Q4 2025 outlook for Bitcoin and crypto, with Kevin Kelly and Jesse Eckel

Transcript

I have this belief that actually 2026 for crypto, everyone keeps saying we're never going to have like anything close to 2021 and I agree on a liquidity front that's true. But if you think about a crypto front, we have never had a more bullish uh setup in terms of like market structure uh like onboarding, adoption, ease of use and just like retail being told by everyone and their mom in on CNBC whatever that crypto is the future, tokenization's the future, etc. Good morning. and welcome to the Milk Road Show, the daily crypto show where October is here and the charts are greener than your neighbors lawn. I'm your host Jay Hamilton. It's Friday, October the 3rd. Bitcoin has cleared 120K. All the charts are green. The Q4 Goldilock setup we've been talking about for a while just keeps looking better

and better every day. And today's conversation is going to combine macro and markets as we walk through our crypto expectations for the rest of this year and how to position your investments accordingly. We are joined today by Kevin Kelly, the co-founder of Deli Digital and founding partner of Deli Ventures. We're also joined by Jesse Eko, founder of OPAC Ventures and fellow podcaster and legendary crypto investor. Before we jump in, I got to tell you guys really quickly, the Milk Road Pro team has put out two incredible reports this weekend. One talks about our expectations for October as we head into Q4. Also talks about how we're allocating a little bit more capital within our portfolio and how we're doing

that, way we're thinking about allocation right now in this current market market environment. And the other is honestly the best macro report I've ever read. And that's put out by our macro team. So make sure you check out both of those. Part of them are free. The rest you're going to have to go pro if you're not already pro, so you might want to. Today's episode is brought to you by Nexo, the platform that grows your capital without locking away. It's also brought to you by Figure Markets. Grow your cash like a bank. No lockups, just real returns. With that, Kevin, welcome to the Milk Road Show. >> Thanks for having me, Jay. Excited to be here.

>> Pleasure to have you. Jesse, what's up? Welcome back. >> It's good to It's always good to be back. >> Thanks, man. It's good to have you back. Uh, okay. Kevin, it's your first time on the show. I always love when we get somebody first time on the show. Just to start with your current take on the market. You know, we're sitting here, it's October 3rd, we're looking at Q4. Uh we've had a very interesting year. When you look forward for the rest of this year, what are you seeing? How you feeling about the current market setup? >> Yeah, I'm uh I'm feeling very good about it. I think conditions are going to remain pretty favorable heading into year end. I I don't like overindexing on seasonals because again there's oftent

times that things sometimes things can be different. But when you look at the macro backdrop, which I'm sure we'll get a lot deeper into during this, um everything for me is really lining up for another pretty stellar Q4. I think that doesn't mean you can't have pockets of volatility. I think what could wind up happening in the short term is everyone gets really excited. Again, September was green, probably unexpected for a lot of people. October usually after a good September follows, but you could see these kind of, let's say, you know, bare traps where you get a pretty sizable ramp up, some consolidation, bit of downside volatility. People say, "Oh, maybe that was the top." And then usually that leads to obviously pretty nice price action heading into your end.

But uh on the macro front, I mean, I'm not seeing any signs of serious threat of a recession, which usually is the big thing that takes risk assets down, including BTC and crypto. If anything, I think we're probably seeing a reaceleration. There's a lot of data that points that direction as we head into again Q4 and then Q1, early next year. Credit growth, strong, equity positioning, which is a big thing that we that we track right, not just sentiment, but actually uh on the positioning front, how investors are actually allocated. There's still a ton of room to re-risk. I mean, we're not nearly at the levels that we were heading into 2025, right? Where everyone in their mother seemed to be bullish risk assets, which was a bit too proved to be a bit too consensus. Um, we've got rate cuts, we've got all these things

that are lining up for in the short term, I think, again, favorable conditions. And then the long-term thesis, which again, we can get into around, you know, we were one of the first way back in the day when we first started Deli, this currency to basement narrative was at the heart of what we thought the biggest value prop for Bitcoin was. And so we've been writing about this for seven plus years now looking at major central bank balance sheets talking about global liquidity seeing how these cycles line up and trying to kind of beat that drum where it's not the having that drives these cycles it's liquidity it's the macro backdrop crypto I've always said is crypto is macro and macro is crypto and I think that that is be only become more true over time and it's crazy that I think Bitcoin at this point is now very

much solidified itself as a macro asset so talking about the macro and understanding the macro is now more important than ever in my view. >> I feel like you are speaking to my my my soul in the way you approach crypto. Uh and Jesse, I see you smiling as well because I know you agree once once Kevin started talking about liquidity, you were like, "Oh yeah, here we go. Let's go." Uh I want to I want to touch on liquidity because as you said Kevin it is really the tide that lifts all boats and we are in an environment where liquidity at least for a lot of people viewed as the main driver of markets particularly crypto markets. When we look at liquidity setup right now and I

can bring up some recent charts that you guys put out your recent chart pack uh which we'll also link into the show notes because this is a great chart pack. Um what are you seeing though when we look at the liquidity backdrop right now? >> Yeah, I I think um liquidity is a really interesting topic because to your point it's become all the rage especially over the last couple years, right? But again, it's it's really been at the heart that drives everything from Bitcoin and crypto to equities to bond yields to commodity cycles. It's it's really kind of sits at the center of this. I think what's important when it comes to talking about liquidity is a lot of people on one side have said this hasn't been much of a liquidity driven cycle so far, right? especially when you look at kind of Bitcoin and how it's and how its

