were upward upward revisions for the two months prior so it's hard to necessarily make the case that the Fed needs to help accelerate the economy because things do seem to things do seem to be strong and uh if the more verbose you are the more room for misinterpretation and that seems to be something that Kevin Warsh is is definitely against it'll it'll be really interesting to see what the read out is what when we get the Fed minutes from this meeting which which I don't think happens for another month or two so it'll be it'll be fun to kind of see what that debate is kind of like and I'm really curious to find out what Jerome

Powell had to say about everything given his unusual position as a former Fed chair that still decided to stay on the Board of Governors >> Yeah in 5 years time we get the full transcript read out of of the everything that everyone said at the meeting I I will be first to pull it up when they release it in 5 years to see exactly that what did Jerome Powell say as he's handing over the reins at this FOMC meeting >> Yeah so okay so let let's sort of I I before we move on I wanted to just kind of get your sense then about like how you think about equity markets. I mean clearly everything got boosted on on Monday when markets reopened after the news of the ceasefire. Crypto went up and we'll

spend a decent amount of time talking about crypto, but we're we're still in this world where like AI euphoria, we just had the SpaceX IPO the largest in history by by quite a large margin. I think SpaceX finally started dipping down a little bit after a 50% post IPO bump. And Anthropic and and OpenAI are going to be soon to follow. So so how are you reading the equity markets right now? >> Well, I think you said it Steve. AI euphoria is is the right word. You know, there is you know, at the moment a a quite durable trend.

Um you know, I think the question is is it vulnerable at at this point and why might that be the case? You know, look I think that the two things that I would highlight are you know, maybe some shifting economics for the uh the largest AI firms token prices coming down businesses, you know, rationalizing their use. I can speak for my myself. I'm I'm amazed how fast we can you know, stock stack up token expenses from these models where our use at at Grayscale. So you know, that's happening throughout corporate America. You know, does that affect the valuation and growth prospects of some of these firms?

Look, I think that's a possibility. And you know, maybe pivoting slightly back to the first topic that that we touched on Steve is is I think the Fed is an important part of this story here. Um you know, real rates real interest rates inflation adjusted interest rates have been going up pretty dramatically. The equity markets so far has taken that in stride, but other assets that are pretty sensitive to real rates like physical gold uh for example clearly being affected by that you know tighter expectations for for monetary policy. I I personally think that the equity market has some risk from that source that I I'm not sure that we can have a scenario where inflation remains high

where equity markets that keep ripping and the Fed you know doesn't say anything tougher than what it is that said so far. I think I think we're going to continue to price in rate hikes and and those may be a a governor on how much higher equity markets can go at this point. So I I personally think that there's some downside risk for for both of those reasons from current valuations. And it's possible although crypto has led that it's possible that that it spills over to some degree into crypto as well if we were to see a a sharper downturn. >> Yeah one question I wanted to ask you specifically about equity markets so I'm really glad I have you on today.

Just something the mechanics behind the prices of these tech stocks. I mean SpaceX IPO SpaceX's IPO in general but I'm talking about like Alphabet and Meta and and and the like. Um SpaceX was very unusual because it allocated I think what like 30% of the issuance to retail which is which is much higher than traditional but I think only like 4.2% of the of of of the float. So like how much of that is how much of this pop is just because of um I'm sorry the float is only like 4.2% but how much of this is is just really um like almost like I don't know if

manufactured scarcity is the right word or or not but I I imagine you kind of guess what I'm saying and then this fits into a bigger picture. The FT had a had a really interesting story a a few days ago. I think I'm going to say get this word it's like de-equitization or or something. I think that was the term. Where they they plotted out how a lot of the big tech companies they had been returning funds to investors through massive buybacks over over time to to manage the float etc. But in a world now where tech companies, they have to raise billions of dollars in debt, equity, like private credit markets etc.

