Crypto's Flash Crash, What Next? | 1000x

Look, I’m a bull. Why? There’s a bull behind me. When you look at the screen, it’s green. There’s no more bear. The bear is gone; we got rid of the bear. But I do think it’s very possible that we’re just entering into a new downtrend. The people who bought below are probably going to sell at $60K, and then $60K turns into resistance.

It’ll be very hard to get people to buy an asset like crypto, which is so volatile, if you can go 30% down in a week. If the equity markets continue down, then Bitcoin is, in my personal opinion, still in big trouble.

You can tell I’ve been staring at charts too long. I can’t even talk properly right now. Jonah, I don’t know about you—

Yeah, I’m pretty fried. Not like anything’s going on in the markets or anything. I don’t know if you’ve seen anything happening in the charts.

No. What did I do this weekend? I went to West Virginia and saw my parents. They met my girlfriend. Nothing else really happened.

Yeah, same. Is Bitcoin at $55K right now? Did it hit $49K? Did I miss something?

That’s a big move. That’s crazy. We should probably talk about it.

Yeah, we should probably make this an emergency episode for everybody out there—and for ourselves—who’s wondering what the giant WTF is going on right now.

I’m also wondering what the WTF is going on. One thing that was insane: Did you see the VIX chart?

Yeah.

Oh, my God. That’s a wild chart.

The craziest thing is that it’s the third-highest peak ever, but nothing happened. If you really think about it, right, the VIX hit 65 and the NASDAQ is off 15%. Nothing crazy happened. The equity markets are down, and we had a bad day, but during COVID we went down 30%. The VIX didn’t do that.

The last time the VIX was up here, there were a couple of instances. One was COVID, when there was an outbreak of an unknown virus that was killing people. The other time I remember pretty vividly was 2008, when I worked at Lehman Brothers. The VIX hit 65, and then it was basically, “Here’s a cardboard box. You should put all your stuff from your desk in it because your company doesn’t exist anymore.”

This time, we hit 65 on the VIX—the volatility index—and it’s just sort of like, why? What is going on?

I have a theory. As you can tell from our relatively blasé conversation here, I don’t think either of us is particularly worried about this one. I don’t think either of us is shitting the bed. We’ll get into it deeply on this podcast, but for me, the lower the volatility landscape gets, the calmer things are, and the bigger the positions you need to run in order to make the same kind of money you were making during previous volatile environments.

In 2022, 1 unit of risk would generate X return, or X volatility. In 2024, volatility is so low that you need 2, 3, or 4 units of risk to generate that same level of P&L variance. I think what we’ve been seeing is that, after some really wild years of COVID, the Ukraine war, and regional-bank crises, people have made a lot of money.

Speculative participants across the board, throughout the investment landscape, now need to deploy much more risk to generate commensurate returns. When you get an unwind of a crowded trade and everybody has a lot of risk on, you can see some pretty crazy moves.

To me, this is just a technical-unwind type of trade. I don’t think there’s anything fundamentally flawed about the economy. I don’t think there’s a supply shock or a demand shock. I don’t think we’re seeing some crazy thing happening out of left field like COVID.

I think this is classic textbook behavior: everyone crowded into the same trades in size. Dollar-yen carry trade, short options, long crypto, long stocks, long AI—all of these crowded trades. When they start to look a little bit shaky, people think, “I’m up a lot this year. I want to protect these returns. It’s time to get out and de-risk.”

Everybody, from Warren Buffett down to your three-figure retail trader on Crypto Twitter, is doing the exact same thing at the same time.

It seems to me, as you just eloquently put it, that this is one massive deleveraging event. It’s a growth scare as well, which is why equities are puking. I think it’s the combination of those things that’s leading to the sell-off.

It’s nothing we haven’t seen before. It’s actually pretty in line with what you would expect, even in a bull market.

That being said, it still went down a lot. From the recent peak to the recent low, Bitcoin went down 30%. That’s a big move. A lot of people got carried out over the weekend.

To help people think about how these things tend to go: when you get a sell-off into a weekend, trends tend to continue. Why? Specifically because most people aren’t going to be allocating or buying heavily over the weekend. People aren’t going to make decisions to initiate new positions, especially big-money positions, over the weekend.

