Is the Merge Priced In? with Hal Press & Ryan Berckmans

Transcript

thankless nation i hope you are ready for another state of the nation episode where we do a deep dive on an important topic this topic is near and dear to our hearts and it's coming right up uh the question of the merge specifically the ethereum merge is the merge priced in that's the question we want to get to the bottom of today david who do we have on what are we going to talk about yeah we have two bulls two ethereum bulls that are both bullish for the same reasons uh we got hal press who's been on the show before and ryan beckerman's who's just talked a lot about this structural supply change that proof of stake brings to ethereum just like hal press does so these two bulls are looking at the same data and they're bullish for the same reasons yet they

differ in their time horizons so on today on the episode we get to talk about how bullish can we be can we be like super bullish or can we only be just like you know cautiously optimistic bullish uh so that's gonna be the subject of today's show uh i think it's gonna be a fun one uh especially when like you know usually debate formats are like no i disagree on absolutely everything this is uh no we agree on like all the facts and circumstances it's just a matter of time frame really yeah the timing the details that's what's important i think that's what everyone's trying to figure out it's like is the merge already priced in or not exactly like how long is it going to take for the merge to be priced in i know hal has some fundamentals that he likes to look

at and ryan has some great insights as well so we're going to get right into it um but we also want to tell you about a event that's coming up this is a message sponsored by a smart khan and our friends at chain link this is a conference david i feel like it's conference season this may be spinning up we've got an ethereum event in october but we have smart con at the end of september this is happening in new york city on the 28th and the 29th what is smartcon david and who should be looking at this event yeah smartcon is chainlink's annual conference so they do this every single year and this is actually the first time that they will be doing this in person uh so you saw some uh you know crypto giga

brains that we all know and love stanley from uh ave kane from synthetics ed from arbitrom uh sbf of course uh but this is just a chain link's yearly summit uh where they just put a bunch of the gigabrains who generally are all associated with smart contracts and uh and oracles and are plugged into the chain link ecosystem and they have a multi-day long speaking event um like i said uh 2019 or 2020 was the first one 2021 was the second one but 2022 will be the first in real life smart con but hosted by chain link that will be in new york at the end of september uh there is a link in the show notes to go get your ticket there is also a code bankless to get i think something like a little over 20 off of your ticket if you so choose

to go uh so this will be in new york uh conference season is rotating into new york we've got smartcom we've got mainnet uh so this is kind of gonna be one the one to kick this off so thank you to our friends at chain link for sponsoring this message yeah it's pretty cool too chain link always brings the best um the best speakers to eric schmidt going to be attending this of course former ceo chairman of google as well as a lot of this david looks like a roster of previous bank lists yeah i guess so you got that as well all right david i gotta ask you the question we start all of these episodes with which is what is the state of the nation today the state of the nation rhine is cautiously bullish i think i mean we have on every

single weekly roll i've talked about how like bullish the merge is on a fundamental level we don't really lean into like okay here is what the price on the chart is gonna do here at this moment in time and so that's because i'm a little bit scared to do that but this is this is there's macro events yeah there's macro stuff which is also topic of today's conversation so ryan the state of the nation is cautiously bullish and we're going to figure out hopefully by the end of this episode how much how much i can remove that caution like can i get really bullish is that allowed here david wants to remove that caution quite a bit and we're gonna get uh i guess permission or some insights some thoughts from our guests on whether it makes sense to do that or not we will be

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portal.arbitrum.one in order to experience dfi and nfts the way it was always meant to be fast cheap secure and fiction free hey guys we are back talking about the all-important subject of whether the merge is priced in the ethereum merge is it priced in or not we've got two guests to introduce to you today hal press he's been on the show before hal press leads north rock digital which is a fund that hal has set up that he is betting the fund on the merge basically that's where the capital is going he sees a massive asymmetric opportunity that the merge brings we had them on bank list i think back in may how if i'm uh if i'm remembering correctly and i think that episode was really influential on a whole bunch of

people and how they think about the merge mainly on whether we are being bullish enough or not and how's conclusion was we are not being bullish enough hal it's great to have you back on bankless thanks i'm i'm glad to be back thanks for having me back uh guys we also have ryan berkman's who's also an ethereum bull okay make no mistake uh ryan has been bullish on ether the asset for a while he is an investor and a community member someone who thinks deeply about the merge its impact on eth's supply dynamics he's also a developer and he's got a different position on the on the merge but also a closely related position ryan it's great to have you on bankless thanks for having me on the show guys i'm gonna summarize uh your takes here

but like we'll kind of get into it through the rest of this episode i think how your position is you're bullish on the merge both in the short run in the medium run and on the long run i think ryan your position is you're maybe not as bullish on the short room run price action you don't think it's like the merge is immediately going to take us to valhalla and from a pricing perspective uh but in the medium run in the long run you are a bit more bullish have i captured that accurately maybe i'll start with you ryan what do you think i think that's right my bullishness on the merge comes from my near certain belief that ethereum's going to win over the medium to long term

yet the short term i think looks a little rockier for reasons predominantly outside our community's control and what are we talking about just to define a short term here ryan are we talking about like what what is short term to you where things remain rocky and when does uh ethereum the merge start to get priced in for me the short term is six to 24 months i'm not bullish over that time period unfortunately i think that there's a lot of challenges going on in the world right now our community is doing an incredible job to move the merge forward and the merge represents the future of ethereum so when we look at all the great stuff enabled by the merge

it's going to put us on a path that will eventually make ethereum the number one coin uh it will uh make crypto environmentally friendly and put us on the road to really aligning with how the rest of the world works so we can continue to build a symbiotic broader economy of the crypto and real world economy uh however you know over the short term i think uh i think a lot of the the usual suspects may get in the way including bitcoins dominance and you know kind of the the bitcoin maxi crew as well as uh russia's war unfortunately and uh you know it sounds like the economy was not necessarily doing so

great before kovid and so uh i think i think there are potentially some some headwinds uh over the short term ryan uh i want to just drill down on something you said because i think this uh symbolizes a little bit of your position you uh you think that the macro is just a bigger deal than you know ether proof of stake the merge etc and so part of the theme of this conversation i think is going to be who wins merge versus the macro and i think your position is very much macro still wins is that right that's right i i see the price of ether in us dollars as being uh just sort of the uh the eth versus bitcoin

multiplied by bitcoin versus us dollar so this is something we all take for granted in in our crypto adventure where we we open you know coin gecko every day and we look at the ranks and we look at how's ether gained on bitcoin and that's fantastic uh but i think that when we think about will the merge deliver the us dollar all-time highs we all want i think there's a question of okay if it were to deliver the all-time highs do we primarily see those gains as being versus bitcoin or andor versus total crypto market cap is is that total pie growing and my view is that both of those components

are gonna unfortunately struggle over the short term and then just do wonderfully in the years to come and hal turning to you can you summarize your position and perhaps also the timing on what you think this price action is really going to be expressed in and also would you say it's accurate that you believe that the merge is more powerful than macro um yeah sure i mean there's a lot of different pockets to really get into there i i'd characterize the time frames a little bit differently you know i sort of think about the short term as shorter than six to 24 months to me the short term is really from now until directly after the merge um and then like