There could be a flip of that where we we see a lot more issuance that could compete with sort of the levitation of these stocks in a world where people are I guess ignoring their lack of profitability so far. So, I know that was a big question, but I think those two things were related. I'd love to get your thoughts. >> Well, what I find interesting is that crypto markets as often the case have kind of experimented and innovated on all these different models maybe before traditional markets. You know, so you know, your your crypto specialist that listeners are very familiar with low float high FDV assets and and what that can mean in terms of you know, price performance and and sort of what's called squeezy price action

in these types of environments. I have been closely following the the SpaceX IPO like everybody else and and to me the chart of the price looks looks very crypto like. You know, it looks it it it squeezes in periods of low liquidity overnight, you know, all that kind of stuff in in offshore markets um and derivative markets, you know, hyper liquid etc. You know, in and I think that that does partly speak to relatively narrow float for a large asset. And I think your point on supply is accurate like you know, supply can come to the market in different ways. Like in a crypto context, it can be new emissions from staking, it can be team unlocks, you

know, these these types of things and those have an influence on price. You can apply those same thought processes to to equity markets. If we see uh unlocks, you know, vesting schedules and things are reached for some of these large IPOs and those shares come to market, uh that can put downward pressure on price, uh for sure. And if the buyback uh train is is slowing, uh that can put uh downward pressure on on on price if there's there's new issuance. You know, at the moment it is all um obscured uh by uh the AI euphoria about the technology and and about how, you know, it can change our our worlds and our lives. Um I personally think we're getting a little into that kind of bubble-like

territory uh that um uh you know, maybe the the the fundamentals are not quite as supportive as the price action suggests. And if the markets come to realize that, then exactly these things like the lack of buybacks and and greater issuance and and unlocks, those will become uh relevant and key talking points and and reasons why maybe some investors want to take risk off the table. >> Yeah, it is it's really an interesting point of view because it it's almost like Tinker Bell in a way. Like you have to believe in it, you have to keep believing. And and it's not quite that because there there clearly is real substance behind these companies and they're generating massive revenues even if it it's being outstripped by the expenses that that they're paying. But uh but but I do see the oppor- the

if uh if there is a a moment of crisis, uh I I can certainly see a scenario where there is a bit of a climb down. And I mean, just because of again, like yeah, the the low floats, the the lack of profitability so far. I mean, writing a lot of checks that that that need to be cashed in in the future. And then also like a degree of I don't know if this is the right term, but like incestuousness about how all these different companies are investing in each other. So, they're they're going to be very highly correlated. Uh like even more than the broader market is correlated on their own. So, >> Absolutely. If if the pricing model uh changes, then all these sort of vendor financing type relationships, they they will come under pressure uh to be sure.

And and a lot of this stuff will move down and in lockstep. Steve the other point that maybe it's worth making is I think in general with growth investing whether it's crypto or stocks, one way to think about it is just like how much how much of the future have we already discounted? That's how to think about these assets. You know, SpaceX probably will build data centers in space. You know, maybe we will get to that future. The question is like how much how much of that timeline is embedded into the stock already? You know, is the is the if we get data centers in space in the year 2040, you know, that much might be very late compared to the expectations that are built into the into the share price. So, I think I believe in the the future of

most of these tech technologies, but you know, maybe markets have just brought forward those expectations a bit far and as we start to hit some of the kind of real world challenges whether it's the pricing model for AI or some of the technical challenges involved with centers in space which is key to the SpaceX story. You know, maybe that's the thing that starts to to put more fundamental pressure on these assets. >> Yeah, absolutely. All right, well, we have a lot more to to discuss, but before we do, let's take a brief pause so we can hear from another one of our sponsors. >> Fidelity has been researching and investing in blockchain since 2014, long before it was a headline. And they're hiring crypto and DeFi professionals to join their team and discover what's next in finance. Fidelity is looking for

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and use code Unchained for 33% off your first 6 months. Heads-up, everyone. We've now fully transitioned Bits N' Bips [music] to its new dedicated channels. So, if you're not yet subscribed to the new Bits N' Bips channels on X, >> [music] >> YouTube, Spotify, Apple Podcasts, or wherever you get your podcasts, go there and subscribe now. For the next few weeks, we'll play segments of the full interviews on Unchained as a reminder, but for now, you'll only hear those short segments of Bits N' Bips on Unchained, no more full episodes. [music] You can get links to all of the dedicated channels with the full episodes at unchainedcrypto.com/bitsnbips [music] spelled b i p s. Thanks again.

