加密货币财库公司的崛起

We're going to see billions and billions and billions of selling from these companies if Bitcoin goes down too much. So the market is now very fragile again. We're not standing on a house of cards; that's not what I'm saying. I think the market is a lot healthier today than it was in 2021. But if we let these guys get too big without bopping them on the head and saying, “Stop what you're fucking doing,” we might end up on a house of cards again.

We've gone through a pretty exciting week, Jonah.

Yes, we did.

1. Galaxy Sells 80,000 BTC

What's funny is, it was an exciting week, but Bitcoin's price was reasonably unchanged. Even though we had a little bit of a dip and a bit of a scare, the entire market was talking about that Galaxy Bitcoin sale and flipping out because of it. But it looks like now it was a non-event. And, Jonah, you worked on an OTC desk for a while. When you first saw the news come out, were you worried about it? What was going through your head as a former OTC desk guy?

Yeah, I ran an OTC desk in crypto and in oil, too. I guess I spent about half my career in the OTC world and half on the buy side. Generally speaking, I was not worried. I think that was 80,000 BTC.

It was a lot of Bitcoin. I think the headline number was $8 billion to $9 billion of Bitcoin. So that's scary, right?

It's scary. It's the largest notional OTC trade ever, but it's really not that much in the context of the market. If you zoom way out, tens of billions of dollars' worth of BTC trade every day. If you include the liquidity in perpetual futures and other sorts of derivatives, basically the BTC delta liquidity per day is massive. Generally speaking, the rule of thumb is, if you want to participate in the market without moving it, your participation rate should be about 10% maximum of the total daily traded volume in an instrument in order for you not to have a meaningful price impact.

Let's say that $60 billion worth of Bitcoin trades every day, which is certainly true on some days. You can trade $6 billion in a day without really impacting the price against yourself. That was our rule of thumb when I was running trading at Cumberland. We had all sorts of times when we would be way bigger than the market in blocks of GBTC or blocks of various spot assets.

It's particularly pertinent in altcoins because sometimes an Avi Felman comes along and wants to buy or sell millions or tens of millions of dollars' worth of an altcoin with thin liquidity. Then you have to basically put a price on it. The Avi Felman just wants to get it done, clear the risk, and move on with his day. But the OTC desk—it becomes that desk's problem as soon as the trade is done.

So how do you manage it? You basically build in a price that allows you to manage the risk over a perceived number of days. Let's say that this is Roger Ver selling Bitcoin. We don't know who the seller is, but it's possibly Roger Ver. That's the rumored seller, and he wants to sell $9 billion worth of Bitcoin to Galaxy's OTC desk.

Basically, Galaxy has to say, “Okay, let's say that I just take this down. How long is it going to take me to get out without really impacting the price?” You also look at realized volatility. How much has the price been moving? Well, the price hadn't been moving that much, and the daily volumes in Bitcoin were robust.

Realistically, it's a day and a half of using that 10% participation rate to get $9 billion out the door. Maybe 2 days of slowly exiting risk for Galaxy to get out of that risk without moving the price too much. It's basically like, all right, I've got to sit on $9 billion worth of Bitcoin over the course of 2 days as that slowly dwindles down. Maybe $4.5 billion on average.

How much does Bitcoin move per day?

Well, it moves like 1% to 2% per day, maybe, right now. At risk, that's $45 million to $90 million worth of variance per day. Let me maybe bake in $250 million worth of slippage to cover the $90 million worth of variance—maybe $180 million worth of variance over 2 days—and I'm probably safe. It's not that much more complicated than that.

When you're trading Bitcoin or anything—stocks, commodity futures—with really minute time frames and small size, like when you're trying to build a bot that trades in and out of something every 5 to 10 minutes or 5 to 10 hours, that's pretty mathematical. There's a lot of science and engineering that goes into building those systems. But for these huge block trades, they're so rare that no systematic process applies.

It's usually just that the head trader will huddle with his or her team and with the CEO of the company in 2 different meetings and go through the logic—the sort of back-of-the-envelope logic that you could do on a bar napkin if you wanted to, which I basically just talked through. It's about, worst case, we lose $180 million in 2 days. Let's slap a $250 million charge on it. What do you think, boss? What do you think, team?

If it's ratified, then you just go for it and obviously deploy all of the best practices in terms of slippage management and leakage. To finish the thought, in Bitcoin you have the benefit of both spot and a wide array of derivatives.

When I quoted that $60 billion number—which is just maybe the middle of the range, since there's a wide band of volumes that will go through in a given day for all Bitcoin-related instruments—that isn't just spot, right? So if Galaxy gets hit on $9 billion worth of spot, they're going to be selling some spot, some perps, and some CME futures—just whatever the best liquidity is that's out there.

Then they're going to end up with basis, right? They're going to end up with, okay, I'm long Roger Ver's spot, some of which I got out of, but some of which is just hedged with perps, and then I have to unwind that perp. So probably the whole mess takes a couple of weeks to unwind slowly.

