Is the Cycle Over, Portfolio Psychology, & Prediction Market Alpha

Trump is like 100% tariffs on China, and the market sells off a little bit less the second time. Sell all the optionality you can, which basically means buy Bitcoin when it pukes because of something that's obviously not going to result in the end of global commerce.

Yeah. It feels like a screaming fade, and the only thing that you'd have to believe in for it not to be is that we're in a 4-year cycle because it's happened 3 times. It's forever now, and, okay, so it's about 4 years.

That's the right side. Every single sign is bullish right now, except that we're in year 4 of a 4-year cycle.

Alongside Jonah, we have a special guest—my boss. Let's go.

Jason Yanowitz—Dad, welcome, welcome to the podcast.

Let's not—let's cut that part out, Jonah. You're not allowed to call me daddy at 1:00 p.m. That's later.

Yeah, so I might not do that.

So, Jonah, before we hit record, you were like, “Yeah, I’ve got to get you on the pod. You’ve got rizz.” Only compared to Jonah do I have rizz. Compared to no one else at Blockworks do I have rizz.

Jonah, you see, you're going to take that lying down?

That's what I've been doing lately: taking things lying down. As the boomer on the podcast, I'm trying to use words like “rizz,” and I sound like the uncle in the room, don't I?

No, no. That's how you know, because they actually don't say “uncle”; they say “unk” now.

We had a guy—I was going to call him a kid, but I feel like you're not allowed to call people “kid.” We had a mature adult here, and he was 22 or maybe 23. He'd always be like, “Yo, Yana.” He'd say, “You got movement, man. You got movement.” I'd be like, “I don't know what to do right now. I'm just going to keep walking past you.”

Do I keep moving? Do I say thank you? Do I say, “Get back to work”? Like, yes, I got movement.

You got movement, so you just chose to ignore it.

And he's not referring to dance moves.

1. Is the Cycle Over?

We'll pass that. No, he's not.

You know what else has movement? The crypto market this morning. Great transition.

I've been trying to wax that way. It's amazing, and we brought you on here because you always have an interesting angle and good questions. Basically, the trade of the last 3 weeks has started to unwind. Gold's down 5%, Bitcoin's up. Kind of crazy.

I mean, can we start there? This is actually the most confused I've seen market participants in many years in crypto. There's the least consensus in the group chats, which I'm sure you guys are in a lot of. It feels like a lot of the markets over the last couple of years have moved on big consensus trades: “Okay, not hot enough,” or “Too hot.” I'm not saying markets are ever easy, but there have been some easy things. This feels tough right now.

I would say at least the market participants that I talk to on a daily basis are pretty confused. When you see people like Chris Burniske, or these big, quote-unquote, big names in the industry—Chow and Burniske—talking about the cycle being over, you can't help but get a little bit spooked. I'd love to hear your guys' take on where you're thinking about things right now. The big overarching topic on people's minds is: Is the cycle over?

I'll start by saying I really respect Chris Burniske. I think he's one of the greatest investors in crypto. He's a phenomenal fundamental investor. I think people are over-indexing a lot on the cycle.

When I think back to 2018, it was very different. The composition of market participants was very different. Ninety-nine percent of people in 2018, when the market cycle ended, knew what a 4-year cycle was. It was technically only the second cycle, but people were talking about the halving cycle. That was very cemented in people's minds. Everyone who owned Bitcoin knew about this.

The halving watch parties?

Yeah, I remember being posted up at poker games, watching late-night streams. Then 2021 comes around, and everyone's like, “Okay, it's happened twice. It's definitely going to happen a third time.”

In 2021, I think a lot of people—probably 80%, maybe 85% of people who owned crypto—knew about and subscribed to the 4-year cycle theory. They knew about the halving argument and all this, so it became a self-fulfilling prophecy.

