What Institutions are Actually Buying this Cycle | Eric Peters, One River-Coinbase Asset Management

Transcript

I think eventually it plays out where crypto is ubiquitous from a financial services perspective but I think so that's way that'll be way bigger than 10 trillion in the sense that it'll it'll encapsulate all Financial Assets in the world but I also think that along that path you're going to see new business models pop up and Innovations pop up that we never even thought about anytime you reboot a system that's where a lot of opportunity lies and so this this is this is a reboot of the financial architecture of you know which doesn't change that frequently and this is this is it we get to live through it it's cool scale is the blockchain that is Simply Built different other L1 networks have costly transaction fees clunky user experiences and lack true adoption in Ai

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a macro extraordinaire but uh officially CEO and CIO of coinbase asset management and CEO and CIO of one River Asset Management Eric Peters uh back with us hasn't been on the show since I think summer of 22 had to had to have him on post elction so Eric welcome back hey thank you awesome great to see you guys again yeah yeah good to have you back with us um okay easy place to start here election just happened Bitcoin had an alltime High the S&P just had its best week of 2024 also hit an all-time high risk appetite is clearly back on Animal Spirits back in the market would love to just hear like very broadly I mean how are you thinking about the world and obviously markets right

now um yeah God I mean so much has changed with this election I I and I wrote about a little bit this weekend I think that when when the world changes this abruptly it takes time for portfolios to to reposition and um and I think crypto will will be even more so than traditional markets but when you if you look at the the pollsters coming into the election uh even though the prediction markets were running ahead for Trump uh the the pollsters were expecting the tightest election in US history or modern history anyway and you know if you use that for a proxy for how large allocators of capital uh are

positioning their portfolios it just tells you that on average uh and these you know these people tend to kind of travel in packs on average people are pretty close to home you know no one was making big bets on Trump no one was making big bets on Kamala um if anything the bets that they had on were for status quo which meant that their bets were leaning more toward an extension of the Biden Administration right just because that's the that's the operating environment that all these investors and portfolios were in and so you know to come up with Landslide might be too strong a term to you know to describe Trump's win but more or less you know based relative to expectations

it is so now that that's happened I think people are going to be scrambling and going back to the drawing board and saying what does this mean for my portfolio and I and I think what they're going to conclude is it means it means that things need to change a lot in people's portfolios so really exciting period for a macro investor and then as I mentioned crypto I think is crypto like like crypto always is the that reality is Amplified for crypto um but it applies to all asset class so Eric I remember uh my impression when you came on the Pod a couple years ago was your ability to crystallize gains in a market and that's really hard I think just in crypto but just in general um you talk about people really getting the

election wrong and just from posters how do you translate that into just broadly investing like people were positioned sidelined in crypto for a variety of reasons but just in general in markets like does that tell you markets are just incredibly inefficient it's just become hard hard to be an investor like we're connected but the information's just bad quality like how how do you think about the job as an investor professional investor Institutional Investor and how people have gotten it very wrong and you would think that that would have changed because maybe the information's just more you know pervasive and whatnot it's always hard to be an investor um you know if you read back I think the first investment book that um

that I read was you know written by this really famous or written about this really famous Speculator Jesse Livermore back in the Roaring 1920s and the lessons that um the lessons that he described in that relative to kind of the lessons I feel like I've lived and learned over the course of my career they're kind of the same you know so information sources shift around I think what's happening in poly markets really you know it's great um is like here's this new information source that most people scoffed at I was I was kind of somewhat reserved about it because I you know I know markets that can be easily manipulated usually are but as we came closer to the election

like it's it's easy to manipulate a market way in advance of something as you get closer and closer and there's a lot of money on the table like markets don't they stare into the you know into the whites of the eyes of potentially losing a lot of money for just manipulating it and things get start getting honest so it was really interesting to see how those markets behaved and and they were right and so I think you know you're always shifting to new sources of of information some of these Quant shops you know they started some years ago looking at Satellite information of parking lots at Walmarts to see what the sales would look like you know you're always you know smart people are always hunting for something new um and so I don't think you know I don't think investing has become easier

or harder um if anything things are always getting a bit harder because the competitive environment is you know more and more more and after big after many years or Decades of bull markets you you tend to get more and more smart people spending their careers in markets as opposed to like I'm sure I wasn't trading in the early 80s but I'm sure after the 70s bare markets you know a lot of smart people were were going into different Industries as opposed to coming into Finance but at this stage you know a lot of really smart people in finance and they use a lot of programming and um big data sets so it it you know it's hard I the hardest thing I think will continue to be um to try to identify and this has kind of

always been the case for markets is try to identify something that something that hasn't really happened before um and this election is kind of a little bit like that to be honest um it's it certainly had had something like this happen a long time so when when you can identify something that you think might happen that hasn't really happened before um then it and you're right about it that's where you can make a lot of money and so um you know maybe that leads to where we are right now yeah what so you mentioned poly market and you mentioned this is a thing that hasn't really happened before can you go deeper into how you're thinking about like societal Overton Windows shifting and like what what like the the

magnitude of what has just happened in the last week yeah um and you mentioned just when we were chatting preall about the Overton window which is kind of cool because I didn't even know what that meant about five or six years ago and someone mentioned to me I love learning new things I was like that's a that's an amazing term uh and and I think the Overton window has shifted in all sorts of things across Society over the last you know five ten years and I think that process really kind of started with brexit and Trump and um the first you know his his first term all sorts of of things have shifted I think what's I think what's um really interesting that's been shifting um over the last

few years really is just where that affects our markets affects crypto affects trafi markets is that there's been a shift around is the economic Orthodoxy of the last few decades which is the entirety of my career I started in 1989 maybe a few years before you guys you know were were active maybe born uh so like I I I started and through throughout that whole period of time there have been all these assumptions about how the world Works how how Economics work how um trade alliances work the role of glob the importance of and goodness of globalization for Society at large and