Let me ask you a few clear-up questions. This is common. I get these questions and sometimes I don't know the answers, but maybe you do. You've seen that sometimes you'll get hit with a message on Telegram: “Hey, I've got 10,000 Bitcoin I need to sell at a 10% discount. Do you have any buyers?” Is that ever real? Does Galaxy ever go around and shop it and say, “Hey, we just got this massive slug of Bitcoin. I can sell it to you at a discount”? Does that happen ever?

No. The reason everybody thinks that happens is because you would market it to somebody in an illiquid thing, right? Like a CryptoPunk. If somebody just hit an OTC desk on 16 CryptoPunks, that desk would go and talk to potential CryptoPunk buyers about, “Hey, listen, I could offer it to you below where my sheets say it's worth.”

But for something as liquid as Bitcoin, people are watching it on screen all day. They're not just going to jump. If anything, they're going to be hesitant to buy a liquid instrument from you if you're like, “I'm swimming in this stuff. Please, do you want some at a discount?”

Mhm.

The only time that happens is when it's rendered illiquid somehow, like during the FTX bankruptcy. Galaxy—which Galaxy also did—was like, “Hey, do you want 1-year-locked Solana at a 50% discount?” They could credibly go to buyers with that.

But if I were a size buyer of Bitcoin, and Galaxy was in touch with me, and they knew I was a size buyer, and Roger Ver had just hit them for $9 billion, and Galaxy told me, “Hey, Jonah, do you want to buy $1 billion worth of Bitcoin right now? I knew you wanted to buy a billion. Now's your chance,” I would think, “Wow, these guys are so long they don't know what to do with it. I'm going to go and sell Bitcoin on the basis of that information and then wait for these guys to start hedging their stupidly large position, and then buy it all back—and then some—on screen.”

I don't need to talk to Galaxy for that. So, basically, it's all very quiet. But the way they will do it, Avi, which is interesting, is they will telegraph that information silently to the market in a way that doesn't screw them. If they're market makers, like at Cumberland, we were making markets all the time on screen. I don't know if Galaxy does that.

Actually, probably not, because they're not really a tech firm. We would lower our bid-ask on everything, right? We would sell ETH against being long Bitcoin. We would sell Solana against being long Bitcoin, because at that point you'll take any liquidity you can get.

Solana and ETH are correlated instruments, right? So you basically lower your offer on everything that's correlated with Bitcoin, including Bitcoin spot, futures—everything. You just lower it all. You're kind of the best offer on-screen on a bunch of stuff, so you're selling a lot of coin, but you're not dialing people and explicitly telegraphing it, which has happened to you.

2. How To Execute Large OTC Sales

What about the people who claim that these OTC desks will take it, short beforehand, and try to stuff the market to make money off it—all these claims of market manipulation? If you know that a client, customer, or counterparty is about to sell $9 billion to you, or maybe you're in competition with 1 other dealer, surely if Roger Ver—or whoever the seller is—was smart, he would have called 2 or 3 shops and put them in competition with each other.

If he's dumb, he would have called just Galaxy and said, "I'm only calling you because I like you. Give me a price," and then it's not a competitive process. Then Galaxy can get away with way more tomfoolery.

Basically, even if you're in competition with 2 other OTC desks, if you know that $9 billion is about to hit the market with a high degree of certainty, you do what's called pre-hedging, which is a legal form of front-running, right? It's basically, "I'm going to get short this thing to pre-hedge—hedge in advance—this position that I'm probably going to have."

3. Final Thoughts

And then, if you don't get hit—if your competitor gets hit—you just cover the trade as your competitor starts to sell that coin into the market. So, yeah, pre-hedging: if you don't pre-hedge, you're stupid; if you pre-hedge too much, you're doing something illegal. It's a delicate balance.

When I used to trade with you guys on a desk, I would come and say, "I want to sell X amount of an asset." You would give me a price right then and there. Say I wanted to sell $5 million of Bitcoin: you would give me a price right then and there because you already had $5 million of Bitcoin on your balance sheet that you could sell. You weren't waiting for me to deliver that Bitcoin, because you had that $5 million somewhere, and then I could send you the Bitcoin within 4 hours of making that transaction—something like that.

That's like your risk pricing with something as big as this. Do you think Galaxy was giving them a price up front? I think it was probably more likely that people were freaking out over the coins moving.

Yeah, but I think it was more likely that they were working out of the coins slowly over time and passing along some sort of price plus a spread.

Yeah. So, you bring up a really brilliant point and ask a great question there. Let me attempt to respond.

Yeah, maybe that wasn't asked as a question, but that was a question.

Yeah. I know it's the absolute right question and the source of a lot of misconception around how these giant trades go down in the market. So, 2 things in there.

First, did Galaxy just work Roger Ver's Bitcoin on his behalf? Maybe, but I would put the probability of that at very low. No OTC risk-taking desk that I've ever heard of or ever worked on has been given a situation where it's like, "Here are my coins. You just take no risk whatsoever. You take as long as you want or as little time as you want. You decide. Just work me out of these coins for me and take a spread, risk-free to do it."