a few days after that is when call it the medium term begins and then that probably it goes runs for another six to 12 months and then after that's where the long term would begin and i'd kind of think about it in those three pockets i think where i differ is that i'm not as bearish on the macro as ryan um i generally don't think people have a ton of ability to predict the macro to so to say that like to try to forecast a negative macro environment from here i think is naive and so i think about it more idiosyncratically as like what can i expect about eth just

versus the rest of crypto market cap so just taking out macro and what i'd say on that front is you know when i came on the podcast last time and certainly really started kind of pounding the table um in in june after that capitulation that we had around 3ac and luna i felt like the case for idiosyncratic merge outperformance was extremely strong i felt like that was kind of a generate that was when the generational opportunity really began you know we were kind of three months away from the merge people still didn't believe it was going to happen in september people didn't think it was going to be a big deal and it was all starting to come into focus and that's where i felt like you know that that was the the most

the most juicy opportunity um and i think since then beath has massively outperformed basically every other crypto asset on a beta adjusted basis so you know it's up close to 100 off the lows whereas a lot of the higher beta alts which you would expect like if someone told you from june 8 would be up 100 and you said okay what would the basket of solana avalanche cosmos be up i mean you would have guessed like on the beta at least 150 but if you look it's actually they're only up 40 so they've massively underperformed despite higher beta and if you look versus bitcoin the ebtc ratio is higher now than it was when bitcoin was 30 000. um

so like eth has dramatically outperformed pretty much every asset in crypto since that point on a beta adjusted basis and to me it's almost entirely attributable to the merge so i think you know that's already happened so i think like we no longer have to debate whether the merge is going to have an impact it's already had one however you know now we have a date it's september 15 16. everybody knows about it a lot of people are talking about the merge so like whether the merge is priced in or not i don't think it's a binary i think it's more priced than now than it was in in june but it is still not priced in in my opinion i think there's more room to go

but i think if you like if you had to rank it it's probably a bit more priced than and then to kind of get to why i think it's ultimately not priced in i think it's useful to break down you know how i think about catalysts in general to me there's really three kinds of catalysts um i talked about this a bit in the initial piece i wrote and they all have to do with flow so the the first and easiest to price in type of catalyst is a fundamental catalyst so if you have a stock that is going to report earnings and everybody knows that stock is going to probably have good earnings and then they have good earnings the stock generally doesn't move and the reason is because even though good news came out it didn't actually change anybody's view because they already knew the good news

was going to come out and fundamentals don't actually impact price directly they only impact price through their ability to create flows on the other side and if everyone was already positioned for the good earnings it's not going to change anyone's mind and therefore no one's going to update their position and therefore the stock doesn't move and so those fundamental catalysts are like okay we know it's coming it comes and nothing happens in the price and those are easiest to price it in my opinion and then you have what i'd call kind of a one-time flow catalyst so xyz token or stock has a big holder unlock on a certain date and the market knows about it in advance but it's still harder to price in because the market has to actually go in and front run that flow so let's say they know there's a thousand units

unlocking and 80 of those will be sold so there's 800 are going to be sold on that date the market has to go in and sell those 800 units and then when they actually unlock buy them back to effectively price it in so it doesn't move on the date and generally what happens is the market somewhat prices in they'll buy they'll sell like 400 or 500 units but not the full 800 and so it becomes somewhat priced in and those one-time flow catalysts even though they're known in advance aren't usually fully priced in and then the last kind of catalyst that i think about is what's called a structural flow catalyst which is what the merge is which is it's not at a certain date there's going to be this one flow that happens and it's over it's at a certain date for the rest of eternity there'll be a

continuous flow and every single day and that is the hardest to price in and and really kind of impossible to price in because if you want to price that in you need to have somebody doing the other side of that action every single day into the event and then unwinding every single day after the event has occurred and that's really not a practical thing there just aren't any market participants that do that and so a question becomes okay we know it's not priced in but for how long is it priced in that's really it like eventually you know you will chew through all of the supply that that that needs to come out but it's kind of a question of looking at the magnitudes and how long is that going to take and

so ultimately that's why i don't think the merge is priced in like as a as if you asked me that as a binary but i think ultimately it's probably a bit more priced than now than it was um call it two months ago that's kind of an overview and then yeah happy to get into any of the kind of specifics from there ryan what thoughts came to mind while you were listening to hel just now i think that that hal i never know which ryan you're talking to always guest ryan all right there's ryan against ryan b this is ryan b thank you yeah perfect works just fine now uh hal uh

i think hal is absolutely right that a huge part of the world including those who are allocating into crypto or buying or selling tokens they don't realize the merge is actually happening they don't realize it's definitely you know more or less definitely going to work based on the robust track record of of test nets and due diligence from from the community they don't they also don't realize that that so much in my view and i think hal's view as well so much of the prices are are today in this era determined by this proof-of-work selling schedule like the amount the amount of crypto that that we paid miners last year

through the bull run was just stratospheric it was incredible so i i think hal is right that that going into the merge there is significant opportunity for short-term gains for eth as those participants who just don't even believe the merge is real are disillusioned uh you know as well as i think that just the general execution risk around the merge which uh especially is difficult for uh the decentralized population of capital allocators to estimate so if you're if you're a merge engineer you know maybe you're sleeping well you think it's going to work no problem but i think a lot of us are like wow they're changing the engine of the airplane while it's running let's see

how that goes so i have full you know full faith and confidence in the merge in our communities progress towards uh swapping swapping mainnet off mining uh but there are those who don't and so i i think i think hal's view that the merge poses significant uh very near-term gain potential that makes sense to me i think what we're really getting at here is is the merged trade crowded and is it overcrowded and i think if we look from the external world of crypto the people who don't pay attention to crypto they're not on the train they are not on the train at all like they got off the train if they were even on it like back when prices went down for like four or four months in a row but really i think

the alpha that we're trying to get at is like how much of the internal to the crypto industry is on the train like and one of my signals that i've gotten is that there's so much like anti-ethereum anti-merge like fud and hate on crypto twitter lately that's telling me that there's a lot of people unexposed to the merge uh and so but before i throw it uh back to hal ryan do you have any any like insights or thoughts as to like how how much exposure does the general crypto market have to eat right now i i think a lot of folks picked their horses and they like to hold their horses for the long term and i i don't think that the progress on the merge has changed many people's minds about the

overall distribution of capital in the industry so you look at folks who who own bitcoin and bitcoins today worth about double ether i don't think they look at the merge progress and i don't think they they say wow my bitcoin thesis is wavering now that the merge is scheduled my bitcoin thesis is wavering now that the test net merge was successful i don't think they feel that way so no i think i think a lot of folks are unprepared for the success of the merge and i i think while while i have no specific trading expertise over a time horizon of like days to weeks that's not my expertise i i would say there's a lot of

