Crypto & Oil Synergy, Leading L2s and zk Implementations | 1000x

I still believe that there is no asset that will perform better than, let’s just say, Bitcoin and ETH, or an account—like a GoldenTree fund run by Avi Feldman—that adds alpha to Bitcoin and ETH. I think those are the things you can invest in in crypto that will earn you 10x to 15x returns over the next decade, at a minimum.

Welcome back to another episode of a thousand X. I know we’ve taken a bit of a hiatus, but we’re happy to be back in full force. One thing that hasn’t really changed is the price of Bitcoin, which remains flat and dead, giving us a lot of time to spend on going to the gym, looking at other markets, and, in general, just enjoying life.

There are a couple of things that have changed, though, and I’ll let Jonah talk about those in a minute. Jonah, tell us: How’s your life been?

Yeah, life’s been hectic. The first big change is that the folks at Blockworks sent me this microphone because I was previously using a webcam mic. They got sick of editing, so now we have this beautiful FM-radio voice that everyone gets to listen to. Thank you, Blockworks.

Very deep. It really makes your voice baritone. It gets higher and higher throughout the day as I use it more and more. Maybe I should just not talk like Taylor Swift and then only podcast.

Right. The big update from my side is that I have left Cumberland. I resigned a couple of weeks ago. The rationale for doing that is that natural-resource markets got pretty roiled last year, oil in particular. That is my native asset class, and an opportunity came along to return to that market that was really good.

I still deeply believe in crypto, and I still have fairly substantial crypto holdings. I haven’t changed that; if anything, I’ve added to it. But I will not be focused on crypto day to day because, as a trader, you take opportunities when they come, and the pull from the oil market was just too strong for me to resist at this particular time in my life.

I think there’s tremendous opportunity in crypto because it’s almost like I got pulled into crypto when crypto was booming, and now I’m getting pulled back into oil when oil is booming. I wouldn’t recommend that most people do what I’ve done. You’re supposed to keep a steady hand on the markets, and you’re not supposed to chase the hot new thing. You’re not supposed to pivot to commodities right now, pivot to AI three weeks ago, or pivot to semiconductors.

But if you’ve been fostering a 17-year career in one asset class, it can pull you back. This time, I’m going to be heading toward a role that’s a mixture of proprietary trading and what I was doing at Cumberland—an attachment to a crude-oil business.

The folks at Cumberland are top-notch. I had the best experience I could have possibly asked for at that place. They provide the best liquidity you’re going to get if you’re an institution looking to trade crypto.

I got a very detailed look under the hood at what they do to provide those markets for institutions like GoldenTree and anyone else trading crypto assets. It’s not an art; it’s a real science, and they have the best people. Thank you very much to Don Wilson and Cumberland for employing me and giving me that wonderful experience. I highly highly recommend trading with Cumberland.

That’s actually really important because it’s so difficult to find a good counterparty. I’m glad you say that. A secure counterparty is an important point. It’s so hard to find people we’re willing to trade with and willing to hold risk with in this space.

I have to ask: You’re the second person I’ve seen in the last month leave crypto to join the oil market. You had Benoit over at GSR go back, and I think he’s at Millennium now.

Yeah, we used to work together. He was the reason I moved to London. We co-ran the crude-oil market-making desk at Goldman Sachs. He was the London guy, I was the New York guy, and then we switched places in early 2014.

Are you guys going back to the market to effectively trade the same thing you were doing for the last 17 years, or do you think your role is going to change a bit?

It’s interesting you ask. I can’t speak for Benoit. His last oil role was at Goldman, so he’s moving to the buy side now. That’s fairly different from market making, but there’s still a lot of overlap, and I think he’ll be a tremendous success there. He just started.

As for me, I’m not going back to what I was doing before. I’m going to be launching a new adventure, which I think is important when you’re a trader. If you’re intellectually curious, I don’t know—plenty of traders do phenomenally well and make great fortunes for themselves and their families doing the same thing, becoming a master of a very specific craft. In some cases, they advance through the ranks of a company, oversee more, and scale their skills.

I have never, either because of my own political incompetence or my trading ineptitude, felt the need to rise within one company. I’ve always tried to challenge myself, learn new asset classes, and move around to bolt on new skill sets and diversify and broaden what I do.