uh prices reacted. It's more around institutional adoption. And I think there are some truths to that. But a lot of people don't look at the entire global liquidity picture. So what I mean by that is if you see a lot of charts where it's Bitcoin going up and to the right, you've got Fed liquidity, right, which has become a very popular metric kind of channeling sideways and and bank reserve channeling sideways and even kind of dipping lower at least a little bit more recently and saying, "Look at this dispersion. It's not liquidity, it's something something different, right? Well, people often fail to look at the big picture, which is like China is a huge the PBC is a massive contributor and arguably I would argue the biggest contributor so far this cycle in terms of its liquidity contribution. China's been stimulating

for the better part of most of this year. It's been a bit sporadic, but PBC is a huge part of that equation. So you have to kind of look at liquidity because it has become more and more fungeible over time. You have to look at it from a global perspective, right? So when it comes to what we're looking at right now in the short term, we put out a a note a couple months ago saying on the US side, liquidity side, look out for maybe some choppy price action, bit of consolidation because you had the whole TGA refill, which now at this point has largely been played out, right? even as the RPS drop down. But China is again the PC I think is going to be one of the big drivers for this Q4 because this is right around the time pretty much every year almost like

clockwork that China winds up ramping ramping up its uh its stimulus efforts. Um and China's in a in a bit of a precarious position right now. I don't think all the China pes uh pessimism is warranted by any means. Um I'm actually pretty bullish on China going forward. But when you kind of zoom out and just look at what matters, I think from a liquidity standpoint, Q4 is going to be favorable because again the POC usually comes in and adds some serious support, you know, at these levels. And obviously, so seeing China increase liquidity in Q4 is that's what they typically do, right? That is their traditional path is to inject liquidity in Q4. So that feels good to see. uh US

TGA refill is is done. Is that is it done? Is it fully done or is it like we're close to done, right? >> I think we're pretty close. I think we're about a little above 800 billion at this point. Um and again, that that number always moves, right? It's not like 850 is the number and once they hit that, like it's always a bit in flux, but I think the biggest part of that move is over. >> Okay. So, so that that obviously that that drain is going that that shifts us to a new uh no longer draining. >> I I could add a little bit on that. So, um so what a lot of people missed in um the Treasury statement back in August is that they're frontloading a lot of the Q4 issuance in October. And so o even though it's it's October, October

structurally in terms of liquidity is going to be like the second worst month of the year following September. So August and July both would be uh better in because we had the RP to kind of cushion things. Uh but right now because we're frontloading a lot of the issuance uh October structurally is going to be weak. I don't know if that means like the market's not going to do well because obviously it is doing great. Um and you know kind of animal spirits could pull forward some of the bullishness um you know from the rescue for uh but the but but structurally it's the second worst month >> and I think that could set up like we were talking about earlier a little bit of like let's say early first half of October looks really good people get really excited and spirit start to come

back then you see second half of the month you know some price consolidation maybe a little toppy downside downside price action that again like kind of sets up for that better Q4 to your point. I think that that aligns pretty well. >> I really like this uh uh this page you put out in your recent chart deck and this equation for Bitcoin value. Uh can you just walk us through this and clue our listeners into this because it's a very nice simple equation way to look at the price of Bitcoin?

>> Yeah. No, for sure. So the big picture view like our our core thesis and why this is more of like the long-term secular trend is we believe that liquidity the world is going to need and the financial system is going to need more and more liquidity going forward and the reason for that is because right now the US but this is not just a US-centric problem the size of fiscal deficits that are being run are not only substantial but are likely going to continue right maybe they don't increase but at the scale in which they're at they are going to continue because the math simply points to them continuing right it's very very difficult for you to kind of reverse that trend especially in the short term >> let's walk through a few few of these

charts because I think there's a story to tell here that's pretty pretty nice so walk us through these >> yeah so when you look at so deja GDP is what a lot metric that a lot of people look at right reason we kind of put this in is just kind of level set of hey a lot of focus is on the US and the US's potential insolveny and a lot of calls for you the US basically running an unsustainable um fiscal situation. But it's not just the US that is doing this, right? When you look especially at other developed countries, big ones in Europe, everyone's kind of running this fiscal deficit playbook, right? And why is important is very simply fiscal deficits, spending more than you're earning at a government level or public level means you are continuously increasing the amount of public debt,

right? And that's why you see these these debt levels continue to rise. And they're at a point where in order to sustain those levels and kind of keep the the game running or the machine running, you need more liquidity and kind of balance sheet capacity to be able to not just uh absorb that debt increase, but also to be able to refinance it, right? Uh Michael Howell from Crossber Capital is one of my favorite follows and I would consider to be one of the kind of godfathers around global liquidity and I think he puts it really really well when he says that the financial system has become less of a new kind of credit or new debt growth engine and more of a refinancing

machine, right? Which basically means we just need to continue to be able to kind of kick the push the ball or kick the like down the curb, right? Just continue this kind of trend. So the story we're trying to tell with this is yes, US gets a lot of kind of creditor blame for its fiscal situation, but this is happening all over the place. What that means is global debt levels will continue to rise, which means the more debt you have, the the greater the need for more liquidity to support those rising debt levels becomes. Why that's important is because this ties into more liquidity ties into this bigger global broad-based currency to basement narrative that again really sits at the core center of what our thesis has always been on the biggest value proposition for Bitcoin.