folks who are not going to see the success of this thing coming and it's it is important to know just for context for for listeners that like the merge has been kicked back for years and years and so like now that it's finally had a date like it's kind of been like built into like ex like if you're not on the in the ethereum world like when there's an actual emerge announcement like it's kind of built into your dna to ignore that ryan would you say that that's kind of we're chalking that up just like some evidence as to why people are still unpositioned for the merge oh absolutely david uh i have a good friend from college who's not a crypto fellow he's uh he's a silicon valley engineer sort of ardently anti-crypto uh great buddy uh and him and i had a bet

about a year ago that the merge would happen this year uh and i i sent him a message last week and i said hey buddy the merge has been scheduled i'm gonna win the bet and he said yeah right crypto bro is always saying the merge is scheduled it's a bunch of crap so i i genuinely think that uh they don't believe us it's so it's such a weird uh thesis to have i guess when it's so easily disprovable after the execution date happens and after it cuts over and after it actually works but um yeah how what are what are your thoughts on this in terms of kind of how crowded the merge trade is yeah um it's a really good question and it's a it's a thing that i think about a lot um

and there's a few different ways to look at it and i don't think you can really get an answer from any one of the the pockets you kind of have to look at a mosaic and piece it together so i'd say there's a few signs on on either side like just um just as the first thing i said i agree with david there is a lot of pushback um i think there's it's it's almost become a consensus view now that the merge is gonna be sell the news which in my mind makes it less likely that it actually is sell the news if everyone thinks it's going to be sell the news um and there's also this this a lot of of fud been building up about the execution risk and the timing risk i guess just kind of one quick point about how i

think about that personally is in my mind it's probably somewhere on the order of 95 percent likely that the merge goes smoothly um and i think you're probably looking like if we just you're going to have to come up with numbers to handicap these things so these i'm not saying this is what's going to happen but just for the sake of the exercise if we assume the merge is up 10 assuming merge happens smoothly the next day um and heath is down 40 on average in an adverse scenario so that'd be like you know 2100 by 1200 which seems like about kind of the right um scenarios and if you apply a 95 probability that

it's going to be successful in a five percent probability that it won't you're still very positive ev holding eth the day of the merge and that's kind of how i think about it so i actually don't worry too much about the x-features personally um but i do think the market will probably worry and is already getting somewhat concerned so just i do agree with david's point that that there is a lot of fear already built into the market the other thing i'd say though on the other side is you know you don't have the moves like i just articulated where heats up a hundred percent and the higher beta alts are up 40 and each btc is way higher than it was when bitcoin was higher like that stuff doesn't happen without positioning changing so that clearly it is more crowded than it was two months

ago just like factually like like it just that's just the the the way that it that the the market has evolved and then the other kind of thing i'd look at to suggest that maybe there's um something priced in is if you look at the options open interest data each open interest is higher than bitcoin for the first time in history and a lot of that is calls people speculating that ether will go up around the merge so those are kind of like the two signs that i'd say suggest that it may be there is some anticipation however um if you look at like other near-term positioning data like it's something i look at a lot as is perpetuals data open interest is quite low and funding has been negative for a long time which indicates that there really isn't

a lot of what i'd call hot money positioning for the trade right now and that kind of flood has kept them on the sidelines um and what i kind of think has happened is that you've had a slow trickle of retail and longer term institutions kind of trickling in and then this fast money continually trying to fade it and that's why you know that data indicates that they're not long but yet the prices continue to move up um so i'd say we're somewhere in the middle between crowded and not crowded like i would say two months ago we were very not crowded and now we're somewhere in the middle and that's one of the reasons that gives me confidence that the trade can continue to work you know into and through the event um is because

i just think you know this this narrative is going to continue to circulate and it is very attractive to both institutions and retail and so as we approach and as the day comes into focus and as more and more people start talking about it i think we will continue to see that trickle in of money that should continue to produce that positive flow dynamic however that that is like somewhat unknowable i think to answer the question of how it's going to trade in the short term you kind of have to know how much retail participation are we going to have and and how much how broadly is that thesis going to circulate um and i really don't know the answer to that question i think it does depend somewhat on a macro i talk about this in the in

the paper which i'm going to be putting out um tomorrow with with bankless um that to me there's like some green shoots in crypto right now um some positive signs but their survival will depend somewhat on the macro like if the macro and the macro has been very favorable like the smp is up 15 off the lows basically in a straight line as people are starting to price in that inflation is is less sticky um and if that continues as i think is plausible then in my opinion like those green shoes will probably continue to grow and then eat will continue to have this momentum through the merge but if it doesn't then they may not and so it's hard it's hard it's unknowable and

that's kind of how i'd frame it by the way my bias and my base case would be that it does continue but it's obviously not 100 i was gonna say by the way hal mentioned a uh an article i i would consider this more like a report that um he's publishing tomorrow and that's going out to all bankless subscribers uh we'll recap where you can get that at the end of the episode but uh make sure you're subscribed to bankless newsletter and you'll you'll receive that report last i checked is like 25 pages and it was an update on hal's merged thesis just a fantastic report on this uh david i think you have to grab the next yeah on the topic of just like how crowded this merge train is again in the short term i do want to start to kick this out

into the medium term so let's get to the actual date of the merge hal ryan i'm gonna i'm assuming and correct me if i'm wrong that we are more or less uh pricing in as in like these people on this call here like a 95 plus certainty that the merge is going to work there's not going to be any significant drama would that be a fair take odds from you both absolutely the uh there's a reason it took seven years we have some of the smartest most earnest folks in the world that have been ensuring that it works looking at edge cases that you know most of us couldn't imagine exist never mind get to the bottom of it's gonna work uh it's just incredible the effort we've seen from the community to move all the

parts of this forward into the big date here i have i have some some friends involved in the process and you know more closely you know who are developers and just the the amount of of burning the midnight oil and uh healthy paranoia to ensure that we have all the boxes checked it's just it's absolutely inspiring same for you hal i i use that 95 figure and that's the figure that i'm using i think like as a fund manager you have to have some level of conservatism so that you don't get complacent with edge cases but if you put a gun to my head and said what do you really believe the risk is i would i would say it's lower than that um but that's that's kind of like the risk case

that i'm using and then the other thing just to like go back for one second i don't want to undersell like the importance of this catalyst though like to me it truly is still a massive massive event probably the biggest event in crypto history in many years and it's a like very big deal with a very strong positive bias so while i think that the future is unknowable and there are certainly multiple paths i definitely still retain a positive bias how much capital is out there in the crypto markets that when the merge does happen and it is successful and it's like the day after

the merge of september 17th and all the ethereum community is like super happy how much capital is then like okay now i'll buy eth versus i think there's a decent amount of like you know bitcoin maxies out there that are like still they're just going to move the goal post and they're like no i'm just never going to buy eth like how much capital do you think is sidelined waiting for the day that the merge is a success ryan you have any indications about this trying to be you know i think that how much capital may be available probably a better hal question i i come from the computer science and kind of strategy background uh i i uh how what would you think um i think it depends on where we are that day like i think you can answer that