What people can do, and what they often do, is reduce existing positions or play with existing positions. When the trend is down—when it was down on Friday, down on Saturday, and Sunday is an extremely illiquid day in general—you tend to want to stay away from doing anything on a Sunday.

You don’t want to buy the dip on a Sunday. I did a little bit and got blown up, but that’s a lesson people should take away: you almost never want to fight the trend on a Sunday.

The flip side is that sometimes you get a move on a Sunday that’s more of a flash move. Weekend buying tends to be on and then off. If the market moves up on a Sunday, maybe you want to sell it. If the market moves down a little bit on a Sunday, maybe you want to sell it.

But we were selling off Friday, Saturday, and Sunday. You just don’t fade that until you get some sort of liquidation event.

Anyway, you’re saying not to buy dips on Sundays because it’s extremely illiquid. What I would add to that is that it’s a Sunday in August. This is when the big risk-takers are out on vacation. They’re on their yacht in Saint-Tropez; they’re not thinking, “All right, time to go all in and buy this dip.”

Especially since this dip isn’t some weird, crypto-idiosyncratic thing that’s going to mean-revert when markets open on Monday. This is being driven by bigger macro markets than crypto.

That’s the part that confused me. I thought it would mean-revert, and it did a bit. Throughout the entire session today, we’ve gone up. At market open at 9:30, we were trading at $50K; we’re now trading at $54K. We reverted, but we essentially went straight up until then.

The real move down started Sunday at 8 p.m. We were trading at $58K on Sunday at 8 p.m., then we nuked down to $52K. We had one more puke down to $49K, and then we cleared out a lot of the supply.

The way I think about this right now is that if you want to play this from the long side, you have to understand who sells. Most people got carried out. Most of the buyers got completely destroyed. The only people selling right now are the people who bought the bottom, of which there were very few.

It might take a while to chew through the supply above, but the reality is that there aren’t that many people left to sell unless something crazy happens. If equity markets keep nuking, that could be crazy. If we don’t go up for 2 or 3 weeks, then I think people holding Bitcoin get very nervous about holding it for too long, because normally Bitcoin tends to reverse reasonably quickly.

I think a lot of people start de-risking alts in that scenario. I actually think Bitcoin is probably okay in that particular scenario; it’s just that the alts are going to get totally destroyed. People will slowly trickle out of Solana, slowly trickle out of Jito, and slowly trickle out of all these random things. But Bitcoin probably just chops around unless you get a shock.

I don’t know what that shock would be, because I think the 2 major shocks were earnings that were really bad and mega-cap tech selling off aggressively. There was also a bad payrolls number, but the services number today was okay.

I don’t view this as necessarily existential.

Neither do I. I’ve had mixed success, to put it generously, trying to step in and buy or catch the falling knife when it’s falling this fast. I’m not worried about this sell-off. This has none of the hallmarks of a proper bear market that’s going to nuke the economy, the middle class, the average investor, and businesses alike.

It just doesn’t look like that. It doesn’t smell like it, and it doesn’t feel like it. As market participants with a little bit of experience, we’ve unfortunately seen what real bear markets look like quite a few times in our short careers. This just isn’t one of them. It has none of the hallmarks.

However, it feels dumb to say, “The thing just came off, so I’m going to dive right in and catch this falling knife.” It feels like you could get hurt pretty badly. You have to manage your risk effectively. At the end of the day, you can’t get taken out of the game.

The most important thing in crypto is to never get taken out of the game. Survive so that you can catch the next upswing.

I think what would be dumb would be to suddenly add a bunch of line items and start shopping for random altcoins and meme coins and doing stupid shit. The smartest thing you could possibly do in this market is either hold steady or, if you’re going to buy, buy Bitcoin or consolidate your line items into Bitcoin.

Bitcoin dominance is going to rally from here after sell-offs like this. You’re 100% right. I’ve seen this happen over and over and over. Bitcoin dominance goes up unless you get a very sharp reversal.

The way I’m trying to play this market right now is that I am buying some alts—alts that I really think could have idiosyncratic strength or that have a narrative behind them, including things like Helium and TON.

Other than that, I don’t really like touching alts. I like touching BTC, ETH, and potentially SOL. Even then, I don’t know if I love ETH.

