State of the Market - with Su Zhu and Hasu

Transcript

[Music] welcome to uncommon core where we explore the big ideas in crypto from first principles this show is hosted by suzu the ceo and chief investment officer of three aeros capital and me hasu a crypto researcher and writer [Music] hey sue it's uh it's good to talk to you again how are you doing pretty good how are you i'm yeah i'm also i'm doing great actually thank you a lot of people have reached out to us you know asking that we record an episode again asking that i pick your mind especially on the state of the market and the biggest question that i have received over and over again is is the bull market over or not yeah

that's a it's an interesting question i think it a lot of the reason why people are asking that now is just recency bias right where after markets have fallen off the cliff a bit and momentum is kind of stalling on some coins people are wondering you know is the whole thesis dead is it just all froth and and i think people they they tend to have trouble zooming out i think because you know if you look year on year at you know the total value locked in protocols if you look at year on year uh the you know the the activity and addresses the the daily volumes um you know we're at monumental figures right um you know just

across a number of metrics i i think that um there's very healthy signs of adoption and there's very healthy signs of continued continued momentum i think that you know zooming out some of these coins went up almost every month for nine months straight so i think the pullback um while it was very brutal it's not necessarily the the sign that the whole market's over right and i think that it does give people that have been watching this go up um for several months it does give them an entry point right where up to now it didn't really have that entry point available so i think that um the bull market is definitely not over

and i think that this kind of allows for institutional participants to come into the market and get involved and that will actually um you know you you saw just today uh goldman they they mentioned in the report that they're going to support ether options and eat their futures and that a lot of their clients have been saying that uh this pullback's been a good chance to finally get into ether uh because up to now they just have no chance to even get in right for the whole run yeah and i think we saw that with i mean this run up has been maybe the most orderly in the history of crypto right where there was just relentless buying on every dip and the dips just got smaller and

smaller we kept only like going up like one like one green weekly candle after another um and then a lot of people thought you know that we can't really have major dips anymore just because you know there are so many institutions you know waiting to buy up every dip and they they they sort of take the volatility out of the market right when it goes up 20 and they sell some and when it goes down 20 and they buy some right and so we end up with this with the extremely orderly bull market but then we had a break from that regime right when the market dropped a lot like 40 50 in the span of one or two weeks did that surprise you

yeah i think there is a lot of news that came out around then that was a bit bearish especially out of uh china uh regarding mining but then also in the us with elon's tweets about uh tesla and uh bitcoin energy usage so i think that um i mean those are not the proximate causes necessarily but they're some of them and that and i do think that the market took that as a shelling point to uh to to start taking profits uh so i so i think that um you know it was a combination of that plus the fact that people who uh had been buying uh throughout kind of said okay if i just wait then i

can get it at a much lower price and so i'll wait uh so i think it goes combination of those two factors that put it through but if you look at the way that the markets have bounced too it's also i mean you can see those buyers are still there it's just a matter of what price they're gonna get right so you know during the beginning and the mid part of this run they kept having to buy at higher and higher prices and this time they managed to get some at lower prices than before so i think it's just that simple right um bottom line is there's still a tremendous amount of by demand and i think that the fact that it's dipped like this it didn't have to happen like this i think there's a lot of worlds where you know it would have been a calmer landing but

i think just the nature of that um just the nature of the reaction was was um was kind of exacerbated by the nature of how the fight came out of china right like first you had one announcement then you had another and then people didn't know where i was gonna stop uh so there's a lot of sort of bare sentiment coming out of china at that point um because they didn't know when it was gonna end and there was not enough clarity so i think um that's something to keep in mind where uh when there's like a cycle of fud and that there's like you never know when the shoes drops then then people start pricing in things that are quite extreme right you know whereas if you have you know

regulatory clarity even if it's bad if you get clarity that that's like not not bullish but it's like clear then that can actually be a bull catalyst as well because then people say okay so you know miners are actually basically gonna leave china and then that that then allows people to be bullish again because they know that that's you know that's the extent of it so so what are the biggest uh bearish news that we got out of china and what do you make of them how do you think this changes sort of the the state of crypto in china well i think up to now there's been this narrative that um maybe some countries will support pow proof of work because they have energy and uh and and so on and so forth

and i think that china kind of is one refutation of this now where they are are really much more concerned about green energy and then just climate change issues so so they kind of just taking taking that kind of approach to a whole bunch of industries at once in including crypto and and so i think that the crackdown on mining is primarily just based on that just based on they don't really think it's worthwhile to have uh that activity uh relative to the environmental what they perceive as the environmental cost and so that on the outside i think is kind of bearish just because of the fact that um you know it it's it didn't have to happen that way right

it could have been that trying to took more of a u.s approach it was thought for a long time that they were they had more of a us approach toward mining that they were going to support it because they had the resources and they have the energy they have the hydro you know they have the wind so so i think that that kind of caught people by surprise a bit and also um you know i think it was precipitated by the you know there were a few notable um mining facility issues that occurred i think in i think in may uh i believe elon referred to that as well that event and and so i think that though those things kind of

just drew a dark um they cast a dark shadow uh on the market i think separate from that um you know the uh exchange leverage stuff has also been kind of bearish as well right where uh the regulators in china have been pointing out that you know maybe these exchanges you know these offshore exchanges um that use a lot of leverage that offer a lot of leverage maybe they should uh not do as much uh and until you saw like like huabibe they announced that uh they're not gonna have options anymore and they're also not going to have um uh like longer dated futures either but they're going to still keep some

