Does The Bitcoin Halving Still Matter? | 1000x

From the perspective of an oil trader, I’m just so bullish on Bitcoin based on the fact that if you were to tell me the world pumps 103 million barrels of oil every single day and, starting next week, that number is going to be 51.5 million barrels, I would be out of my mind—begging to buy every oil future off anybody who would sell it to me, doing everything I could to get long Bitcoin. People say, “Bitcoin tends to go up after the halving.” What the fuck? It goes up 10x after every halving. To me, this is setting up for a crazy, crazy rally.

The question is: has that already happened with the halving?

Okay, welcome back. I’m in my usual location, the studio in London. Avi is in Saint-Tropez, in a restaurant, because there’s no Wi-Fi anywhere in France before 9:00 a.m. except in hotels.

Correct.

We should honestly leave that part in just because it was so funny.

I think he told me to get my feet off the table. He didn’t tell me to move.

Oh, dude, come on. Have some respect for the French.

It’s a little small foot table. It’s not a big table. It’s the table for handbags. It’s where women place their handbags, not where you put your feet.

Look, I’m an American. What can I say? There are a few times where being older actually helps. This is one of them. I could have coached you on that.

You definitely could have coached me on that. That’s okay. Look, I needed to get comfortable so I could talk to the people about everything that they need to be talked to about.

Bitcoin’s nuked, ETF flows have stopped, and we’re in a pretty dicey place geopolitically. ETH is nuked too. Basically, people like to always ascribe price action to news. My view, which has been consistent over the last few podcasts—even when we were trading at $70,000—is that it’s very rare for Bitcoin to go sideways for this period of time in a bull market and not break through.

Do you remember the last time we were trading around $70,000? I was saying, “Guys, it’s very rare that this type of price action happens.” Immediately afterward, we sold off 10%, and then we went straight back up. People got a little bit more bullish based on that price action, but the reality is that the $70,000–$72,000 level has proven to be a very strong one. There’s been a lot of supply activation.

Whenever you see a pattern like this after a 2x run-up, I mean, come on. We saw it last summer, during the first phase of the bull market, when prices stabilized for four months in the middle of the bull market. We were trading around $29,000–$30,000 for the better part of half a year, and then we rocketed. I think something similar is going on here.

You used a great phrase: “activation of supply.” We hit all-time highs, or thereabouts, and long-term Bitcoin holders—including the U.S. government—started sending their coins to exchanges to sell. It was a great take-profit level; everybody was in the money.

Now we’re getting hit with geopolitical headlines that are creating headwinds that wouldn’t have been there otherwise. I think we would have broken through $70,000. I think we’d be trading at $80,000 right now if it weren’t for this Israel–Iran situation.

As an oil trader, I have some opinions on all of that. What we can’t ignore about Bitcoin is that during crazy times, when uncertainty is high and the world is going into uncharted waters—as with the Russia–Ukraine war—as bullish as I like to be about Bitcoin, it objectively nukes first. It goes down with other risk assets.

This is my simple take, and it differs a little bit. Ever since 2021, every time we’ve reached an all-time high, we’ve actually puked shortly thereafter. We only make a 5% or 6% gain on the previous all-time high, and then we nuke.

In March and April of 2021, we got up to $60,000. Then, in November 2021, we got up to $69,000. Now we get up to $74,000. Basically, because of the type of market participant in this market, all-time highs tend to be a very good thing to sell. Previously, all-time highs were a very good thing to buy.

When you have a lot of retail in the market, those people tend to buy all-time highs. When you have slower, more institutional money, those people tend to sell all-time highs.

Yeah, so I think what’s happening is that we’re just getting a dampening effect, which makes me think we’re probably due for a pullback to $52,000 at this point.

Let’s take geopolitics out of it. If the Israel–Iran issue weren’t present in our lives, I’d probably start bidding here, but it is, and that adds a little bit more worry. We don’t know what escalation could look like.

What we’re seeing right now is that there are reasonable reasons to believe escalation will occur. Based on the information being reported in the press and what I know about Israeli politics, it’s going to be very hard for there not to be a response. It’s going to be very hard for Israel to just take this lying down.