One thing that really hurt so many people was everyone who was long ETH and ETH/BTC because of the ETF. They just got taken out back. That’s tough, because I think a lot of people viewed it as a “safe trade.”

That’s a reminder to everyone out there who’s investing: anytime you feel super comfortable with the trade, it’s probably the wrong trade. In fact, it’s almost always the wrong trade.

In these types of environments, do the hard thing and buy Bitcoin.

Is buying Bitcoin hard for you? That’s the issue. It’s a little hard for me. I’m not fully allocated in the way that younger people without kids and families are fully allocated. A lot of the guys I talk to who are in their 20s have literally 100% of their net worth in crypto.

I had a career in oil before crypto, so at this point I’m trying to defend some capital as well as grow it. I have a maximum threshold—a maximum percentage of my portfolio—that I allow myself to allocate to crypto, and I’m at that percentage.

You could lose discipline. If it keeps going down, your percentage of the portfolio will go down too.

That’s true. But honestly, what’s happening this time is that it’s going down a little bit, but not by too much, because everything is nuking, except bonds.

As this sell-off happens, my crypto and equity balance is almost preserved, but now I’m becoming more overweight fixed income, which probably isn’t the stupidest thing in the world as we go into a rate-cutting cycle.

Where I’m at mentally is that I could lose discipline and YOLO more cash into crypto or rotate other things into crypto. I’m feeling bullish, but I need to maintain discipline because I don’t want to get myself into trouble.

That’s very fair, and a lot of people would do well to listen to that advice. You need to maintain discipline.

It’s funny: when I had no money whatsoever, it was very stressful to take risk. I grew up being raised by Baby Boomers who said, “A penny saved is a penny earned,” and, “Don’t take risk.”

I came of age during the 2000s, under the George W. Bush administration, when the stock market literally did absolutely nothing for 10 years. It wasn’t this guaranteed mindset that investing generates returns. I was mostly in cash for my early career, and it was very difficult for me to get used to taking risk.

In my personal account, obviously, I took a lot of risk at work. But it’s funny: things have changed for me. I’ve been a trader for 20 years, but as they say, more money, more problems. I still get the same weird stress I used to get when I was 20 years old buying stocks.

When markets are absolutely nuking, it’s hard to take hard-earned money and throw it into the arena, hoping you don’t get blown out. That’s not to say I don’t do it on occasion, but crypto is a momentum asset. It’s reflexive, as you always say, Avi.

I’ve gotten really hurt in crypto trying to catch the falling knife. I’ve made a lot of money in crypto buying early on recoveries—buying that upward momentum once it seems like the shitstorm has passed. To me, this is just positioning, so I’m going to wait and see how deep and how savage this unwind truly is.

I don’t know how long these short-volatility carry trades that are unwinding right now will continue. Maybe it’s over; maybe it won’t be over for a few months. But one thing I’m damn sure of is that, in an election year, you’re not going to have the government hang the middle class out to dry and stand silently on the sidelines while the American populace gets obliterated and elects them out of office.

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Do you think the Fed cares about the equity markets? They talk about credit spreads, but equity markets?

I think they can. The first thing to understand is that equities and credit are part of the same corporate-American capital structure. Equities are obviously riskier, while credit is secured and therefore less risky. Equities go first and credit follows, and they’re highly correlated.

When I used to trade high-grade credit, the index of high-grade credit insurance was called IG CDX, or CDX IG. It’s correlated with the VIX. When volatility goes up, the price you pay to insure bonds goes up, meaning bonds go down—or, more accurately, credit spreads widen.

It’s literally one interrelated system. The equity part of the capital structure moves faster and earlier than the debt part, but it’s all connected.

The only thing investors should actually be worried about—the only way you lose your shirt—is if there’s a credit crisis. You and everybody you know, the company you work for, and everybody else’s employer are forced to do things at irrational prices when they don’t want to do them. That’s what credit crises are about.

We haven’t had a credit crisis since 2008 because the Fed, the Treasury, and basically the bureaucracy in Washington, D.C., stopped allowing those credit crises to happen. They transferred risk from the balance sheets of individuals and companies onto the balance sheet of the government.

That happened again in 2020, and it happened in many smaller ways in 2013, 2018, and 2023 with the regional banks. It keeps happening.