Right? So you could look at the dollar versus the euro for example the dollar versus the yen and you can look at five 10 year charts of that and let's say they're kind of flat over the next 5 to 10 years. What you're missing is if you put asset especially scarce assets, right? Bitcoin being the most levered version of that or purist bet or hedge on currency debasement. But equities I think are again fit in that category. If you take the chart of Bitcoin for example and you just invert it, what you're now looking at is how much value the dollar is losing against the hardest and scarce scarcest asset in the world, right, in Bitcoin. So it's just a a framing of again this currency debasement narrative. You could look at the DXY and say, "Oh, the dollar's strong versus, you know, X, Y, or Z

currency." But the bigger picture point is all these currencies are being debased against hard real scarce assets. And there's probably no better chart. And one of the most important ones we've been telling, you know, our readers to to track for the better part of 12 months now is just look at what's happening with gold. I think gold sending a massive signal, right? And it tends to typically actually lead BTC's price action. like gold is screaming that this currency to basement call it would start off as a narrative is now actually becoming much more front and center and it's not just in the kind of crypto corners right of the world like the stuff that we like to talk about this is the some of the biggest most influential investors on the planet recognizing this problem and now

starting to really allocate accordingly and so when you look at the equation you pulled up earlier with like liquidity risk appetite and adoption the adoption piece is now the institutional adoption having these vehicles in which investors can actually get exposure to in a compliant way to uh essentially get exposure to this thesis. And then the risk appetite aspect is every time you've seen big volatility spikes, right, and the VIX, the move index is another really important to watch. Bond market volatility because that's arguably the most important stomach market in the world. Every time you see these big V shocks, Bitcoin tends to be one of the first things that's that sells off in crypto, right? So it's still very much tied to I think global investor risk appetite. So the point of this this equation is all of these

things are really lining up right now, right? Liquidity looks backdrop looks pretty good. Not to say it's going to go on forever. We're still going to have these kind of cyclical uh ups and downs, right? Price action never goes one way and just, you know, continues up and to the right. Liquidity backdrop still looks good. risk appetite like I mentioned earlier there's still more room for investors to take more risk because they've been a bit underallocated you could argue for the for the last six months and then when you look at the adoption story all these things are kind of lining up to give us a pretty again favorable outlook for for BTC at least for the next three to six months in my view >> Jesse what's your thoughts >> well I'm curious so you said for the

next three to six months when do you guys see then the cycle topping like where are you or or what's your view? Are you how do you see that playing out? >> Yeah. Um, nobody has a crystal ball, but I don't think there's a lot of conversation now around is it a four-year cycle, is it a fiveyear cycle? I don't get too caught up in the semantics of that. It's more like what does the underlying data tell us, right? I agree that I think the top for this cycle, call it 12 to 18 months ago, we probably would have said more around this time, right? End of 2025, maybe getting into early 2026. I do think it can get extended probably into at least the first

quarter, first half of next year. If I had to a gun to my head, I would say Q2 is probably where we start to see, you know, a local top. Um but a lot of that is because again liquidity backdrop looks good. Our projections this liquidity cycle is not in the earliest stages either right it's not as if we're saying hey everything's about to start like there will be a I think a top at some point next year where liquidity growth starts to slow and potentially even reverses. Um but that the lack of a real true business cycle this time around. There's a number of indicators that point to again into the end of year and car are you could the first half of next year being pretty favorable. So that right now is kind of my base case.

>> Let me I want Jesse to respond to that but let me just quickly give one chart that I want you to talk about which is your Bitcoin top signals model chart. So just give us a little bit on this and then Jesse I want you to jump in because I know you have great thoughts on on the top as well. >> Yeah, we we put this together. It's basically a a combination of 10 to 12 um different indicators that we look at both onchain indicators as well as call it offchain or more macro indicators. Right? So, a lot of stuff we've talked about financial conditions, global liquidity, uh we've got some credit indices in there, uh the dollar, and then just what we're seeing kind of an onchain activity and put these together to essentially give us a more longer

term view of this isn't going to be perfect in terms of calling the exact day of the top, but roughly speaking, like where are we and and do we still have room to run? So just a top signals here that we look at especially when we're putting together more I let's say a medium to longer term outlook that will reference to almost kind of sanity shack if a lot of the things we're seeing on an individual components level is lining is lining up with with that thesis and again this again points to we're not necessarily early stage but we definitely still have room to run in our view based on you know all these different indicators we're looking at.

>> Jesse I'll let you jump in on uh on your thoughts on on cycle now. Okay. Okay. So, I was just curious what you guys thought. And there's a lot there seems to be a lot of people right now that believe that like Q2 is going to be the top. And I think I'm one of the few people that like I actually super disagree with it. And and the reason I disagree with it is because if you look at past cycles, the markets tended to to like peak after liquidity crested. And if you and there's a really solid case that liquidity should go higher well into 2026, not off not just off the fact that like Pal's out of office in May.