From my perspective, that’s a huge risk to the market. I do think it’s good for Bitcoin over a 6-month time period, but it’s not so great for Bitcoin over a shorter time period, purely because you’ve already had so much allocation and we’re not really tracking gold anymore. Gold used to track Bitcoin, and Bitcoin used to track gold. You don’t really see that anymore.

Yeah, they’ve disconnected. For those who aren’t paying attention, gold is rocketing to all-time highs. It just went well through them at this point. It’s up only.

Here’s my take on all of this: risk assets—and apparently Bitcoin and crypto are risk assets now—like the S&P and crypto are telegraphing a big economic shock coming out of the Middle East. They’re going down pretty quickly because of fears of escalation in this Israel–Iran conflict.

Oil, on the other hand, is also going down, which is very unusual. Normally, when geopolitical risk kicks off—especially in the Middle East, where an enormous percentage of the world’s oil is pumped out of the ground—you would expect a shortage of supply, or a projected shortage of supply, to lead to higher oil prices.

Oil is going down quite a lot. Everybody in the oil market is consensus max long and getting rinsed right now.

Why is that? It’s easy to say, “Israel and Iran could create an economic shock that hurts risk assets and spikes the price of raw inputs like oil,” but let’s dig into what could actually create that shock.

Let’s say Israel does something really extreme. Let’s say they bomb Tehran, indiscriminately carpet-bomb the city, and level entire neighborhoods, diplomatic facilities, and government buildings in the capital. What then? What does that actually do?

Iran’s economy in and of itself is not a contributor to the world economy. It’s not really a factor in global GDP. No one is going to say, “Fuck, I can’t do business with Iran anymore.” They’re already sanctioned up the wazoo. That doesn’t actually hurt earnings or anything.

What that triggers is a fear of an Iranian response that will hurt the global economy. Iran can do only one thing to hurt the global economy: shut the Strait of Hormuz, which is a choke point in the Arabian Gulf. They call it the Persian Gulf because they’re Persians, but the Saudis call it the Arabian Gulf.

Around 30%–35% of the world’s oil comes out of the Arabian Gulf into open waters via this relatively narrow strait. Iran could shut it. They could launch a bunch of cruise missiles at cargo ships going through there, and suddenly you’re looking at $4500 oil and the entire economy shuts down.

Their lever to shut down the world is oil. Oil is telling you they’re not going to do that, because if they were to do that—if they were even to take out a single cargo ship with a cruise missile—every major Western country would start a kinetic war against Iran.

That is not something any country can stomach: a quintupling or a 10x increase in the price of the most important transportation fuel in the world.

To quote Dune, the people who lead Iran measure their plans in centuries. I’ve read books about this. They’re playing the long game. They don’t want to force themselves into hiding, invite regime change, or get dragged out of a hole in the ground and hung in public like Saddam Hussein was over this.

I think Israel will respond. I think Iran will probably try to avoid escalation because they want to stay in power, they’re weaker than their nuclear opponents, and, frankly, the oil market is telling you just that.

Is there a world, though, in which Israel and Iran end up in a wider-scale conflict but oil prices aren’t massively affected? Iran just keeps pumping. Israel obviously doesn’t have access to much oil and doesn’t have much impact on the market.

Is there a world in which there’s broader escalation—strikes on bases and direct territory in Iran—but Iran’s production doesn’t go down? For example, Israel is just hitting nuclear facilities or military bases, Iran is retaliating, and this goes on for a few months, but they don’t close the Strait of Hormuz. Is that a possibility?

The thing that all the security people are talking about is that Israel is going to take out Fordow, Iran’s nuclear facility, by dropping some crazy bunker busters. It’s 100 meters underground, but there are modern bombs that could do it. It’s crazy.

If Israel were to take out Iran’s nuclear capabilities and set them back 10 years, Iran would probably strike back at Israeli military bases and fail. If these 2 countries want to go tit for tat against each other’s military installations, Israel will dominate. Iran won’t really be able to do much.

If Iran does manage to take out Israel’s military capabilities in some respect, Israel will go back 10x because we know how they operate. It’s impossible to see a scenario where this remains somewhat contained. It either fizzles or it explodes.

If it explodes and these 2 countries are going after each other’s population centers, it’s hard to see how oil doesn’t get involved in the equation.