some some purpose and then some derivatives so it's interesting that they're not fully pulling away from derivatives but they are sort of trying to be uh more conservative uh so i think those things were pretty bearish also just kind of running out of momentum at that point right because i think after this kind of occurred a lot of people went and said okay i have to start hedging uh bdc i have to start hedging into the markets not just in terms of the coins they own but also maybe in terms of mining uh in the future because some of these players they may have a very large amount of mining equipment that they own right and so if they need to if they need to uh figure out their cash flows they may need to lock in a

bitcoin price um because they can't afford it if it goes lower so i think those kind of things definitely weighed on the market as a whole i think also separately from that it was i think i think the the all coin market uh more broadly was kind of already having some signs of froth but i do think that um it's difficult to say that it was overheated per se i think you know people look back on it now and and say oh here are all the top signs but i don't necessarily see it that way i i think that there were still quite a few um i mean funding was not that high uh leverage is not that high so i think that for me like i view it as sort of a more exogenous event that happened as opposed to like

you know if nothing had happened it would have still pulled back like this i think that was that that's the way that i kind of conceptualize what happened so i think um i think the market kind of just started pricing in the idea that daily that there would be these flows coming in and then i got hit with a lot of news that was quite bearish especially in europe and the us we kind of tell ourselves the story that regulators will go pretty soft on crypto because they fear the international competition they fear you know being left out of a new paradigm yeah that's like a new paradigm like the internet right but if now china cracks down on crypto and yeah excitement regulations

what why do you think what ripple effect do you think this will have on regulation abroad i mean that's kind of exactly what i'm getting at right i mean just a couple months ago i think peter thiel he said you know china in a way is is bullish on bitcoin or they're kind of benefiting the most from it so we need to do more in the u.s to to also do it and yeah like that that's like completely refuted right by by these actions uh from china where they're clearly not investing in bitcoin or the idea of bitcoin or the idea of mining it um but i do think that the i think those people are still correct in the sense that bitcoin is one of the pieces in this great geopolitical game

i mean bitcoin crypto broadly um because it's because it's money that is digital right and it's um permissionless network there's this huge importance of being able to harness that energy of the people and i think there there is this growing understanding now that this is in like a life force that you can't really just um you can't really just coordinate and then all kill at the same time and you also can't really stamp it out sort of in a naive way um where you know the presence of privacy coins the presence of coins that uh you know it's the kind of thing where

i think regulators are the point now where they're they're i think the smarter ones they realize that if they crack down too hard in a certain way they risk you know pushing the evolution of the space very fast right toward the direction where then they really can't control anything they can't see anything at all so i think that um that that's kind of the that's kind of the interesting thing i mean i think i think in the us too regulators they're aware of their history with things like file sharing like even something like drug decriminalization and things like that i think there's kind of this understanding now in the west that you don't necessarily get very popular or do good policy by

just cracking down on things it's just not something that they do as a whole so i think that those kind of were the two reasons why i think regulation in the west has always been much more dovish on crypto than people expected given that bitcoiners often say that they're gonna literally overthrow the dollar like overthrow fiat right like you would think that that that raises more than a few eyebrows um but um yeah i think that it is a refutation of the idea it does make it harder for for bitcoin advocates in the us to to go and say that hey um we need to claim our stake in this before china does

uh that that is much harder argument to make now do you also um follow the pandemic numbers at all so i i saw for example someone from rafa said that you know they sold their bitcoin and the main reason is that young people are now you know can go outside again and spend like way less time gambling and at the computer is that something that you subscribe to um i don't really think about that as much i think that there's a generational shift toward digital anyway so i think that um i think that that isn't really gonna stop even if you have you know zero lockdowns anywhere and you have full travel

uh i think that that's a particular trend um and also i think that the nature of adoption in cryptos and these kind of these gardener cycles is that each time you you bring people in and then these people will stay uh x percent of them will stay uh y percent of them will leave but that's you know it the the the direction of the arrow is is straight up basically um as a result so i think that if you have covid be such that people don't really care about uh crypto anymore then i think that the problem i mean that that kind of almost proves that then crypto is nothing more than just pure speculation right it's just like a

it's like a fad that that happens and i think that we both know that it's it's that's only one small element of kind of what brings people in um and i think that if you look at the array of reasons now that people are coming to crypto whether that's nifty's whether that's defy whether that's store value as a hedge against inflation i i think that these kind of issues are much more powerful but i do think to comment on the idea uh that ruffer had which is to uh sort of take profits like this is something that i i mean i've always felt that sort of the macro participants in the market

um you know they're they're not only that they're not bitcoin maximalist they're not maximal of any kind they're like beyond profit maximalist right like they have no problem buying and selling right if they if the market makes a high and then comes off and they didn't sell near the top like they feel very bad and they also feel like they didn't do their job right so they almost have a fiduciary duty to sell near tops and so i think that that that's basically a double-edged sword and i think that that is part of the maturity of the market that that we're talking about right so what that does mean is that on dips too they will be buying those dips you know when the market came back to 30k you know 50 off the highs there's a lot of buyers there right and presumably a

lot of those people were the ones who sold up top so you know when i'm marking near 30k and then a lot of people on twitter were wondering who can buy that price right isn't everyone liquidated well no absolutely not right a lot of macro funds sold near the top so they can now buy near the bottom so i think that that kind of double-edged sword is it's probably a bit brutal for crypto twitter to think about but i think that that that's just the reality right of the market and so i think um you know and and i think rougher is probably like the good version of it where they at least are you know like they disclose and then they they also say and i mean i think google han uh guggenheim is kind of the more uh caricature version of this where he'll