>> [music] >> All right, welcome back. So, before we tie a bow on the SpaceX IPO and get ready for the for the the new ones, I just wanted to briefly touch on how sort of the crypto market plumbing handled the IPO. Hyperliquid actually priced the IPO pretty pretty well, and it became a very liquid market. There were some actual tokenized offerings from from various players that had to either have full or partial refunds because they weren't able to get enough of an allocation due to the fact that I think Zach you might have spread the idea it was like three to four times over subscribed the IPO which I guess perhaps isn't so surprising given the

50% pop in the days thereafter. But I I'd love to just get your thoughts on how you think crypto market handled this this IPO and what could be expected with the next set of blockbusters that's going to come in the fall. >> Look, I think you said it Steve. I think perpetual futures came out with the win. You know, great example of price discovery and it's it's such a fascinating product a a derivative product on an asset that doesn't yet exist but yet it it works pretty well and was an effective means of price discovery. So I think a win for perpetual futures and for hyper liquid no doubt. Look, I think maybe not a loss but at least a kind of

question mark around some of the tokenized equity structures. There's a lot of models for tokenized equities as as your listeners know some of them are more derivative like some of them more closely resemble the underlying share. I I think that we do need and will get pretty soon more regulator guidance on what types of tokenized securities tokenized equities are going to receive the the most liquidity and the best regulatory treatment. I think that will help solve some things. So I'm quite optimistic on the tokenized equity market but I think there are some market structure questions that are still open and this SpaceX IPO example was a good test of that. Perpetual futures came out looking very well. I think tokenized

stock came out with a bit of an incomplete grade and probably a little bit more you know, regulatory guidance that needed in that space. And I I we're going to get it pretty soon. >> Yeah, and I mean we're talking about like regulated perps now coming to the US. Coinbase just launched their own tokenized stock offering. So, this is only going to get bigger. So, we're going to have plenty plenty of tests as as you just mentioned. All right. So, let let's talk to about crypto specifically. I know in some of your recent writings you've mentioned how Bitcoin is is undervalued. I would argue that a bunch of the main tokens are undervalued if you look at where their network fundamentals stand vis-a-vis the price. But, when you kind of like unpack for us your argument there.

>> Yeah. I I have been hesitant to call this a crypto winter, but I think I have succumbed to the facts >> [laughter] >> now and and I'm willing to say, you know, we we I think are in a a conventional crypto winter and you know, there's some ways in which it probably will be different than those in the past, but but you know, clearly this is a a bear market for crypto that has just last for a very long time. A fairly long time. And is validated by some of the fundamentals. I mean, you know, some of the on-chain data I think also speak to a a kind of winter-like phase for crypto.

>> I'm just curious before you continue, how do you how do you define a winter and how is it different than perhaps a bear market or is it are they synonymous in your in your mind? >> Yeah. Look, I I I think it's about magnitude and duration. You know, whether price has gone down far enough and for long enough that it deserves the the W word label. Um, in the past winters, they have been more like 80% declines. We're tracking more in the 50s percent declines at the moment. So, not quite as a severe, but you know, on on on the pace of those past winters.

And the uh duration is starting to get longer. You you uh, was a out, potential that we could have, you know, snapped back, uh, relatively quickly, um, you know, out of this uh, price malaise earlier in the year, but that hasn't happened. And there are some ongoing pressures. I think some of them will come to like the the issues around strategy that make me think we're not entirely out of the woods, um, with some of the kind of winter-like dynamics, let's let's call it. So, so look, I think it's magnitude and duration. I think if if price were to start taking off, uh, right now, um, you know, maybe I would say that uh, uh, we've escaped uh, the crypto winter, but as of the moment and given the kind of short-term outlook, I think the

magnitude and duration look long enough that I'm willing to use that label. >> Yeah, and uh, as you mentioned, I mean, let's talk a little bit about strategy because it's been in the news for for a few weeks. I mean, it's been in the news for a few years, but um, but it's been in the news the last couple weeks. I mean, for one, um, Saylor sold uh, for his um, for me and you it would be a sizable amount of Bitcoin, but for him was was a very small amount, but markets reacted very poorly, uh, even though it was kind of telegraphed and as promised he's been a net buyer since then. Uh, but it does seem like there are some concerns about the strategy model. Um, there are I guess blue chip preferred equity um, stretch. I think we were

talking, you said it's now trading below $90 which >> Right around 90. >> it it is not supposed to do it. It's targeted at staying around $100 and uh, uh, a few months ago I I'm actually a little lost in the exact timing. I mean, they um, they sold or or they I guess strategy amassed about amassed about a $2 billion war chest, which was intended to cover I think at least like two years worth of dividends for this preferred equity. They ended up selling uh, they ended up uh, cutting down a lot to retire some convertible debt that was not going to mature for a couple years, but was far out of the money and last checking now, they have uh, I think about maybe 7 months of runway for um for these dividends. Uh of course, they have