I’ve got to ask you one more question about crude oil. I know this is a crypto podcast, but I’m very interested in this. Why is this year so great for oil?

When I look at last year, I see prices going from $75 at the beginning of 2022 to almost $120 during 2022. This year, they’ve almost been within this $15 range. Why this year? Why wasn’t it last year? Last year seems like it was the real explosion.

Last year was the real explosion. This year and last year have set up a prolonged period of fruitful trading opportunity in oil trading—and in crypto trading too. I see what’s still on your mind, by the way.

First of all, let me reassure the listeners of this podcast: You’re not going to be forced to listen to a bunch of macroeconomic talk about the crude-oil market. Avi and I are going to keep it tailored to what you care about, which is probably crypto, but we’re going to have a slightly broader, more diverse perspective at this point.

The situation that happened in Russia basically moved the oil market from “When are electric vehicles going to eat into demand to the point where the price goes to zero?” That was the narrative before Russia. After Russia, it became about security of supply. The world still needs a bunch of oil right now—more than 100 million barrels a day. A barrel is about this high and contains 42 gallons. Around 100 million to 103 million barrels get consumed every day by the human race.

It’s not something we can just do away with. Security of supply has been brought into question, and that changes everybody’s economics and equation when they buy it—refiners in particular, and nation-states as well. Joe Biden emptied the Strategic Petroleum Reserve to keep gasoline prices down during the Russia conflict, but he has yet to really fill it back up. That’s a problem.

Those sorts of dialogues become relevant in crude oil, but more importantly, interest rates are going up. When interest rates go up, the hundreds of billions of dollars it takes to extract oil from the ground and bring it to market become more expensive. The money isn’t just floating around anymore. You have to pay pretty high interest rates just to get access to capital, even if you’re Exxon.

What that’s going to do is set up structural undersupply for the next couple of years while the market still has demand for this stuff. Then you’ll get a run-up in price, demand will get killed, EVs will accelerate, and then you’ll probably start to tank. That’s why companies are excited to have people come in and trade oil.

Equally, I think those same factors have made crypto more relevant than ever. While I might not be in the market-making business anymore in crypto, I still believe that there is no asset that will perform better than, let’s say, Bitcoin and ETH—or a GoldenTree fund run by Avi Felman that adds alpha to Bitcoin and ETH. I think those are the things you can invest in in crypto that will earn you 10x to 15x returns over the next decade, at a minimum.

That’s really interesting. It makes a lot of sense. I do think there’s some overlap between what’s going on in the oil world and what’s going on in the crypto world.

When I was visiting Hong Kong, all these articles were popping up about the dozens of Hong Kong trading firms that had appeared overnight, all trading Russian oil or exporting oil. It’s assumed to be Russian oil because they’re all getting in at $60 a barrel out of Russia and selling it at a massive markup on the free market.

The other thing that struck me is how widespread USDT is there for getting capital out of Hong Kong. I think there’s a lot of mainland money coming out that way. I wouldn’t be surprised if some oil trading were being done in Bitcoin or USDT right now.

I wouldn’t be surprised either. I think intelligent oil-trading companies will eventually add USDT, ETH, and Bitcoin to their platforms.

It’s not some dark, sketchy agenda. Oil has always found its way from the oil wells of one adversary to the refineries of its arch-enemy. Marc Rich became famous by pioneering oil trading and selling Iranian oil to Israel. This is nothing new. It’s just that the mechanisms of those transactions will become more technologically updated as time goes on. I think crypto will be part of that.

There’s nothing sinister about this. It’s just about keeping the lights on.

It’s interesting. That’s just how it goes.

One thing I keep coming back to about crypto—and this is something that struck me at TOKEN2049—is that when you’re discussing the value of crypto, what blockchain technology enables, what Bitcoin enables, what Ethereum enables, and what all these things actually do, I keep coming back to the fact that it allows you to transfer value more efficiently and better than you ever have before.

If you start with that base, you have to ask yourself, when you’re building applications or things, what is most impacted by that framework? What types of things can you build, and what types of things can get done that are most impacted by the ability to move value digitally, easily, and more simply than we ever have before?

International trade is obviously one of them. You joined a gray-market trade—obviously, trade is a big part of that as well. I think we all just have to be realistic about what the technology is used for.