you know scott minard where he'll say like one day that like it's gonna go to 400k and then the next day it's gonna go to 10k uh and this is like like literally like 72 hour gap or something like that i can't remember the exact gap but it's like something insane so i think that that kind of is a bit strange but um yeah i think i think that you know people will come up with all sorts of reasons for why they sold why they bought at the end of the day it's just you know it's about their own risk management it's also about their own view on the chart right it's their view on the on the adoption the view on the markets and sometimes it's it's never it's never one reason i think like if anyone ever tells you like they have one specific reason for buying or

selling like it's it's it's usually an oversimplification of multiple reasons one bit that we have seen in the market that was extremely consistent was microstrategy and now they have raised another 500 million dollar bond not even convertible i think um and announced that there will also sell more equity to raise even more money to to buy bitcoin what do you make of all this like what is sort of the what is the end game here well i think he's uh he's a true bitcoin ball and i think he's um he's sophisticated right so he knows how to use capital structure market structure to access capital cheaper than other people can um so

i think that you know the the convertible bond route that he took um was really ingenious right uh where because he knew that the the uh cost of capital from issuing cbs was so much lower than what he's willing to pay and that the market you know has such a demand for all kinds of these kind of assets that that he could he could basically pull us off as the first to do it right um but i do think that now like you know with gbtc still at some slight discount and then also you know that kind of resale froth exiting the market a bit in

in in btc that he hasn't he i think he realizes that he can issue more cbs easily so i think uh going toward this um straight bond is kind of an admission of that um and i i think that um longer term like where he's gonna sell shares to then uh bringing capital to buy more dc it almost creates like an etf structure for his stock right like he eventually it can just be you know people give him money and he gives them shares and and then he takes their money and buys bitcoin with it that's exactly what grayskill does right that's exactly what an etf does too uh so it's kind of like transforming into a holding vehicle

uh but but interestingly like in his latest disclosures i think he mentions that you know from time to time microstrategy will sell uh as part of its cash treasury policy right so in other words he does have a cell button uh and he wants to remind people of that so i think um maybe elon kind of also put that thought in his mind where he's realizing that like you know if if you know you you get a big drawdown and then the company needs cash and it doesn't have it then then bitcoin turns from being like an asset to a liability to have on the balance sheet right so i think those are kind of where i generally see microstrategy now i mean as long as the stock market is

hot and as long as um as long as um credit spreads are reasonable i think i think he'll be fine um i think that as the only one to have done it too i think he uh fortunately had occupies the public attention like i think it would be worse for him if there's a lot of people doing this now actually and that he has to compete with them for capital right like like in a way though i was actually gonna ask you that like when i when when micro study started doing this i thought they would like laying out the blueprint and there would be a lot of people who follow on and do the exact same thing but is anyone doing something similar that i have missed i don't think so i don't think anyone's doing it um i think for a few reasons i think for

one it's if you have if you have a business you do have to think about where does bitcoin fit into that business and oftentimes the answer may be like you know it it could be something you put x percent of the balance sheet in or it could be that if you you know if you have a consumer facing business like square and then you have clients that also buy then maybe you keep some of that you know you basically keep some of your revenue as bdc things like this i think are are kind of in the realm of um a possibility but i think that like what what sailor has done which is that turned his company into a bitcoin

holding company i think that that's impressive right and and that's ambitious on a scale that that's ambitious on a scale that is not it's uncommon to say the least uh so i think that you know for for companies that have their own business models that looks really scary because you know the bitcoin bet can then actually destroy the company itself so microstrategy i think mainly held domain names and baskets of of tech assets and things like this so i think they were kind of uniquely positioned to go into you know becoming a bitcoin holding company um but yeah like the irony of course is that you know he

laid out the blueprint and said he was going to talk to 500 cfos or something like in two months and yeah you know he's actually very lucky that not many that nobody's taking them up on it because imagine if they did these would now be multiple firms competing to to issue bitcoin back derivatives uh and bitcoin back structured products on the market right and and that competition would would then you know make terms better for investors worse for borrowers and and so he would be hurting his own kind of business model and and market standing in that sense yeah i mean the cost of capital would have gone up but i think it's when he originally tweeted that then he said then he thought that it would push the price of bitcoin up so

far that you know it wouldn't matter to him that they can't cheaply raise more capital i suppose so anyway uh let's move on um we have talked a lot about the your if btc thesis in the past we have done a whole episode about it with kobe um almost listened to episode to date your thesis was that theorem would flip in bitcoin in this cycle and then it would be kind of speculative what happens from there but do you think this thesis is still in play yeah i think the thesis is actually very strong now i think there's actually a number of signs that uh i mean yeah it's pulled back slightly but i think i mean historic is still at a very strong level historically right um

yes at 0.065 as we speak and i think that i think that what's interesting now is that you know because ether has all the same on-ramps as bitcoin does or it has the same products it has the same features the same options the same etf type products the same listings people are already naturally conditioned to just think of multiple crypto assets now i mean it's hard for me to it's hard for me to think of like any individual investor that now like learns about crypto comes to the market and just says like i buy a bitcoin it's it's something that it's something that is

is very rare relative to what i think ogs would have thought this space would look like at this time um yeah because there there's this kind of there's this kind of breakdown of the shelling point right where the shelling point you know and we wrote an article about this during the deep bear market about the case against bitcoin and monetary maximalism right um and we speculated that you know this this idea of a monetary shelling point may not actually be as strong as people think and that was actually very controversial at that time because back then you know at edc was under .02 i'm pretty sure and and like you know alter just dead tokens dead you know so so it's like back then it was very controversial for