like there have been all of these assumptions that have just they're just assumptions but they have been viewed as being as being uh given or reality and and they're very so we call that kind of the Orthodoxy and that's starting to change right so we started to see during the the first Trump Administration this idea that hey actually we can go out and we can put uh tariffs on on China um and they're not playing Fair well you know behind the scenes I was listening to CEOs talk about how unfair trade was or how their IP was being stolen for years but no one kind of was prepared to say it because they wanted to make sure they didn't interrupt their sales in China

and that you know they were kind of things are being stolen at the same time they were getting revenue and so um no one really wanted to speak the truth in a way and so I think what's been happening is people have become much more um prepared to call into question that these things that we have expected uh to never change I think a lot of that I I think we're going to see even more of that uh during this next Trump Administration uh and and that and those are the types of things that really do change markets and you know change the way the world works yeah so the market has reacted um pretty I don't want to say aggressively to um the election outcome um you could argue it's not as

aggressive or it is depending you can ask a bunch of people how do you think about uh re underwriting your thesis um under the incoming Administration how quickly do you update your thesis do you update your portfolio and I'm just kind of curious what went through your mind when Trump won and how you're thinking about just positioning your portfolio so we don't we tend to not talk specifically about what we're doing in the portfolio but I'll talk in very very kind of broad way uh about how I looked at the election and uh and you know this is this is informed by conversations I've having with people who are very close to Administration and you know helping craft policy it's you

know dra on what I read uh uh and I think X is becoming a more and more valuable source of information I find myself spending more and more time uh on you know on X just looking at I don't know could be it's like understanding what VC is thinking about and Elon is thinking about and these you know these are people that are going to have a real influence on on what happens so any right I think I think what um I think basically what's going to happen next now that Trump has won is the us is going to make a bet and I think it's I think relative to the potential bets that we can make I think it's a smart

bet to make so you guys I listen you know the last podcast that you just had you were talking about um Paul Jones and maybe Dr and the concerns they have around debt and those are obviously major concerns for everyone like you you can't just look at the fact that we're running seven 8% % deficits with an expanding economy and forecast for those deficits to not really come down more than a couple percent over the next couple years and then they go right back up to the highs and that's without a recession right so if we had a recession we would end up with deficits that could be like 10 12 13 15% depends how bad it is and this is with debt to GDP at you know

122% um so we're in a pretty precarious position from a debt perspective um the question is what do we do about that and then it's interesting we can also talk about if you want later what other country how are they thinking about it but I think in the US here's what we're going to do with it or here's what I think the Trump Administration will do with it I think that they're going to push hard to substantially increase the supply of energy to try to push the prices down um there's going to be very significant deregulation that takes place and I think Trump was pretty hamstrung in the first Administration from some of the things he wanted to do I think he'll be much less hamstrung in that regard this time around so I have a lot of deregulation there's going to be a big

push to um uh to accelerate AI to the greatest degree the private sector is able to and that means providing the infrastructure and the you know reasonably priced or cheap energy to drive that and you look at all of the and and then all the all the tax hikes that might have been baked in like those are those are all or the old tax cuts are going to get rolled out so and they probably going to be new tax cuts they're probably lower corporate tax rates it's an incredibly um bullish environment for us business and the go and the the hope there um the hope there is that if we can potentially get to a place where um

AI is able to help boost productivity here domestically then and and we're throwing this business-friendly environment at the economy and you get animal spirits going you might end up in a position where real GDP starts growing you know way above where it's been for the last couple decades and I think they're thinking if they can get real GDP in the the four or five% range even for a few years these debt issues go away um they don't completely disappear but they they they fade from prominence let's put it that way so I think that's the plan yeah I wanted to go to the second part of your statement there which is

discussing other countries and what they might do a couple of Just Thoughts there as like how does Japan dealt with it or how does Europe dealing with it um but more so also countries that hold a lot of their balance sheet in us treasuries like China and what how they're responding kind of in real time um and what that means for kind of the us as a dollar kind of as a global Reserve asset so to speak yeah um Europe is a super mean Japan's interesting Europe is super interesting because I think Europe's more dynamic because Japan Japan's been kind of doing the same thing my entire career which is their their stock market recently took out its 1989 Highs but they their stock market peaked the year

I started trading and and they had a real crash um they essentially there are a lot of forces at work there some of them are demographic and their their um uh their population growth really slowed and then ultimately working population start shrinking and like they've had all sorts of issues to deal with over the last 30 40 years um but the first thing that they did when their Market crashed in 89 was they basically tried to underwrite it and say okay we're g to try to ensure that no one really fails here and so they ended up ensuring that there weren't massive failures and a huge depression which they probably which probably would have been healthy economically for them just to kind of

wipe out the excess but they just didn't and so they had to kind of grow their way out of that over 40 years and it created a really non-dynamic economy and um pretty boring markets and awful stock market really um so that's kind of what Japan has done I think they're they're still more or less trying to do the same thing they they continued on with big budget deficits for ages they have huge debt to GDP ratio um they continue to run large deficits and you know whatever Japan is it's a relatively small player compared to Europe or compared to China at this stage and certainly compared to the US Europe is really interesting um because Europe has Europe's a big you

know Europe's a big place uh it's GDP is quite large um population is big and it has really stagnated economically if you look at the top 25 market cap I I use this as I like markets as proxies for anything as opposed to economic data if you look at the top 25 companies by market cap in the world one of them is European and it's a drug maker and and made a zic or whatever you know what some some amazing drug that helps people not get you know get skinny if they're fat um is like if you can solve that problem or help people you're getting bald uh grow hair back you you make all the money in the world so they they they have figured that out they've got one company and that's it 21 of

those 25 companies are us one of them is is Chinese it's 10 cent um one of them is Taiwanese it's uh tsmc um one of them is Saudi it's Saudi aramco so it's it's basically The Sovereign so you like if you you look around the world and you look at the this huge pool of population um with a large economy and no you know no big companies really um it tells you it tells you that their model is pretty I want to say broken but it's certainly not Dynamic it's not entrepreneurial it's not evolving in a way that's that's bringing wealth into that region and so dragy Mario dragi who