I've never heard of that happening, because why would you hire an OTC desk to do that if you can just do that yourself or hire an execution trader for $20 an hour to do it for you? I'm exaggerating—maybe more than $20 an hour—but you don't need to hire an OTC desk to leave the risk on your balance sheet and work out of it over some unspecified period of time. That's the purpose of an OTC desk: to take the risk off your hands, bang, all at once.

Just to be clear, because this is kind of a funny insert, there is actually a time when I used to do that, not infrequently. But the reason I would do that not infrequently is because we could not access certain exchanges, and there would often be some esoteric asset on some exchange that we would want to buy that we just couldn't access, and it wasn't liquid.

So what we didn't want to do is go to them and say, "Hey, just give me a price on this thing that trades $500,000 a day." We would say, "We'll fund you. We're going to send you $1 million. You have access to this exchange. Run a TWAP plus 25 bps over the next 48 hours."

That's the only situation in which I could ever imagine asking an OTC desk to do what you're saying.

Okay. That's interesting, because I've never heard of that before. So that would be, market-structure-wise, a really interesting example. I doubt that's the case for Bitcoin, though.

The second thing that you bring up, which is very pertinent here, is that at DRW, if we had been asked to bid on—and many times we were, especially during the huge bankruptcies of the 2022 part of the cycle—we were asked to bid on billions or tens of billions of dollars' worth of coin. A lot of times, a prop shop—not saying DRW, but just in general—won't have enough cash on hand.

Galaxy is, at the end of the day, a prop shop. There is a number of dollars that Mike Novogratz doesn't have to buy coin. Even if it's settled in some way where the fiat that Galaxy would have to wire out to buy these 80,000 BTC is delayed a little bit, so you can raise the cash somehow or borrow it on some sort of revolving credit facility, you still have to have coin to go and sell, or margin to put on exchanges against the perps that you're about to short in gargantuan size. So there are a lot of financial logistics going on under the hood.

I wouldn't be surprised if this was done in tranches, where Roger Ver moved all the coins to either an exchange—maybe it was an escrow account sanctioned by the exchange. You never really know with these transactions—but I wouldn't be surprised if it went down in tranches.

4. The Rise Of Crypto Treasury Companies

Alternatively, the settlement procedure may have been such that the fiat that Galaxy would have had to wire out was delayed over a number of days. Only the Galaxy trading desk knows for sure. But ultimately, I don't think this was worked on an agency basis. Unless I'm mistaken, I think it was probably done principal by Galaxy in tranches. That's my guess.

That would make sense. And it kind of makes sense, then, why the market didn't feel like it was being suppressed for an extremely long period of time.

You had the news, and the news came and was over in 2 days.

Yeah. It wasn't a long, drawn-out problem. So I guess one takeaway is, in the future, don't panic too much. That panic produced a great opportunity: when Bitcoin sold off to $115,000 and everyone was like, "Oh my God, what's happening?" it immediately got bought right back up.

Basically, according to what you were saying, it's very possible that, 1, it might have already happened, and 2, it was going to happen very quickly. It wasn't going to be this long, drawn-out thing over 3 weeks where they were going to come and sell, like, $300 million a day.

Yeah. One thing I've noticed is that people get way too panicked about one-off big trades—market participants, especially people on Twitter who haven't worked inside financial firms before—and not nearly panicked enough about waves of flow.

What I mean by that is, $9 billion sounds like a lot, but in the context of Bitcoin and how big it is at this point—how big, liquid, and deep a market it is—it's not a big deal at all. Galaxy probably handled it really well.

On the other hand, I think the real fear that I had wasn't, "Oh no, somebody's selling $9 billion worth of Bitcoin." My fear was, "What if this is the level? What if this is just the beginning? What if this is the level where all the 2010–2011 OGs just decide, 'All right, enough, we're all out,' right?" And there's just this wall, this tsunami of selling.

That would have freaked me out. But it seems like the opposite was the case. This $9 billion got slurped up by—you were saying—a wall of treasury-company buying. So now, let me turn the questions around on you: who are these buyers? What are these treasury companies, and what are they doing?

I don't understand. Are they scams? Are they not? It feels like there's a lot of nuance in the space that you understand a lot better than I do. We need to figure out who this wall of buyers is and when they're going to turn around and sell.

I think I saw a number that there's been $90 billion raised for treasury companies in total, which is a fucking massive amount of money. Obviously, a lot of that is MicroStrategy—it is the vast majority of it—but there are a lot of other companies that have come out of nowhere to buy stuff up. Let's look just at public companies that own Bitcoin: MicroStrategy has that $70 billion number, so it's about $20 billion from other places. But $20 billion is not a small amount of capital.

I mean, we've talked about this a little bit, but it's gotten even crazier and crazier since then. Metaplanet has $1.7 billion on its balance sheet. These people just keep buying. You have what is likely SharpLink, which is going for $5 billion of ETH and just sucking stuff up.

The question is: why? What is happening here? Why are all these companies sucking up Bitcoin? There's already a Bitcoin ETF. Why would you ever buy one of these companies? The answer is kind of interesting.

I've been looking at this space for a while to try to figure out whether there's something redeemable here, and the answer is yes. I want to come back to that in a second, but what's happening right now is that people in the public markets are paying $2 in equity value for every $1 in crypto that you own there.