us to talk about you know monetary maximism being a questionable thesis but i think now you're kind of really seeing this where you know if you believe that there's incredible amounts of money printing is there then a tie for you to buy a specific asset there may or may not be right and i think that that that kind of breakdown is is um is something that is something that that's quite clear i think if you think about if you think about the fact that um the institutions when they first started covering crypto uh around the sailor time you know there

was a lot of writings about bitcoin store value and digital gold thesis now they write about ether as a productive asset and they also write about you know why ether has outperformed bitcoin and sort of why the these things are occurring and i think that as people get more and more into the space they ask the question of okay first of all you know to call a crypto asset digital gold is like reasoning by analogy right it's it's saying that there is gold in the real world there needs to be a gold digitally and then therefore this is what you buy as a digital gold right but ultimately it's an analogy right it's a meme um and and i think that especially for new entrants

they above all else know that it's a meme because they neglected the meme for a long time right they they they rightly recognize that as a meme from the beginning and said well because this is a meme i'm not gonna buy it it's not real it's just a meme and and so now that they say okay crypto has adoption it has uh merit behind it it has mind share then they look at the space and they see okay what what do i want to buy given this reality and this shelling point toward bitcoin as a monetary uh because it has let's say the most decentralized governance the selling point at the moment that we live in is not just not that strong right uh it's it's not strong relative to the shelling point of say

programmable money or the shelling point of programmable finance or programmable culture that i think ethereum finds itself in and and more broadly smart contracts platforms so i think that's kind of the philosophical backdrop that i tend to see see the world with now which is just that there is there's remarkably low demand for the digital gold thesis relative to what should be the best conditions for it and and that kind of points to me that you know history is written by the victors too right so in a sense you know if either were to flip in bitcoin then after it would have happened all of history gets rewritten right

because then you know the previous ico boom was like the first phase it was like the dot-com phase and but it you know set the you know it set the uh pieces in in place and then you know basically all previous market cycles can be de described in different terms right so in terms of alt btc you know now i want to talk about like you know bitcoin scaling and so i think these are kind of the interesting um philosophical questions now in the space where if if institutions you know if jp morgan and goldman are both telling their clients that ether may be a better buy than bitcoin and if resale is already buying ether at

a higher rate than bitcoin and then if crypto ogs if a lot of ogs now are like 100 eth right if a lot of ogs go 100 eth then who is actually left to you know come in and buy bitcoin well then you really need this kind of essential bank thesis to play out right like you need this corporate they just to play out this corporate one i think aside from sailor it's been relatively quiet on that front as we said i think on the corporate side uh it's just a matter of that it's not it's not really a product market fit for a company to hold crypto on its balance sheet to hedge against something yeah because what are you hedging yeah you went into that like what is the hedge right and i think i

think like even his supporters they kind of saw the ludicrousness of a few of the arguments where i think i saw one podcast he did uh where he talked about like an argentina farmer like borrowing against his land to then basically or bar against his farm to buy bitcoin and then putting it all in bitcoin and it's kind of you know it's it's kind of it's kind of the moment where like the tank is getting tapped almost in a way where it's like that like he wants everyone in the world to borrow against their like family like land assets to to buy bitcoin i mean it's just it's been it's a bit it's a bit much right it's a bit much so i think yeah yeah if the corporate if the corporate thesis is kind of overstated then the central bank thesis

comes into play i i think here is where it gets really interesting because you know there is a game theory for for proof-of-work based you know high-energy countries to come out in full support of bitcoin you know really kind of shill it and and hold it as well and then meme it into digital gold i think that that game theory very much exists for those countries to do it especially they don't they don't have much gold but we're not really seeing that yet that that that could happen i think el salvador is really interesting because there he's starting with a very bitcoin centric thesis on one attracting talent and capital to his country but then two is also essentially mining it from volcanoes and also just being like a bitcoin nation

basically right so i think that that that's very cool to see and and it's too early to tell what that will look like the uh you know what what exactly will happen but these are kind of the bullish bitcoin dominance cases that i see where central banks adopt nations make it legal tender if they give it a status that's higher than any any other asset or they they give it a status as good as fiat in their countries that that is very powerful right and if that were to occur then that's very very bullish for bitcoin specifically i think my concern there is just that this kind of game theory it requires not just one country but a few countries to come in and then and then do it together right and it

kind of requires this coordination game so so so that that playing out is is not as it's definitely not trivial uh so i think you know have to monitor and just see how that continues do you think that countries will actually you know pick winners like that is it like like what is forever at salvador what is the the reason to bet just on bitcoin and say you know we will make bitcoin legal tender but we won't make you know some other cryptocurrency legal tender a few months down the road yeah that's a great question in theory for countries that don't have any coins they should just support like any coin right because it doesn't matter to them what coin it is it's kind of like why would you know why would a country

support a specific company over let's say many companies right so unless it has a vested interest in doing so so proof of work does offer a vested interest for countries with energy right because it they're more likely to support the one that they can benefit from the most so there is that that incentive there um but aside from that you know they have no reason to alienate other large communities or other large uh crypto assets right they have no incentive to um so so that that kind of fact also it does mean that you know even if you get central bank adoption it may be pluralistic