Even if Iran doesn’t shut the Strait of Hormuz, they pump 3.1 million barrels a day out of the ground every single day. They consume 1.8 million of those domestically, which leaves 1.3 million barrels per day that they’re—using air quotes here—illegally exporting to the world.

It’s really just India and China buying it outside of the U.S. sanctions regime, which the Biden administration is effectively allowing to happen. They’re turning their backs on it because they don’t want gas prices to go up too much during an election year.

That could come off the market. Unless the actual capabilities—the refineries or the oil fields—are struck, which may or may not occur, I would assume the U.S. would be very much against Israel hitting them.

Israel wouldn’t want to hit their production because that would hurt Israel. Israel is a consumer of hydrocarbons.

Exactly. They wouldn’t want to encourage that. They want Iran to pump oil and not make nuclear weapons. They would hit the nuclear facilities.

Basically, the way I’m thinking about this is that the market of China and India isn’t going to go away. There’s no reason for that demand to go away. If we think supply is going to stay the same and demand is going to stay the same, even if a war breaks out, then the only ways this specific war actually impacts the price of oil are through a gut reaction by the market to any attack, driven by people who don’t necessarily understand what’s going on, or through something more direct.

That’s kind of what happened with Russia. Oil ripped, and then nothing happened.

That was real. Russia is a top-3 oil producer and a top-2 oil exporter. Basically, black-market shipping took over the entire market.

The world legitimately lost millions of barrels per day of export oil, and that’s why everything nuked. It took a few months, though.

Longer term, these fears—and what’s going on between Iran and Israel—accentuate the need for alternative payment rails and alternative value-movement rails as sanctions kick off. Long term, this geopolitical stuff is bullish for Bitcoin. It could be bearish for alts and other speculative Web3 technology.

It’s definitely not good for speculative tech. It’s a risk-off market at that point.

Yeah, and you don’t want a risk-off market. If you want things like Solana or Chainlink to go up, you can’t really have a risk-off market.

Bitcoin can, and it’s possible that if sanctions get stepped up—the EU is threatening even more sanctions against Iran—it’s possible that we weaponize our financial system to an even greater degree over the coming 6 or 7 months.

That would be a very big boon for BTC. As 2 people who don’t necessarily support Iran, our bullishness on Bitcoin is probably helpful for Iran. But at the end of the day, it’s technology, and you can’t control it.

Exactly. Geopolitical strife, increasing division in global trade, and increasing barriers, problems, and sanctions are all very long-term bullish for Bitcoin, which is stateless internet money that can’t really be hacked.

The other thing, while we’re talking about oil, that’s so bullish for Bitcoin for the second half of this year is that everyone is ignoring the halving. It happens in a couple of days—or hours. I forget exactly—but as of this recording, it’s imminent.

One thing I want to say about that is, from the perspective of an oil trader, I’m so bullish on Bitcoin based on the fact that if you were to tell me, “Hey, Jonah, the world pumps 103 million barrels of oil every single day to keep the human race moving, and starting next week that number is going to be 51.5 million barrels because the other 51.5 million barrels just disappeared,” I would be out of my mind. I’d be begging to buy every oil future off anybody who would sell it to me. I’d be going crazy, maxing out my VaR, and doing everything I could to get long Bitcoin.

People say, “Bitcoin tends to go up after the halving.” What the fuck? It goes up 10x after every halving. To me, this is setting up for a crazy, crazy rally.

The question is: has that already happened with the halving?

No. People should probably get bullish because of the supply reduction, but the question is whether that has already been front-run. The Bitcoin halving is the most telegraphed event in the entire world. Tell me that people are going to start buying the day after, when they’ve known for years in advance exactly when the supply is going to come offline.

There has to be some acknowledgment that the market is at least moderately efficient. The real question is: what does this look like?

You have a slightly different dynamic now. The outflows from miners are going to be cut in half, but you also have offsetting inflows from the ETF. If, at the same time, you have this supply reduction from the miners but ETF inflows are down by 50%, then you’ve netted it out to nothing.

Supply reduction is an inflow.

Let’s be clear about 2 things here. I agree with you that flows matter. I think a supply reduction is a form of inflow, and the ETF flows have stopped. You’re right about that. I agree.

It depends, though. Supply reduction is a partial inflow. How is it a partial inflow? Miners don’t sell 100% of every BTC that they mine.