The reason it's happening is that MicroStrategy proved there's a massive market for this. There's a massive market for non-recourse leverage on Bitcoin. You buy a company that, in theory, in the future can issue more debt and accumulate more Bitcoin, therefore increasing your overall share of Bitcoin. Your share of that company is entitled to more Bitcoin, so it's a vehicle that allows you to accumulate Bitcoin over time. That's the way people are thinking about it.

There's another reason for this. I'm talking to a lot of the investment banks that are actually filling these rounds, and what they're telling me is that a nontrivial amount of the capital coming into these treasury companies is coming from pod shops. It's coming from places like Millennium and Citadel, where these pod managers are not allowed to buy managed products on the open market. They're not allowed to buy the ETF.

They want exposure to Bitcoin, but they don't want exposure to MicroStrategy because MicroStrategy is boring. They want to buy this new issuance that could pop 3× on the open. You get in at some sort of discount to NAV. Let's say the NewCo raises $500 million to go buy ETH. You, say, Citadel, Millennium, or one of these other traditional funds that wants access to Bitcoin can invest at a $450 million valuation—a 10% discount—and then it goes public through a reverse takeover.

Basically, there's a shell company that the private company buys, takes control over, and then goes public through that shell company. That company now trades at $900 million because people are paying $2 for every $1 they have on their balance sheet right now.

There's a game happening here. It's a game of insiders getting into these deals early and trying to flip aggressively to retail. In many ways, it's way worse and more gross than the ICO model, because most of these companies are not generating any revenue at all. Zero revenue.

The only thing they're doing is issuing debt to buy crypto, and obviously that debt is callable at some point. So if they're not generating any revenue, Bitcoin starts to go down, and in 2 years their debt starts to get called, most of these companies will be forced to sell. There are a few crypto firms out there that are taking advantage of this in a big way by structuring these really badly designed vehicles that allow you to be forced into selling your Bitcoin when your debt comes due.

We're going to see billions and billions and billions of dollars of selling from these companies if Bitcoin goes down too much. The market is now very fragile again, in my personal opinion, because of these guys.

A year ago, the market was not super fragile. If some of you might remember Genesis, the big OTC desk that blew up because of the GBTC trade, it then had to sell all of its other shit to try to cover the hole. That exposed this nonsense mishmash of leverage. People were levering up against completely illiquid tokens. Something would be locked for a year, and they would lever up 90% of the value of that locked thing.

It was this disgusting mismatch, and it turned out that we were all standing on a house of cards. We're not standing on a house of cards—that's not what I'm saying. I think the market is a lot healthier today than it was in 2021. But if we let these guys get too big without bopping them on the head and saying, “Stop what you're fucking doing,” we might end up in a house-of-cards situation again.

If you can imagine $50 billion of Bitcoin getting absorbed by companies whose debt can be called, and then Bitcoin goes down 30%, you have to sell all that Bitcoin at once. That's not a good situation. So, basically, a lot of these companies kind of suck.

One other reason why they suck is that most of the lockups on these things—and this is me, I'm technically an insider—I have not invested in any treasury deals up until the ones I'm about to talk about, because they're differentiated. They actually produce revenue, and they're not even really a treasury deal. But I basically stayed away from this game. I'm like, this is kind of gross. It reminds me of ICOs.

One reason it's gross is that there are 3-month lockups on these shares. Three months. That's it. If you invested in a shitty ICO, you had a year-long lockup. You invest in a treasury company, you get a 3-month lockup. That's crazy.

There are some companies that are structured much better than others, and this is where the silver lining is. MicroStrategy is now too big, its debt is very well structured, and it's going to be very easy for them to raise money. Their revenue stream—they invented it out of thin air—is creating financial products. That's the revenue stream now.

They're selling this STRF thing at 9% or 10%, and then they go buy Bitcoin. It's like a savings account, and they're buying Bitcoin with your saved money. You're paying 9% or 10%, and, man, people want it, Jonah. People want that.

Wow, okay. I have so many questions.

I'm sorry, but, yeah—sorry. Some questions, please.

So, kind of, it sounds like there are 2 types of treasury companies. Type 1: they have actual revenue from doing some kind of traditional business that's legitimate, and they use that revenue to finance leveraged Bitcoin purchases. That's type 1.

Type 2 companies have really nothing going on. They're basically vehicles that allow random pod shops that can't buy IBIT to buy Bitcoin, ETH, Hyperliquid, or something. They invest in the treasury company, and the treasury company uses their money to buy the asset. It either leverages up and buys Bitcoin, or it doesn't leverage up and just buys Bitcoin with it.

So there are real companies and shell corporations that do this. Is that about right?

Kind of, except that there are no real companies right now.

Okay. So, basically, MicroStrategy was kind of like a type 1 company. It had a small software business that probably covered—

And now the small software business is, like, not anywhere.

Their product is now selling financial products. That's their cash flow. But even that product doesn't come close to covering the interest payments on the tens of billions of dollars of debt.