so i think that that is also something that that people think about and i do think that the esg stuff uh it has kind of raised an interesting question which is if you get if you get people saying proof of stake works proof of work also works but proof of stake is next generation that's a very dangerous narrative uh for proof-of-work coins because you then could be in a spot where you know like let's say ethereum migrates proof of work proof of stake successfully right if it does so and then the narrative is that proof of stake is an upgrade versus proof of work then it becomes very challenging to argue as a central bank

for instance that is also concerned with esg right like the sec the sec and the fed they have a climate change mandate now i think so you know if you have these kinds of issues that are already at the forefront everyone's minds you you then have on top of this like overlaid the idea that proof of stake is an upgrade to proof of work you know whether it is actually an upgrade or not that's very intellectual question right um and that's what zuko said as well right yeah yeah zukul said you know like he doesn't agree with he doesn't agree with the you know the characterization that bitcoin waste energy or proof of work is wasteful but he also like admits that it doesn't

matter what he thinks quite often right because crypto is about people as well uh so i think that that that kind of fact it makes it quite challenging i think uh once that transition happens for proof-of-work to successfully argue that it's needed for consensus and for coin issuance it becomes a very obscure argument if that makes sense yeah and it's it's so hard to to argue for it's becoming so hard to argue for proof of work because i think there are some benefits from censorship resistance and you know decentralization but many of those they only become visible after like one or two decades probably right um like it takes a long time

sort of for these vulnerabilities to show themselves and then it may be too late but it's still not something that you can you know that factors into people's buying decisions not unless they are really deep into the crypto space already right and you know care deeply about this on sort of a deeply intellectual and ideological level and you know the marginal dollar it just doesn't do that right where do you stand on like the z cash thing so obviously zcash has been toying with the idea of moving to proof-of-stake for a while now do you think they will and if yes do you think that this is a trend that could extend to you know other coins like dogecoin monero

and litecoin yeah i think i think it's interesting i mean zcash kind of it has a history of upgrades right so for it adding anything in the roadmap is within the social consensus of zcash so i think that and it's also relatively well aligned with the ethereum community so i think that once ether does it successfully there will be a lot of pressure and momentum on zcash to go proof of stake at least hybrid proof of stake uh i think i saw a few posts about it uh on on forums and i think hudson anderson also mentioned that he would support this um so i think zcash probably the most likely i think

zuko also mentioned that there's some shielded asset benefits uh from being proof of stake instead of proof-of-work so yeah z-cash probably the most likely contender to go in that direction i think doze should probably be second i mean there's already been talks about it but uh you know doj when it was conceived you know it's kind of like a joke right it's merged mine with litecoin which is already kind of not not ideal uh given is worth a lot more than litecoin now and and so given that it already has to change anyway i think that they're going to consider proof of stake uh kind of ideas very seriously uh you know and the question of who decides doge covernance is a really interesting one because

like it's it's very hard to know right like is it is it just elon is it like what does the community do a lot of the coins are on robin hood but yeah i think dough should probably be the second most likely i think monero would definitely not go proof of stake uh and i don't i don't think it needs to either i think if there's one coin that should stay proof of work i mean aside from bitcoin i i think monero is definitely up there because it simply just has to work right uh it doesn't have to cater to any narratives yeah exactly you could argue that monero monero users care much much more deeply about some of these arcane um threat you know threat models or like

attack vectors from nation states and actually like three letter agencies yeah exactly and if they think that proof of stake makes this like five percent ten percent more vulnerable then they are not going to do it yeah for z cash i think it makes it that does make a lot of sense based on what you said as well like so if the the big problem or one big problem with the z cash would be that you know the just the shielded pool is too small and if they can you know have staking only via the shielded pool this is sort of what decret does as well like um exactly a much smaller coin but they have a pretty clever approach to this where you know the stakeholders are thick the stake assets are all automatically in sort of the shielded pool thereby you know creating sort of a

bigger anonymity set so yeah it was interesting too about i mean now you bring up d cred right i think you know when when when bitcoin first came out and then like a year or two later there were a lot of discussions about how do we make it more carbon neutral right how do we reduce the footprint and there's a lot of interest in that kind of technology at that time and then i think later on as well the decred itself i believe it was it was several bitcoin core devs right that that contributed to it and they kind of they want to make it bitcoin compatible and they wanted to test out some of the ideas of hybrid proof-of-stake right and they thought that maybe one day would be in bitcoin as well to have hybrid proof of stake so i think that um you know the

these kind of debates and these kind of i mean nowadays if you speak to the typical bitcoin maximalist type they would just say that proof of stake you know it's it's flawed for these reasons and those reasons and and that's why um you know it can never do it but you know this is not always the case right um and and so it's kind of eliminating to see what the narrative would be within bitcoin itself around proof of stake once that happens i mean i i i think that like coins like litecoin and bitcoin cash probably the least likely to go proof stake just because you know a lot of the biggest holders they are also the miners of it so it's kind of you know they're kind of shooting themselves in the foot in a way uh if they if they stop mining and so

that that incentive is there but bitcoin is kind of interesting because bitcoin i think that it's not as much i mean most of the miners in bitcoin they sold their coins in late 2017 right during the scaling war so they don't actually have that much pdc all you know quite a lot of the hash rate is just you know treating it as a pure business at that point so i think you know bdc holders could in theory advocate for you know hybrid pos i think that that's that's entirely possible um but at the same time because bitcoin governance is is less clear now around you know how how these things fit together

i think that's not necessarily easy to do and not necessarily easy to coordinate on the one hand there will be interest but on the other hand it will be hard to coordinate so you could see you know for uh a wave of friendly forex and i think 20 20 24 you probably will see a lot of friendly forks uh pop up just because then people will also be talking more about fee issues right they'll be talking more about uh you know confirmation times and and fee subsidies and these kind of things and so you could see more experiments done again uh yeah you know so i kind of see bitcoin as like you know it's almost