Now, 4 years later, it's happened 3 times in a row, which obviously is a data point that we need to look at. But I don't think the average holder of Bitcoin—or crypto, maybe people who own crypto probably do—but Bitcoin specifically, they don't know about the 4-year cycle. They didn't invest because of the halving.

My uncle, who bought the BlackRock ETF, doesn't know about a 4-year cycle. He doesn't even know what the halving is. He doesn't even know that there are 21 million coins.

He bought Bitcoin because people were like, “Oh, Bitcoin's a great comp to gold, and it's going to go up, and it's an inflation hedge,” and all that.

There are all these other reasons. Basically, what I'm trying to say is I think the 4-year cycle is giving us an amazing opportunity to get in the market.

Here would be the counter: There are far bigger sellers than there are buyers, right? The big sellers right now are OG whales. Again, going back to the group chats, I think you can learn a lot in these group chats. There are guys from 2013 and 2014 who are now selling for the first time.

They're selling because ETH hits $4,000. They're selling because Bitcoin hits $120,000. There are just these big sell orders at some of these all-time-high numbers, and I think that's why I've never seen Bitcoin's price action do what it's doing now. It can't break—it's really struggling to break past the all-time high. I've never really seen that.

Yeah, it's weird. It actually violates one of my core principles, which is that when you lose momentum, you should probably get out of Bitcoin. My entire framework was built on this value-versus-momentum theory, where you buy Bitcoin when people view it as a bargain price, or you buy it when it's ripping.

Right now, we're going sideways, but I do still think that I'm violating this based on my understanding of what's going on, which is that there are large OGs exiting, but the market is absorbing their sells.

And we're not breaking down lower. We're managing to trade sideways, and I think we've traded sideways for a long enough time that everyone's like, “Oh, yeah, we should actually be bullish.”

Me, too. I mean, you said that there are bigger sell orders than there are buy orders. Respectfully, I think the price action suggests otherwise, because we are stabilized in a range. So somebody's buying it.

You have OGs who are selling, and there are new whales who are buying. Your uncle is part of the big whale called IBIT that's buying. There's TradFi buying. There's the $30 trillion to $50 trillion wealth transfer from boomers who are dying to millennials and Gen Z who are inheriting that money. You have a no-coiner generation passing money to a very Bitcoin-pilled, crypto-pilled generation. They're buying gradually.

2. Crypto Disrupting TradFi Rails

Then you have institutions as well. Let's not forget that crypto was illegal 6 months ago, and now it's legal. The rails are all there.

I was telling you before the podcast my thesis that crypto has already disrupted TradFi back office and payment rails and the movement of value. Avi and I talk about this on the pod all the time. If you want to move dollars from me to you, I can Zelle you. That's easy; that's been solved.

But if I want to move dollars to Somalia, or if I want to move a share of the S&P 500 ETF from me to you, that's bizarrely difficult—cartoonishly difficult. With crypto, it's instantaneous and easy to move non-pegged, non-stable value around. This stuff has already disrupted SWIFT. It's already disrupted back office. It just hasn't been allowed to proliferate.

Did you see Ripple's recent acquisition?

Yes, this one was really under the radar. They bought a company called G Treasury.

Oh, okay.

Yeah, G Treasury. They bought a company called G Treasury—a billion-dollar acquisition. GTreasury has been around for 45 years. It's an old-school Chicago treasury-management and FX-management solution for Fortune 500s: Toyota, Subway.

That's kind of smart.

Yeah, Ripple's doing amazing things with its acquisitions.

I've been saying this for a while. I think Ripple's going to buy its way into a real business here. If you look at what they've done—the Hidden Road acquisition—what is Hidden Road so good at? They're a TradFi company that can cross over between TradFi and crypto.

If you look at what you mentioned about sending money to Somalia—

I don't know how many times you're sending money to Somalia. Probably not that often.

Hopefully never. I'm not even on the list.

What the next big thing in stablecoins is going to be is B2B. It's not you sending money to Somalia, candidly. It's Toyota sending money to their supplier in China. And that's all going to happen with stablecoins, and I think Ripple's going to try to win this game.