If this thing metastasized into a credit crisis—if suddenly you couldn’t access capital to get a home or grow your business, or if credit really dried up, which seems totally out of the question to me—then let’s say the bureaucracy in Washington, D.C., decided to let it go and not do anything about it. They didn’t buy asset-backed securities, cut rates, or print cash.

They wouldn’t just be taking 1 crisis worth of medicine. They would be taking 15 or 16 years’ worth of post-global-financial-crisis medicine. The stock market would go down to—

What if they don’t? That’s the question people have to answer. What if we don’t have a reason to step in? Why did we step in last time when we had a sell-off this fast and this hard? It was because of COVID. There was a political reason to step in.

Now there’s no political reason. It’s just happening because it’s happening. Is there enough backing to come in, or are people going to go up in arms?

The one good bullet point is that this is happening during an election cycle. The people currently in charge are very incentivized to continue the bull market, so there might be some level of political pressure on the Fed, even though it’s not necessarily the best thing in the world.

Again, how can you even tell? I’m an advocate, at least right now, of being a bull. There’s a bull behind me, so when you look at the screen, it’s green. The bear is gone; we got rid of the bear.

But I do think it’s very possible that we’re just entering a new downtrend. The reason is that the people who bought below are probably going to sell at $60K, and then $60K turns into resistance. Unless the world becomes less scary—unless you get intervention—it will be very hard to get people to buy an asset like crypto, which is so volatile, if it can go 30% down in a week. That’s a pretty scary asset.

What do you think happens when intervention is announced in one form or another? Let’s say the Fed comes out with a 50- or 75-basis-point cut. That’s kind of interventionist. What do you think crypto does?

I don’t think 50 basis points would be construed as interventionist. It was priced at 60%. You have to look at the probability being priced in right now. Maybe 75 basis points would be interventionist.

If the Fed intervenes in a meaningful way, or the Treasury intervenes in a meaningful way, crypto is probably back at the highs. But the question is whether that’s going to happen, and whether you can even bet on it.

The worst thing that could happen to this market is that people bet on it, it doesn’t materialize, and then we’re probably looking at $42K.

I still have trouble wrapping my head around the probability that the Fed, the Treasury, or whoever steps in and backstops the market. This makes me nervous because it might provide a short-term sugar rush.

But once you’ve gone from backstopping the market for a financial crisis or a pandemic to backstopping the market solely because credit spreads blew out, earnings are bad, and the Bank of Japan raised rates and caused a sell-off, you’re near the end.

I don’t think I’m smarter than everyone else, and I don’t think I understand the macro market better than everyone else, but it’s pretty obvious to me that this would signal we’re getting close to the end of the Fed’s ability to prop up the market.

If there’s no real reason to do it other than the fact that the market is weak, that signals it’s no longer emergency action. It’s regular action that’s needed to keep the market from dying.

The Fed has a dual mandate, and I kind of disagree with you on this. They’re supposed to pursue 2 goals: maximum employment and price stability.

Price stability obviously refers to the price of goods and services, not the price of equities. I know market stability technically isn’t part of their dual mandate, but they always take it into account because as capital markets crash, companies lay people off.

If the stock market is careening lower and it looks like we’re headed for a real problem, companies will batten down the hatches, tighten their budgets, and fire people. There’s an indirect effect on the employment part of their mandate. That’s why they pay attention to falling equity markets.

The big difference between this and previous environments in which they did a bunch of stimulus is that rates are high. During the zero-interest-rate era, the only thing the government could do was print dollars and spend those dollars on stimulus. That’s modern monetary theory, quantitative easing, TARP—whatever you want to call it. Those are the last-resort measures.

This time, interest rates are north of 5%. The Fed can just cut them, and that’s a much more effective tool for managing volatility than quantitative easing.

I agree with you that we’re in a problem zone and that governmental bodies—the Fed or the Treasury—are going to try to manage something as stupid as a positioning-driven unwind. But what that tells you is that you should be long-term bullish on Bitcoin.

It shows that bureaucrats have lost the plot a little bit. They’re deviating from their dual mandate and trying to keep people high on the sugar rush you mentioned. That’s not their job.

Bitcoin is ultimately the only thing that’s going to act like gold—a digital gold. It’s a foil to frivolous central bankers who debase dollars in an attempt to provide short-term results for their own careers and political parties.