They keep coming up with new forms of product, right? That's their genius. They go, “Okay, we've sold so much of this convertible debt. What if we come up with a savings account and get money through this savings-account model?” And everyone's like, “Hell yeah, I'll pour in money to this savings account that's backed by Bitcoin at 9% or 10%.”

They're just really fucking good. The way that I think about it is, there are so many structured products in the world of finance around every asset that you can possibly think of. There are a lot of investment banks that make a lot of money from selling structured products to people to fit their investment profile.

You look at the S&P: how many different ways can you structure a buy of the S&P? There are actually infinite ways in the world of structured products and banks. And that's not even their main moneymaker.

It's all for edge situations and other types of assets. The world of finance gets very complicated very quickly. Now, Bitcoin is very nascent and micro in the world of finance. In the world of high finance, on Wall Street, Bitcoin is now—the structured-products revolution is being led by MicroStrategy. If they offer enough different types of products and do it in the right way, so that the debt on most of these products is not callable, and people are buying it because it's been working, it would take a 2021 to nuke these people.

It would take a 50% to 70% drawdown in Bitcoin for an extended period of time, which, by the way, MicroStrategy has already gone through, just FYI. It would take an implosion to bring down MicroStrategy. It would take a prick to bring down a lot of these other treasury companies.

5. What Would Cause An Unwind In DATs?

Well, a lot of pricks can cascade into an explosion. So that's why I want to keep pulling this thread. I just want to ask one more question for listeners who don't know what you mean when you talk about debt being callable. Humbly and respectfully, I don't either, because I traded bonds for a long time. A callable bond is a bond that the issuer of the bond—let's say Caterpillar, the company that makes tractors, issues a callable bond—if the price of the bond gets too high above par, like, let's say it trades up to $120 for the bond, Caterpillar can call it, basically buy it back at what's called a call price, which is something maybe 101, 102, or 105.

So it basically is a way for Caterpillar to take its debt off the market by recalling its bonds. I don't think that's the type of debt that you're referring to here, though, is it? When you're talking about debt getting called, can you tell me what you mean exactly?

Sure. What I'm talking about specifically is a type of instrument that is issued that can be redeemed before the actual maturity date. And I just read from Investopedia, but let me explain that to you in clear words. Basically, if a lot of these other treasury companies have an issue where their debt is based on some parameters, they have to pay it back immediately. So if Bitcoin goes down 30%, the investors would not put money into the treasury company that was issuing this debt unless there were some parameters like, okay, if Bitcoin goes down 30%, you have to pay it back before it goes down 50%; then you can't pay it back.

So, yeah, it's covenants. MicroStrategy, as far as I understand it, doesn't really have any strong covenants like that at all. Bitcoin can go down 99.9%, and they would have until the maturity date to pay it back.

Okay, now I understand. Now this comes to my final question for you, Avi. It sounds like there are no legitimate companies that are covering their interest payments with traditional cash flows. It's all a big, structured pile of structured products.

So now we have to ask ourselves: How does this unwind, and when? To me, it seems like the market is short gamma, meaning that the higher Bitcoin goes, the more these companies have to buy because the mania continues. The lower Bitcoin goes, the more these little pinpricks start to add up, and you start to get a cascade of selling. We're probably not going to stabilize at $118,000 a token. We are either gassing higher or nuking lower. I tend to think the former. I think the mania continues for a while, for a variety of reasons.

Well, the thing is, I'm ringing the alarm. This is the equivalent of me calling for World War II in 1937. I mean, yeah, it probably is going to happen if the world keeps heading this direction, but right now we're pretty far away from it because, again, in aggregate, you have these vehicles that have, outside of MicroStrategy, $25 billion to $28 billion of stuff that they can sell.

You just saw $8 billion to $9 billion of Bitcoin sold without any issue. Now, if you take away the buy-side pressure, maybe the $8 billion to $9 billion would have caused more of a cascade, but in aggregate, a forced liquidation of $20 billion right now isn't going to be the end of the world. Maybe it sends Bitcoin down 10% to 15%.

The issue comes if it gets too big, because if, let's say, we get to $50 billion or $75 billion, and then you have $75 billion of Bitcoin liquidated in a small period of time, that's obviously going to cause a huge issue. But more than just causing a huge issue with price, the issue is if you eviscerate—let's say you eviscerate $10 billion of the $20 billion. That's okay. That's pretty bad; you've lost $10 billion, but the world is a big place.

If you lose $60 billion, it's much harder to get recapitalized, right? Much, much harder. It kills the market a lot more than losing that $10 billion does. So basically, there's a “the bigger they are, the harder they fall” kind of thing going on here. Right now, we're not in a house of cards. I'm not saying that we're going to explode. I'm saying the market needs to change, and if this gets too big, I'm going to be very nervous.

Imagine Bitcoin is at $200,000 and the treasury companies have $100 billion of Bitcoin. Are you happy with that scenario? I'm probably happy with it.

I have a different metric, and this is what I wanted to run by you. I think premium to NAV is the only thing that matters, right? I could see treasury companies having $100 billion worth of Bitcoin at $200,000 per Bitcoin and it not being a problem if the discount or the premium to NAV is still enormous, because that means there are much larger pools of capital out there, presumably retail, but maybe it's these pod shops. I have no idea who's paying 2× NAV for this crap, but as long as that bid is there, we're good.