3. Ads (Kraken OTC, Peaq)

So, anyways, it's not a conversation about Ripple, but it's a conversation about how the adoption is really unprecedented right now. And all of that adoption, I guess the point I was trying to make, to put a bow on it, is that all of that adoption results in inflows, right? It's all coming into crypto because of these rails proliferating.

So, I think you can think of that as the new whales. TradFi and the wealth transfer is basically the new whales. And also just your uncle buying IBIT.

But the other thing is, no disrespect to Chris Burniske—he's probably way better at doing this than I'll ever be—but just because you were early to Bitcoin does not make you a good trader, right? It doesn't even make you a good investor. It means you had a great call on something.

And so, if those OGs are selling because they're worried about a cycle ending, that doesn't mean that there's a cycle ending. It just means that they're sitting on so much money, and it no longer represents the sort of An Randian ideals they invested for back in 2011 or whatever. That doesn't mean there's no opportunity or upside left in Bitcoin. So, I'm kind of dismissing those people and their views, frankly.

So, as you look at the data, OGs sold a ton of Bitcoin post-the Bitcoin Cash fork in 2017, and then also all the way up through Bitcoin going from $3,000 to $10,000. OGs were offloading and offloading.

Well, that's because there was the big battle. I mean, half the industry was on the Bitcoin Cash side.

People don't like to talk about that, but it's true: half the industry was on the Bitcoin Cash side.

In fact, I still have my qualms over whether we made the right decision there.

Yeah, I think many people do.

No, because I do think that there was some value to the idea of actually speeding up Bitcoin. And decentralization, I think, is going by the wayside right now anyway. There's a lot of conglomeration among miners. But putting that point aside, all that happened in 2021.

OGs sold on the way up, past the all-time high of $20,000. At $30,000, $40,000, and $50,000, you were seeing old coins from 2011 and 2012 start to offload. It doesn't necessarily mean it's the top; it just means the market needs to digest.

Kind of what happened in July of 2021: after a large sell-off, you go sideways at $30,000 for a while, a ton of people get out, people like Su Zhu get short 10,000 BTC, and then the market rips up—it rips up in their face.

I mean, to me, I just try to look at the flows. What is the largest pool of capital that's buying Bitcoin? Retail, institutions, and the MicroStrategies of the world. Are they still buying? Yes. Okay.

Yeah, 2021 was a bit interesting because it almost—I don't know if you guys feel this—but Bitcoin almost feels mystical in some ways. Everything sometimes lines up so perfectly.

So, for example, post-halving, at the end of the 4-year cycle, the Fed is like, “Oh yeah, by the way, guys, inflation's real. We're going to start raising rates.” And that happened at the exact right time to confirm the 4-year cycle.

4. Easiest Trade in Crypto?

And so, there's a little bit of mysticism there. It's like, you know, there was this huge exogenous shock that just so happened to confirm the 4-year cycle. We don't have that. We have the opposite happening right now. So, I'm just not as worried about it.

I think I take the opposite view of Crypto Twitter on this. I think that this recent sell-off and stabilization, or chop, or whatever you want to call it, is the easiest trade I've seen in crypto in a while. I don't think it's hard at all right now.

And I think the reason why is, I have an analog from TradFi markets. Basically, when I was the dollar-yen trader way back in the day, dollar-yen used to rip, meaning that the yen would nuke whenever Kim Jong-un would test a new rocket. He'd be like, “I'm threatening Tokyo,” and he'd drop something in the sea off Korea or Japan, whatever's over there.

And the yen would nuke, and then it would slowly grind back up after the world realized that Kim Jong-un was not going to take out Tokyo, right? And then he'd do it again. And he'd be like, “I test bigger nuke.” And the market would go down less, right?