like like politics right like politics you have the left wing you have the right wing and then you know you give ways you give waves of very conservative governance and the waves are very liberal and very conservative you know and now we've finally had the first soft fork in in several years with taproot uh and maybe that opens the door to more uh like a faster cycle and then you might get more and more right it's kind of something that you mentioned to me privately before too that you think that you know if ether were to flip in bitcoin that would be actually bullish for bitcoin because it would mean that the bitcoin governance would move toward something more malleable uh and more upgradeable uh because it would recognize this fact uh in the market yeah i actually

i still strongly believe in that and yeah you gave a great uh analogy there with like this this is what could actually in like a more liberal time and sort of bitcoin governance so uh yeah i thought it was good to see taproot activated even though it's like it's not a big change almost no user is going to feel it in any way at all but what it does do is so it just helped the bitcoin community go through the motion you know of getting consensus on something even if it was something small and then getting it implemented in an actually swift way um after that the technical consensus was in place so that's pretty cool one one of the things that um

we mentioned in our thesis for for ether was that it will become a productive asset and um both if we are talking about proof of stake and eip159 you know we talk about the fees right the fees that are burned and then it's like it's like a buyback and burn that that goes to the ether holders but now fees are actually at the lowest they have been in i don't know nine months or something it's it's it's insane like um they're sub 10 way and of course as a result you know we have to adjust down what the sort of money that would be burned by erp159 we have to adjust down what the potential

uh apy from staking what do you make of this i think that there's the question of you know will a 10x increase in throughput ultimately yield 100x adoption and i think that that that's kind of the phase of the market that we're in now where i think you know in the past fees were low because literally no one was using ethereum right and then these went really high because too many people wanted to use it relative to throughput and there was no scaling and then now you have polygon um so a lot of the most active d-apps moved over to polygon uh and using that to scale and and so that kind

of takes the transaction pressure off of ethereum layer one um but i think that um there will always be demand for layer 1 transactions and what people are underestimating is that with layer 2 you have a massive explosion of use case and a massive explosion of usability right i think bbsc proved this more so than anyone where it said look if you had actually had low fees during the d5 summer and during this here's what you could have done you could have onboarded this many more people and you could have had this much more usage so i think that that's kind of the groundwork now we're in the phase of we're entering the broadband phase right so ultimately once you enter that phase

and you have insane amount of economic activity happening on ethereum at that point at that point the fees will go up from that sheer amount so each user will pay much less but the user can 100x and so that is kind of the big bold case and like even now the ether fees per day i believe are still higher than bitcoin by three or four x at least so i think that yeah that you know it it's still no it's still it's still no slouch from a block space uh people paying for block space perspective and i think that now we're in the intermediate phase where you know the scaling is there and then we're kind of in a bit of a lull you know um you know the apps are kind of re-gearing up to redeploy uh and and so you know we may look back on this period

and say wow like people actually thought layer two would be bearish like free for ether right i mean i remember for the longest time people thought you know bitcoin layer two would be incredibly bullish for bitcoin because it would allow so many use cases and bring so much i mean i remember people used to write 20 page articles about this kind of stuff right that layer two would increase demand for layer one and and all this and now it's kind of ironic that you know layer two is now literally here for ethereum and people are now you know they need to just reread those articles and then change the word yeah and then change the words a bit and i think the same arguments apply yeah yeah i agree totally i mean

sometimes it's actually it has just going back to the basics and things like it just you know us increasing or like bringing layer 2 online has always been seen as bullish and it's it's it's probably just a like a sign of our times that you know people are so fixated on the recent bearish price action that it sort of it paints everything that's happening even the good things and that light and people just looking for reasons to be bearish about something is actually very positive for ethereum i mean the thing about price too right like right now ether is 2600 if it goes to let's say 3 100 within the next five days then like all the bearish arguments like you know what i mean right like it

doesn't even take that much of a price move sometimes like bitcoin the same thing like bitcoin going into 30k is going to 10k bitcoin above 40k going to 100k right so you know yeah it doesn't even take that much movement in terms of percentage uh for the whole narratives to start flipping again so i think that zooming out uh you know credible adoption incredible scaling is already here now on ethereum and and that that i think is is like super super bullish long term and i think superpowers in the midterm too actually yeah i remember still when we recorded the episode with light and we were quite various ethereum back then and then um someone i think was

amin who tweeted actually at us and said you know um if ether like isa was i think 200 at the time and uh like when ether would be 400 right now then you know you would we would be saying the exact opposite uh because just the fundamentals were the same right it was already crushing bitcoin back then when it was at 200 was crushing it in in many of the like the key uh key performance numbers right like a transaction volume like fees even back then you know yeah and then he had a like very very smart tweet like where he just like enumerated all of those numbers and said you know if the price was actually at 400 or 500 you guys would be

crazy bullish right now but the price is at 200 and so you look at the exact same numbers and invent like a bearish narrative around it and he was like in hindsight he was just spot-on but talking about the sort of defy and d5 summer and there too do you think there's do you think there's any real chance that the next defect summer does not happen on ethereum i think it'll happen across all chains i i'm not really into the whole chain maximalism thing that happens in ethereum now too where they like get into fights with polka dot people or or solana people and and i think that ultimately like i think a healthy bit of asset nationalism is fine but i think that reality is that uh if people are using