And so if you're looking at like rate cuts, uh when do you expect the majority of those rate cuts to come? I I think it's going to be after May. And I think the reason you're going to see that, and I think the reason maybe a lot of people aren't expecting it is because it's not reasonable the amount of rate cuts that I I believe we're going to get. And that's because Trump wants to, as he keeps saying over and over, and Scott Bessent, they want to run the economy hot. Next year is a midterms year. They want the economy just like pumping. And so I think we're going to get more rate cuts after May. I think because of that, you're going to see liquidity actually crest a little bit later than most people expect. On top of that, if you look at things like the changes to the

SLR uh coming uh you know possibly early next year uh on top of like all these like market structure changes of like all these ETF releases, all these um you know uh institutional like products launching on-ramps etc. All those things take a have a slow roll out and that means more buyers, more people coming into the market and I think just a lot of people have underestimated like how much of this market has been just kind of this structural bid. Uh what I believe is from boomer boomer money. If you look at a lot of the the buyers the the ETFs they've been re primarily retail um a lot of financial advisors are like hey you know let's let's jump into Bitcoin be these ETFs. I think that what you're seeing is that boomer money.

And so I think that's throwing a lot of people off when they look at the charts and it's just been up only since 2023 and they're like, "Hey, this can't last much longer." And they don't realize that actually it can last way longer because this has just been like pure structural bid from these boomer, you know, uh, ETF flows. Um, on top of the fact that you have like regulation changes like the Clarity Act, all these things come into place in 2026. It's just so it's just really hard for me to think like with all that happening that we'll end up peaking early 2026. The only way I could see that is if things really got unhinged um let's say like late into this year and then early into next year. If things really got out of control, obviously Bitcoin goes up too

fast, it's going to come down. The market just becomes too unstable. Um, but as long as like it's just, you know, tempered on some level, um, I think liquidity peaks later in the year and I think we're probably going to probably July or fall of 2026, um, I don't know. That's my take. >> Yeah, I I think it's also funny that I completely agree. the faster the BGC rises, if you really do get some type of like exponential blowoff top, which I'm I'm personally not expecting, but if you do, counterintuitively, it pulls forward or increases the probability that you actually do get some type of serious not like correction, but let's say like downturn, right? Because things get pulled too forward or run too hot too fast. I think an important clarification

because there's a lot of things you said that I I I do agree with when we talk about where Bitcoin's going to peak, whether it's first half of next year gets extended into later next year or potentially even into 2027. I don't expect when I say like a topping signal, let's say maybe around Q2, right? I don't expect us to be going through what we went through in 2022 and into early 2023 in terms of some type of massive overcorrective prolonged bare market period which I think makes this question a bit difficult right and it's also not saying like hey we're never going to see another Bitcoin bare market

ever again like I completely subscribe markets are going to continue to be cyclical the more that bitcoin becomes a macro asset it be it's going to be impacted by the allocation changes and the investment decisions that these big asset allocators are making, right? And again, all asset classes are going to be subject to that. But I agree that heading into 2026, as long as we don't see some type of major recession, the outlook is on a longer time frame, right, 6 12 months, it remains really favorable for risk assets because typically that's the thing, that's the dagger that puts in these big huge corrective bare markets and prolonged bare markets. And as long as we avoid that, I I agree with your kind of thesis or your view and that,

you know, this can continue to run hotter or longer than people expect. You could see Q2 going into Q3. Maybe again things trend well, gets a little bit long in the tooth, everyone's got exposure, leverage picks up, you see some type of corrective price action Q3, and then we set up another similar situation we're looking at today, right? Heading into a a bullish Q4 2026. So I think that's also like an important clarification and why this question sometimes is tough when you get like 10 different people 10 different answers is local tops cycle peaks as long as the underlying data of what we're talking about with liquidity and you avoid the big kind of external shocks or risks.

This can run this can run much longer than people think. >> Yeah. And maybe I should clarify too I do see a pause in the middle there. So I don't think it's like up only from here. I think either one of two ways this plays out. Either one, you have so many people in crypto that believe in this four-year cycle that it just creates it kind of memes into existence this sort of sell pressure at some point maybe December early January or two when we have tax season come around um that is kind of a liquidity draw right so that's equivalent in some ways of the TJ rebuild we're going through so maybe we have a pause there um instead I I don't know exactly where but I do see a kind of a runup a pause and then a second a part two runoff and then a blowoff top

because I I do think that um I agree with you that structurally the crypto markets have changed uh in a meaningful way, but I do think that peop when markets get too frothy, you have to have um you have that blowoff top and then you have this cool down period. And so I think uh what we're both referring to is that bare market is that cool down period. Um and I do see that happening after the markets have that um blowoff top moment. But, you know, for that to happen, you do have to have Bitcoin and crypto, you know, have some sort of meaningful frothy runup in the first place.

>> Yeah. And and why like longer term? Um, I spent a lot more time thinking about the longer term future, right? And again, these secular trends versus where Bitcoin's price is going to be next week. When you zoom out and back to our earlier conversation of deficits and debt and liquidity, the reality too when you just look at the math is the fiscal deficit question, right? We're talking about we're running extremely sizable fiscal deficits in a non-recessionary period in the US at a time when stocks were at all-time highs, which means that the amount of tax revenue that the government is getting, right? Because again, that plays a huge part into it. When you look at government tax revenue year-over-year and you look at the S&P year-over-year,