question if it happened today like so if it happened today i think there's plenty of capital like i think people the fast money is on the sideline like you can look at that from the data um a lot of people are still fading it a lot of people are worried there's gonna be plenty of money to purchase it the next day if by the time we get to the merge you know there's a frenzy that's developed and um ever like the thesis is blaring from the loudspeakers of the mainstream media and the positioning data is different you know there may be less of that more of that may have come in in advance and then on the flip side if macro worsens between now and then and some of the money that is already in actually exits in advance then there will probably be

even more money so i'd say right now there's a moderate amount but there's potential for that to change and i'd say like that that moderate amount is probably on the order of low single-digit billions oh single do you have any idea how much that would actually move the price like i said my kind of base case is something around 10 next day move assuming success i love that question of if there's three billion dollars flowing into ether how much does that move the price yeah and

uh the thing the thing that's interesting there is it's actually it i think as community members you know we're always seeing d-gens dumping things and prices skyrocketing and falling and like why do they do that why why is there such extreme volatility and the answer is that it's uh uh it's because of supply inelasticity it's because uh when you when you dump a certain amount of money into a token well it depends a lot more on the circulating supply and it depends on uh whether you buying it actually make the existing holders more bullish so they they raise their own personal price targets and and it it really puts you in a situation where when when you buy three billion

dollars you know market buy of ether uh over you know let's just say instantaneously the market cap is going to rise a whole lot more than 3 billion well how much more than 3 billion well there have been some studies that have suggested that every every dollar of new crypto purchased can raise the price between the market cap pardon me every every dollar of net fiat inflows into a crypto could raise the market cap like five dollars to twenty dollars that's the that's the dump the pump and dump phenomenon and it's really this this phenomenon of of of market cap being so enormously responsive to fiat inflows and outflows that i think is at the heart of hal and i's thesis around proof

of stake uh taking us to the moon because while while we look at that very exciting three billion dollars that may be ready to enter enter ether you know the week following the successful merge well at the height of the bull run we were paying a billion dollars a week combined to the miners of bitcoin plus ethereum one billion a week to to both miners uh and most of that went to a theory of miners because we pay them a lot more than bitcoin miners and so i just think there's sort of that interesting relationship between that short-term capital entry versus you know to to halona's point uh that reduction in minor cell pressure after the merge so

just very very very exciting pump and dump type economics here ryan you are uh sounding pretty bullish my friend even in the short even the short run but we'll get to maybe some more of the differences i i do want to get back to kind of the the core structural shift here and the significance and maybe the the magnitude of it and i know how that was um part of the reason you came on our episode way back in may and i think you've got some kind of like updated numbers in your new report that you're putting out tomorrow but could you just remind us of the structural significance so we've got maybe three billion or so in inflows waiting on the on the sidelines but um we also have um a massive reduction of outflows and that

i think is the core merge thesis can you recap us on the magnitude of this and and why we're all bullish on the merge to begin with sure and then you know the flip side of that is how much money has already come in that will look to exit post to sell the news and then what's the magnitude of that and that's kind of like the equation you have to counter balance um but it's just just to give you a quick recap so about 15 000 eth tokens get issued a day which is about 30 million dollars at current prices um and i assume you know 75 80 or so of that is sold daily so just for mass sake you know we can assume 20 million dollars of daily supply at current usd prices

um and so when you break that down it's it's on the order of half a billion dollars a month um and so when you think about the impact of the merge you think about half a billion dollars of supply gets chewed up every month going forward they didn't used to so like when you think about that like let's just say you had two billion dollars coming in five billion dollars coming out so net three billion of outflow that might price in the merge for six months because it would take you six months to create the the three billion necessary to fully um offset that three billion of net outflows post-merge i'm not saying those are the numbers but those are kind of

like that's the framework in which i would think about it and then if you want to think about like purely the structural flow dynamic if you the it's hard to do this you have to make a variety of assumptions but for me what i do i assume after talking to a few sources that roughly eighty percent of the volume that occurs day to day is quants just batting it back and forth with no actual discretionary movement and then 20 or so is kind of real discretionary volume and so i handicap all the volume numbers by a factor of five if you do that and then you look at what is the mining volume the mining selling volume as a

percent of total volume you get to something on the order of one percent and now one percent might not sound like a lot but one percent is a lot it is a lot um so that structural flow dynamic is quite meaningful you can think about it in that one percent context or you can think about it in the half a billion dollars per month context and then the most useful context that like for a lot of crypto natives to think about it is just in east terms right like i the fund is relatively small but i've transacted some relatively larger amounts of eth over the last eight months and you kind of get a feel for you know what actually impacts the market um

and you know in that context like if you told me someone was gonna t-wop a buy of 70 000 ether every single week for the next year i would be like all right that's that's pretty meaningful like that's that's probably going to matter um that's what happens with the merge but the only thing is it's that 70k per week that that's the way that the math works out it's about 10 000 a day um and the difference is that it doesn't end after a year it just continues forever right so um that's kind of the context that i would think about it in and kind of how i'd think about the time frames and the

reason for that how of course for for people who maybe they don't know very much about the merge but uh is because we no longer have to pay minors and we're no longer having to pay minors for the proof of work it's completely yeah fake and so all of that um expense to the network is essentially gone the tl dr is that your issuance your your gross issuance gets cut ninety percent so instead of if issuing 15 000 tokens per day to miners you issue roughly 1.5 000 to stakers but the impact is even more profound because the miners have very high opex and therefore sell a large portion of their issuance the stakers have very low outbacks and also by definition are

ethereum holders to begin with and probably have a bullish review on ethereum long term and probably don't want to sell their rewards and don't need to because they have lower opex so they both get much much much fewer issuance or much less issuance many fewer tokens and they sell a smaller portion of what they do get i want to bring in ryan in just a minute but one more question when you're while you're on that thread um so recently since we last talked um i think ethereum of revenue blocks based fees have been down um quite a bit in fact we're now like i don't know 10 gwei or something dave and i look at 11 right now today is kind of the median price the average price

uh for eth and that's actually that that means uh ether might not be deflationary uh post merge it may or may not we're kind of right on the line how does this impact some of your analysis hal is this uh is this a bearish thing like block space demand has gone down and fee revenue is down or does this not matter for the sake of your analysis yeah i mean it's an interesting question um and it's something that i thought about and reference in the paper like there's certainly there's a short answer is yes like fees and demand for block space is certainly lower than it was six months ago i think it's kind of interesting to think about why that is too it's not just a reduction in activity it's also that a lot of the applications have

become more efficient so for example openc is 40 more efficient with their transactions than they used to be so if you actually look at the daily active eth users they haven't changed all that much i think they're less active on average and the applications are more efficient but i think the the absolute level of the declines is probably overstates the impact on the activity but then when you think about that i mean yes it does impact a lot of the numbers in various ways like the staking rate that i'm predicting post merged now is about five percent whereas before i was predicting closer to nine percent and that's a function of the um lower fees however it's not all negative i'd say it's a

little bit more mixed on the on the positive end of the spectrum is the fact that fees are low like people complain about when fees are high and they complain about when fees are low um the benefit that you get when fees are low is that it's just a more friendly chain to use um and and and you that the adoption is easier to keep on in the ethereum ecosystem than other l ones because no one's really fleeing the ecosystem because they don't want to pay two dollar fees like yes you could probably pay half a penny on some other chain but it's not driving the the decision nearly as much as when you're paying for a two hundred dollar uni swap um transaction so we're like you said we're kind of right at this equilibrium where