It’s just never acted that way. In 2021, when there was ludicrous stimulus for no reason, didn’t Bitcoin take off?

Yes, but so did the rest of the equity markets. I don’t think there’s ever been an extended period of time when equity markets have done poorly and Bitcoin has done well. That’s the issue.

This is what we’ve learned in basically every major crash scenario: there’s no such thing as an uncorrelated asset when things are falling apart.

The reason there’s no such thing as an uncorrelated asset is that almost nobody singularly holds 1 asset. Everyone has a portfolio. When you have a portfolio and everything else is going down, you rebalance. You sell the things that are going up and buy the things that are going down.

That leads to everything going down. It might not even be that you’re rebalancing. You might be meeting margin calls, getting wrecked somewhere, or needing to save yourself.

If the equity markets continue down, then Bitcoin is, in my personal opinion, still in big trouble. We might eventually reach a point where Bitcoin goes up while equity markets go down because people are genuinely worried about the stability of the dollar and the financial system. Then people buy Bitcoin.

That’s a reason to own Bitcoin $100K calls. It’s a reason to own Bitcoin $200K calls. I guarantee you that the moment that happens, Bitcoin is going to $150K in a short period of time—not a long period of time.

Can you imagine a situation where everything is down 10% and Bitcoin is up 20%? That would create the biggest FOMO in the history of FOMO.

If I were Saylor and had billions of dollars to deploy into the Bitcoin market, and I could move or support the price of Bitcoin, I don’t understand why he buys when he does. It makes no sense. He always seems to buy at the worst possible times.

I would only buy during periods of stress, so that Bitcoin always looks like it outperforms to the downside. Then you create this image of stability.

Saylor, if you’re listening to this when it gets released, let me know. I can consult for you for 1 Bitcoin an hour. You’re going to make a lot more money if you listen to a few pieces of advice.

I’m definitely nervous for the short term, mostly for alts. If Bitcoin trades down to $45K from here, that has to be a low.

At $45K, people would look at it and say to themselves, “This is a great risk-reward trade. If Trump is going to get elected president and he loves Bitcoin, and Bitcoin just sold off almost 50% from the highs, maybe I should buy.”

I think that’s what’s going to go through people’s heads at that point. The Trump narrative and what he announced gives Bitcoin a floor in a way that it never really had before.

I’m definitely going all in at that level—not financial advice.

Me too. But I think it’s harder to do that with alts. Let’s say you get to that level in Bitcoin and look at your favorite alts. You might think, “I want some cycle bags, so I’m going to add here.” Or, “I think we’re going to get a bounce. Let me pick the highest-beta thing.”

The problem with picking alts for a bounce is that if you’re wrong, unlike Bitcoin, those alts could go down another 90%. When you finally get your rebound, you might not even make it back to your high-water mark or purchase price.

Bitcoin feels like it performs to the downside. Alts and memes are the catch-up trade when we’re already in the banana zone—when Bitcoin is sending, ETH is sending, and Solana is sending, but alts haven’t really started to outperform yet.

Once we’re in safer waters, that’s the trade. We’re just not in safe waters for at least a few months. That’s clear.

A lot of people make this mistake. In May 2021, Bitcoin had a massive collapse and went down 50% from the highs. For the first week, while Bitcoin was ranging and going up a little bit, everybody piled into alts. Alts had a little bit of a pop, and then for the next 6 weeks they basically bled to zero.

There’s no real buyer of those things, and there’s inflation. When there’s no momentum in the market—or even perceived momentum—alts struggle.

Since March, every 2 weeks there’s been perceived momentum to the upside. Even though we didn’t break out, we’d go up 10% or 15%, and it looked like we might break out.

Right now, Bitcoin is at resistance at the bottom of the range, around $58K to $62K. It’s much harder because you don’t actually see momentum at this point until you get to $65K, which seems like a hard target to reach over the next 2 weeks. I think we’re going to work through some things.

I think alts are kind of fucked, but I don’t think Bitcoin is going anywhere. That’s why there’s a bull behind me. I think it’s very possible that we trade at $60K in the next week or 2.

Do I think we’re going to $65K? No. But do I think we’re going to get a violent bounce? My bet is that by Friday we’ve tagged $60K.