same chart. So tax revenue is at an all-time high, right? Which is what is the revenue part of that fiscal deficit equation. The fact that we're running such massive deficits, even when the earnings side or the revenue side of that equation is also at all-time highs, means that in a in a twisted way, we need markets to continue to run higher because at this point, financial markets, especially risk markets, in my opinion, drive the real economy. Right? We've got the tale of two economies today where the rich keep getting richer. And when you look at the kind of, you know, bottom 50 or 60%, there's a lot you could argue that that cohort is already in a recession or has been in a recession dealing with the aftermath

of inflation, rising costs, uh, labor market, right? There's some data in there that's showing like that there's some weakening, but the reality is top 10% of earners that make up 50 plus% of consumer spending. as long as their portfolios are going up and markets are at all-time highs and continue rising, you can continue to see economic growth and avoid by all statistical measures some type of real major recession that usually again leads to markets crashing, right? So it's this circular kind of narrative and this is why again Bitcoin is like the ultimate almost release valve for the amount of liquidity that we expect to come in is because the math right now until we get some type of really massive AI productivity boom and there's this whole kind of humanoids

aspect to it and labor market disruption like a productivity explosion till that comes the math again for the next at least few years still points to us running the same kind of playbook we have been running Right? And you could argue that if we did go fall into a recession, that only pulls forward all of what we're talking about here because every time you fall into a recession, fiscal deficits explode even higher, right? Tax revenue drops. So that again worsens that equation, makes that equation worse. Like the more you try I've spent a lot of time trying to poke holes in this core thesis we've had, right? Because again, the flip side of this argument is okay, what is it in order to be bearish with coin? What do you need to believe? And one of my big

assumptions is you have to believe that we solve this deficit debt and liquidity problem. And I just don't see at least in the in the next few years. >> That's laughable. That's laughable, >> right? That becoming a reality. >> Well, no, you're not wrong when you say that uh recessions are are almost bullish at this point because like for example, if we went into recession next month, it it hit asset prices, but then the Fed's dropping rates, we're getting, you know, some form of QE. Um Trump's already talking it. This is like the fourth time he's mentioned tariff stemi checks coming next year. I think he's actually serious about this. I thought it was a passing comment but like he keeps mentioning it over and over. And can you imagine if we get tariff stimi checks in Q1 Q2 of 2026 that like I okay so I have this belief

that actually 2026 for crypto. Everyone keeps saying we're never going to have like anything close to 2021 and I agree on a liquidity front that's true. But if you think about a crypto front, we have never had a more bullish uh setup in terms of like market structure uh like onboarding, adoption, ease of use and just like retail being told by everyone and their mom in on CNBC whatever that crypto is the future, tokenization is the future, etc. I really think like the direction of liquidity could point its way over to crypto, right? You know, whatever. Nvidia is still bigger than the entire market cap of crypto. So, we don't need that much liquidity for us to go up, right? So I I I think people are really underestimating how big and how high crypto can go uh over these coming cycles without having, you know, a 2021

liquidity explosion. So I I'm just I'm crazy bullish going to the future for all the same reasons that you just mentioned. >> It's why it's why 100% of your portfolio is in crypto, which is uh which is you are putting your money where your mouth is. That's for sure. >> If long meetings and judgmental bankers are your thing, Nexo is probably not. Nexo is a premier wealth platform built for people who value their time and money. It's built for people who have idle cash lying around and want it to grow fast. Whether it's Bitcoin, Ethereum, or even Forex pegged assets like USDT or USDC, Nexo offers up to 14% annual interest and access to cryptobacked credit in under 24 hours.

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I I want to I want to take the the conversation in two directions. One, I want to touch on Kevin your point about AI being the there is going to be a moment when there might be a productivity might I think we all would agree there will be a productivity shift. uh but nobody knows when that is the big nobody knows when that's going to come. So I want to touch on that and then I also want to after talking about that I want to come back to we're talking a lot about Bitcoin. I want to talk about the rest of crypto and the trends that we see playing out for the rest of this bull market whether it be you know Q1 2026 or Q4 26 or even some people saying 2027 which would be insane. Uh AI though, what's what's your thoughts on AI, Kevin, in terms of the

timing of when AI really starts to impact the economy in a in a meaningful way that shifts some of these macro trends that we're talking about? >> Yeah, it's a it's a it's a really good question because there's I think a couple or a few different variables at play right now and a lot of this is a bit of a timing game. Um, so I think AI has proven already, we'll talk about digital AI and then embodied AI is the kind of whole humanoid replacing like physical labor which you could already see an even bigger market, right? It's going to cause even bigger disruptions and I think the humanoid embodied side. We're seeing a ton of advances there even in just the last 6

to 12 months. The amount of investment that is now pouring into that that's going to that's the next big thing, right, in which a lot of like AI investment dollars are going towards. That's probably, I think, two to three years away from actually really starting to make an impact, but more likely five to six when like things start to really shake up across the board in terms of physical labor. Um, on the digital AI side, I think what's really interesting is I think AI has proven that it can be a very valuable tool if you know how to use it. And I think it's the people who have leaned into it early on and are already best-in-class or tier eight talent at what they do. It's only supercharged their productivity, right?