you guys might remember used to be the ECB Chief uh he was te and he's a you know very credible guy very smart guy Italian Goldman guy he he um he was charged with coming up with a a big comprehensive report on EU competitiveness and so he came out a few months ago and he said okay here's here's what Europe f it faces an existential crisis like it hasn't seen since the Cold War and part of that is economic and part of is the fact that they've you know they've got a war on their border right now and so his view is Europe economically needed to spend 4.9% of GDP every year in stimulus to just Kickstart the economy and bring Innovation back to Europe now I don't I

sincerely doubt that the government is going to bring European Innovation back but that was his proposal okay on the other side of the table is the ECB which is the equivalent of their fed it's the European Central Bank and they have come out um within months of that report and they said what we think needs to happen is that Europe needs to consolidate its fiscal balances by by 3% a year and because of population growth Dynamics and things like that you probably need to add another 2% a year so that that they need to fiscally contract by 5% a year so you have you have one guy saying they need to expand by 4.9% the year you've got the Central Bank saying we need to control cracked by 5% a year that's a 10% swing so that to me that's a incredibly confused region that is

dramatically underperforming economically and in markets and um and so now like imagine the US put presses the pedal which is what we're about to do economically imagine what what's going to happen with Europe I mean I'd love to hear what your your perspectives would be on that I have some some opinions around that but I think it's I haven't seen something that dramatically different between the two largest economic blocks in the world in my career nothing even remotely close to that yeah I think my what I get excited about is I think the answer to any potential fiscal deficit or procar like you know budget situation which we all know is true is you you innovate your way out of it uh through productivity gains and the answer to that from government perspective is just deregulation and let what the US has

done best historically to position itself as a leading country in the world which is as you pointed out the best companies in the world have started in the United States they're based in the United States a lot of them started by immigrants like it is aspirational still to come to the US it has the best system um for a variety of reasons and so I think you just have to continue to press on that advantage and crypto is becoming a non-s small non-trivial component of innovation and so if you you know Ai and crypto combined like you know now we're going to have hopefully eight years or just four years of less friction to innovate in a space that is really exciting and and in AI as well and so less government I think is always a

solution and uh you know our allocators going to put a lot of money in Bitcoin and like abandon the dollar I don't think so I think you just want to beat inflation and you beat inflation by allocating to sectors that outperform that and that's likely not going to be real estate or some you know like old economy kind of businesses more likely going to be Tech I think very well said totally agre Eric I have a question based on what you said earlier about uh you know I mean we could be in a historic bull market with with Trump's Victory here and things are going to go I mean maybe Animal Spirits are back in the market do you think the FED declared Victory too early here I do um I yeah but also remember

the fed the FED is op has been operating with uh the information they had a hand so it didn't know it didn't know what was going to happen in the election uh when it started this the cut cycle and that you know fed tends to just get on a schedule um I think that there's a real possibility that they've you know that they've made an error and they they did move too quickly there are certainly people with within you know the senior Republican party um who think that as well and I think that I think Powell I mean you saw when when he responded I I assume recently uh with his no and no comment essentially saying that he wouldn't step

down I don't I he's a very smart guy um I know it's fun to make it's fun to make fun of central bankers and I do all the time but you know he's a he's a very smart thoughtful serious guy and I think that's going to set up a real conflict uh around fed Independence so you talked about the Overton window shifting I think and and I mentioned that I think a lot of things are going to change one of them I think is is going to be you know question in all in all areas of economic Orthodoxy one of those is what is what is the role of the Federal Reserve in you know in this economy and it's it's hard for me to wrap my head around

thinking that we would be better off with a less independent fed just because I'm steeped in Orthodoxy because it's just been you know I'm trying to open the Overton window up on myself not because I think we should change what happens at fed I just want to make sure I have my head wrapped around what the world looks like if we do change that you know call into question the the the independence of the FED I don't know that that will happen but um but anyway I yeah that's I I think that's that's now that's now on the table along with a bunch of other things yeah so what I mean how does this play into your ideas on you mentioned the deficit um and and just this debt crisis like you know we have we have

what 30 30 some odd 35 or 36 trillion in debt growing growing by like what probably I think it's a trillion every hundred or so days right now like where does where does this go and yeah you mentioned we we mentioned Paul tutor Jones on the show the other day and i' I'd requote him and just say you know he his his take on this is like the only the only way to get out of this is to inflate our way out of this you know buy the NASDAQ buy Bitcoin buy gold buy Commodities don't buy fixed income curious to get your take on the on the whole solution yeah I'm just in general I'm not really a fan of fixed income uh and I I know I don't speak for all investors by the way I just I don't know I think in so many respects fixed

income through throughout history just reflects a l like people invest in fixed income this is going to offend some people but it just kind of you kind of lack imagination so uh or ambition like it seems to me the the best thing that you can do is you know build build companies build things that have value you um and if you can borrow money to do that reasonably without overleveraging yourself that's what you should do so in that sense I'm kind of inst emotionally and uh temperamentally always a seller of fixed income to try to build things um I think there are there are times in

the economic cycle where it's beneficial to own fixed income and there times where it really doesn't make a whole lot of sense to own fixed income I think what happened was we went through a long period during the QE years where interest rates were incredibly low and yet people bought them because they just kind of lack the imagination um or you know you're a large Pension Plan you're like I have to have a certain amount of my my money and fixed income I think those again I don't think that that's smart but I think a lot of people had fixed income that was at very low interest rates and then we had this big inflation the people who owned fixed income got destroyed and but then they saw okay well interest

rates are now higher because the FED went on this historic rate hike cycle and they said all right well you know I was buying 10year notes at 75 basis points or one 1% a year for 10 years I don't know why anyone would do that but now you know now I can own and I can own them at three and a half percent or four and a half percent or five and a half percent and so that that looks attractive maybe but I I don't I don't think so I think I think given what's going to happen in the world here with both inflation which I expect to pick up materially and also with economic growth I think there are just much better places to to put your money rather than trying to guarantee yourself you know three four even five percent a year so