One thing that stood out to me was that I was staying at the Marina Bay Sands, where the conference was held. It’s this big casino.

Tell us about TOKEN2049. What was the mood like there? If people like me are leaving crypto—not leaving, but leaving it professionally—then we must be at the lows. It’s about to rip from here. What was the mood like?

You said you bought the top and sold the bottom, basically. At least you didn’t leave at $15,000; that would have been painful. ETH went down to $950 on my watch.

Yeah, you stuck it through the actual low. I’ll give it to you.

It was electric. There was a lot of energy. The issue was that I didn’t see as many projects as I would have liked to, and the projects I did see included things like Islam Coin, which doesn’t really make too much sense to me. It’s ethical, halal finance, right? A lot of these things just didn’t really resonate with me.

There was still clearly a lot of money. Jonah, there were 1,000 booths at this place.

There were a lot of people there. Are those guys just spending 2021 VC cash?

I think so. What’s going to be good is that I think there’s still a culling ahead. If I were to take a wild guess, I’d say there’s still culling ahead in the VC market. The VC market always lags the liquid market. I think the liquid market has broadened out, and I think the VC market still has some ways to go.

The mood among the investors was electric. The thing that stood out to me is that I spend a lot of my time in New York, Puerto Rico, and the United States in general, and the level of sophistication among U.S. crypto investors is quite low compared with the sophistication of investors in Hong Kong and Singapore.

Specifically in Singapore, I sat down with probably 10 to 15 different allocators who were all Asia-based, had one foot in crypto and one foot out of crypto, and maybe bought a little bit in 2021 and got absolutely nuked. Maybe they didn’t actually allocate and managed to save their cash. A lot of these guys were still hovering around crypto, but they knew a lot. They were very interested in crypto, and interested in a way that people in the U.S. really aren’t.

A lot of these guys are young—maybe 25 to 40 years old—and they’re the sons or daughters of magnates who have made a substantial amount of money in real estate, commodities, and really across the board. They want to make a name for themselves, and they’ve found crypto. They really like it, and they really get it.

They try to get these carve-outs to invest in it, and when you talk to these people, they’re quite knowledgeable. When we talk to people in the U.S., it’s night and day. These guys are asking me questions like, “What is Bitcoin?” The family offices in Asia are asking me what the best ZK-EVM implementation is. It’s a very different level of interest.

What is the best ZK-EVM implementation? Give me your hot take.

We spent a lot of time on this last year. My gut, based on understanding last year’s report and then talking a lot with the different teams, is that Polygon is far ahead right now.

Polygon bought Hermes—I think in 2021, though it might have been 2022—for $400 million. I was lucky enough to be at a lunch at the Cumberland Center with Daniel Schwartz, the founder of Hermes, Sandeep, and Miguel. Daniel Schwartz is a very, very smart guy. He reminds me a little bit of italic in that sense.

I have a lot of faith that the Polygon team is going to roll out a very robust solution, and they’re about 18 months ahead of everybody else.

The other thing that’s interesting is that Optimism has a $100 million grant, or is pushing toward a $100 million grant, for ZK technology to be built for Optimism. Everybody knows that optimistic rollups are a stopgap and aren’t going to be the main solution over the next 2 to 3 years. Everybody’s trying to get on top of this.

I actually think Polygon is quite under-owned from that perspective. They sold $180 million worth of Nike NFTs, which people aren’t really paying attention to. The Starbucks NFT implementation didn’t go that well.

A lot of the other L1s—and now L2s—have had to do a tremendous amount of incentivization to keep activity high. If you look at Polygon, activity is still quite high. It’s number two in NFTs. People are still using the platform, and they can’t incentivize activity because they just don’t really have a token left to incentivize with.

I think their token economics make more sense than Optimism’s and Arbitrum’s. I also think that Sandeep is a genuinely dedicated founder, and that’s actually quite rare these days. The Polygon token has been around long enough that he could have pulled out a couple hundred million dollars, walked away, and said, “That’s good.” He hasn’t. He’s still involved every day.

It’s funny: I’ve spent a nontrivial amount of time chatting with him over the last few weeks, and he’s been impressive every time with his level of dedication. I like Polygon.