All the newspapers would have images of concerned Japanese people looking at large television screens, or concerned South Koreans. But every time, the yen would move less. And then, after his 15th missile test or whatever, the market was basically just like, “Unch.” It'd be like, “Show me the freaking nuclear war and I'll sell off again.”

As a yen trader, the first time was like, “Oh my God, the world's over.” The yen vol exploded. And then, after every single one of those, I would just sell options and make money. It was easy.

And crypto is doing the same thing. Trump is like, “100% tariffs on China,” and the market sells off a little bit less the second time. Sell all the optionality you can, which basically means buy Bitcoin when it pukes because of something that's obviously not going to result in the end of global commerce.

Yeah, it feels like a screaming fade, and the only thing that you'd have to believe in order for it not to be is that we're in a 4-year cycle. Because it's happened 3 times, it's forever now.

And, okay, so it's about 4 years. So, let me interpret anything as the right cycle.

Every single sign is bullish right now.

5. Crypto PTSD & Profit-Taking Psychology

Yeah, except that we're on year 4 of what is a 4-year cycle. And we're in Q4, which is the scary time of the 4-year cycle, right?

Yeah, and I think, by the way, it's not just the Burniskes of the world who I think are short. I think there's a psychology that happens with this. When you came into crypto, maybe around the same time as me, in 2015 or 2016—really active in 2017, and then full-time starting 2017, I think—there are a lot of people from our class who didn't sell in 2017.

Then they made a bunch of money in 2021, and then, for the most part, they didn't sell in 2021 and rode it all the way down. And they're, at this point, like, “I should be worth way more.” I don't know if you guys saw Kobe's recent tweets this week—

Oh yeah, yeah. I saw that.

I think a really old Kobe tweet from many years ago was, “Most people overestimate or underestimate. Nobody actually knows how wealthy people are on Crypto Twitter, but they always, for certain, overestimate by 10x or underestimate by 10x.”

Mostly overestimate.

And I think mostly it's overestimating. There are so many times when it's like, “Oh yeah, that guy must be worth like $800 million.” Yeah, maybe $20 million. Doing all right, but it's not $800 million.

And I think there's a lot of people right now from our class of 2017 who are just like, “I should be worth more than $10 million at this point.” And right now they're trying to lock in some gains.

100%. So, it's not just the OG whales.

I think there's a lot of PTSD with that. Thankfully—not to pat myself on the back, although I'm going to pat myself on the back a little bit—I avoided a lot of that in 2021.

I think my greatest call ever, that I'm most proud of, is that I pegged the change in market dynamic in 2021 to the fact that there were larger people in the market. So, I basically said, before, when Bitcoin was like $25,000 or $30,000, “I don't think we're going to get a blow-off top. I think it's going to be more of a rounded top. It's going to take a while for this thing to actually come off.”

And so, the moment Bitcoin lost momentum, I got out of the market. Then the Fed raised rates, and I was like, “Okay, now I'm out.” Fully out.

And so, I think I personally have a little bit less PTSD from that, but I do think that there were a lot of people who got zeroed out in FTX. So, people instinctively, when they make a lot of money, actually want to sell a lot of the time.

And what keeps them in the trade is greed: “I don’t want to miss out on what’s going up.” But if you’re up a significant amount of money this year and you’ve been through 2 cycles where you’ve already lost it all, you’re scared. You’re like, “Okay, let me get out of this thing. Let me finally not make the same mistake that I made the last 2 times. Let me lock it in.” And the greed disappears because they’re not making money every day.

That’s what happens. Bitcoin goes sideways, altcoins are going sideways. It’s been effectively 3 months of this. You haven’t made any real money in 3 months; you’re still near the peak. “Okay, let me get out.” I think that’s a lot of what’s happening right now and why we’re not going higher. But I think that once they’re out—

Yeah, you know, crypto’s such a tough space because you’re making a venture bet on the next decade in a liquid asset class. It’s so hard. Even if we remove Bitcoin, take Robinhood. Tell me what to do with my Robinhood position, right? I’m up—I bought a bunch of Robinhood. That’s my best investment of the last year. I bought a bunch of Robinhood somewhere between $20 and $30; now it’s at $135.