a gargantuan pile of Bitcoins, so they can always sell more, but that could reinforce the cycle. So, what do you make of what's going on with them right now, and how do you compare that to a couple of other preferred equity offerings in the market? One, uh Zeta from from Strive, and then also uh Bitmain immersion. They they just launched their own, and uh it's it's the first for for the Ethereum debts. So, I'd love your thoughts on how investors are approaching those. >> A lot to say on this topic, Steve. So, let me let me touch on a couple of points. Um the first is that this is not unique to crypto, not unique to this market cycle. This is a a conventional leverage uh entity kind of set of pressures that are happening. You know, you have you have a

a leveraged model. Uh and then the the price of the underlying asset has gone down, and so you have new pressure on the leveraged structures in the market, and Strategy just happens to be the largest of those things. But I I think this is a very typical pattern in financial markets. Um kind of a classic deleveraging, and and that's what we're seeing here. Nothing too unusual beyond it beyond beyond that. Why, you know, why uh have we gotten to this point, and how does it differ with some of the other preferreds like that from Bitmain? Well, the most important thing is that Bitcoin doesn't produce cash flow.

>> Mhm. >> Uh so, if you're going to issue an instrument that has a dividend or coupon obligations, you have to figure out a way to pay those obligations. And that means either figuring out a way to generate cash flow or or selling the underlying asset, or crossing your fingers that the underlying asset goes up, and you can issue more shares potentially to pay the the dividend or coupon obligations. And so, um potentially some of these preferreds for proof-of-stake blockchain networks, the Dats that that service the proof of stake networks you know could be more successful because at least you have the staking reward and may have it maybe some on chain yield sources that could help fund the preferred although those coupons will be

pretty high um >> Yeah I mean you can just take an ethereum for for example I mean the native staking right there is generally under 3% and yeah the coupons like I mean we're talking about 10 13% so >> Yeah Yeah so so certainly you can't structure your whole balance sheet with the preferred maybe a small amount of preferred fits into in terms of a broader diversified strategy Look I think the other thing going on here Steve that needs to be mentioned is around the stretch product itself you know so like the I think one of the elements of the recent pressures is just retail investors better understanding

the risk profile of the asset you know this was a an asset that was expected to trade around a $100 around par and and produce a coupon except in maybe extreme market environments for Bitcoin I don't think we're in that type of extreme market environment and yet the price is is trading now below 91 at as the time that we're we're speaking so I think part of that is maybe just retail investors understanding the risk profile and and backing away from this product maybe maybe feeling like it has a bit more Bitcoin beta than they expected and and so you know that that I think is causing incremental pressure and and it makes it difficult

for strategy to you know to issue more of course and to buy more more Bitcoin so it's you know it's the lack of cash flows it's the large kind of leveraged balance sheet and it's this unique pressures on the preferred uh uh that kind of make a challenging to uh either raise the dividends, issue more, accumulate more Bitcoin. All of those things have come together uh to uh you know, put some strain on on the situation. I I I I think that strategy will stabilize. Uh I do think that there are options um uh including literally with options. You know, the different types of derivative structures that they could use to generate some cash flow uh to to pay the uh preferred. They could raise the

dividend on the preferred to increase ties a bit uh more demand. So, I think there are some ways uh out of this uh situation. Uh I would like to see uh more um you know, proactive steps uh to uh stabilize the company. I think that would be helpful for Bitcoin as a whole. >> Yeah, and and I mean, just like [clears throat] it's common saying, you don't want to judge somebody but excuse me, by their worst worst moment or their or and maybe their best moment. Uh I mean, stretch and strategy like grow on the script of winter that you said, I mean, it is an area of of extreme duress but uh hopefully there are ways to sort of um um uh turn this back around because at this point where the prices are uh stretch holders are looking at missing out on almost a full year of of I mean,

they're they're going to get their yield but because of the the decrease in the principal, they're basically losing out on almost like a full year of of their coupon payments which is certainly not what Saylor anticipated when he wanted this to be almost like a like a bank deposit that just paid a much higher savings rate. So um so, really interesting to follow. I I wanted to just touch a little more on on Bitcoin and gold though and and sort of how they performed during the the Iran war. Uh I mean, gold I think just finished its worst worst quarter or it's about to finish its worst quarter in in years. I mean, Bitcoin was up I think it for decent amount in the beginning of the war but uh that may have had more to do with Bitcoin being uh just oversold at the beginning and gold being

overbought and kind of a a reversion a reversion to the mean but but prices are are struggling and and I think the World Gold Council just came out with a report pointing out how more and more central banks are repatriating their gold out of London and New York, which seems to suggest uh um perhaps the need for a a secure store value. And if that's true, Bitcoin is much more easily transferable than than gold. Um I mean I mean I know they're not the same assets at this point in time, but like how do you make sense of of their performances during the during the crisis and kind of where we stand now?