So I feel like if we had a dashboard that could track premium to NAV across a variety of salient treasury companies, that would probably—

We can probably try to set that up with the 1000x Terminal.

Yeah, that would be a good one to add into the 1000x Terminal, which we expect to ship this week or next. It's been a long journey.

A nice little shill right there, Jonah.

Nice little shill. But what I'm saying is we're kind of in agreement in that I'm not making a call for when the treasury game is going to collapse. I'm making a call about where we are relative to the risk to Bitcoin—like, the overall risk to Bitcoin.

Yeah, I see what you mean. It's very possible that maybe I'm totally wrong and the treasury companies stop getting any Bitcoin and their premiums flip negative here, and then they all just implode over the next 3 months. I just don't care. They're not that big at this point.

That's true. But when they get big, one thing that we can be sure of—and this goes back to our earlier conversation about Galaxy's OTC deal—is that when these guys have to liquidate, they're not going to liquidate gradually over 15 days by hiring an execution trader to manage the participation rate. They are going to slam bid.

It is going to be a feeding frenzy for OTC desks if and when these guys eventually need to liquidate all at the same time. When these companies need to liquidate to pay off some sort of bond that's been called from them, they don't have a month. They've got probably T+5 or something inside of that.

So there's going to be a lot of forced, rapid, sloppy liquidations, and a real, amazing P&L opportunity for the OTC desks out there, which can just throw terrible bids onto those trades and get hit by panicked, forced sellers.

I agree with you that it doesn't happen yet, right?

Well, here's something interesting. There's clearly some real appetite for Bitcoin, from wherever you want, for these treasury companies—from both the pod shops, from retail, and from people that just want exposure to Bitcoin, maybe not in the direct way.

It's possible that there are people out there that view these treasury companies, however misguided they are, as less risky than Bitcoin because they're technically acquiring Bitcoin over time. So they're reducing their cost basis. I've heard that being said, but it's not really true because your shares get diluted.

But besides the point, it wouldn't be the first inaccurate Wall Street shill, right? Because, again, if you don't know this, they raise debt normally through convertible bonds, which at a certain strike price are convertible to equity. That means they issue new equity when that debt hits a certain price, which means that you, the shareholder, get diluted.

Yeah. So, you’re not really accumulating Bitcoin per share all the time. MicroStrategy has pulled that off, though.

Pays to be first.

Yes, it pays to be first. Again, MicroStrategy is a little bit of a different beast. By all accounts, they have done a great job. What we are seeing, which I’m personally excited about, is that you’re seeing some more serious people step in.

There’s a raise going on right now for a PE firm. Imagine Berkshire Hathaway, but Berkshire Hathaway instead of holding cash held Bitcoin. That’s the way that they’re pitching it: We’re going to go run a PE shop, but invest our proceeds—all the cash flow that we get from these companies. Instead of holding our balance sheet in cash, we’ll hold it in a mix of Bitcoin and the S&P.

I actually think that’s a more interesting way of getting access to this idea: you have real companies producing real revenues and actually just allocating capital to Bitcoin. It’s basically a way of backdooring corporate purchases of Bitcoin. The Bitcoin world has said for a long time, “Hey, corporations, it would be really smart if you put some amount of your balance sheet in Bitcoin. You guys should all probably do this.” Basically, only Tesla pulled through on it.

Now people are saying, “Well, we can raise enough money to go buy companies and make them put Bitcoin on their balance sheet.”

And then you have at least a real company that is facilitating the purchases of Bitcoin.

Yeah. I mean, it’s sort of what everybody expected to happen back when Tesla did its big Bitcoin treasury purchase, I think it was in 2021. It was like, all right, corporate America—and maybe corporations globally—are going to shift from holding fiat to holding Bitcoin, and Bitcoin is the new alternative reserve currency. It didn’t quite happen then, but it totally should happen in the future.

Here in Los Angeles, you want to hire a plumber, and they’re going to throw out crazy numbers—$150 an hour, right? It feels like the dollar is turning into funny money. I do understand why a lot of corporate treasurers wouldn’t want to hold dollars at this point, or even T-bills. They’d want to hold something that seems to be supplanting the dollar. Maybe they want to hold S&Ps; maybe they want to hold Bitcoin. Frankly, holding S&Ps or Bitcoin feels a lot less risky than holding dollars to me at this point.

Until, of course, as I’ve said a thousand times, a redistributionist gets elected to go ahead and nuke assets and pump the dollar.

6. Has ETH/BTC Bottomed?

So, quickly, before we get into macro stuff, we’ve talked a lot about Bitcoin. I wanted to quickly ask you about ETH. My thinking is that there’s a lot of victory lapping going on in the beleaguered ETH community because, obviously, the price has doubled or more than doubled from the lows. But my take, before I pass it over to you, is that these guys who are happy about this price action in ETH kind of look like clowns.