I’ve got a take on this. I think both that you should take profit when you’re up 6X and that Robinhood is a generational financial brand. You guys might disagree with me on this, but I think Robinhood will be, along with Coinbase, one of the largest finance companies in the world. One day, it’ll overtake Goldman, J.P. Morgan, and all these brands.

I 100% agree. I think so. On the short-term side, you should probably take profits. Maybe the market’s feeling frothy—AI deals, yada yada, Bitcoin, whatever market froth. But on the other side, I’m like, if I have the mental fortitude to stomach a 50% drawdown if that were to happen, why don’t you just keep holding? You never sell your Robinhood; you just ride it up. And if it goes down, you buy some more.

So here’s what you should do with your Robinhood: sell a little bit. Sell 10% and see how you feel. Give it a week. The reason why I think Robinhood is going to continue to rip, just go higher over the years—with volatility, right? In bull markets, you get crazy drawdowns—is that it speaks to a broader theme of crypto being hard to trade, which you just touched upon.

Why is crypto hard to trade? Because the market has changed. The strategy that used to work for making money in crypto was to be long some Bitcoin and then buy hyped shitcoins on rallies because they rally more as the momentum and the narrative proliferate, right? That doesn’t work anymore. There’s a new paradigm; the paradigm has shifted in gold, and the paradigm has shifted in crypto.

I think we’re in a 25-year grind higher for crypto. Instead of buying hyped shitcoins, which doesn’t work anymore, buy picks-and-shovels assets like Robinhood that collect fees on people fooling around in crypto. I agree with you that it’s a generational financial brand, and it also speaks to the wealth transfer we touched on earlier in the podcast. Gen Z isn’t trading by calling up their broker at Schwab; they’re trading on Robinhood. So Robinhood is going to continue to accumulate mass from both crypto and TradFi, and it’s marrying the 2 together with unified plumbing.

6. Portfolio Management

I think the medium- to long-term story for Robinhood is so bullish that you have to hang on to most of your stuff. But whenever you feel like you’ve just made a huge profit, you should peel a little bit off and see how it sits in your gut. If you’re like, “Ah, that felt great,” then you do more. If it feels like you feel stupid or FOMO-y, then just stop and don’t touch it.

I think that’s a good take. A lot of people lost a lot of money in this recent liquidation.

Yeah, the flash crash, or whatever we’re calling that day. It was 10, 15, or 20 billion in liquidations—whatever the real amount was, it was a lot. The most helpful thing that it did for me was that it was a forcing function to look at your portfolio and ask, “Am I happy holding these coins or these stocks? If everything went down 70%, would I be like, ‘You know what? I’m good. I can hold. One day this stock will go up’?”

I had some coins and stocks where I was like, “Oh, man. Dump. Absolutely not. Short-term trade. I was trying to catch a momentum thing.” Then there were other things where I was like, “Yeah, you know what? If Robinhood or Coinbase went down 70%, I’m buying more.” I think that’s a good lesson to learn.

Yeah. Apart from big macro shifts, I think it’s a fool’s errand to try to trade those types of positions where you had large conviction, outside of something like, okay, Trump might go in April, for example. People got nervous about tariffs. Maybe you want to make a trade around that. Maybe I want to say, “Okay, let me try to protect some positioning and buy in because I think there’s a short-term inefficient drawdown.” Even then, you probably get 1 or 2 of those trades a year.

Most of the time, when you’re in these positions, you just have to sit. I’m a huge fan of Robinhood. It’s my third-largest position.

Wow. What are your first 2? Would you share that publicly?

Yeah, I’m happy to. My largest position is just NASDAQ. I’m talking specifically equities.

Yeah, yeah.