>> I I don't think you can make sense of the price performance without talking about speculation uh in this uh in this case. You know, both of these assets are uh in my view cornerstone assets of the global financial system, extremely important assets, uh and should be held in held in most uh types of diversified uh portfolios, you have physical gold and and and digital Bitcoin. Um but you when you're looking at the short-term price behavior, especially in the last a few months, you know, to me it is striking that um you know, the the degree of of speculative or momentum uh type of of flows, uh return-chasing flows, you know, how how prominent uh that has been.

You know, the gold mega trend really started in 2022, you know, something we've talked about in the past to Steve with uh Russia's invasion of Ukraine and the sanctions applied to Russia's uh central bank. That really triggered a new era of central bank of gold uh um accumulation and and got prices to you know, may maybe 4,000 or or something like that. But then from 4,000 to uh you know, to 5,500, I I think maybe that was a lot of uh you know, return-chasing and and speculative uh retail activity that got us to those very high levels. And my sense is what's happened recently is that's just coming out of the market a bit. Uh that um you know, the kind of speculative intensity has shifted uh away from precious

metals, uh you know, maybe to some degree to some other other things. Of course, like the you know, the chip and semis space of the of the market. That's been incredibly hot in equities at the moment. Perpetual futures and the kind of pre-IPO trades. So, I I I think some of it can only be explained explained by the the coming and going of of speculative activity. You know, both gold and Bitcoin to me have very strong fundamental foundations.

You know, and that has to do with this uh you know, deficit and debt imbalance that's not going to go anywhere for for a long period of time. So, I would encourage investors that have longer time horizons to look at these types of markets, look at these types of drawdowns when retail speculative activity has been washed out. Maybe it's the time to be looking at allocating to to both of these assets. I personally think that gold and Bitcoin both look pretty good here. And a lot of that speculative excess has come out at this point.

>> All right. So, we're we're just about at time, but I do want to just give you a chance to talk about any other assets, charts that you're paying attention to. I know Uniswap's getting a lot of attention because of um um which bank was it? I uh um Standard Chartered that that basically put what is 10 spot to buy rating on it. Uh what are you going to be looking for as we move into the second half of the year? >> Well, let me talk about a kind of umbrella topic that covers that as well as a few other things, which is revenue. You know, revenue and earnings for crypto protocols and the value that that can accrue to tokens. You know, that that I think is very central to the investor focus at at the moment. And um

you know, regulatory clarity has been a a big piece of that. You know, a new regulatory environment that has allowed uh these protocol teams to change their structure, to create new structures, and then to talk about what they're doing and the revenue produced by the protocols in a new way. Uh you know, that's been a kind of a breath of fresh air uh and and certainly a big change. And I think Hyperliquid specifically has been an important part of that uh story. You know, so many uh of our uh touchpoints, you know, may not be crypto-native investors, but they're looking at the industry for compelling ideas.

And Hyperliquid uh is this very clear uh use case of blockchains for a piece of financial technology. It produces a lot of revenue. It drives that revenue uh back to uh token holders. And so, very clear revenue story. So, you mentioned Uniswap. We recently did a a similar type of report um uh using kind of classic discounted cash flow valuation analysis to uh put a price target on Aave uh token. Um you know, Hyperliquid has been um uh at the center I think in the context of Clarity Act, tokenized assets, stablecoins, uh there's going to be a huge focus on where are the revenue-producing uh projects in crypto? How do you value those tokens? And is this the right time to buy the dip? Uh you know, maybe maybe

a diversified basket of these DeFi assets uh is a good fit uh at this at this point. So, that's what we're working on our with our research and what we're communicating uh with many of our clients is uh you know, the revenue story and the regulatory clarity uh story and what that means for uh specific assets. I think some of these DeFi names that we've talked about are great examples of things that are benefiting from both of those trends. >> All right, terrific. Well, we'll have to uh touch have you on again to talk about um how that thesis plays out through the rest of the year. Um but as always that as always Zach, thanks for joining us.

Thanks to everybody for for watching and listening.