It kind of again goes back to that dispersion of rich get richer. Like the people who are really tier a talent and using these tools become almost superhuman in a sense, right? Um but what AI more broadly is I think the struggle right now is in certain areas it's shown that it has really strong product market fit, right? You look at a lot of these coding tools today, right? Even our engineers at Deli have been using these for again the past year or so and we've been able to do the work of 30 to 40 developers with three to four people, right? So like the the productivity is is certainly there if you know how to use it. What is happening though is AI has created an

immense amount of consumer surplus right now. And what I mean by that is we personally as a business would be willing to spend a lot more on the tools that we are using if the risk was hey we're going to jack up prices you know 10x but you're going to lose access if you don't pay that. We would be willing to do that right now because why there's so much such a big consumer surplus is the amount of value that people are getting from these tools is so much higher than what they're actually paying for it. And why that matters and where I think this like tugof-war is going to come in is it's a bit of a race between some of these big AI companies, especially some of these massive labs like the Open Eyes of the World, getting to a point where they're able to

actually manifest that future growth and future profitability that a lot of investors are banking on versus the race of how long will investor appetite still be there to continue to fund these mega burn rates. Right? When you look at OpenAI, it's one of the fastest in terms of revenue scaling, fastest growing companies we've ever seen, on track to do, I think, like something like 12 billion this year, right, in revenue. But it's also forecast to burn 8 billion this year alone, right? That's a that's a huge huge gap in terms of opex, the capex spend, and the buildout. So, and so far, private markets and big VCs and investors have been more than willing to uh support that, right? or basically

subsidize that. >> That tugof-war though between where profitability and investor appetite to continue to to fund uh this massive AI infrastructure buildout is one that I don't think plays out again in the next we're not going to realize this in the next 3 months. But as we get into 2026, especially later in 2026 to our earlier point conversation, I think that's also going to be something that really comes to a head or an inflection point, right? And how this all kind of ties together, not to make this too meta, is we talked about financial markets being a a big driver of the real economy today, right?

With that top 10% 50% consumer spending, as long as markets are going up, I think economy can continue to do well. The downside case is if some of the ROI on this massive capex buildout is start to really really come under fire and scrutiny and it causes your mag 7s of the world the big hyperscalers which are going into this the largest most profitable companies on the planet if it starts to question what that future growth potential is being priced in if that's really achievable in the timeline people are expecting if you start to see that big weight of major US equity benchmarks like the S&P start to roll over it starts to get into that reflexive down loop of market turn sour on these names. Obviously, as financial

markets and and equity markets start to down to to to skid lower, uh you've got this impact on potentially consumer spending, funding will tighten up for some of these AI companies and startups, especially that middle market, which isn't the big, you know, open AIs of the world where there's almost infinite demand right now. If funding starts to dry up, then you've got the demand side of a lot of this AI infrastructure starting to to fall in Wayne. uh which again then gets to the ROI being further put into question under more scrutiny because there's huge huge I mean just absolutely immense investment going into the buildout of AI infrastructure especially data centers right so that's one part of it the second is I think this can continue again longer than most

people expect not calling a I feel like the AI bubble calling an AI bubble has hit a bubble at this point too right in some weird ways Um, but one thing that it has going for it is that up until pretty recently, a lot of this buildout has been funded by the big hyperscalers who again are the largest, most profitable companies we've ever seen in history. They're funding that with actual cash flow from operations, right? The problem now is or the potential problem is when you look at the ex the expected expenditure and capbacks that's needed to build out the infrastructure that everyone's forecasting over the next four to five years. You're talking about an 800 billion to maybe a trillion dollar funding gap that these companies

simply just given the revenues and the cash flows they're generating will not be able to finance. So how are they going to have to finance that is this is where debt comes into the picture and debt's really important because that is historically where when you talk about really big bubbles right that wind up crashing the overlever debt financing uh growth side of it is usually what winds up popping that bubble right because debt becomes a huge huge overhang and that's usually what again causes these big kind of topping patterns where it's really things can get cra I think things get even crazier from here going forward forward than they are today, which some people would say is is nuts. But depending on how that financing mixture winds up being made up over the next call it again 6 12

18 months will help determine I think in my view the timing or how big this potential crash could be. Um but I love this topic because I'm been digging into it more and more. I'm going to put out a piece on it. There's a lot of moving parts and there's a lot of open questions on this like future profitability getting there can huge consumer surplus how do companies actually start to capture a much larger percentage of that right to actually sustain or or create profitability loops that they need and then how all this gets financed and what the ROI for the kind of end consumer use case enterprise adoption winds up looking like. This is going to be a topic that I think becomes a lot more prevalent, a lot more heavily

debated next year. Like that's going to be a huge, huge topic for me as we get into 2026. >> Jay, can I jump in here real quick? >> Of course. Okay. So, when you were talking, I was just thinking like you're talking about all this AI buildout and I was just thinking like imagine you're the US government right now. Um, you know, in the past we had this, you know, software, you know, software buildout and all this kind of stuff with the internet. uh it wasn't really like a priority of the government, right? But when you talk about AI and robotics, in my like my first thought is it goes to like national security. Like this is a race that every country has to win. Like you have no choice. So when you talk about who's going to kind of foot the bill for for these buildouts, my first

thought was the US government is going to because imagine you were running the US government. This is a race you cannot afford to lose. Like and not only that, but like if you think about exactly how Trump and Bessant think, they want to run the economy hot. They want to grow their way out of the debt. The only way they're going to do that is AI and robotics. Like just straight, how are you going to onshore manufacturing without AI and robotics? And so this is exactly goes back to our earlier point that the government has no choice but to run it hot. And if this was your company and you were sitting in this much debt, you I I I in my opinion, you'd be like, "Okay, I'm going all in on this bet. If this bet doesn't work, then we're screwed." But like I have no choice but