Let’s say their income gets cut in half. That doesn’t necessarily equate to that level of inflow. What it equates to is whatever percentage of Bitcoin they sell every time they receive that income. That counts as inflow.

Let’s assume they only sell half their Bitcoin. The new BTC reward per block is 3.125 BTC. That’s 3.125 BTC per block times 4 blocks an hour times 24 hours a day times the price of Bitcoin, which is $660,000. That gets us to something like $18 million–$20 million a day worth of Bitcoin mined.

Let’s just say that $7 million–$10 million a day gets sold. You’re right: $10 million a day isn’t really a meaningful flow for now, but into perpetuity it adds up.

Meanwhile, the ETF flows have stopped for now, but they haven’t stopped into perpetuity.

My view is that the numbers you mentioned are just too small to matter. Over the long run, the halving makes Bitcoin a more attractive asset to buy, but it doesn’t necessarily mean we’re going to $80,000 anytime soon. It doesn’t mean we’re going to $100,000 anytime soon, because it’s not going to be the main driver.

The way to make money on this specific narrative, I think, is that it brings attention to Bitcoin and the Bitcoin ecosystem. All these different things that are building on Bitcoin are going to get more attention because of the halving.

Basically, any NFTs built on BTC and any projects being built on BTC are probably going to get an increased amount of attention because of the halving, and therefore are probably good buys. The Bitcoin monkey NFTs will probably do well. PUPS, the meme coin, could do well.

I don’t necessarily know if I agree with that. I don’t have a nuanced take on this. I just don’t think Bitcoin is an L1 that’s designed or optimized for a good user experience for anything except Bitcoin.

I’m not sure there will be this vibrant ecosystem of things that thrives on Bitcoin, because it’s a narrow token. Just to be explicitly clear, I don’t think this is going to be a long-term play. This is a “you get in it, 2 weeks later you’re out” trade.

No, no, I agree with that completely.

You did mention attention, which is an important segue into something else. We’ve taken some heat on the podcast for focusing on Bitcoin and memecoins, which is this barbell trade. In effect, that ignores a lot of the innovation and technology development happening in the middle of the barbell, with Web3 applications, decentralized finance, DePIN, and all this other stuff.

However, attention is really on Bitcoin and memes, and that’s where the returns are right now. Governance tokens and all the complicated stuff in the middle of the barbell aren’t really performing. This could be a buying opportunity.

You and I both tweeted, “Hey, crypto Twitter, what should we be talking about? What should we be paying attention to?” Maybe we’ll get to that later in the podcast, but why is all the attention on memes right now? What memes are you focusing on, and why is nothing else performing?

What’s kind of interesting is that the memes doing well right now are the low caps, the ones that are new and have broken through. For example, MEW—I don’t know if you’ve seen it—although MEW is down 25% today, it was doing well before.

If you had the barbell strategy, you did very well on the way up and you do very poorly on the way down. That’s why, if you’re trading and operating in the memecoin space, you have to take profits when anything crazy happens.

We’ve all heard stories of people turning $10 into $30 million, but the reality is that it’s probably not going to be you. The best way to do this is to scale out of memecoins. Once you get into a memecoin and it hits $100 million, you should start scaling out. I think that’s generally the case because it’s very difficult to generate an edge on these things.

There are specific cases where maybe you can. I think, for example, that you generated some edge on BODEN and played that very well. But in general, the market has just been trying to pump memecoins left and right.

We’re going to find out over the next 3 months which ones have staying power and which ones don’t. The ones that have staying power are probably the ones with a lasting brand, the ones that will always appeal to a certain group of people at any given moment and aren’t just flash-in-the-pan projects.

The way I see it, first of all, let me just say that I’m not optimized for meme investing. I’ve spent 20 years in traditional finance, and I would never have invested in a memecoin until recently, when it clicked for me with BODEN.

I think the deal with memes, and the reason they’re garnering so much attention and generating such spectacular returns, is that some of them—the benchmark memes of this cycle—are outperforming alts during this sell-off quite meaningfully. That deserves attention as well. I’m not talking about the shitty ones that no one cares about, but WIFs and BODENs are definitely outperforming a lot of altcoins.

If you’re going to invest in a token, Bitcoin is digital gold and internet money. ETH has a real narrative. Solana has a real narrative. The benchmark L1s have their role.