We could tag $60K tomorrow. The market has traded in a 10% range over the last 24 hours. It’s so volatile.

I think you’re right. It’s hard to trade these markets because when things are wildly whipsawing around, you lose your edge as a discretionary click trader.

There are levels you can achieve with a longer-term horizon, but trying to get in and out of things with this kind of insane volatility is tough. I’ve seen people chop themselves up in it.

My advice would be: if you’re going to buy, don’t try to buy and sell. Don’t try to market-make this chop. Pick your direction. Either you’re de-risking, or you’re scaling in and buying at levels as it goes down.

When it rallies back, maybe you can sell some of what you bought at a higher level. But trying to generate alpha in the middle of this chop and go home flat when you’re done—that’s not going to work.

I was checking some of the data. The last time we had this much open interest on Bitcoin was when Bitcoin was at $44K. There’s relatively no leverage in the system right now.

That indicates to me that we’re in a very good position to start going up. If I were to bet, there are actually quite a few shorts that have entered the market. That’s another reason I’m bullish on the $60K setup.

The VIX tagged 65 and is now at 38. That’s insane, especially given the way the market has traded. It tells me that people are really, really fearful, but the fear doesn’t match the price action.

That tells me these people are probably quick to buy back if things start going their way. However, there’s a lot of supply underwater, so when we go up to levels like $60K, people are going to start offloading. It’s just going to chop.

You have to be careful with that open-interest number because a lot of it is basis. You have people short CME futures against long spot or long ETFs.

Basis was positive for quite some time, meaning futures traded at a premium to spot. It was a risk-free arbitrage to be long spot and short futures.

On sell-offs, that basis collapses and the arbitrage goes away. People get out of their futures, open interest goes lower, and on the other side of that equation people exit spot and ETFs.

That’s why, on August 2—which would have been last Friday—the Bitcoin ETF space saw $240 million worth of outflows. Some of that was probably straight-up delta-one selling, with everybody getting out of Bitcoin.

I interpret it differently. Everything you said is correct, but the last time we had this much open interest was in December 2023. It’s been 8 months since then, and the ETFs have traded billions and billions of dollars in volume.

The number of people running that basis trade has probably gone up substantially. The fact that we’re at the same level of open interest we had back then indicates to me that there’s much less leverage in the system than there was at $45K in December.

In theory, a substantial portion of that open interest should now be basis. Even though it’s the same number and you might say there’s the same level of leverage, I take what you said and conclude that the leverage in the system has grown less.

I agree with you. That makes complete sense. That’s a really good take.

The way I view it is that everyone who was going to get blown out has been blown out. There’s nobody left to blow out.

The only people left to sell this asset are the people who are going to slowly get out of their positions because they think it’s over. There are probably some of those people.

There are also plenty of people who can still get out of the stock market. If equities keep puking lower, there are probably some correlation algorithms that will take Bitcoin down with them.

Let’s talk about Jump for a second. These guys liquidated basically all of their ETH. They liquidated their entire portfolio and spooked the whole market.

Is it confirmed that Jump unwound its portfolio, or are some people looking at Nansen and seeing that a Jump wallet got out of ETH? Who knows what was on the other side of that trade? Maybe they were selling ETH to buy Zyn. I’m making that up, but are we certain that Jump is out?

We’re not certain, but as far as I understand, they’ve definitely been winding down their activity and definitely sold some. I think they sold at least some of it. That’s based on wallet movements, price action, and the inability to get in touch with them.

There are rumors flying all over the marketplace. I’m not going to allege anything specific related to Jump, but Mustache Warrior disappeared from the Jump leadership team. There are investigations left and right involving Mustache Warrior.

Suddenly, their ETH wallet has been seen liquidating an insane amount of ETH in what seems like a particularly sloppy fashion. You wouldn’t expect that out of a high-frequency trading company.

I worked at a Jump competitor, so there’s no love between me and Jump. But it seems like an unceremonious end to what, in 2021, was one of the most interesting and polished stories—not just in crypto, but in the entire world of trading.

These are the guys who were rumored to have made somewhere between $8 billion and $10 billion on UST in 2021. Now it seems like everything has ground to a halt. The crypto space is feeling it.

Avi, I think you basically talk to all the major funds in the space. I would wager, based on my conversations with them, that 80% are down year to date.