that's why I don't think fixed income is attractive I do think inflation is headed higher so for all the normal reasons that people would stay away from fixed income I think they they should um because I think I think inflation will head higher I think interest rates for a time anyway will probably head higher and I think these deficits you know I mentioned what the is which is to really boost economic growth so that you can increase the rate of growth in the economy and that increases the tax receipts and that lowers the deficit and all those things would be good for longer term interest rates I don't think they're going to happen right away though so the Market's going to price in some probability that we're going to do all this stimulus and it's not going to work as as well or as quickly as we want

and that could push up long-term interest rates as well not to mention the last thing I'll just say on that is I do think that I forget you know one of you guys mentioned the the pickup in Animal Spirits I think we're going to see that over the next year or so and then more and more people are going to be borrowing money and that you know that it's not only is a government borrowing money but but corporations individuals will B borrow money that will push rates up too and push bond prices lower a lot of times um when we talk about crypto and what it will do and try to predict the future we get all caught up in Innovation and how important it is and how it's a secular Trend and you know um Bitcoin moves up 5,000 and it's it's at 80,000 and it's going to 250 but

if it goes down to 70 it's going to 40 and so we have these kind of different moments in time you we believe in the technology we're excited about it but then we but then there's uh someone more skeptical or cynical that puts up a chart of the correlation with crypto prices and like Global liquidity like M2 or something and it's like it's perfectly correlated or or very correlated with high beted NASDAQ um how much of that do you think will continue to be true or how much of that might decouple and because we have now a more Pro crypto Administration in a way that I don't think we've ever seen before you have a president that launch an nft collection there's been talks about having Bitcoin as a reserve asset

uh we might be able to get some regulatory Clarity at a you know policy level that might allow us to innovate on what tokens can or can't do um and calling them for what they are and perhaps getting a lot of companies and institutional investors that have been sidelined forever to get into the space so you combine all of that in your thinking and how much of crypto will continue to just be a lever NASDAQ or how much might it be just a pure secular Trend and really realize kind of its full potential um in in a way that it's beyond a 10 trillion digital gold kind of uh you know benchmark or like Target um it's a great question can I ask you a

question before I answer that sure sure so when when you say its full potential because your idea of its full potential and mine might be different curious true like how do you think about what the full potential is yeah well what I'm doing now is I just appreciate the crypto will be used by every business eventually it will likely be invisible it is a continuation of what the internet has allowed you to do but it introduces a settlement layer and that we haven't even started to think about or appreciate how much friction like anytime you look under the hood of a lot of these systems take payment processing you appreciate like it is

incredibly incredibly inefficient and crypto offers a very tangible credible solution to that and so I just think that we haven't even gone there but for me that's a true potential like we'll know crypto is no longer early when most businesses start using it when the amount of just speculative activity becomes less than 20% or so uh and that involves things like poly Market that actually are just really embedded in how we you know how we operate as a business or as a society and I think like we're seeing early Innings of that but we're still very very early and it's in my mind greater than 10 trillion greater than digital gold yeah okay all right so we're think in

similarly um I I I think that in many respects I think that crypto will have achieved its potential when every fin you know more or less every financial transaction in the world is running on crypto and no one even knows it and you know when we first got involved in in crypto in November 2020 I just kind of arbitrarily said I'm I'm going to be in this trade for a decade and that's a that's an arbitrary number but the reason that it was more than like a year or and by the way that doesn't mean you can't kind of buy and sell throughout out that period of course but

um the reason for coming up with that is I thought that well the reason that we got in in the first place was um and it's a view that one of our clients our biggest clients had and and I shared as well is that we thought that we had entered a period of real monetary debasement and and and the Catalyst for that had been covid and this huge increase in government spending that we thought would kick off a a long period of um you know monetary debasement essentially where we take on a lot of debt we do a lot of things there were a lot of things to spend money on there was spend money on Co we spend money on environment spend money didn't even know about AI really at that stage and to spend money because they the world was

becoming a more hostile place it's become even more hostile like there was a lot of or a lot of things to spent a lot of money on um not to mention the Baby Boomers are really getting ready to retire and there's just not enough money to to kind of go around and so those are the those are the reasons um but crypto seem like a highly convex way to express that theme but the question was well how how will you know what's the right price how will you know when that theme has played itself out and I think that you won't you won't even be in the zip code until everyone who has any kind of banking relationship or account has a crypto wallet they might not call it a

crypto wallet at that stage it's just an account but at that stage then all the things that are Crypton native like Bitcoin can anyone who would have any inkling to buy something like that would have the ability to do it very easily without any frictions and so I figured that that process would probably take a decade now maybe it happens in seven years from 20 maybe it happens by 2027 I doubt it A decade is probably in the zip code maybe it takes a little bit longer um but once once that happens then I think all the things that you just described will have been achieved so I think all money transfers everything will be done on crypto rails and that's and and at that stage too um you will

have you you will have seen some amazing companies build and flirst like coinbase for instance is obviously I'm talking my book right but I mean you just anyone objectively would look at coinbase as one of the big infrastructure providers of this whole new technology and so anyway I think that that's how I think eventually it plays out where crypto is ubiquitous from a financial services perspective but I think when you look at so that's way that'll be way bigger than 10 trillion in the sense that it'll it'll encapsulate all Financial assets in the world and but but I also think that along that path you're going to see new business models pop up and Innovations pop up that we never even

thought about um that that are going to be I'm just so EXC you know so excited about I I republished my case for digital assets this past week and I don't know if you guys saw it but you know that was I wrote that in in uh Janu early January of 20121 and that kind of captured what I was thinking where I I was thinking this all could go and I I feel like we're really on track like we're really on track and they're going to be you know not everything will be right but I think there there'll be all sorts of new innovations that are built on top of this that we just didn't even like we couldn't have even conceived of um so anyway I I'm I I think we have a long long way to go yeah when you when you think about um