on-chain activity to bring about economic freedom and to bring about adoption like i think it doesn't really matter what chain it's on like as long as it's like a reasonable decentralized chain so i think um both solana and polkadot and you know avalanche near these all qualify uh as reasonably decentralized and i think that um i find it incredibly unlikely that it's like i mean people love thinking in terms of when i take all because the mind is just kind of this like tribalist thing where you know if you watch sports you're like well this team wins this year and that team wins that year right you're kind of just

yeah in this mentality of like sports like so this beats that this beats that but in reality in business or like in in like uh markets even it doesn't really work that way right like quite often um i mean in tech industries quite often two competitors like you know they increase their net market caps because of their synergy right or because of the way that they bring users in or the way that they grow you know they grow the pies so i think that we're we're very much in the growing the pie phase of smart contract platforms and and so given that i don't think there's anywhere near where i take all effects coming um for for deep for divine

kind of deployment and defy adoption but i do think that um of all the smart contracts native assets i do think ether is the only one that uh kind of has really been around long enough and has the mind share to to kind of uh compete as more of a store value asset um yeah so so that i think is kind of my nuance take on like ethereum maximalism which is that they're probably gonna outperform most things but uh that doesn't mean that applications that are are happening on other chains are not correct or that other chains don't have merit um [Music] yeah i mean the sports analogy is it's

actually quite fitting because people have this huge like mental like roadblock there also and you know one team wins one year and then it doesn't win the next year even though it's like there's like 20 teams in the league they call it the winners curse or something or the headline curse yeah because you know it was in the headlines one year and then it didn't surprisingly didn't win the next year even though like there were four teams that had each had like 25 chance to win it's true and i've noticed this too in like governments in countries where the you know the politics system is very uh you know two-party and then there's like this win that win and there's like brutal battles there's like a big focus on winning you know what i mean so that's why like i see the most bitcoin maximus and

ethereum maximalist out of like the us just because i think maximism is a really like it's it's like it's very fitting almost for like for americans right because it's like you know you you do your left first right battles you do your vegan versus carnivore battles you do your you know you just do all these battles right and it's like sports is huge so like organized sports um professional sports and things like that so there's like this big battle element to it um whereas i think that you know it's actually it's actually very rare to to meet those type of people out here in asia like i've actually almost never met like like uh like a full-on like maximalist like in that sense

uh just because people are very open-minded like people just think okay you know like i know bitcoin miners that you know use d5 there are a lot of them that you know hold several other coins you know i'll be at small percentages and then you know so so it's kind of it's kind of uh i do think there's something in the water there where uh if the culture that you're around it's like is very into my team beats your team my you know your team loses to my team then then you end up in this kind of you know in the kind of echo chamber i guess right would you say that sort of maximalism coin maximalism is a is a bet on you know other people

becoming maximalists themselves or i think yes or no i i mean i think if your thesis is monetary maximism then i think you are very much betting that people will also become monetary maximalists uh and then all hold the same money uh i think smart contract platform maximalism is is incoherent and i think like like even if like most ethereum people reasonable people will admit that right like that that's why they are open-minded uh and they do look at what's happening on other platforms and i think that that's kind of the most recent way to think about ethereum like i i'm quite influenced by you know like joe joe who i talk about sometimes on

twitter where he told me like you know he used to be a bitcoin maximalist and then later he was in ethereum maximus and then he realized that it's actually incoherent to be a maximalist of of any coin you're basically joining a club at that point uh and it's more about your own investment thesis on these different crypto assets and i've and he considers like maximizing like around assets just to be cope basically it's basically like a mild form of cope it's like it's like you you hold x and because it's high percentage of your net worth you need to cope with that and you cope by being a maximus of it right and that's all you're really doing you're just you're just going through a code exercise you mentioned that either of all the

smart contract platforms is the only one that has any semblance of you know being regarded as a store of value is that something that you expect to change or like when we look at for example solana polkadot uh avalanche where you like do you expect five years down the road that that all of these will be in a state of being more or less used to solve failure assets or is like issues like ethereum will have this edge against them forever i wouldn't rule any of them out uh but i think that it's a tough road to follow i think if you look at the previous wave of vaults only three or four coins made it out of there

as relative store values right um yeah and so i think you'll have similar percentage survival rates for for that like versus bid shares is not a store value today but if you ask people in 2015 it could have been right why not until 2016. um so you know augur is not a store value today uh but it literally traded like one for many years so so i think the future is incredibly hard to predict uh but you know either having been around as long as it is and how time increments you know in 10 years you know for the new investor in the space you know bitcoin and ether are basically the same

age at that point there's no difference yeah yeah mentally yeah right and in 100 years then there's for sure no difference right so i think that that that kind of time time dilation is is uh is actually very bullish for the coins that can stick around and get a community and use case because um [Music] you kind of have that effect and you're seeing that with dogecoin now as well right where because it just managed to survive it then you know organically managed to collect followers and interest and viral kind of uh meme ability came out my last questions are on d5 so for one you said that china might crack down on derivatives trading um options no longer

on will be we've seen this in japan in the past i think in korea derivatives are also banned for retail customers europe results are cracking down right now i know because i live in germany we had a pretty big crackdown on retail trading for derivatives do you think this spells bullish for d5 exchanges defed relatives exchanges yeah i think i think in a roundabout way sure um i think near term harder to say but definitely i think there will be demand for people to just you know use metamask and be able to get the same functionality that they already have i mean that's part of the big solano bowl case right which is that ftx will