But out the risk curve, why would you want to invest in a governance token that gives you a vote in some DAO you don’t care about, or that doesn’t really accrue earnings from a Web3 protocol that’s kind of a business and kind of not, when you could invest in something that is literally just an attention token at a low valuation when you think it’s going to go up?

It’s kind of like investing in the Nike swoosh if you were one of the first people to discover it. To me, the gambling experience—the casino meme experience—is so much better than anything Las Vegas offers that it will eat into that gambling market or create new gambling markets that didn’t exist before.

Meanwhile, gambling on tokens that are loosely linked to Web3 businesses that may be gaining traction is less fun, and you can’t value them with a DCF model, especially during a sell-off.

I still believe in the barbell strategy. You want to wait to buy the middle of the barbell. Wait to buy some of these alts, because I think they’re going to go a lot lower.

With memes, this is not financial advice, nothing crazy, do your own research. This is gambling we’re talking about, not investing. Don’t take any of this as a reason to buy something.

But I do believe that if you have a reasonable expectation that attention will be directed toward your meme, relative to its valuation, it can make sense to buy. BODEN is one of those things. I think people will increasingly focus on this guy’s age and his inability to deliver coherent speeches, which is basically job number 1 for a leader, especially the leader of the free world.

I think it plays into embarrassment about the state of America and the age of global leadership. As attention focuses on that meme, which captures the zeitgeist of our era, people will buy the token for a laugh.

That meme was valued at something like $400 million, $500 million, or $300 million. If you’re going to speculate on a meme, it also pays to pay attention to things under $10 million.

I recently saw $JEW. You and I are 2 Jews who podcast about crypto. Crypto and Jews are memetic things right now, and they get a lot of attention on Twitter. Why not?

I agree wholeheartedly. The $JEW coin is funny because I would have expected there to be a much larger Jew coin in the past, but the fact that there wasn’t kind of cracked me up. I tweeted out, “Jews are a very memetic force in general.”

I think that throughout human history, they’ve been a mind virus, and people just can’t stop thinking about them. It’s kind of crazy. At any given moment, people will blame the Jews for things like stubbing their toe, the weather, global conspiracies, or siphoning money off from the banking system.

It’s honestly unbelievable, the number of things Jews are a Rorschach test for individuals. You can see whatever the hell you want to see, which makes it a pretty powerful meme.

I don’t think this coin is ever going to get listed on an exchange. Joe Biden might, but it’s still kind of a funny little thing that they’ve got going on there.

When it comes to memecoins, it’s about what has everlasting potential. If you can imagine this thing in 10 years, are people still going to care?

Are people going to care about cats and dogs? Are people going to remember the days of Joe Biden? People are going to remember the days of Joe Biden in 5 years.

Especially if he wins again. If he doesn’t win, that’s a very bullish catalyst for crypto. Crypto is currently trading like he’s going to win, which is amazing.

Going back to our topic of doing research on projects in the middle of the barbell, we wanted to educate ourselves on Web3 and DeFi. I was amazed, browsing through some of these protocols, by how difficult they are to access if you’re a U.S. or U.K. user.

Regulation is a massive lid on the price of crypto. The 3 projects that came up most in our Twitter callout were Ondo, Ethena, and Hyperliquid. You just can’t touch that stuff if you’re American.

So, why Ondo right now? Why is all the attention on memes, and why is nothing else performing?

What’s interesting is that the U.S. bid matters more than anything else. The only people really able to use this stuff easily are offshore users. Obviously, people in the U.S. probably use VPNs. I don’t, but if you dug into it, you’d probably find that’s what people are doing.

I also think things like Ondo make a lot of sense in terms of where the future of crypto is going. We all agree that tokenization is part of crypto’s future. We need more assets represented natively on-chain from the beginning.

Ondo is doing that. They’re genuinely building some pretty cool financial infrastructure. I think they’re going to face a lot of pressure from the United States unless they can get all the big institutions on board, because obviously they’re very dangerous for those institutions.

They are a good product. They’re a good product that’s going to make money. It’s a very simple way to make money. They just have to start expanding their offerings.

As I browsed these 3 protocols and dug into the docs, I think Ondo was the most exciting to me of the Ondo, Ethena, and Hyperliquid trio that were recommended.