The reason why is that no one who listens to this podcast has been debating between holding ETH and holding U.S. dollars. You’re just debating between holding ETH and holding some other crypto token, whether it’s Bitcoin or altcoins. If you look at the ETH/BTC chart, the thing has gone down in a straight line basically since December 2021. It peaked at 0.09 and sold off all the way to 0.018 or 0.017, and now it’s bounced off those lows. So we’re still down 80% from the peak.

Everybody’s like, “Look, I’m so happy. ETH is so great.” And what I think is, actually, if you’re thinking that way, you’re literally just revealing that you held ETH all the way down, got absolutely daddied on it, and you’re just happy that the sell-off stopped. You still underperformed Bitcoin massively, which is the more obvious trade.

So, to me, have we bottomed, basically, is the question here? Or is this going to keep going?

Well, here’s what I say. I think some criticism is fair in the sense that ETH popped off the lows. It had that 30% candle in a week, then it went sideways for a bit, and everyone was like, “Ah, ETH is still fucked. ETH is still fucked. ETH is still fucked.” Then ETH proceeded to pull another 30% move higher.

People are seeing that number. To be completely fair, it’s better to catch that turn. I would have much rather pivoted my Bitcoin to ETH and then held that ETH until now than maybe sold it back out. I didn’t really take that trade, as you guys are aware. Nobody picks the lows, though.

But I guess the other thing that is happening is that ETH just became so undervalued relative to its history if you look at it versus Bitcoin. It basically went to levels that we hadn’t seen since 2019 versus Bitcoin. I think what happened is that Wall Street just picked up on that, and they were sniffing around, kind of in the same way that Wall Street loved XRP.

Maybe saying 22- to 27-year-old finance pros is more accurate than just saying Wall Street. That group of people was like, “Oh, wow. Maybe XRP will be able to hit $6, because then it’ll be at par with BTC.” I think a little bit of that mentality is what’s happening with ETH, combined with the treasury vehicles.

ETH is the second-largest asset, right? That means that it has a lot of supporters. It has a lot of people that own a lot of it. It does have a story, however true or fake that story is. So it outperformed because there was a gap in the market.

The gap in the market is that Bitcoin is feeling overbought right now. Where else can I go to generate outsized returns? That’s what I’m hearing from even more TradFi people: “Yeah, okay, Bitcoin doubles to $200,000, $250,000, $2.5 million, whatever. What can I get that’ll 5 to 10x in crypto?” People are looking at ETH, and that’s a role that it can fill. It’s the catch-up play.

My previous thinking was that there wasn’t going to be a significant catch-up play because ETH is kind of done. It doesn’t really have anything going for it anymore. Wall Street is going to sniff that out, and the traditional guys are going to sniff that out, and the people that own Bitcoin ETFs are going to sniff that out. Then they’re just not going to allocate, because this is, in theory, smarter money.

I think what’s turning out to be true is that they’re not that afraid of buying ETH. They’re not that afraid of going down the risk curve, and that’s actually where they can go down the risk curve. They can’t really go down the risk curve anywhere else because they’re stuck in their brokerage accounts.

Yeah.

7. Can ETH Outperform?

It’s ETH. They can’t really go down the risk curve anywhere else because they’re stuck in their brokerage accounts. Basically, I think Chris—I think it's pronounced Burniske—tweeted that bullish price action is the best content marketing there is.

I mean, it’s true.

And it’s so true.

So, ETH—the only reason why I think I could construct a bull case for ETH is that we just broke a downtrend and this rally is real now. It’s not just a dead-cat bounce to be faded. I was wrong. I thought it was a dead-cat bounce to be faded. I wasn’t wrong by a huge amount of money, but I was wrong. It rallied another 30% from the first 30% rally.

Basically, I’m questioning whether or not this rally can continue. I don’t care that much because I’m still so bullish on Bitcoin I can’t see straight. I think it’s a smarter idea to buy Bitcoin with leverage than it is to buy ETH. But just before I totally put the final nail in the coffin on ETH for the next month or 2, I’m asking myself: Is this worth a trade? Should I own some ETH right now?

Do you actually think ETH can 5 to 10x if Bitcoin 2x’s? I don’t—I think that would be insane. But do you think ETH could—

Here’s the thing, especially with these treasury companies that are now the buyers of ETH. I do think that ETH could double from here. I’m not calling for that. I think that ETH will probably continue to outperform Bitcoin until the treasury-company stuff unwinds, because right now the treasury is a much smaller part of the Ethereum ecosystem.

But the dollar value that is willing to go into these things will, I think, be equal at some point. So I think ETH can attract a larger percentage of those. I do think that, based on market structure, ETH is looking pretty good. Based on long-term, 5- to 10-year prospects, ETH is still exactly where it was when I said that it was a piece of shit.

It really is the XRP of this cycle, isn’t it? It’s trading just like XRP. You can’t write it off, but it’s still a dino coin, you know? It’s the dino coin that doesn’t go away.

Who knows? Maybe they’ll turn it around. Maybe they’ll turn themselves around. I don’t know. Maybe somebody will show me what they’re doing to fix themselves, because I’m not seeing anything yet.