My second-largest position was solar miners and gold miners, which I actually just sold out of, literally this morning. So now, I guess Robinhood’s my second-largest position. Well, no golf clap, guys—I sold out when they were down. I sold off 3% from the highs. They’re 5% off the highs right now.

Why did you buy those instead of just gold?

Cash-flow trade? 2 reasons. One, it’s crazy leverage on the positions, and it’s nonliquidatable leverage. Two, if gold goes sideways, they do better because they have cash flows, right? Gold can go sideways or slightly up, and then they can be up 13%, 14%. The reason not to buy them is that they go down way more when gold collapses.

But I was buying gold during a consolidation phase. I wasn’t necessarily nervous about gold. I bought gold when it was in that triangle from $3,000 to $3,300. That’s when I was talking about it, so I wasn’t necessarily concerned about a total collapse. That’s why I bought miners instead of buying outright gold.

With most of my positions, my portfolio basically looks like NASDAQ. I own Tesla, I own Robinhood, and I own a bunch of rare-earth mineral companies. I’m just holding on to these things.

You have to. And that’s the beauty of crypto trading: it gives you a mindset of thinking big over the long term. There’s this huge arbitrage in publicly traded equities like Robinhood, and sometimes in commodities like gold, where even the most euphoric equity industry analyst who works at Citibank isn’t incentivized to make bold calls. They get fired for those.

But if they’re in line with, or maybe on the upper end of, the band of other analyst estimates, they keep their job no matter what. These are very risk-averse people, so the industry anchors itself to industry analyst estimates. You, as a retail trader who’s familiar with crypto mooning over the years, can have a medium- to long-term bull thesis on something like Robinhood that’s reasonable but still way above the incentive structure of the equity analyst industry. That’s your edge, right?

You can be like, “Robinhood is an amazing brand. It’s going to 10X over the next 10 years.” The people who study Robinhood can’t even freaking comprehend that.

You can’t take anything that research guy says or anything.

But people do. I know, but that’s how the market works half the time. That’s your arbitrage. The other beauty—and this is for any inexperienced trader out there—is that it’s very tempting to buy when the thing’s up and sell when the thing’s down, and just get finicky or panicky about it.

But if you have a long-term thesis about something, you can cling to that when you’re having a drawdown. It’s an objective framework that can help you retain confidence when the market’s hurting you. One thing about that—just a piece of trading psychology that I’ve personally worked on—I find very funny looking back at myself. I can’t believe I acted like that because it was completely irrational.

Basically, when things are up, your brain naturally sees green, gets filled with dopamine, and you feel safe. When things are down, your brain’s dopamine goes away, you get this fear, and things feel very unsafe. But the reality could not be further from the truth. It’s actually much safer to buy most things when they’re down versus buying them when they’re up. Generally, if you’re fundamentally investing, it’s actually safer.

And so what you need to do is get addicted to buying when something is going against you. That’s actually what you need to do: you need to be crazy.

You need to train yourself. I call it the Costanza rule. You do the exact opposite of what your body naturally does. Guess what? The people who trade the best just look at things super analytically. No emotion is involved with any sort of trading. You go, “Okay, I like this thing. It’s cheaper today. I’m going to buy it.”

7. Ads (Kraken OTC, Peaq, Katana)

That’s how you have to think about it. That’s how I felt about Bitcoin on the sell-off: I like this thing. Nothing has changed. Yes, there was a liquidation run, but nothing on my 3-, 6-, 12-, or 18-month outlook has changed. So I like it better now. This is better. It’s not worse to buy it at 109 than to buy it at 114 or 125. I still fall prey to this sometimes, by the way. I’m as guilty as the next person of still, every now and then, trying to buy the breakout and then getting a face full of it. But you’ve got to train your psychology. It’s so hard.

8. Most Attractive Crypto Bets

Jordan, do you own anything outside of Bitcoin?

Yes.

Like crypto coins? Crypto?