fees are high enough to burn almost all the issuance that we are emitting yet they're still low enough such that they're not really inhibiting adoption so in some ways they're kind of optimal in that sense um but but yes in terms of the the kind of model outputs it's definitely a negative impact and then you said that five percent does that fiber is taking um apy does that does that include mev or not that's uh maxwell maximum extractable value um it it includes an estimate for it yes um but it's like it's it's debatable you can if you want if you want to apply like a maximum impact you can get closer to six

somewhere in that range um but yeah you can call it five to six percent um but i think you know one thing that i talked about in the paper too that that i think is important we're gonna talk about the staking yield is a move from current rate today which is about four percent to post-merge which is five percent doesn't sound like a whole lot it's like all right all of this for a one percent increase but it's not that doesn't tell the whole story um to understand kind of the true impact you have to think about not just the nominal yield which is like the sticker value but also the real yield which is how much issuance you're having to emit to achieve that yield so when you think about the yield of an asset like let's

just take cosmos for example i think they have something like 15 apy but the reason they have 50 apy is because they emit 15 of tokens each year so their nominal yield is 15 but their real yield is 15 of of apy minus 50 issuance which is zero um so as a staker you don't actually make any money it's just basically a game of issuing new tokens and you're getting diluted at this rate but you're also receiving the more tokens so your your stake stays flat so your real yield is actually zero and if you look at the case of ethereum today your real yield is also very low you're receiving about 4.2 percent

but the network is inflating at approximately 4.1 so your real apy is really only 0.1 now post merge that 4.2 increases to five but much more meaningfully your issuance decreases from 4.1 to pretty much zero so you go from a point one percent real yield to a five percent real yield and that is a massive massive shift and the fact and that will create basically the first real yield in crypto which is a really profound there's nothing i think your paper said there's nothing even close to this the closest is maybe uh the bnb chain which is something like one percent and that's

getting its yield from fees or is that um that is getting a deal from fees so bnb is the one other chain that has legitimate fee pool that does have real yield but it is it is lower this difference is um this really starts to make ether uh look when it's staked formed like a bond like an internet bond as we've been talking about all along and the way you're framing that real versus nominal is seems to be the way that people talk about bonds right it's like what's your what's your real return on on bonds can you talk about that a little bit sure so it depends the price of the bond so like if you buy a bond at 95 on on the dollar and it's yielding five percent your real yield is gonna be closer to ten because

you're gonna make up the power plus the yield but like if we assume you're just playing par for the bond then your real yield is just the the yield of the coupon payment um i actually don't quite agree with the internet bond analogy but this is kind of semantics like to me like it's not just bonds that have yield right apple stock has a real yield it's in the form of earnings and to me beath is more akin to apple stock than it is to the u.s treasury bond because if you buy a u.s treasury bond you know you're getting a fixed principal payment at a certain date in the future right if you buy apple stock you know you're getting a yield for as long as you hold it and then when you go to sell it it's whatever someone's willing to pay for you pay for it that's the case

with ether as well it's not like you buy a hundred dollars of ether you get this yield for ten years and then in ten years you can just you know you'll be able to sell it for a hundred dollars it may go up it may go down you don't know and you get yield paid in in the interest yeah so i think it's more similar to an equity like i don't want to say that word similar to a stock then um i do not see that comparison but like going back to kind of the the real versus nominal um you know bond yield right it's like if you're buying a a sovereign bond for example you're gonna have to take out inflation to see if you're actually making real returns on that thing right it's like if you're getting a return of like four percent on the bond but

inflation's like nine percent your purchasing power is diminished by five percent right so that doesn't you know that doesn't make sense whereas like it's different in if you're in the this is a true real return of five percent and if you like if you want to compare um the internet bond to other sovereign bonds in its class that is a lens to compare it to you compared to equities because i think that's fair bonds and we could we could spend the whole episode on the nuance of this so often i'll i'll pass well to take this conversation forward about the same subject matter though is that one of the models i've had for like this yield on ethereum is that it might actually be

something that attracts a lot of external capital maybe it attracts more capital from the crypto space but it might actually be the thing that penetrates out into the quote unquote real world the legacy world and attract a bunch of new buyers to buy ether on the principle of the actual real yield um how do you have any sort of like measurement or magnitude of how uh much capital might flow in just based off of this or any like speculation there it yeah it's like impossible to say you know like i actually it's not impossible i haven't done the necessary analysis to say this is how much capital is out there with a mandate to invest in kind of bond like assets and i think x percent of it is going to come in and blah blah blah i

haven't done that work but what i would say is i definitely agree with you it's a very investable thesis for large institutions if they know this is a product that actually generates revenue from actual users and the revenue actually gets returned to the holders and that's where the yield comes from that is an important dynamic and an important part of a thesis for some of those larger investors ryan turning this conversation to you you've hinted at this once in the show and i know i'm i believe it's also your pinned tweet on twitter um but i also wanted to get your comment on uh just like the magnitude of this whole yield

conversation can you talk about just the limitations of ether going up in price under this proof of work dynamic and how as proof of work prices go up then also proof of work selling goes up and then also it looks any thoughts or comments that you have on this whole like real yield conversation certainly yeah i i so for me the uh one of the most important fundamentals uh to learn about crypto may be that different kinds of inflation are not necessarily an apples to apples comparison and so when when you're running a proof of work chain and you pay your miners five percent you know to housepoint miners miners have a a cost structure that

makes them they have a competitive dynamic of mining that makes them willing and able to pay up to one dollar in new marginal expense of hardware and energy to capture that extra one juicy dollar of mining revenue and so ethereum's success ethereum's success creates its own drag coefficient that like for for last year for example uh uh part of the part of the previous segment of the conversation talked about fees and the declining fee structure and uh last year during the bull run fees exploded right who benefited from that it was just miners and in what way did they benefit

their mining revenue went up and so they they invest more in in hardware and grow their mining operations which increases their cost structure and so the when you pay five percent inflation to miners that very significantly hurts your chain's market cap versus five percent of validators and so uh the fact that this cost structure scales with the market cap and hurts the price of the chain so much was you know the reason that that my group uh was was very happy to go short at the top last year you know we we got out a lot of our stuff uh because we just we just looked at the numbers and we said you know there's a lot of folks who think that you know there may

be you know super cycle theory or that this is you know not yet the top because it's really just going mainstream and we just looked at some of the some of the money being spent on mining during the peak uh and it was just it was just our view that those kinds of rallies are unsustainable uh under proof of work and i think that you know shows why you know part of why the transition to proof-of-stake is so exciting which is that next time you know whether it's three three months or three years from now we start to go back to all-time highs well this time we're not gonna have proof of work weighing us down and and that weight is extremely significant and you know the subject of much debate i would say as recently as a year or two ago almost nobody believed