entering and exiting a market you know at times you know the we kind of know what the 10-year plan looks like but of course how you get there is is very uh you know not easy to predict in any way shape or form um there are some folks saying hey look if you've been sidelined that window is closing very quickly here you know you have you got to update your priors to the election outcome and just really kind to get get on the bandwagon or you're going to miss the train I sort of think that if you take a longer term view you appreciate that we're still very very early how do you kind of marry those two concepts like how do you think about I know you can't like necessarily speak what you're doing but like as a as

an investor that I you know think has done very well just kind of managing the market cycle like what uh I guess if you had I don't know a portfolio from scratch like how much of that are you just fully risk on fully allocated or how do you think about just playing out the market and you know the next couple of months so to speak so um I think we're I think we haven't we haven't yet uh come close to appreciating what this new Trump Administration means for markets broadly which mentioned earlier and that applies to crypto um the hostility that we experienced in this industry uh over the

past you know nearly four years is pretty mind-boggling um and you know I won't comment a lot on it uh and disparage some of the people and the TAC ICS that they used but I think a lot of that I think a lot of that will be revealed I I suspect in the courts over the next you know six or nine months and so maybe maybe they'll be over the next year or something like that but I think the new Administration that's coming in rightly views this industry as just a technology um and and it the US US Financial Services is a huge sector of this economy and we have the Deep most liquid markets in the world we

have the world's Reserve currency and these Technologies are are well suited or or maybe even more directly just you could say like they're designed to basically fulfill all of all of the infrastructure and the guts of of a financial system and um and so they it would be it really would be a huge mess for the us to not lead in this industry and I think that that's going to start happening a lot of people moved abroad I think a bunch of those people start moving back not not all the regulatory changes and political and um and policy changes will happen overnight but like directionally they're all happening and they're going to happen

and so yeah I think that you know we'll start moving we'll start moving in that in that right direction and then from from how that or how that affects markets and market prices I think people over the next you know let's call a couple months um will start to really realize that institutions really have not allocated to this space yet which is Amazing by the way I mean and why say they haven't allocated hedge funds trade it you know there a couple there's a pension here an endowment there or uh but in in the biggest pools of capital in the world are totally unexposed to this they they might have

had some DC that ended up owning some crypto and then mentally they're like well we own some because we you know we had a teeny sliver of some private or or um Venture fund but they don't really own it so and I don't think that they're going to come in Mass over the next three months it just takes them too long they're going to go you know they're G they got to process this they're going to go into year end and then they got to go into like their quarterly reports and they got to get they have to now get their um uh their trustees to wrap their heads around the fact the world's changed like it there there will be a Cadence to this so I could see depending on where prices go I could see the market getting ahead of itself expecting huge flows that

don't show up in time and then the market comes down that's kind of what happened by the way in you know 2021 into 22 it was Amplified with a massive rate hike cycle it was Amplified by you know blowups in crypto by uh FTX it was you know that that bare Market was Amplified but you could see volatility around people just getting too excited too early and then has to come off and then people get you know apoplectic about really depressed so they'll be trading up like nothing moves in a straight line but I I think now I think we're we're now we're we're now on the institutional this is the institutional cycle because like look what Black Rock did with the ETFs like the the

institutions now know that they're going to have to build on these rails and they're gonna they are investing a lot of money to do that they just haven't bought the assets yet which is really interesting to me but anyway that's how I see it playing out scale is the blockchain that is Simply Built different let's face it other L1 networks have costly transaction fees that increase as the network gets busier scale has solved this problem with a gas-free scalable infrastructure where users never pay gas fees scale was awarded the most active gaming chain in 2023 by coin Gecko and host five of the top 25 games on dap radar you should definitely check out scale I was using it the other day it really is incredible to use that's scale

spell with a K hit the link in the show notes or head on over to scale dospace ecosystem to get started today hey everyone Jason here I wanted to take a second to break down why magic Eden is getting into token trading their team is extremely concerned that crypto is still Consolidated in the hands of a few centralized exchanges who act as Gatekeepers ultimately recreating the trafi space B they believe that crypto is still missing an onchain binance and their aim is to move trading completely onchain fully decentralized they've done $6 billion doll in nft volume in the last 3 years and have had more than 1.4 million users visit their platform in the past year making them the number one

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your digital Security today at ledger.com or hit the link in the description of today's episode to check out their latest wallets so Eric what does the institutional cycle do to the to the typical four-year cycle right usually you know December 2017 and then you kind of go down into a two-year bar market and then two years of up and then you know November 2021 and then down and we're actually tracking pretty perfectly actually the the typical four-year cycle which would say you know maybe this Market pops out in like October November of 25 right we've got about a year from now I'm curious how you think the uh this institutional adoption will impact the four-year cycle or maybe it

doesn't um yeah I I don't I suspect that as we as this um as this whole Market industry becomes more institutional that the kind of the some of the cycles that dominated when it was really retail will will shift yeah I don't like I I suspect that'll be the case I just I think that as as instit as more institutions come in and they as I said they they're hard they have hardly come in at all but we've got years of them coming in and I think as you know as they um people tend to follow price up

so there's always more buying into highs and than there is in into the lows but I think that the downside fall will get dampened by institutions that that begin to take up their allocations to this like if like just look at say look at if you look at gold this is I hadn't really thought about it quite like this but like if you look at gold in 2015 um central banks Glo you know foreign central banks held like one and a half% of reserves in Gold it's about 5% now right so that's it sounds like I mean it's a big percentage move but you're like oh one

and a half% to 5% that's not that big but that's been a lot of gold buying that's taken place and you know I think after the Ukraine Invasion after Russia's Invasion Ukraine um the West locked up $300 billion do of their reserves and that you know that made all of these big players say hey wait a second you know the Chinese I'm sure saying if we invade Taiwan we can kiss any money that we have sitting in treasuries away um which is why I'm sure that they're just to mitigate risk and increase their their leverage and and negotiating power around any situation they're cutting treasuries but like you see what happens when there's a catalyst for big institutions to move their