The market seized on their mistakes. I’m a trader, so I’ll say that if Polygon goes to $1, my position size is going to be much less than it is today, just by virtue of that. They had some business-development successes, the token ripped, then they had some business-development embarrassments, and the token puked.

I think this is the problem with—or possibly the opportunity in—crypto. Unlike standard startup life, where the price of equity in a private company doesn’t have this transparency and you can’t see the wild volatility as a company goes from success to failure to success, you have that with crypto because these tokens are so liquid and tradable.

Base, the L2 run by Coinbase, is doing $200,000 a week in revenues. Is that a ZK rollup? What powers that?

No. I’m asking for a friend, by the way.

I know it’s optimistic. It’s based on the OP Stack. It’s basically an optimistic rollup, or an OP sidechain. An OP fork is essentially what it is. In theory, some of the revenues will go back to Optimism.

I do think it’s very tenuous. The one thing that worries me about Optimism’s value accrual is that there was a balance-sheet deal: Coinbase got 2% to 2.5% of the Optimism supply for going with Optimism. I used to be a little more bullish on the Optimism stack because of that, but I think that was a very expensive trade for Optimism.

It’s unclear whether they’ll be able to get future business-development partners on board to return sequencer revenues in the same way. But I do like the team. I think they’re very dedicated, very smart, and approaching it in the right way.

I also think the branding is very good. Having Optimism get Worldcoin and Base online is meaningful. It remains to be seen how long Base’s organic traction is going to stay up, but in my opinion, it’s going to be the place where activity happens when retail comes back. That’s purely because it’s going to be very easy to get people over from Coinbase to Base.

If you want to enter the crypto ecosystem and you have money, you’re probably coming in through Coinbase anyway. Coinbase is also launching this offshore derivatives exchange.

I’m very bullish on Polygon and Coinbase. Those are 2 things. Over the next 4 to 8 weeks, I think a lot of this starts to be understood and priced in.

One other point that came out during TOKEN2049 is that Asian investors are much better equipped to deal with crypto than U.S. investors. You have a dearth of projects but still a lot of capital in the system, and the projects that are good are pretty damn good.

For example, Telegram is rolling out its wallet app, and the wallet is very good. It’s actually quite good. There are games on Telegram now. Telegram has a history of launching phenomenal products.

Telegram operates under an ethos that Steve Jobs made famous in a business quote from his autobiography—or, technically, his biography. The Walter Isaacson Steve Jobs biography is highly recommended. The idea is that you don’t have to invent the wheel; just take a product other people are doing poorly and do it well.

He did that with the MP3 player. You had these shitty computer chips surrounded by cheap plastic that were very hard to use, and he made the iPod. I think Telegram has taken that quote and run with it. They were, and still are, the slickest messaging service. Why shouldn’t they be the ones to build the slickest wallet?

For the builders out there, if there’s a dearth of products in crypto, it’s not that there’s a dearth of products in crypto; it’s that there’s a dearth of great products in crypto. There are a lot of great ideas being executed poorly.

We talked about this on a previous episode: We both love Friend.tech, but it looks like Windows 95. Can’t somebody just show up and do that well? I don’t understand what’s so difficult about this.

If you’re interested in blockchain technology and you’re looking to build a product, just look at the top 100 products. Guaranteed, 90 of them are good ideas being executed horrendously. Just do it well with a good UX, and I think you can bootstrap something interesting.

It’s funny how often people who don’t have Telegram ask me, “Why do you need another messaging app?” I spend 2 seconds on this because I think everybody listening uses it, so I’m not going to show it. Just download it. It’ll be very obvious, very quickly, why you want Telegram. It’s so much better than every messaging app ever.

The wallet is bullish, which makes me somewhat bullish on the token. The token ripped so hard, and it was so insider-front-run, that I do think you probably see a $25 billion to $30 billion valuation for this thing.

Maybe higher. I think definitely higher. I think you get $50 billion to $70 billion.

That valuation on this thing is about, I think, an 8x on the token right now. I'm a buyer basically anywhere below $1.50–$2. I'll probably just start loading up on this thing.

And the Telegram Wallet is opt-out, right? It's not opt-in: if you're international—that is, non-U.S.—you have it, and you have to opt out.