that the true cost of proof of work was uh non-trivial they all just thought they were like oh miners sell some tokens it's no problem you know let's focus on the real stuff so uh yeah i think uh proof of work very very expensive all the inflation is not created equal and you know proof of stake is going to going to fix that for us this phrase a drag coefficient i think is really apt to describe really what's going on here because as your pri the price of your proof of work asset scales so does the size of the selling pressure of the miners of that same proof-of-work asset so ryan is it your opinion that no matter how many ways this into crypto industry plays out it's going to be a proof-of-stake asset

that finds itself as the number one store value cryptocurrency like if we rerolled the dice and like did crypto over again it would always be a proof of steak asset that comes out on top 100 as long as the gigabrain research community does not find any truly fundamental flaws with proof of stake proof of work is a dinosaur uh it's true that the proof of work is simpler and that it mining is a is potentially a a less risky process than validating because you're not having that validator hot wallet but all of these benefits pale in comparison to the fact that you just can't scale a chain on mining it's too susceptible to 51 of tax

it can't secure more than its total market cap which would be like very inconvenient when you're building a global settlement layer and it uh the chain just can't sustain multi-trillion dollar valuations because your miners just just apply that drag coefficient to to keep you keep you out of those high prices and you know unfortunately uh for for a chain like ethereum if we were to stay proof of work and their their proof of stake had never been invented there's no doubt in my mind that eventually we would pass uh bitcoin uh and we would be a global settlement layer uh but what the the thing about proof of work

is it it's kind of insipid because you know it yeah you get this great narrative where you distribute the tokens in a more egalitarian fashion because miners are dumping and hey it's only a very nominal inflation rate the tokens you're selling don't don't really hurt the market cap that much but you know at the end of the day it's a it's a very large amount of money and proof of stake is absolutely the future and so you know the the bitcoin is not only going to get flipped by ether bitcoin is going to get flipped by more than one decent public chain you know even as ethereum stays number one uh in into the years to come you know justin drake's model of uh like these consensus layers being like

engines really has really struck with me from the ultrasound money episodes we did with him and it's it's almost like bitcoin is kind of an engine that's running on like some coal or gasoline a combustion engine and then like proof of stake if you do it well it's like nuclear fusion you know it's like it's like an order of magnitude um more efficient in terms of dollars in versus value coming out on the other side we've got a lot more to cover david though what are we going to cover in the the next part of this yeah i think you guys can tell where i'm going with this conversation uh we're going to talk about the flipping you know and your guys's schedule for it uh whether it's happening in in this year next year or the year after we'll take a peek at that

and overall just talk about like the remaining ethernomics that we have not yet discussed so we're gonna get to all those conversations and more right after we get through some of these fantastic sponsors that make this show possible juno is bringing crypto friendly banking straight into your trucking account with juno you can send money from your juno checking account straight onto a layer two like polygon optimism arbitrarum and they have zk sync and stark net support on their way you can skip the ach wait times you can skip all the gas fees and go straight from your checking account to an ethereum layer two in seconds inside juno you can buy and sell crypto with zero dollar fees and your juno checking account comes with a metal master card that gives you up to five percent cash back on your spending juno is also giving you ten dollars cash back

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web3 and supports multiple chains including ethereum and solana you can even buy crypto directly inside the wallet with ram and of course you can store send and swap your crypto assets manage your nfts and connect to other wallets and defy apps so whether you're new to crypto or you're a seasoned pro it's time to ditch those risky extensions and it's time to switch to the brave wallet download brave brave.com bankless and click the wallet icon to get started and we are back we are going to lead into this conversation a little bit more on this proof of sake versus proof of work store of value hal i want to continue this conversation with you uh can you talk about your perspectives as to what a proof-of-stake consensus mechanism brings to the table when producing a store value asset and does your answer have any sort of indication

as to how fast ether might flip bitcoin yeah sure um it's a broad question so excuse the long-winded answer but i'll try to get into some of the kind of first principles about how i think about about that dynamic um i think for a store of value there's really kind of two variables and two prince two characteristics that are most important to me one is is security so i think you know gold has been the models to our value historically and the reason gold is is such a good store values because it has these two characteristics one is security and the other is credible neutrality so gold if you own gold you don't have to worry about whether it's going to exist in 100 years it's just a physical object and you can be pretty confident that it will

remain in existence for long into the future and that it checks that box fairly easily um no one can control it etc and then gold is also credibly neutral it's not issued by one government it's natural resource it doesn't have allegiance to anybody it just is um and so that's why i think it has been such a successful story value over time because it is like a 10 out of 10 on both of those characteristics um so when you think about that in the context of a cryptocurrency store value you kind of have to look at those two variables as well so just to start on on security how a cryptocurrency gets its security is through the consensus mechanism and really that security comes from the

ability to protect against 51 attacks and so as you break this down between people working group of state i think the relevant question is is twofold um how efficient is each mechanism in garnering that security and then after that how difficult is it to attack um efficiency agnostic so on the efficiency front you have to think about okay how does somebody attack the network so if it's a proof-of-work network you have to basically acquire as much hash as currently exists such that you control 51 of the hash um and then that will allow you to attack it so the relevant question there is how much issuance does a proof-of-work network have to emit

to generate one dollar of annual security and really what that boils down to is what is the rate of return a minor demands on his investment in order to mine because that's what determines how much how much the chain has to issue to achieve the security and generally this is not an exact number but generally the way it works out in a proof of work system is approximately 100 so if a miner is going to spend a dollar to buy a hardware rig pay for electricity etc he's going to demand one dollar every year to make that investment and the reason the fundamental reason for that is that this hardware does not last forever so let's say it lasts three years he's going to

demand that he receives payback on his hardware in the first year such that he can make profit in the second and third years um and so generally it works out to that 100 percent figure so if if a proof-of-work network wants to achieve a hundred dollars of security meaning that it would take a hundred dollars to fifty percent attack it it must emit a hundred dollars every year to pay for that security so it's about a one-to-one ratio now with proof of stake it's very different what is the rate of return that a staker requires it's generally somewhere between three and ten percent and in the case of e obviously we just discussed that it's going to be route five so they only require a five percent return so what that means is to get somebody to lock a dollar of

their stake in the staking contract and therefore provide one dollar of security you must only issue five percent of that dollar to pay for it so it's five percent versus 100 on the order of 20x more efficient so if approved stake network wants to generate 100 security it only has to pay five dollars versus a proof of work system has to pay 100 so just in terms of security efficiency proof of stake is dramatically more efficient than a proven work system and then this kind of the second factor for security is okay that's fine but how hard is it to actually attack the network and i think this is the part that's a little more nuanced that i don't think people really think about with the proof-of-work system you have

to buy the mining rigs you have to get the electricity and you have to set up your hash rate and with each mining rig that you purchase the next one does not become materially harder to purchase than the previous one so you just need to buy them all up et cetera and then you have enough and that's just a function of money the problem on proof of stake is you're not buying hardware rates you're buying tokens and there's a finite number of tokens it's not as if main or nvidia is making your hardware breaks you're you can only buy tokens and with each token that you purchase the next token becomes significant well not necessarily significantly let's leave that aside with each token that you purchased the next token becomes a