I mean, but I don’t hate it. Let me justify.

It’s just price action, Jonah. You understand? It’s just price action that’s making people excited.

Yeah.

It’s like trading on a meme. Don’t get me wrong, I do a lot on Base. I think Base is great. A lot of my on-chain activity and on-chain fiddling is on Base, but to me, Base just feels like—it’s basically the Amazon Web Services of crypto. It’s Coinbase’s centralized ledger that pretends to be a part of ETH.

So I struggle to get bullish on the expensive block-space mainnet and its associated asset on the basis of institutions coming into the space or some sort of fundamental story. Realistically, Kyle Sani said it best: The future of ETH is Base. I don’t know what that means for ETH fundamentals, but ETH technicals look incredible. Right now, we just broke a 4-year downtrend.

I mean, look, the technicals look better than I could have hoped for. These are fucking phenomenal technicals. I think all of our ETH bags—to diagnose a mistake with us, or at least a mistake with me—is that I was so focused on the fact that ETH was, and is, still a trash platform.

It wasn’t generating any meaningful usage. It wasn’t generating anything particularly exciting on the project side. It basically was a hub for stablecoins, and that’s it—and continues to be. I overlooked how fucking good the technicals became.

Yep. The thing is, though, I think writing off ETH after the first bounce—you do not have to self-flagellate for missing good technicals like that. That 30% bounce was like countless other 30% bounces on the ETH/BTC chart that would have been phenomenal sells over the past 4 years.

It’s now that we’ve got the second 30% bounce. Now the technicals are good for the first time. So I don’t think you need to worry about having missed the second 30% bounce. It’s just more like, okay, are we about to miss a 100% rally from here in the ETH/BTC chart? Now the technicals are good, whereas before they weren’t, and the fundamentals are still trash.

I’m not a very good technical trader; never have been. I’m probably going to stay away because I don’t believe in going in big on things that I don’t consider to be my edge or my core competency. I consider myself to be more of a fundamental trader, more of a macro trader. If a chart looks good, I’m not good at assessing that. You’re better than me at that.

So maybe this is a better opportunity for traders out there who are more like Avi, for traders who are more like macro-narrative thinkers who don’t understand technicals like me. I think it’s okay to be sidelined. I will feel happy for ETH bagholders and understand why they put on the trade if they do, but I just can’t get my head around it.

The reason why it’s bad to put on a trade that you can’t get your head around, even if you feel confident in it, is that if you start losing money, you have no framework to cling to. You just sell on the lows like a jackass.

Yeah.

That’s why I don’t like doing those things.

Fair enough. I think that’s a good place to end. Don’t be a fucking jackass.

Yeah. Oh, quick lightning round before we end. I have a bunch of questions for you because we missed you last week. If this is the rotation into ETH, are we getting an altcoin season next?

Oh yeah, 100%. All alts are just quality. I think we already had a little bit of a mini alt run. I do think that we need Bitcoin to take another leg before we get a serious alt run, but I am pretty bullish on some alts here.

Even the dogshit ones, I think, could do well. I would wait a little bit. I think we need some of them to come off because we just had a little bump, but I do think that we’ll see another little run here, especially if ETH continues. Although, one thing that I will say is that Hyperliquid has underperformed a lot over the last month or so, and I think it’s probably a buy again.

Okay, next question. Again, because I never sold any, I’m going to buy more.

Yeah, I was thinking of doing something similar there. Good fundamentals.

Next question: macro. What are the factors that make you the most bullish right now? Any macro catalysts that excite you?

For me, it’s just cuts.

Yeah, it’s just the fact that Powell is going to get steamrolled by Trump.

Yeah, rate cuts. And I think AI deflation is going to boost risk assets across the board.

Okay, risk factors. Is there anything that makes you—you said earlier a big sell-off could trigger treasury company selling. Are there any big exogenous, non-crypto risk factors that could tank this thing on your radar?

I don’t see anything. We’ve navigated the tariff issue very well. The only thing that I could possibly see was a headline that came out today: Trump gave Putin an ultimatum to end the war in Ukraine in 2 weeks.

What does that mean? In 90% of cases, it means nothing and we’re good. But if he means, “Oh, we’re going to start sending over F-35s,” I mean, that would be pretty bad. I think Russia would probably see some cyberattacks in the U.S. in that case.

Yeah. Okay.

I put that pretty low. That’s a pretty low probability, but it was something that I was thinking about today. I was like, I really like the idea of playing hardball with Russia here.

Yeah. No, that was the purpose of my question: to tease out a crazy thing that’s not on anybody’s radar—a known unknown. I guess the Mike Tyson line, “Everybody has a plan until they get punched in the face.” It’s sort of like every Bitcoin hodler has a plan until a tactical nuke hits Zapperia or whatever that region is called. Then it’s like, “Oh no, what do I do now?”

We’ll have to do an emergency podcast if that happens. But yeah, I kind of just wanted to table that for the end of the call.

Anyway, dude, great talking to you. Thanks for making time.

Yeah, this is awesome as always. We’ll catch up again soon.

For sure. See you next week. Adios. Bye.