to go all in on this bet. So I actually think they're going to This is why I said I think they're going to cut further and farther than most people expect. I think we're going to get really really cheap credit uh to kind of to so that we can get this build out and I think this economy is going to run a lot hotter than anyone like epic proportions. It'll go down in history books and either it'll we'll grow our way out because AI and robotics will work or it'll be the greatest crash we've ever seen in like the history of the like the history of the world. I don't know. It's going to be crazy. Uh but yeah, that was the first thing I was thinking of when you were saying all that is the US government is going to be the one supplying that that debt to to

do this build out. >> Yeah. No, and I I think the US government's going to be likely will become a bigger and bigger provider of that funding or subsidizing this because you're absolutely right. This this US versus China AI race is so structurally important at this point and it really is. It's a matter of national security. Um and also the future of where a lot of again like the the global economy and how it's going to be entirely reshaped. You want to be at the forefront in order for the US to continue to be in a leading position right for across let's say economic metrics. the US winning this race is actually extremely important, right? And there is a lot of pressure coming from

the China side because China and why again I say I'm I'm more bullish than most on China is while on the digital AI side like the US still has the lead in terms of top AI labs, top models like the the amount of compute we have like that side of it, the US is still in the lead, right? Nvidia, again, arguably one of the most systemically important companies at this point to the US economy and to financial markets that we've seen in a really long time, maybe if ever. However, on the China side, their kind of goal right now, at least from how I see it, is they're trying to commoditize as much that digital AI, the open source models, making this as cheap as possible, trying to find new ways

with new kind of chip designs and making compute cheaper. Because if they can do that, what they have proven they are much better at is actually taking that the the energy, the intelligence that AI can produce and actually put that into motion and and especially in things like physical AI, embodied AI, robotics, that whole manufacturing side of like physical AI, China very much has the lead on and also is the most important country and has a strangle hold on a lot of the uh supply chains for a lot of these components, right? Especially when it comes to the whole energy and like electricity side of the equation. So like we're very much like this is very much a very real race, right? And so trying to reshore a lot of that is going

to require a fundamental shift in how the government is operated and the speed at which it's operated and p public and private partnerships and providing that funding to be able to actually do this. like we have to get back to building things and we kind of lost that for the last couple decades you could argue because in order to win this race or even doesn't even have to be US beats out China and China falls by the wayside but even to stay relevant in this race we're going to have to do that and again it all ties back into what does that mean right it means that if the government's going to be footing some of this bill it means more spending right and yes you're spending in things that are productive and actual growth generating right versus a lot of unproductive debt debt spending

But again, you're going to be you're going to be spending. You're going to be running larger deficits like in order to do this stuff. It's where the whole debt liquidity equation comes back in. And again, Bitcoin being a huge beneficiary of that. But a lot of these markets that are the private side of the AI robotics market, for example, is really starting to pick up pace. And I think again, that's going to be that's only really just begun in terms of the price action you're going to see on that side. >> Yeah, >> it's all it's all intertwined. We could do a whole episode on on this because there is there there's there's a very I think we are all clear that AI whether it be digital AI or humanoid is

going to change the world. The the way that is going to happen the players that are going to be evolved is still up for debate because we are so early. So, but but again it does all come back to the same macro thesis that you have Kevin which is more more debt more spending is inevitable and hopefully I I don't I hope not for the future that you said Jesse which could be possible of you know hopefully that leads to actual productivity increases and we can grow our way out of it not the most epic collapse that we've ever seen which quite honestly so many people have been saying for a while right like, you know, is it possible that recessions are illegal now? It feels like it. And is it

possible that we could just keep going, you know, at least feels like it could be for, you know, for the foreseeable future. Um, okay. I want I want to we're we're already over time and my producer is yelling at me, so I I need but I got to ask you guys one more question because I I did want to have a I wanted to have a whole conversation about this. So, we'll I gota You guys each get each get the floor once. Keep the answers short, please, or do your best. Um, so far what has defined this this market in terms of crypto has been Bitcoin. And I mean, we saw the the memecoin craziness of 2024. It hasn't been the typical when you look at alts, it has not been a typical crypto cycle. We have

not seen alts reach a lot of alts reach all-time highs yet. There's been some new alts that have done very well. Obviously, when you look at the next 3, 6, 12, 18 months, however long this cycle goes for, what narratives or trends do you think do the best? >> I have a feeling we're going to have really similar answers on this. Um, but but but a little different. Okay. So, I I get a lot of people saying that we're not going to have a broader all season. I disagree with that, but I think some of it's like uh semantics and like wording and how they phrase it out. Uh, if you look at past cycles, not every altcoin ran. Like there was a lot of duds that just didn't do well. There's a lot of dead projects from 2017 that never ran again in 2021. I think it's

going to be the same. I think the easiest way to kind of look at this is developer uh like the amount of active developers. When I think of crypto projects, I think of actual teams building, not memecoins. Memecoins are their own separate thing. There's millions of tokens over there, but people are not going to go allocate into a, you know, million different tokens. So there's about 18 monthly 18k monthly active developers back in 2021. There's about 23 to 25,000 today. It's not that much different. I think the really big change is we are finally seeing revenues and real products being built. I think memecoins have only accelerated that and the need for that and the need to like differentiate on fundamentals and so you're seeing a lot of uh projects being valued on fundamentals and I think that is really where the space is going. I do

think we're going to get a broader alt season. Uh but it's not going to be every memecoin, obviously, and it's not going to be all these dead zombie coins. It's going to be those that have real teams and fundamentals. Uh and I think that hasn't happened yet because we haven't had a big burst in year-over-year liquidity. Um uh like we have had in past cycles. We haven't had really that that big runup. Uh but I think that's coming. And I think everything we've been talking about is uh kind of foreshadows exactly what I mean by that. Like it that's ahead, not behind. And when that happens, we're going to see a lot of risk on appetite. we're gonna see a lot of froth and that's when you see a lot of these things run up to crazy valuations and it gets a little bit out of control.