Yeah, I own Aerodrome and Hyperliquid right now. I just rebought Hyperliquid around 35 on this crash because it was like the Kim Jong-un nuke story. I saw the market nuke for technical reasons, not fundamental reasons. I thought, “Okay, this is my chance.” I sold Hyperliquid at 45. I felt naked. I felt short. I felt awful. When can I get back in? That’s the feeling.

Listen, you’ve got to feel it.

Yeah, yeah. I just felt dumb for having sold it all. I was kicking myself when it traded up to 58. Then when it traded down to 35, I was like, “All right, this is my chance. Probably our last chance of getting back in.” So I bought Hyperliquid.

I’ve been long Aerodrome for a while because I think Aerodrome and Hyperliquid are kind of the only 2 defensible products with attractive tokenomics in crypto that I can wrap my head around. I’m not saying they’re the only 2 that exist, but they’re kind of the best 2. I think every other altcoin, for the most part, is just a meme. I think the meme era is dead for reasons that we previously discussed.

Aerodrome is great. Aerodrome’s tokenomics aren’t bad. Bad token performance has nothing to do with their tokenomics; it’s that they get compared to Uniswap, which is just a tough coin.

Yeah, Uniswap has had so many chances, I think, to do amazing things for the world of crypto valuation if they just returned some capital and fees. This horse has been beaten to death, but that’s also why, personally, my portfolio is comprised of things that make money and that also return money.

Actually, we’ve talked about this on previous podcasts, but I have a good position in Shuffle, which is an online casino.

Yeah, yeah. They’re booming. We’ve been talking about this since 2017. It’s going to keep going. I think it’s a 400–450 million-dollar valuation right now. It’s going to keep going. This thing is printing money like nobody’s business, and it’s actually returning money to investors.

I also own Syrup. I’m still very bullish on the institutionalization thesis, which is that you just want to buy things that institutions are involved with because those are the people—

Are they? I own Aave. I don’t own any Aave. I view Maple as my—

Yeah, yeah, yeah.

My—don’t bet against Sid Powell.

Yeah, I agree. I really like Sid.

Yeah.

I do like Aave. I just think that Syrup’s a better risk-reward, and they have a similar—

Yeah, same.

Yeah, it’s kind of the same-same. Basically, you need good tokenomics because the retail universe of shitcoin buyers is tapped out, right? So you need somebody to buy the token; otherwise, it’s just down-only when VCs sell. Why not have the token project buy the token? In the case of Aerodrome, Hyperliquid, and presumably this Shuffle thing, there’s a buyer when the online degens are either—

Yeah, exactly. That’s what you need. There’s no other reason why you wouldn’t return capital to shareholders—or token holders, not speculators.

9. Prediction Markets & Gambling

Do you guys use prediction markets?

Yeah, I’ve been getting a lot more active on prediction markets. I’m so addicted to these things right now.

It’s really fun, and there’s actually a good amount of edge. Really? Did you—I mean, is Googling something and putting it into ChatGPT and being like, “They don’t line up” the edge?

No, no. If you had just taken the “no” on all of the Trump markets—if you bet on, or predict, whatever you want to call it, all of the Trump markets, like, “Will Trump say this?”—and you just picked “no” for all of them, it’s an average return of, I think, 13%. If you just picked “yes,” it’s an average loss of 20%.

The market psychology there is that if you’re going to Polymarket to bet on a market that Trump will say something, you’re over-indexed on him saying something.

Wow.

So if you just picked “no,” I think 71% of Polymarket markets resolved to “no.” So if you were just betting “no” on a lot of these markets, there’s—

That’s really smart.

There are also markets right now where, if you use ChatGPT Deep Research or Pro, or whatever the $200-a-month version is called—I forget—and you just plug the market into that, it will reanalyze the odds for you. Turn on the live web search so it gets all recent information, and it’ll reanalyze it for you.

I know what I’m going to be doing this afternoon.