little bit harder to purchase in the past and so on and so forth and so if you envision a scenario where let's say the ethereum staking rate got to 51 if you assume that those are good actors the network is then mathematically impossible to attack because there does not exist enough tokens for somebody to have 51 of the stake because 51 of the stake is honest um but obviously you know we don't even need that let's just say the network gets to 30 staking rate only about one-third of the ethereum tokens are actually liquid and actually you know move around every three months so even if you get to one-third it becomes practically impossible to attack the network under any circumstance it doesn't matter how much money you have

it doesn't like first of all it's really freaking hard to buy that many tokens because as you start buying them the price is going to go up dramatically and it's going to come become very very very expensive to keep buying them but second of all it becomes like actually mathematically impossible because there's not enough liquid circulating supply and so that is a kind of a reflexive defense that proof of stake has that also doesn't have so it's more efficient and it's harder to attack and then the part that i think is kind of really profound about this is that both mechanisms have a core fundamental problem which is that the price or the security of the network is actually directly tied to the price of the asset

meaning because it's tied to the issuance as the price of the token goes down so does the value of the issuance and so does the security of the chain and that creates the potential for a very toxic and harmful negative feedback loop by which the price goes down therefore decreasing the security therefore making people lose confidence which makes the price further go down which makes the security further go down and so on and so forth and in a proof of work system you really have no natural defense mechanism against that because as the the hash goes down it doesn't become harder to buy mining rigs like bitmain and nvidia are other standalone companies that are making these products for other things and they can just keep making them but for proof of stake

it's not just a function of the money right as we articulated it doesn't matter how low the price goes if there's not enough circulating supply you still can't attack it and it still becomes quite difficult even if there is enough because you will start eating through it and so the proof of stake system has a defense mechanism that's actually reflexive with price as the proof of work system doesn't which makes it a lot more vulnerable to this negative feedback loop eventually someday playing out um and in the case of bitcoin the bitcoin asset has been quite fortunate or if you don't want to stay fortunate it's just so it's happened this way such that around every halving the price has also gone up dramatically but price cannot go up exponentially forever because i had to worry about say

my paper like if the price doubles every halving for the next seven halvings the price the market cap of bitcoin will be larger than all the m2 that exists in the world so like there is a natural bound um and so in that context you cannot keep relying on price going up to keep your security budget if you keep having the security budget eventually price will stop going up and then you're very very vulnerable to this negative feedback loop and so the only way to actually reliably generate the security over a long period of time is through a large people you need to have a mechanism that is sustainable to pay for your security other than issuance and ethereum obviously has that it has the largest people in the space and bitcoin

obviously does not have that and so for these multiple reasons on the security front of this um analysis it's very clear to me that ethereum is a better suited asset to be a store value than bitcoin i think honestly i i i really don't know how bitcoin is going to deal with these problems because they just don't generate any fees and that's the only way to actually generate long-term security like their current roadmap the security is compromised every four years into perpetuity and that's simply not sustainable and for a store value the single most important thing that you need is sustainability and confidence long term so that's what makes that's just like the

very large first principles structural issue that i have with bitcoin as a successful store value and until that's resolved it's just very hard for me to see it really gaining adoption and the main way that people would go to a address that is with is with tail inflation so basically get rid of the the having cycle which has some of its own problems but that also just guarantees inflation which is also not what you want in a store value so for that reason like it's fairly clear to me on that as in that angle ethereum is far better suited now the second angle that i think we have to discuss i don't know if brian you wanted to jump in with something but in in in the case in the sake of fairness i think we should also discuss the second

um sort of characteristic which is credible neutrality which i think the bitcoin is currently ahead of ethereum but i don't know if you want to jump in first no i i i agree with that on the on the credible neutrality front though though i think uh ethereum is a fast catching up i guess you know just to kind of round out this this conversation though about sort of bitcoin versus ethan and kind of the flipping so how do you think the flipping is inevitable and if so how soon do you think this happens it's like the merge really the last ingredient needed you know ethereum gets his monetary policy figured out basically and that that's the last thing necessary in order to flip in bitcoin and if so when do you think that could happen how soon can i can i do the credible neutrality

point for two minutes and then address that do that do that yes i'll do it quickly so basically the only point about credible neutrality is just that the second characteristic the store value needs is credible neutrality um it's not enough to just be secure if somebody can control you um and i think bitcoin is the way that a cryptocurrency achieves that credible neutrality is through decentralization i think bitcoin is clearly the most decentralized network today there's there's an awk team for ethereum that is meaningful there isn't really for bitcoin i don't think there's really a debate there however long term i envision a place where i think ethereum is essentially on a road map and that road map has an end point that doesn't mean that devs will go away forever at some point but i do envision

them and call it 10 years migrating to more of a maintenance role where even if some government controls the developers they still can't touch the chain because the chain no longer depends on them there's other people that can do their job and the chain is no longer reliant on that developer team and i think ethereum will get there and when it does get there it's effectively on par with bitcoin on credible neutrality and so at that point it will be clearly superior for security on par for credibly neutral and just like a all-around superior store value um now going back to your question about the clipping i think you know we could talk about these fundamentals that were blue in the face and i do think they matter but ultimately it comes down to flows and this is why i think the merge is so significant to

basically ensure we're not insured but to drastically increase the probability that a flipping will someday occur because once you achieve the merge successfully you basically have this very powerful dynamic where after that date time becomes a tailwind for ethereum while remaining a headwind for bitcoin and what i mean by that is after the merge every single day you know there's money that needs to sell bitcoin and every single day you know there's money that needs to buy ethereum one has structural supply one has structural demand at that point it's just a matter of having enough time pass before those flows eventually do their job um and so yes i do think the merge dramatically

increases the odds of a flipping yes i do think of flipping will someday occur like i often say like there's no certainty in anything so like of course you don't know that anything will happen but i think it's better than 50 odds um and in terms of the time frame i'd look to that long term i i don't think of flipping will occur before the merge i don't think it's the epc ratio is going to double in the next four weeks i think it will go up but i don't think it will double um i think you'd be more in that call it six month to two to three year time frame that's a wide time frame yeah that's kind of a perfect answer he's kind of a

cop-out answer six months i don't six months six months two to three years the two year two years i'm it's that's not much of a cop-out answer yeah i you know that's that's definitely range bound what do you think about this ryan uh what's your certainty of the flipping and uh 99 ryan 95 there's only the only chance of the flipping not happening is related to black swan type tail risk where proof of stake they find a critical flaw in proof of stake you know years later some researcher eventually figures it out or uh you know we're talking about there would have to be some very very unexpected extremely significant new development to

prevent the flipping we're absolutely gonna flip it uh my timeline for it is within four years i think four years is sort of a good a good amount of time to have the flows accumulate i have a longer longer explanation for for why i think that's a good timeline related to when the next bull market starts to kick in and the fact that proof of work is more expensive in a bull market and also i just think there's a history in crypto of uh the inefficient market hypothesis where uh it just it just seems to take take the market some time to like believe that a realized fundamental