portfolios around you know gold is rocketed and um you know the the declines aren't that big and so I I think that there I think as big institutions want to take on crypto exposure to to balance out their portfolios the downside is going to there will be downside because markets never go in a straight line but I think it will be more muted than it has in the past and and I I suspect that will shift its cycle too but I I you know I don't really know yeah there get that right right now yeah long there's a there's a big institutional um allocator survey done by this firm MV Capital that I was reading this morning and I was actually surprised by the lack of upside conviction and these are folks who allocate to crypto um particularly I was

surprised by the lack of upside conviction in BTC and so the survey I think it was like a I don't know roughly 100 allocators they saw BTC peing somewhere between a 100,000 to 15,000 now this was pre-election so that's obviously a massive impact but I'm curious how you think about just like the base case the bare case and the bull case for for just Bitcoin in in this cycle you mean between now and and uh let's call it the next like by the end of 25 or something yeah the next 12 months yeah um I mean my my bull Cas is way higher than than 100,000 um and you

could get there you get there really quickly because I mean it's at 85 today or 84 yeah like what what people don't really realized is just you know prices can move so much just on marginal the marginal buyer the marginal seller and I started my career in commodity market so I kind of it's just been just been part of my uh you know my whole career is just seeing just a little bit of demand at the around the edges can really change the price of something so um I think I don't know I mean between now and the end of 2025 could could Bitcoin triple um number one it could do anything so and that really is that

really is the truth um but I don't see any reason why it it couldn't do that it's a big number but you know again if if you look at if if you look at the US saying actually we're we're not going to do everything possible to try to destroy this industry and the players in it and actually the US looks at it and goes you know what um the dollars Reserve currency and by the way this we've we've been advocating for this uh from the outset the dollars a reserve currency dollar stable coin is the killer app in this space right now I know you guys have repeated that multiple times as well and um you know dollar stablecoin could in a in a way rewire

the Global Financial system in that dollar usage could become ubiquitous because just because it becomes so easy in a world where everyone has a crypto wallet you can just hold you can hold money and doll and you know that feeds back to I think you mentioned it on your last podcast it's like uh stablecoin issuers could end up owning massive amounts of us treasuries and what is that like how and why would that happen it's like the whole world starts saving their money in dollars via stablecoin that flows through to um uh you know to treasuries so so like I I think I think that um anyway I

think tripling between here and and there that could happen um in terms of Bitcoin downside I don't know I mean downside you can always fall 50% in a market like this um I don't think that we're going to between here and there I think that the risk reward is skewed way way more to the upside I mean even saying down 50% versus tripling is very skewed to the upside but I I just don't think we have that kind of downside unless there's some type of really big geopolitical event that takes place um and and that you know that's on the radar but I I think there's way more upside than downside and I think just

the last thing just around the administration I think you know once once the administration starts getting behind this this theme of these Technologies being in the US best interest which by the way that is what the Insiders believe and that is that's the advice that that Trump has clearly gotten because you can kind of you can kind of see hints of that in his in his statements I don't know imagine what happens if the if the US really doesn't just get out of the way but kind of gets Behind These Technologies I think people will conclude that at some point bitcoin's just going to be worth more you know more tomorrow than it is today and they'll just be buying it and I

don't know what will happen to that price it but but that's a pretty good risk reward you know up 3x versus down 50% um that's that's pretty Dar good particularly if the upside yeah how do you think about um other assets other crypto assets ethereum salana and then farther up the respect Spectrum um in in that equation let's go um I've got two charts I want to show that one is eth BTC and then one is soul BTC so Eric I'd love to get your your take on both of these charts maybe we could start with eth E BTC yeah I think what's happening and what what I think what has happened in in eth relative to bitcoin

is in some ways it it's actually really healthy I I know that everyone's so negative on eth and uh and I get it by the way because you know when you when when you own something and you want it to go up and I own eth um I don't get emotional about but like I know what I know the emotion behind like you you you buy some you own something you want to go up and it doesn't and you just get depressed about it um and then it makes you want to sell it and I think we're kind of in that we've been in that zone so but here's what I think is positive about eth I think that uh the Global Financial system will

be built on eth um it might be that it's in part built on salana I'm not sure yet um I'm not sure about eth either by the way I just I have a very high conviction that that will be the case because it's been around for a long time so many things have been built on it a lot of the bugs have been worked out like it's gone through a lot of upgrade Cycles it it's a pretty impressive technology and I think that the Global Financial system will get built on eth and and yet the way it get the way it for it to be built on eth the the cost of transactions had to collapse and and so these l2s have been built and that's pushed that's

pushed the price of transactions to extremely low levels and then it will go down even further and I think what has to happen is you have to start seeing wider and wider spread adoption of eth and things built on it that actually start transacting and then then you'll start getting this picture of okay well in the future they going to be so many transactions pumping through the system that for essentially for providing the security um the value should just be higher than it is and people will start putting money into it and it and it probably goes up more than it should and that makes transactions a bit more expensive and it'll just be this Perpetual race of technology to kind of keep

transaction prices down but I think so you think it trades more on this like you know global settlement layer Security Premium basically less of like uh you know it's trading on the fees that it's spitting off or anything I think that they're connected I think that are connected and so you have to have you know the the problem is the world hasn't transitioned to this system yet the the Global Financial system has yet not yet transitioned to this system but I think it will and and this again this political change makes it a lot more likely that it will because as you know as goes the US market so goes the rest of the world essentially so if all of these things are now more likely to

happen in the US faster than they would have otherwise happened I think they were inevitable in the US but I think you know if you if if kamla had won I think it would all have been a lot slower but now it's gonna be a lot faster and so I think all these things are are coming sooner but there's just this disappointment trade in eth for the time being I I I think eth will at some point be quite a bit higher and we'll will probably be quite a bit volatile and then salana I just think it's just kind of a it's a a higher beta trade it's just it you know it it has a much lower market cap and um it's it's playing catchup and people are more excited about it and it's going up so people buy it and I don't know I think