Yeah, and it's going to be one of the tabs right on the bottom. You see Chat, you see Settings; it's just going to be one of the tabs.

So I'm quite bullish on that product.

Me too. I mean, it's the same thing we were talking about with commodities earlier in the year. I could see a world in 5 years where, if you're a subsistence farmer in Bolivia and you bring something from your farm to a local market, maybe you're happy to accept some Telegram coin instead of local currency because it's easier and more seamless, and you don't have to deal with a bank or a usurious middleman. It's not inconceivable that, in 5 or 10 years' time, the frictionless nature of crypto has disintermediated various micro-economies within, let's call it, the bottom 100 fiat economies.

Yeah, I would 100% agree with that. It makes me wonder how many people live in Venmo or PayPal as opposed to living in bank accounts. Growing up, there weren't that many because it's so U.S.-focused, but I know one scammer who lives in PayPal. Outside of the U.S. is where you get things like that: Bitcoin, or even ETH, is probably a great way for people to transfer value around for services and goods delivered in places like India and Lebanon.

In fact, at my old shop, Vitol, we would sell gasoline to Lebanon. Maybe we could have gotten a better price if we sold it to them and accepted Tether, which they're clearly holding a lot of right now.

Who knows? Were they? I wonder if that's something you would explore today.

Yeah, it would be smart, that's for sure, because I know they use it. Maybe sell oil to Argentina in USDT.

Yeah, but most of it—when you sell oil to somebody, who are you selling oil to? The government?

If you're selling oil to somebody, you're either selling it to a government entity. In China, you have companies that are quasi-sovereign that buy oil for their strategic petroleum reserve. Or, if you're selling oil, usually there's only 1 type of customer: a refinery.

Oil in and of itself is not useful. Native Americans, 150 or 200 years ago, used it to make tar to put together canoes, but that's pretty much the only use. You have to refine it in order to turn it into all the useful stuff that we know and love oil for. So when you're selling oil, you're selling it to a refinery.

Making canoes is a real business.

Yeah, you don't seem like much of a canoer to me.

I'm not. If I were, I mean, we could start the 1000x canoe. I'll row the left, or we could just start selling merch.

I'm sure you could sell a branded canoe. Maybe we can start with a small one and then actually scale it up.

Damn it, we probably have to give them a cut.

Taking our money, taking our good canoe and our money. That's okay; we'll live.

Speaking of making money, when do you think the market takes a turn? You're now my resident macro guy. Right now, it's actually looking kind of nasty.

I think crypto is going to take a turn when all these ETFs land. You talked earlier about retail getting involved; I think retail will get involved on-chain after the price appreciates and they look at their Coinbase account and it's ballooned again, kind of like in 2020–2021. I think the ETFs are going to bring in a ton of money.

Having worked at Cumberland, I saw just how important a secure gateway is, and there just aren't many secure gateways in the world in this post-FTX world. An ETF is as secure a gateway as you're going to get for retail investors all over the world and for institutions. As soon as those things land, you tell me the time frames—that's going to bring price appreciation, and the follow-on effect will be user adoption on-chain, NFTs, and all that sort of secondary and tertiary price action.

In terms of macro, what will make macro rally?

I think we're priced to perfection at the moment. I think there's a real risk that commodities create another supply-side inflationary shock. If I were a tactical trader in the equities market, I would not be adding beta exposure, which is jargon for saying I would wait for a dip to buy the S&P ETF or the S&P future. What do you think?

Yeah, I think that's fair. My view is that any Bitcoin price below $26,000 is a good price, and I'm buying basically all the way down to $22,000. You just want to accumulate Bitcoin heading into the halving, heading into rate cuts, and heading into next year.

What's clear to me is that the traditional markets would have to puke out much more—which, by the way, they definitely could. If you look at the Nasdaq and the S&P, they don't look pretty. There's a lot of room for repricing solely because people are so confident that we're going to get a soft landing, and I think one of the reasons we're going down is that we're getting a more balanced approach to that opinion. People are pricing in the probability of a recession a little bit more, so I think there's some way to go.