What does Ondo do? Basically, right now, they turn short-term U.S. Treasury notes into tokenized form. You can’t touch that if you’re in the United States, but the silver lining is that if you live in America, you can just open a brokerage account and buy some T-bills. You’re good; you don’t need this stuff.

Meanwhile, if you live in Argentina and want U.S. dollar stablecoin yield, you can’t easily buy T-bills as a retail investor. Ondo provides that solution. It allows you to own a dollarized asset. It’s like Tether, but with yield—with actual high savings-account yield.

I think that’s brilliant. Obviously, that’s just the first step along a long journey. Eventually, it could be a tokenized S&P for people in Africa, tokenized hedge funds, or tokenized anything. I think Ondo has tremendous potential.

The ONDO token clearly exists because they need a way to monetize their efforts, but I don’t believe in the ONDO token. I don’t think you need the ONDO token. Ondo should make money the way Tether makes money, by shaving a few basis points off the top.

This is why I don’t believe in investing in the tokens of these projects. These tokens are effectively memecoins. They offer nothing other than attention. You can do better with other memecoins, or you can probably do better with Bitcoin.

I don’t believe in the ONDO token. I believe deeply in the Ondo offering.

I can’t really say whether I believe in the ONDO token or not, because it depends on securities laws and what they’re able to do with that token.

If this token ends up being a way to distribute profits from Ondo, then I believe in it. Obviously, it has value in that case. Right now, it’s just a governance token, so it doesn’t really make a ton of sense.

In the future, once we get rid of Mr. Gensler, I hope we find a framework where we can take these good products like Ondo and have a token that actually has value associated with the cash flows from the platform.

Think about it: if one day Ondo wants to go public, why would they issue actual stock? Why wouldn’t they issue a token that they can direct cash flows to? It makes so much more sense based on the whole premise of what they’re trying to do—to bring everybody into crypto.

At some point, they’re going to have a token. Let’s say they get big enough and go public. In a world where they didn’t have a token today, at some point in the future they would need to have one. They would need to figure out how to generate value for those token holders.

The only answer is that they need to pass back some of the cash they generate.

I think you hit the nail on the head. If securities laws change and you can issue a token that allows you to pass cash flows from your real business through to token holders, then ONDO is probably the token you want to hold.

The DeFi tokens would literally be limit-up. But until then—and that’s a long journey—I think you’re going to get spectacular outperformance from Bitcoin or the memes.

People got excited about a governance vote during the 2021 cycle, and then they just ultimately valued those tokens at zero. I don’t think people give a fuck about governance tokens this time.

The other 2 projects weren’t particularly exciting to me. Hyperliquid is just an exchange. I don’t see how it differs from all the other exchanges that have ever been launched.

I didn’t get it either. I thought it was a really slick user experience.

It’s good, by the way. I really like it. It just doesn’t get me bullish on-chain.

It’s like dYdX is already doing that. I don’t understand the differentiation.

Hyperliquid was a bit of a mystery to me. Maybe somebody in the comments can explain why people love this thing. Maybe it’s because they have a good referral program and people are trying to refer us to it, but I don’t know.

Ethena is interesting only because it’s the first example of a perpetual-based stablecoin that has actually managed to take off.

The idea has been around forever. Back in the BitMEX days, in 2019, if people wanted to go to cash, they would short the 1x perpetual against their Bitcoin balance, because you couldn’t hold USDC or USDT on BitMEX. You could only hold BTC. The only way to go to cash was to short the perpetual and generate some sort of yield.

Anyone who has been trading in this world for more than a year hopefully knows that they can do this. There have been a bunch of different projects, mostly on Solana, that attempted it, but Ethena seems to be the only one where it has really taken off.

It seems to be because of the names behind it. The biggest issue with all of these products is always going to be collateral management. If they can work with exchanges to say, “We need a nonliquidatable account,” then perhaps this can take off. Other than that, it’s a centralized product, because there has to be some access to these perpetual products.

Maybe in the future it will all be decentralized, but I was reading through the docs and I came into it very bullish on the project. After doing my research, I feel very uncomfortable with it for a couple of reasons.