that's going on ER let I'm just gonna ask the the question that I in my mind have thought about for a while like salana currently is a third of e market cap on a fully diluted basis if you look at across a number of kpis do you think that that is appropriate um too high or too low I don't know I really don't know I really I think and I say I say that because by the way I I try hard just as a general discipline to say I don't know as much as possible because for two reasons number one most of stuff is

unknowable um I think it's premature for any these Technologies to really know what their ultimate value will be and so even if there's a framework that looks sensible right now I think in three months or in three years you look back and be like that really wasn't the right way of looking at it so I I think I think there's a a big momentum trade going on in this right now um I I think if you look at the market caps of both of these you should kind of look it on a probability adjusted basis does it seem kind of right this ratio and it's like yeah I I think I could I could see that but I I I don't I don't believe that there's a really great complex pricing model that should spit out what this

relative value trade should be I think I think salana looks looks to me like it's going to keep outpacing eth just because it has been I mean that's not very sophisticated um but I think at some point that that probably flips around as well I think because I think the I I think Finance gets built on eth so Eric let's say you're sitting down with uh someone who's got a million dollars to allocate they're maybe I don't know they have strong risk appetite 30 to 40 years old so they can take some risks they've got a million dollars to allocate they're not allocated to crypto right now they're looking at these markets it's ripping how do you suggest they allocate is it a one3 one3 one3 is it how do you think about this um I don't get asked that question so I I I'll I'll take a I'll take a

flyer on it um I'll take a flyer on it I mean you say you say high-risk appetite like what does that mean like when I think that's probably the first question I would ask someone who asked me that's like what does that really mean does that mean does that mean you'd be cool with losing half your money and then having a just deadline there or is or is three quarters is like is that what it means because most people most people when they say have a lot of risk appetite they don't really mean it until you get punched in the until you get punched in the face you really understand how much risk appetite you have yeah I mean yeah I mean I have had my face ripped off multip like I kind of when when I say I have a risk appetite like I've I'm pretty well calibrated

like I actually know what that means I mean because I just you know I've I've gotten hurt I've taken a lot of lumps over my career but um look I I think that most people when they say they have a lot of risk appetite um they don't really mean it and so if you had a 30 35 year old person um I I would advocate for them to be overweighted to bitcoin and eth and but have some exposure to salana um so you know maybe that that's like um 50 35 15 uh that adds up to 100 right you know maybe some something like that I think if you're I think if you're

right on that trade you're gonna you're at least for a period of time you'll wish you'd you'd had a million bucks in Salon you'd be like why didn't I do that I have such a highrisk appetite like well yeah maybe um um like that's okay how do you um think about just uh the sequence of of how the market unfolds historically it's been Bitcoin Le then trickles down into other assets do you think that's still true in this environment just as you think about the larger institutions that have been sidelined um of course now you have an ETF so they may have expressed that view now through an ETF it's probably easier but Capital going into managers that are investing these tokens like I'm just

curious how you think about the intra asset allocation uh correlation which has been very coupled and also the sequence of the rally the cycle itself yeah uh the institutions it is easier for them to invest in these assets right now um for sure with with the ETFs uh but they really haven't done it I mean not in size so so kind of the question the question is in this cycle now that we have institutions that are getting involved what are they going to do and I suspect that they're either going to just buy Bitcoin at first a lot of them or they're going to buy some some ratio of

Bitcoin and eth I think if salana uh if salana you know keeps doing well um You probably get an ETF you guys were talking about an ETF sometime next year I mean I don't have any inside insight into that but that wouldn't surprise me um so then You' you know you'd see flows if that the case into into all those um some of them will go directly into the coins themselves but I I think you'll I think as institutions put Capital work they're gonna they'll probably still focus on bitcoin just in the first instance because that is where it's going to be easiest to get their boards and their trustees to

understand what Bitcoin is and eth is just I I know it's it seems a little nuts for maybe you guys and for for me and the people listening to this to to think that people can't wrap their head around ether ethereum but you know a lot of people can so at least not yet and by the way I look at that and that makes me excited because if if you have you know if if you have complete knowledge in any Market it's becomes the most boring thing in the world like the best best thing for you know long-term bull market is to have a whole lot of people who don't understand something who are going to gradually you know are are going to gradually learn about it and that's I

think that is what's going to happen here so um yeah anyway that that's what I think the Bitcoin on it's probably to a degree and it and it it's not the institutions that are driving it right now but but it it probably is more retail you know High net worth people because of the ETFs whether they're buying it directly in ETF or buying it you know with with coinbase or some other uh account I I'm I'm guessing that that's why Bitcoin is kind of outperforming yeah I mean I still to this day to this day um you know it's mostly self-directed accounts not manage accounts right your JP Morgan private bank is not can't actually recommend the ETF you have to call them and say I want to you know I want to move stuff and so that is friction not to mention just

going back to the discussion earlier that we're were having right I mean most of the world is stagnant most of the best companies in the US have been builing most of the best companies in the world have been you know are us-based all this to say the world most people can't invest in the US Stock Market now I've always felt the crypto allows you to diversify your portfolio if you're in some of these markets your only alternative is investing in local real estate and government bonds and and I think crypto is sort of a possibility for people to invest in a proxy like the US market that has more RI more you know you mean like diversify their portfolio hold and it starts with holding a us denominated you know stable

coin and then going and then transacting in this digital economy and investing you know I'm excited to see tokenized stocks I mean why hopefully we can get that in in the next couple years and that would just be explosive for the US market I mean talk about just continuing to double down in the dominance of the us as the leading economy like why couldn't you have a tokenized stock that is settled in real time not t plus two three or whatever um cuz yeah I think most people don't really appreciate like most of the world can't buy Apple stock and if they can't buy Apple stock then you kind of say okay what else are they going to buy if they have the possibility to have a us like a stable coin that is dollar denominated then

what's a menu what's on the menu it's going to be Bitcoin it's going to be ethereum and then it's going to be salana and all the memec coins and all the other stuff and so like I felt in the 2018 like Ico boom that it could be you know kind of reach the level of liquidity that you saw in like the do um Bubble or more now because you know the world like you I mean like but we never got to that and I was like well why couldn't we hypothetically actually it was only a fraction of it but now this time around of course the limitation is local people in India China at times it becomes hard to interact in crypto the government's really making it difficult but it's always every government the world always