I don't think Bitcoin gets below $22,000. I think if it does, that's a giga-buy. I'm going to get 80% of my net worth long at $22,000. I'm just seeing the demand from the ETF. Originally, as I think I've talked about on previous podcasts, it's going to be negative: you're going to get some outflows from GBTC. But over the long term, it's just going to be so obviously positive, and I think 2024 sets up very nicely for both Bitcoin and Ether.

The 1 thing that I basically have no interest in touching is altcoins for now.

Yeah, I just don't really see it. I'm with you 100%. I wouldn't touch them at this moment. I think there are definitely idiosyncratic coins that can do well. You can make some money with Friend.tech, and potentially I might buy some relevant if robot gets to around $0.08, or maybe $0.05–$0.08, because I genuinely believe that 1 of the killer use cases for crypto is building a global casino, and I want to bet on global casinos using crypto.

I like RLB from that perspective. I don't love it from a few others, but we shall see.

I'm with you on altcoins. I think altcoins have been so destructive to value over the course of the last year and a half—destructive to the financial value of people's accounts, institutional and retail—that you're not going to have an altcoin-led rally in crypto. You're not going to have a scenario where it's, “Oh, crap, I wish I was in coin number 73 instead of Bitcoin and ETH,” because it just rallied so hard and led the whole market higher.

It's not going to happen. Altcoins are going to give you a chance to get back in. I think first Bitcoin and Ether are going to go during the next rally, and then you're going to have that sort of moment of silence where it's, “Hey, is this real?” If you think so, then you can go down your menu of altcoins and start buying. I think the menu at that time will be very different from how the menu looks today, so I think it pays to wait.

You will have an opportunity, as a retail or institutional investor, to wait for altcoins to catch up. That market has just been too beaten up for it to correlate with the next Bitcoin rally. Furthermore, I caused some controversy on Twitter with this: I think it's okay to give up on a lot of altcoins right now.

What do you mean by “give up”?

I don't want to go through a hit list or anything, but I think altcoins are not an asset class within crypto anymore. Most of it is just dead, and then there are very specific projects that may outperform.

I think “altcoins,” as a catch-all phrase, should just be removed from the lexicon of crypto people. We could call it the 2021 basket or the 2017 basket—specific things that performed during those bull cycles. But “altcoins” is a universe that's too large to discuss concisely in a profit-accumulating way. 99.9% of coins that aren't Bitcoin and ETH are worthless. That's sort of what I mean. We have to be a lot more careful about our usage of the term “altcoin.”

Yeah, I'd agree with that. The thing is, there are things up there that can still do quite well.

I think DOT is effectively worthless.

Me too. I think it's completely worthless. Shorting it costs 30% a year.

If there were an efficient way to short it, it would already be worth 0. Its fully diluted valuation is $5.5 billion. How nuts is that? How long do you think it's going to take to cut that valuation in half?

It might take a while. If I were a DOT holder, I would sell. If I didn't want to sell for some insane reason, I would lend it to a short seller. That's what I would do.

Yeah, but I think the staking rate is pretty high, so people are just staking it instead. But how long do we think it takes for this thing to reprice? It probably takes a while. Someone once told me, “Tokens don't file for bankruptcy,” right? It's kind of true.

That's the unfortunate nature of it: they don't. When you're thinking as a trader, you have to think a lot about the positioning of other people in this. It's like, okay, I know that this thing is probably going to be worth less in 2 years, but that's the time frame you have to take.

Yeah, but so am I if I sell the perp and pay 30% a year just to get there.

Exactly. That's why I don't love shorting. I don't love value shorting in crypto. I like mean-reversion shorting, when you get pumps and things like Worldcoin that are ridiculous, or things like BCH that pump. But it's tough to love value shorting in crypto in a bear market, where you should be shorting a lot of things that have been proven worthless because of market-structure issues, and you can't get short efficiently.

Trading anything that isn't a major coin in a bear market becomes so difficult. Those environments cull a lot of people from crypto, myself included. What's left is the savvy investors who have navigated those bear markets. When the next bull market occurs, I would bet on you, Avi, to be the guy to find those next coins.

You mentioned Friend.tech. Friend.tech is 1 of the most interesting things, despite having 1 of the most lackluster user experiences I've ever seen in any technology product in the last 15 years. It's so cool. All right, Jonah, it was a pleasure.

All right, dude. Catch up soon. Great talking. See you later.