The first is that they bill themselves as the world’s first fully decentralized stablecoin, and that’s what internet money needs. But it’s very centralized. If you dig into their docs, they have a 24/7 team with experience from places like Tower, DRW, Jump, and Jane Street managing the system and watching for liquidations.

They’re also taking an assload of exchange risk. If Binance and OKX get in trouble, your USDe is just gone.

Another problem is that they’re short gamma, effectively. In a raging bull market, you earn decent yield on USDe, just like in a raging bull market you could earn 100% APY loaning out your stables and ETH on FTX when that was a feature Sam created.

But what happens in a bear market? The first thing that happens is that the collateral—which in this case is staked ETH—can depeg from ETH. stETH got as low as $0.92 on the dollar during the last bear market.

That happens at the same time that perpetual funding goes wildly negative. If you have $10 billion locked in Ethena earning bull-market, lazy yield, and then funding goes negative at the same time as the collateral depegs for whatever reason, the portfolio gets liquidated like crazy.

stETH is not high-quality collateral. ETH is high-quality collateral.

I started my career in credit trading, and one thing you learn is that if the yield is too high, there’s a catch. To me, this is one of those lazy places to earn yield. Anchor Protocol was the same way before the music stopped.

This isn’t decentralized. You’re taking a tremendous amount of exchange risk. If you price in the risk of Binance being rugged and the impact on collateral and your ability to get your money out, I don’t think the yields you’re collecting compensate you for the risk you’re taking.

You nailed everything. I don’t really have anything to add. That was effectively my reaction to every one of these projects, but this one is even worse because it’s so large now.

The bigger it is, the worse the problem becomes in times of distress.

Is this going to be the next Luna? Probably not, because I don’t think it’s going to have systemic impact. But is it going to blow up? Given enough time, if it gets large enough, the answer is yes.

There’s actually something interesting about Luna. If Luna hadn’t grown as much as it did, it wouldn’t have taken down the industry and it probably would never have blown up. If they had capped themselves at issuing $5 billion of their stablecoin, they probably would never have blown up. But $20 billion was too much.

Ethena is going to go the same way. If it stays at a manageable size, it will be fine. But if $20 billion worth of value is in there earning 20%, then lots of people are bidding up a shitty junk bond and the yield goes down.

If lots of people put their money in this thing, the yield will go down because there’s more perpetual selling. The basis will collapse and stay closer to flat instead of trending slightly positive. It will become marginally negative, the yield will go away, and then there’s rug risk if stETH depegs during a crazy crypto rinse, which feels inevitable at some point.

If I were looking to earn yield—and I do earn yield this way—I would just stake my ETH on Lido. I think a decentralized solution is better than a centralized one with points of failure.

Also, who knows how Copper is going to perform during a real stress test? They haven’t been through one yet.

I agree on Copper. The only stress test is its relationship to Binance. Everything is held off-exchange on Copper, so Copper itself isn’t exposed. They could get into a lawsuit, but as far as I understand it, there’s no actual mechanism to take those assets.

That’s the risk: the lawsuit. Imagine a 2021-style Binance or FTX-style disappearance. No crisis is the same as the previous crisis.

Bitcoin could run up to $1 million per token, and then the United States could say, “Sorry, Copper, that’s our Bitcoin now.” It’s legal risk. Not your keys, not your crypto.

Ultimately, I question it. It’s a shame, honestly. Of the 3 projects we looked at, Ondo was definitely the most interesting.

Of the 3 projects we looked at, Ondo definitely aligns most with my understanding of Web3 at this point, which is financial tools, banking, and access for developing countries.

This is not a U.S.-developed-market product. Crypto is for everyone else. Ondo provides these things, and it’s okay if U.S. users can’t get tokenized 5% yield on Ondo. U.S. users can get that by holding USDC on Coinbase. Frankly, they don’t need it anyway.

It’s people everywhere else who need this stuff. I think Ondo is doing a great job bringing banking and brokerage services to the masses of people whom JPMorgan, Bank of America, Schwab, and Fidelity won’t provide them to.

That makes sense. Jonah, as always, speaking to you was a pleasure. Go have a coffee and a croissant at Sénéquier or Café Dior. You’re living the Dolce Vita out there.

It’s not as sweet as you might think, but it ain’t bad. Have a blast, man. Great talking to you.

Thank you. As always, it’s a pleasure.