basically bring over all their liquidity and all their support for serum and and for for other apps so i think that that's the sound bowl case for d5 i think that that um as i think as regulators understand d5 better i think it will be it'd be very hard to predict how regulation goes but i think that um they will be cognizant of this this kind of dichotomy so i think um you know when we first started talking about d5 way back you know we were discussing like what would happen if there's government action against maker or government action against uh protocols like ave or compound and and i think that you know there are

interesting questions to be raised about how you know usdc and usdt are very high percentage of d5 assets so how d5 is defy that that's a question that people do raise rightly um but yeah but i think that um you know technology is also very powerful now as well with cross chain and and with um with being able to trade just um in in more and more powerful ways right and to provide liquidity so you know unit swap liquidity plus sushi is like you know high higher than all centralized exchanges now on ether pairs um and i think that that that kind of

activity you know it's unstoppable uh for the most part and i think that that kind of uh momentum is something that gets placed in a position where i think for regulators who are viewing d5 it has the unmistakable mark of innovation right and and and this kind of demand for not like not like fewer intermediaries for a lighter weight for more toy like um uh financial system and and so i think that's why you're seeing like like very esteemed people kind of support d5 now publicly you're you're seeing you know um

big big kind of broad support for it because i think they recognize that it it does have a lot of benefits if you're looking to remake the financial system dfi offers a like a nice solution because you know it takes away some of the custodial risks right it takes away some of the concerns and you can just stick with you know pure ideas it's probably the purest ground for just ideas now if you want to take an idea you want to put it in action you can do it right um you know if you're if you're a phd student you know in economics and you have like let's say you're in experimental economics you want to know like how people react to this or that you don't have to run experiments anymore right you can

like just actually deploy it on chain right you can actually do these kind of games and these kind of things and see what behaviors are like um and so i think that this kind of infiltration of d5 into the hallowed halls of of you know of economic thinkers and and financial thinkers and um this is like a huge push and so i think that that that kind of is the big bold thesis for d5 that people have to just always keep in mind which is that it really is a reimagining of the financial system built on on-chain uh protocols and um this this as a base layer

for financial activity is incredibly compelling once uh the applications get better the tooling gets better this just makes sense if it were to be the future i completely agree so my final last and final question um so what is next feel free to like answer with everything like what's what do you think like happens next to the market or what kind of themes are interesting to you or i think you know we're we're getting into a space now where even for crypto denialists or people that are against it a lot of them will still come in and then farm uh i mean they probably won't farm in d5 because they will be too scared but they will do like yield harvesting via futures right like they'll buy spots

sell futures even the yields only five percent still beats what they can make anywhere else so they're happy with that five percent and then as they own spot and sell futures they get into this mentality where they're like okay um um this is actually not as much of a scam as i thought it was you know they start researching into it they you know if the yield on bitcoin gets a bit lower then they start going to you know ether yields or they go to other yields and then they you know research more and more into the space and so this kind of massive pull factor uh i've been seeing it happen the last few weeks right uh among like large multi billion funds that they just say okay i wanted to deploy a few hundred

million to yield get the dollar yields in crypto because it's just like you know it's free money um and yeah and so this pulling in i think it incredibly legitimizes the entire space right both of the offshore derivative exchanges but also of crypto assets as a whole themselves because people just uh it just infiltrates right it's a massive infiltration so i think that um you know the the reality is that once you have this infiltration and that people are used to this idea of digital scarcity and and this kind of floating around then you will have a whole new set of natural buyers that come in

when there's dips right like these you know people that are trading these assets as just like instruments like copper or like another commodity uh they will also find reasons to buy it and they'll also find reasons to sell it and and so i think that that whole process is something that um is very very bullish long term because it broadens the base of potential holders massively right uh like apparently hedge funds surveyed this you know estimating seven percent of all hedge fund assets will go into crypto you know core longs on on crypto assets not not not farming or dollar yields but just pure longs uh will be seven percent

within a few years so i think if that were to happen right that's hundreds of billion of ownership and uh so i think that these are the kind of things that people should not lose sight of in terms of just uh the vast amount of capital in the traditional worlds and looking for places to go i would just leave with like one more interesting idea which is that you know there's now regulation in the in the us talking about making it harder for big tech firms to uh do these mergers and acquisitions right because there's a lot of anti-big tech legislation right and just people are mad at how big these companies are how you know how low their taxes are and all these

kind of things and you know i think that that more so than like crypto regulation is what sort of the people want to see right because there you have you know the the you know multi-billionaire kind of villains right you have like bezos you have zuckerberg who are just like massively villainized by the left right and because they literally employ so many people and it's just impossible to not be villains and and so that in that backdrop where you know if they start moving more aggressively against big tech then i think that uh you will really see a lot of interest

in decentralization and in dao governance and then sort of pseudonymous uh economic activity and the world will look very very different it it it would be a very historical moment if we move toward those regimes uh but i think that those are kind of the big currents that are um you know making a lot of people think about you know massively upping their allocation into crypto assets i definitely echo everything that you said i think it's very important to take a very long-term holistic view on the market and every once in a while remind yourself

that we that crypto is sort of riding a wave up of secular mega trends like digitization like demographic change and also there are smaller secular trends within you know the broader um crypto space like d5 that are like extremely innovative and a new paradigm and um i think it's important like to come back to those every once in a while and re-read you know articles from a few years ago and so on and realized that you know our current view like how we interpret the information of today is always sort of blinded or painted by you know the recent price section and i think it's extremely difficult

to not think that way also thank you um thanks sue so much for the discussion that was as always a lot of fun thanks ben thank [Music] you [Music] you