is definitely going to translate into some kind of market movement it's almost like a game of chicken they're like all right we all see the mergers successful you know dude do you believe it's gonna cause ether to gain on bitcoin well i believe it but does this does she believe it do they believe it so i think there's i think there's just sort of a natural time delay between the success of the merge and the accumulation of the flows and confidence and obviously continued growth of ethereum in our l2 ecosystem which will eventually definitely cause the flipping so while while i'm 100 in you know 99 flipping in general i'm i'm uh 90 within four years uh and uh here we go uh i'm a spicy zero

percent in the next 15 months why i knew you were gonna say something like this why well i uh i believe that the the accumulated confidence in bitcoin is just gonna take some time to dethrone i think you know with the merge coming there may be a great merged trade you know not not my area of expertise where we we really gain on bitcoin and but then there could be uh a trad five macro event that you know to house point i have no particular insight into you know the global global macro economy whether s p 500 is going up or down i don't know but what i do know is the crypto cycle is real and if you've been around for a few years you start like you get a sense

that the the crypto cycle is a a highly significant uh uh separate confidence cycle that causes the prices of these primarily to today confidence-based assets to rise and fall in some kind of like natural human cycle and this cryptocycle is separate and distinct from the global cycle and so what we have is a cryptocycle that ended last last november and a a global cycle that i don't know much about that guys like jamie dimon and ray dalio seem to think there's maybe a lot of challenges with and so for me i feel very confident that the crypto cycle is going to continue to

play out over over the next year or so and i i feel some degree of confidence that the global macroeconomy could provide new headwinds not my area of expertise and so i think you just sort of put that all together and i just i just don't see the the crypto market you know in in november or let's say january next year january next year merge is four or five months old we've saved uh uh however many you know possibly at that point about about one to several billion in minor payments you know with the current reduced fee level for this this crypto bear market and i just i just don't think that

having saved a few billion in fees and the merge chugging along for five months is gonna cause that kind of glacial shift in the crypto climate i just think it's gonna take a little longer so 99 flipping and i just think it's going to take a while and no doubt in my mind that you know those of you who specialize in shorter term time horizons are going to have a lot of fun and a lot of volatility you know between between now and then well so let's uh let's end this and this has been a great discussion uh guys but let's end this with one question which is uh positioning uh relative to your thesis so um ryan you're you we'll start with you and we'll go to hell but ryan your your thesis is bullish long eth i would imagine though in the short run you

don't you don't think uh much will happen relative to the merge in the long run you are bullish either so how do you position a portfolio for something like that is it just simply buy and hold eth uh if so that sounds that sounds real good uh is there anything else you do uh buy and hold ether and for me uh over the past few cycles i was able to increase my my ether position uh about 100 through uh some sort of judicious and conservative leveraged buys uh you know using using our traditional facilities like like maker uh and so for me uh i think there's a question of when do i when do i get in at leverage i'm not there yet uh that's just because

uh i i do think the prices we were at a few months ago were truly low i would have been very happy to enter there i'm just i'm just kind of rolling the dice and thinking that you know given the size of my ether stack already which is considerable for my family i'm i'm ready to wait and bet that i can pick up crypto at low prices in the coming quarters uh so for me just just already being a large ether holder i'm going to wait a few quarters and then i'm going to get in at leverage and you know sail through the flipping and i i think i think we're gonna see you know 10k to 25k towards the middle middle of the decade and is a triple digit eth on your bingo card or did we hit that once never again unfortunately i think it's it's

it's a possibility yeah i think especially uh as a function of global macro brian when you uh take your leverage uh with maker compound ave or whatever how long would you do you think that you would hold that is that like it's not that's not like a two three week thing right that's like you're holding that leverage position for a long time right that's right i'll pick a liquidation price that i feel very comfortable sleeping with although i won't you know uh uh step too far away from from my uh my my hardware wallets uh and uh then i just then i just let it ride i just you know you got a liquidation price of say 250. great

you've just you've just it's it's free money man like there's a certain level that we're not going below and we're definitely going but we're definitely going up you know eventually let's not let's not recreate the sailor sound bite i i uh is your house mortgage let's not do it that's a great sound bite it's one of my favorites let's not do that quick story on that though average is not free money i i i i did think that at one point in time and i remember when we uh dropped down to double digits and i had a liquidation point point that got uncomfortably close um so just another reminder that anything can happen in crypto for sure but how how are you positioning yourself

what is the your your most preferred way to get exposure to the upside in the merge here yeah uh i will not be levering along through the deep applications my investors do not have to worry about that um i will basically be you know i've talked about this at large and nothing changes for me um long heath long eighth btc long liquid staking derivatives long eath call spreads um those four instruments are the the four that that that i uh that i've had on for a long time and that i continue to hold um like when like the timing are you like are you percentage deployed uh did you

have any information about that um yeah i mean i was it's it's it's it's a little bit of a grayer i got in trouble for this the other day because i talked about it on twitter and my lawyer messaged me and was like you can't do that that's solicit well i don't even know if i'm supposed to say that anyway a little bit of a little bit of a gray area which you can and can't talk about so i'll try to be cautious um we were very deployed two months ago uh over the weekend we took leverage down a little bit um mainly just because i felt like i had a lot of alpha

two months ago and now you know with the date being set with everybody talking about the merge i felt like some of that alpha had been pricing like we said i feel like some of the merge is priced in but not all the mergers pricing so naturally i feel like as an investor my position sizing should match my conviction levels um so we took stuff down a little bit but we still have a large core position um the strikes that we have on the call spread is we bought the september 1500 2000 call spread for 50 about two months ago or six weeks ago so you know above 2000 that pays out 500 it's like a nine to one payout um

and we're just going to hold that pretty much through the merge um and yeah so i'd say we were we were very deployed we're now moderately deployed um and that then the position that we and and part of the reason for that honestly was i want to be able to hold my position just through the merge and not worry about it and as just a like an investment fund manager there's a level of sort of risk management that you have to do and even if we think this bad scenario outcome is only three percent i still probably shouldn't have you know be too far over my skis going into that scenario just in case it does happen so now i feel like i've reduced to a place where i'm comfortable holding through through the merge from here and whatever happens happens

all right so indus uh the question of this episode was is the merge priced in what's uh final answer on that how oh ryan it's the merch price absolutely not we are we are going to the moon uh patients will be rewarded there we go guys i think that wraps it up um bankless nation uh none of this of course has been financial advice you definitely have to make your own decisions some action items though for you and i'm going to thank these two gentlemen in a second but an action item is hal's entire thesis on the ethereum merge is coming out tomorrow okay this is like 25 26 pages it's got graphs and everything it's fantastic

uh in order to get that go to the bankless newsletter you'll get that in your inbox tomorrow that's newsletter.banklesshq.com subscribe some of you guys are just watchers and listeners be a reader as well get this thesis in your inbox tomorrow i promise you it's worth it um hal and ryan thank you so much for joining us on bankless today thanks for having us thank you guys for having me as always i'll say again none of this has been financial advice is risky all of crypto is risky so is defy you could definitely lose what you put in but we are headed west to the merge and beyond this is the frontier it's not for everyone but we're glad you're with us on the bankless journey thanks a lot you