>> Yeah. I would say couple things. One, I think what's different from this cycle versus last is I think the the average retail participant in crypto is a lot sharper than I think most people give them credit for. Um, I met again some of the smartest people I've ever come across in from anon accounts and random DMs or like random meetups, right, in this space than I have in my my prior life. Um, so I think this this time around the market's been very much projects or tokens are almost guilty until proven innocent versus last cycle or prior cycles where again these true kind of to Jesse's point like all seasons where everything runs. There's just kind of a spray and prey type of

approach. I think the market's gotten a lot smarter and it's more of like that guilty until proven innocent um kind of structure. I agree that fundamentals are going to start to actually finally for once matter a whole lot more. Um the ones that like personally like I'm most bullish on are like my current holdings. I put hype in that basket, right? I put Pump actually in that basket. We could have a whole conversation on what I think the bigger thesis around what Pump is doing. I think it's going to be a lot bigger and more impactful than most people expect. and they have a massive war chest that they're going to be deploying in a number of different ways I think in the coming months that people be might even be surprised by. I look at things like Athena, right, with Treadfi yields, especially we get more rate cuts

and that coming down mixed with a bull market. You've got higher basis spreads on the per trade. Again, that all feeds into kind of Athena's flywheel, the integrations that they've had. So point being these fundamentally driven projects I think are going to be the ones that wind up doing probably doing the best and rather than prior cycles where you had things like the L1 wars or the rise of L2s where everyone was trying to catch the next thing and playing that relative value trade. I think like in traditional markets and you bring it back to like in Nvidia which is I think is a great example the category leaders right that have these kind of compounding modes and and suck up the liquidity which only gives them a bigger moat and the and attention right

which is a huge huge part of this equation I think the category leaders will continue to remain kind of in pole position and that's something I think a lot of people myself included from prior cycles can get caught up in is like trying to catch what is the next thing what is the next hype, right? And not to say some of these recent perexes can't do well and there was a bit of a relative value trade there, but trade versus versus investment. I think market's getting a lot smarter and I think the category leaders in whatever these verticals are that are generating real revenues, fitting that back into token value, that's becoming a lot more important. And I think those are the ones that you certainly want to at least have on your radar, if not have exposure to.

It feels like we've all been waiting for the revenue meta to actually >> and it's funny like the revenue meta like you talk to anybody in Trapfi it's like this just how you value companies right you know what I mean it's >> it's it's kind of a little tongue and cheek but it just I guess shows the maturation of of of this space. >> Yeah. Shows still how early we are and you would assume with all these institutions coming into the space as you said Jesse like they're not throwing their money into the millionth memecoin. They're throwing the money into something that they can value and something they can understand which has real revenue.

>> Well, well, to be clear, I I'm really kind of primarily thinking of um yeah, institutions and the Trafy money and all that kind of stuff, but but also retail will come back. I really I don't see how they're being marketed on CNBC every single day, being told cryp is the future. They for a couple years they were told it was for drug dealers and terrorists and so it's just taken a while to thaw them out. and when they show up, they're going to do some revenue stuff, but also, you know, everything with AI attached to its name. Like, I really I do think there's going to be frothy behavior and you are going to see stupid things run up. I just think you're going to see more healthy behavior and I think more tokens are differentiating on like, hey, we're we're not a governance token like we we

do buybacks. There's actual revenues. At least I'm getting more excited about those things. So, you're just going to see more and more capital allocate that direction, but still kind of in between, you will also have some craziness and some some retail action pushing stupid stuff higher. >> That's what that's why you got to tune in every day because the craziness never stops in this space. Jents, thanks so much for your time today. Really appreciate you joining us. >> Thank you guys. >> Yeah, it was awesome. >> Awesome conversation. Uh, I got to remind you guys as always, none of today's episode is financial advice. I'm not your financial adviser. Kevin's not your financial adviser. Justin's not your financial adviser. Today's episode is for educational inter and enter entertainment purposes only. If you need help with your finances, you should speak to a professional. And as I said,

two awesome pro reports coming out this weekend. One for macro and one for crypto. Check them out in in the show notes. Have a quick and awesome day. We'll see you back again next week. Thanks everybody for tuning in. We're sending Kyle Reedhead, our head of research to the UK's largest web 3 summit. I'm talking about Zebu Live happening October 21st and 22nd in London. Want to join? Use our code milk to get 20% off your tickets. Hit the link in the show notes and say hi to Kyle for us. Want insights on what's moving crypto markets and how we're trading each event? Subscribe to our channel and join the Milk Road Daily and Pro Newsletters and start investing like the top 1%. This show is for educational purposes only. Nothing we say is financial advice. Investing is risky.

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