No, there’s a lot of edge. Again, not to give away alpha, but if you speak a different language, there’s huge edge. I speak Hebrew, so anytime anything comes up—anytime there’s a market on Israel, like an Israel–Hamas ceasefire—the information will always come through Hebrew channels first, and there aren’t enough people arbing it versus Polymarket.

I subscribe to all these Hebrew Telegram channels, and they’ll get me the information 3–4 minutes before any English channel will report on it, which is plenty of time. You just look at it and bet. For example, will there be a ceasefire? Will the ceasefire break? It’s trading at 80%. You buy it because you just got news that something happened. You don’t even need to speak Hebrew. You can just Google Translate that stuff.

Yeah, it’s much easier if you speak a language.

Fair enough, of course, because of the nuance. You get 50 headlines a day in these things and you don’t know. You’re not even hopping on it. I mean, you could write a bot to do it.

Right. But it feels like—I did a lot of sports betting in college. I lost a ton of money, but it actually feels like the same feeling. It’s just gambling. Instead of buying coins that I have conviction in, I’m just gambling, but it is a lot of fun. Unlike sports betting back then, though, I do think there are some areas of real alpha.

Yeah, I mean, if you’re a subject-matter expert, there’s good alpha. Also, if you’re an insider, which is kind of what these markets were built for—to allow that information to leak in—that’s what they’re good at in many ways.

If you’re sports betting, you’re up against real sophisticated sharks.

Yeah. A lot of capital in sports betting is moving from DraftKings and FanDuel to Polymarket and Kalshi.

No way. The reason for this is a tax bill, actually. So in the big beautiful bill, right now—or historically—you could write off 100% of your sports betting losses.

Wow.

In the big beautiful bill, they changed that so that you can write off 90% of your sports losses. So if you can write off 100% of your losses, your odds are like: you'll lose 51% of the time, and you'll win 49% of the time, which is still good enough for the good guys to make money. But now, if you can write off only 90% of your losses, your odds go from 49–51 to 44–56. I'm making those numbers up a little bit because I don't know it exactly.

Interesting.

The tax bill made it so that it's less profitable to trade on the sports betting platforms. So money is now moving into Polymarket and Kalshi.

10. Crypto Wash Trading

I wonder what'll happen to crypto when they institute a wash trading rule like they do in equities. Right now, you can tax-loss harvest till the cows come home. You can buy Bitcoin—sorry, sell Bitcoin at a loss and then buy it right back.

Yeah, yeah.

And you get to report a tax loss, whereas in equities, you have to wait 30 days or buy something else, right? I wonder when they close that loophole if that means that crypto will be held differently or longer, or whether there'll be less volume.

I think what definitely happens is that there's always been an effect at the end of December—always.

Yeah.

Altcoins that are down a lot will go down even more because that's what people are doing. They're washing it, right? So a large VC that holds Coin A is down 30% on the position. They'll offload the position. Everyone will do that. The thing will go down like 15–20% because there's no liquidity, and then you buy it back up. You buy right back.

This is what happened—I mean, this is mostly in years where things are down, but I remember this so vividly because it gave me an entry into Solana. On December 30th, Solana went from $15 to $9, and it was just so clearly probably the multi-coins of the world tax-loss harvesting, because it just—boom—suddenly went down in a straight line, and you're like, “Oh, that's what's happening right now,” because Solana blew up and people want to harvest their tax loss. They're like, “Give it.”

Right?

Yeah. So I think that'll change. I guess it'll take away one of those trades.

Well, I guess until it's changed, that gives us good fodder for an altcoin short trade coming into the end of the year, doesn't it? Look at what's low. Look at the things that are down and short them on December 30th, I guess.

Yeah.

WIF.

WIF. Oh man, I don't know if the WIF holders are smart enough to be doing tax loss.

All right, when all the shorts come in, that's when I gotta jump. I gotta go to a meeting, but thanks for having me on the show, guys.

Yeah, see you. Thanks for hopping on the pod. Thanks. Enjoy the rest of the pod. That was awesome.

Yeah, you got it.