looks to the US for inspiration of what they do at the policy level so because now Trump is so so you know is has an nft collection godamn it you know then then governments really say okay if the US is fine with it then I can be fine with it like I'm not going to look like an idiot y um so I think that's like that hyper bullish drink career risk from a government perspective it's like uh you know Eric you buying Bitcoin and uh you know Paul tutor Jones in what may of 2020 when he said you know it's the fastest horse in race that away the career risk for hedge funds it's like Trump is wiping away the career risk for govern the El Salvador El Salvador president's up now 100 million on his trade he's looking like a genius but he was ridiculed for so long you know I

mean like that's gonna go away let me ask you the um okay on this note what about uh Fortune 500s in corporations buying Bitcoin because I think everybody is watching what sailor is doing and but he's basically turned micro Strat they you know they used to I used to compete against them I was in the business intelligence world and they were data analytics company now they're just a Bitcoin company obviously um what do you think about the idea of corporates holding Bitcoin on their treasuries um everyone's looking at Microsoft right now right so uh what what they're gonna do I I think that they will um are they gonna do it right why does it does it make sense and why does it make sense um I don't think you know I don't think they're going to do

it because they've seen you know H how it's working for micro strategy it's just a totally different investment thesis and the people that are making that decision any Corporation obviously know that um there so no one's gonna do that he's the only one who's who probably should do that and you know and and he has and it's worked out really well for him but I I think if you're if you're uh you know you're sitting on a huge corporate Treasury and you want a reasonably Diversified portfolio with liquidity um I don't know why you wouldn't look at at crypto I don't but I don't I don't expect that there's going to be a large flow of that money that's

coming in I think it'll be really interesting to see when you know I I don't doubt that there will be a company that says yeah we're going to approve of you know whatever some couple percent few percent of our of our treasury we're going to we're going to put in these assets um I think that that'll be new you know newsworthy I don't think that's what's G to ultimately Drive these markets higher but it's probably part of the narrative that goes there um by the way before we get back too far away from the previous comments I do think that equities will be will be tokenized and um and you know this is like the this is an example of how crypto just kind of takes over the world because all this becomes actually pretty easy Once you

you know once you build these rails so the trade like imagine the trading activity that happens I don't know about India like maybe maybe India ends up being a bit further behind the curve than others but the the the cool thing is that um I think that the big develop markets because the US was shooting itself in the head uh on you know when it came to how it treated this industry I think there were a lot of other regions that said okay this is an opportunity for us to beat the US in in this whole space and so we're going to we're going to race ahead so I think what will happen over the next few years is that the US will begin to lead um but there'll be some regions

that you know that have advantages in you know one area or another which which will be which would be great there'll be a lot of competition between regions but at the end of the day rich rich countries by definition are the ones with all the money so when you open up global trade and finance to us equities or or Global equities that are tokenized you know there'll be plenty of money that will flow into that from abroad because th you know those those rich countries are the ones where people actually have money money to invest um so who um Eric on in that scenario who who wins the most like obviously it's always an investing like the relative trade is it the black rocks coinbase um

the base asset like salana or ethereum or Bitcoin I'm curious um as you think about a portfolio construction or just who the major winners in in the scenarios that we're talking talking about might be um I definitely think that the infrastructure providers win massively and uh to my knowledge I don't know that there's a better infrastructure provider than coinbase uh that has you know the number of reps that they that they have meaning like the number of cycles that they have dealt with all sorts of um you know different ult technological

challenges security challenges um scaling challenges so that should be you know massive winner in that World um but any any provider of infrastructure and some of those are you know probably still private too right so people should figure out how to how to make those Investments I think the reason Black Rock has been so aggressive is because they didn't want to lose out you know Black Rock um Black Rock looked at the mutual fund industry and said we can do this better and uh and they did and they're you know now massive company and I think they looked at crypto uh early like when we were looking at crypto they

were looking at it but they you know they they weren't really going after it at that stage um but they were curious about it and I think it's because Larry Fin's a smart guy and you know when you get a Founder CEO um who has disrupted an industry once in his career and you're a you know you're hungry and you're smart which he is he probably looked in he's like I do not want that same thing to happen to me so so I think that's what they're doing but that doesn't mean that they have all the the best expertise and they'll need partners and so you know but I think Black Rock could be a huge winner uh absolutely um but yeah that that's kind of how I look at it the and I I think

what what's going to happen over the next couple years is now the other Financial players at Trad five players who haven't really been involved some of them have been making either no Investments modest Investments or reasonable investments in this infrastructure they're they're they're now going to just go on a hiring spree and they're just they have got to make sure that they don't get um that they don't get wrecked in this next transition and uh and so you know that'll be really exciting um and there'll be a lot of interesting Partnerships that form would guess um uh but yeah it be like any anytime you reboot a system um that's where a lot of opportunity lies and so this this is this is a

reboot of the financial architecture of you know which doesn't change that frequently and this is this is it we get to live through it it's cool I think that's a good place to end it all right that that might be the clip of the EP I mean all right God if you don't get excited by hearing that like you know I mean like there's gen this is a generational trade totally reboot of the financial system like you don't get that often forever yeah it's pretty exciting yeah yeah Eric appreciate you joining us man this was a fantastic conversation and yeah no no one else we'd rather speak with about uh state of the global just the as you said as we said earlier the Overton window is shifting on many things you said it yeah I I agree I agree with you I agree with you um yeah

look real pleasure thanks for having me on and uh yeah and uh you know it's uh let's hopefully all make a lot of money here absolutely Eric thanks so much for joining us I appreciate it yeah see you guys hey everyone thanks for watching today's episode just wanted to quickly thank today's title sponsor scale scale really is one of the best chain experiences out there today and I've used so many different chains there's a reason they are gaining so much adoption in both gaming and AI use cases hit the link in the show notes to explore the scale ecosystem [Music] n [Music]