How is that possible? Bitcoin is still up around 35% on the year, and ETH is up 5% to 10%.

It’s because most of them weren’t allocated to Bitcoin in the way they were supposed to be. When you’re lagging your benchmark, you rotate into higher-risk, higher-beta assets.

Over time, during that entire rally, portfolios shifted from majors to alts. Alts are down tremendously. Most of them have retraced to, or below, their FTX lows.

We’ve been warning about this again and again. I took personal heat for the call, but we specifically said to stay out of that stuff. It’s toxic in sideways chop or worse.

Arbitrum is below its FTX lows. Imagine the pain of holding that. Arbitrum isn’t vaporware. It’s good technology. It’s one of the 2 performant L2s, along with Base, that you want to be part of.

It’s good technology, but it isn’t used. At the end of the day, that’s what matters.

If Jump were liquidating, they would be selling that stuff, too. An organization like Jump probably doesn’t have just a couple of line items. They’re probably long hundreds of different tokens, including the ones you just mentioned.

If they’re sloppily selling ETH in the most visible way possible—and all of this is speculation; we have no idea what they’re actually doing—it would be overwhelmingly likely that they’re also blasting out of other things that are worse bets fundamentally and less liquid.

When somebody sells, those things puke harder.

The other thing spooking people was the whole Israel-Iran situation. I don’t think it’s relevant to the markets. Personally, I’m not worried about it.

The oil market doesn’t care about it. Iran just wants to saber-rattle and scare Israel. I’ve talked to a lot of friends who live in Israel, including people in the IDF and intelligence, and nobody is freaking out.

The oil market is nuking right now. It’s trading like Bitcoin, basically careening lower.

Today, Libya—which is a sizable oil producer—had one of its major oil fields, Sharara, go offline because the warlord in charge of it, my second-favorite Libyan warlord, General Khalifa Haftar, is in some sort of dispute with the locals and shut down the field.

Oil is shrugging off all of this geopolitical risk. That tells you which market is driving price action right now. It’s risk assets, not the Middle Eastern geopolitical setup.

That could change rapidly. I just don’t think it will.

Who’s your pick for the 2024 election?

I think Trump is going to win. This isn’t a political statement of support for anybody; it’s just what I think.

The Republicans are laying a trap for Kamala Harris. They’re letting her have her moment and her honeymoon period. As soon as she locks up the nomination, I think all kinds of horrendous stuff will rain from the sky and torture her chances of winning.

They perceive her internally as a weak candidate, so they want her to run against Trump. I think we’re seeing peak Kamala here.

I agree 100%. The Kamala candidacy reminds me of Ron DeSantis at the beginning. DeSantis had all this momentum and hype, and everyone on the Republican side loved him, but the reality is that he wasn’t a viable candidate. He was weird and uncomfortable.

Trump has the hearts and minds of the Republican Party, and he’s a great political candidate. Have you ever heard Kamala say anything smart?

No.

Have you ever heard her say anything that would indicate she’s a good political candidate?

No. She flamed out in the Democratic primaries and got bailed out because, candidly, she was the right profile for the candidate Biden needed at the time for vice president.

She’s not a good politician. She’s a terrible politician. At the end of the day, I don’t think someone like that can win, no matter how hard they try to push her.

That’s a good setup for the end of the year for BTC. I don’t see why we can’t end the year back at the highs.

If Trump gets elected, which I think he will, and we don’t have World War II, and the market hasn’t completely wrecked itself in terms of equities—even if it has gone down a bit—that’s a very good setup for Bitcoin.

It’s huge. I think Bitcoin could easily be trading at $100K, and ETH could be at $3K in the middle of November—not financial advice.

ETH at $100K?

No, BTC at $100K and ETH at $3K.

ETH was just trading at $3K recently. Let’s keep our pants on here. My point is that this isn’t hopium. Saying Trump is going to win isn’t a political endorsement or affiliation.

If I legitimately thought Kamala had a decent chance, I would be slashing my Bitcoin exposure right now. I’d be reducing it.

I think that’s what you’re seeing in crypto and in a lot of markets. As Kamala’s odds rally on Polymarket, people who had these Trump trades on that they felt really confident about are suddenly thinking, “Wait a second. This is bad. I need to pull some money off the table while I’m still up on the year.”

Trump has this one in the bag unless he gets shot or really manages to blow it for himself, which I don’t think he’s doing.

What’s the most bullish single narrative for ETH through the end of the year?

The most bullish narrative I can think of is that I can’t think of a bullish narrative. It’s so hated that all the bullish narratives feel like I’m pulling them out of thin air.

People view crypto as an asset class, and because there’s an ETH ETF and a Bitcoin ETF, once people start allocating to crypto again—which probably happens in September—it’s likely that they also buy Ethereum.

Ethereum is a lot less liquid than Bitcoin, which could lead to price appreciation. It’s also easier for Wall Street to understand. The only real bullish narrative for Ethereum is that it gets added to the S&P of crypto.

It’s the equivalent of adding a stock to the S&P: now it gets all the passive flows. But there’s no real interesting activity going on on ETH, in my personal opinion. There aren’t any really interesting projects building on ETH.

Isn’t Polymarket on Polygon, which is on Ethereum?

Not really. When you put USDC on Polymarket, you’re not doing that through SPL. You’re doing it through an ERC-20 transfer on Polygon.

The only bullish narrative I have for ETH is that it’s horrifically underallocated relative to BTC. That’s literally it.

My ETH/BTC narrative is that it’s the granddaddy smart-contract platform that legacy businesses can understand and not get fired for using.

If you’re a legacy business in traditional finance or Web2 and you start doing crypto stuff, and you choose Aptos and get exploited through Wormhole, or you lose all your money because Mustache Warrior made a mistake, you get fired.

If you lose it on ETH, you were playing it safe. MATIC at $3? Oh, dude, no. No way. MATIC is not going to $3. If MATIC is at $3 by the end of the year, you can have my spot on this podcast. MATIC may never see $2 ever again. I never did want to shit on my bags. It’s hard to maintain my bullishness when I like Aave and ENS and not much else on Ethereum.

What do you think about the Aave fee-switch proposal?

I have no idea whether it’s going through.

The answer is that it would be extremely bullish. It would be the first real productive DeFi asset with a real product, generating real revenue and tying its token to that revenue stream.

But I have no clue. It’s very possible that it goes nowhere. If it goes somewhere, then AAVE probably goes up. That’s my guess.

It’s probably worth owning, but the issue is that a lot of the recent price action may be because people are buying it in anticipation that the proposal will pass. If it doesn’t actually get implemented effectively, then it’s probably fucked.

I do like DeFi because I think people are going to look for real productive assets.

ENS also looks interesting. It retraced the entire move from May back to where it started.

So you’re bearish on ETH but bullish on ENS?

You don’t have to be bullish on the platform to be bullish on 1 product. I’m bullish for a trade, or potentially bullish for a cycle if they turn on the fee switch.

But you need more than 1 or 2 applications. I like Aave and ENS, and I don’t really like anything else on Ethereum. That makes it hard to maintain my bullishness.

I do like AR. I think Arweave is good. I think the AI narrative is going to come back at some point, and you can probably build a portfolio of these AI coins. But you have to be careful.

My bullishness has firmly shifted toward SOL/BTC.

There’s a question about whether Jump leaving crypto will create a vacuum in the Solana ecosystem.

My take is that Solana doesn’t need Jump. They did a great job surviving the FTX collapse, and I think they’ll be just fine without Jump.

I also think Solana is doing a great job overcoming the narrative that it’s just a mafia of insiders controlling things. Shedding Jump from the ecosystem is actually a great thing.

As a trader, I never understood why anyone would want to use a blockchain that’s supposed to be open, permissionless, and decentralized, where the entire validator-client ecosystem is designed by a high-frequency trading company whose business model is to see your transactions before they hit the market and front-run you.

That’s basically how I’ve always perceived Firedancer. Toly knows more than I do about how Solana works, and he pushed back on that when we had him on the podcast, but I’m still suspicious.

Just in terms of getting the overhang of that possibility out of the way, Jump and its Mustache Warrior army being gone probably does wonders for the Solana ecosystem. It probably makes everyone more confident that it’s a decentralized, open-source Linux-like project rather than a sinister casino where you come in, get wooed with free drinks, and lose your money transaction after transaction as it gets bled into Jump’s coffers.