交易加密货币的反身性市场与错价波动 | 1000x

There’s a book behind me right now called The Alchemy of Finance by George Soros, and basically I can sum up the book in 1 word: everything is reflexive.

That didn’t sound like 1 word, Avi.

Ah, the 2 words are “everything” and “reflexivity.”

We are recording this at the exact same moment that Bitcoin has decided to send. We’re trading at $29,800, and both Jonah and I are extremely happy right now. I hope you guys are too. A lot has happened in the markets, and there are a lot of opportunities that have presented themselves. I think the last 2 weeks since our Novogratz podcast, we’ve done a pretty good job of navigating the turn, and I’m happy to talk about what’s happened and what we think is going to happen over the next few weeks. Jonah, how’s it been? Where are you right now?

I’m in France. Hello from France—bonjour. I’m broadcasting live from a crappy laptop with some trees in the background. The price of Bitcoin is the same here in France: almost €30,000, but a little farther away in euros. I kind of hope we hit $30,000 in the middle of the podcast, which seems possible. We’re flirting with it. If we hit $30,000 in the middle of the podcast, I think we should do a little toast, and then we should sell everything that we own.

Yeah, because this is the moment. The price is here, and I think you just have to get out. It’s over.

Yeah, I mean, this is an emotional roller coaster. 2 weeks ago, we were talking to Novogratz, and we asked him, “Why did you start a company instead of just holding LINK in your portfolio?” He was like, “Ah, great question.” It’s stressful times for people who run crypto businesses right now, but the sentiment can shift quickly. 2 weeks ago, it was all about the SEC dropping lawsuits on Coinbase and Binance. It looked like we were primed for a washout lower. Avi, what did the short interest look like at that time?

At the lows, before we squeezed higher, we were looking at more than $1 billion of shorts that had opened on the USDT contracts. That’s actually what, if you remember, on the last podcast with Novo, we were both talking about: lifting August and September calls on BTC when we were below $40,000. You had $1 billion of shorts entering the market. That’s a recipe for disaster for those shorts and a recipe for volatility.

I think volatility is actually still really low. One of the things that I like to remind people is that vol is often the most mispriced after a large move. You can make an argument that vol is more mispriced now at 50 than it was at 40 when we were at the lows, because we’ve already seen such a large move. $30,000 is much more likely than $25,000 to be an unstable price, right? It’s much more common for Bitcoin to oscillate wildly after it’s already oscillated wildly than for it to begin oscillating wildly.

You can make a case that vol here actually makes sense. One thing I was looking at is that if you want to take off some length, you could sell deltas, but you can also start buying some puts because puts are still pretty cheap. You could sell call spreads, too, and roll your strikes up.

Yeah, that’s true. You could sell call spreads, although I hadn’t looked at that, and it actually looks really nice because it seems like we’ve got some points on the spread now, whereas before the surface was pretty flat.

I think what’s interesting here is that you brought up a really good point about options. I was an options specialist for over a decade, and that was the primary way that I expressed views. I really dug deep into it. You made a very insightful point, which I agree with: options are often the most mispriced after large moves.

The way they get mispriced is worth delving into, because what you just described—where vol still seems a bit too low—is often the other way around. You get a big move, vol explodes, and then it’s a screaming sale. For example, the big trade in commodities this year has been to sell overpriced options, which exploded after last year’s craziness across gas, oil, and a bunch of other markets.

Vol remained overvalued for far too long, and that’s usually what happens after there’s excitement in a market. You have a paradigm of, “Oh my God, it’s a supercycle. Wait, no, it’s not,” or, “Wow, this thing’s going to zero. Oh, wait, no, it’s not. It’s just going to mean-revert again.” When you have eyeballs on an asset class, vol remains too high for too long after a big move.

Meanwhile, in crypto, I think people just threw in the towel. The market stopped moving, and I think a lot of institutional players who are more savvy at valuing options than perhaps your average retail investor—the math isn’t what they teach you in high school—saw the opposite happen. You had some huge opportunities, some huge moves, and lots of coiled springs in the market, and yet the cheapest implied volatility ever, which you could go and buy.

As a wise trader once told me, you never buy options unless you expect the market to move fast. It sounds so obvious, but a lot of people miss it. Markets move fast when you get a short squeeze. It seems like that’s what happened.

Yeah, 100%. That’s really what you’re looking for. There are 2 things that I look for when I’m buying these types of calls. One is that I’m looking for why I think vol is mispriced. You always have to frame every trade that way, but it’s sometimes very straightforward with options: Why do I think I have an edge here?

Specifically, with this most recent bout, it was because there’s a natural supply of sellers in the options market. Who is selling? The miners, people looking for yield on their Bitcoin, and people who run these billion-dollar structured products. We’ve talked about all this, so I don’t necessarily need to rehash it in depth, but there’s a natural supply.

When the bid side dries up, when there are no institutional funds in and no retail coming in to cross the spread, you just get this vol depression. Then, when you see an insane amount of shorts in the market, you have to start lifting.

It’s funny: 6 out of 6 times—and I might tweet out a graph that one of my analysts put together—within 48 to 72 hours of FUD, we’ve generally seen the bottom in terms of actual price on Bitcoin and Ethereum. I think what’s been happening is that there seems to be some leakage of news. You get this weird movement in the markets prior to the actual headlines dropping, where stuff just starts to trade really weirdly.

I think 5 or 6 times this year I’ve turned to Joe, my partner, and said, “The market’s trading like there’s news coming out.” Then, within 2 days, news has come out. It’s very odd—a very odd trading dynamic. What ends up happening is that a lot of it gets priced in very quickly, because the only people left in this market who are actually trading are people who pay attention to these types of headlines. That generally provides a good opportunity to come in and buy. It’s been a pretty high hit rate.

I had a different take on that. I came to the same conclusion, but in a very different way. Unlike you, I don’t have a good track record of buying FUD, because often FUD—at least, I’m newer to this market, so the definition of FUD is weird for me. No one uses that term in other markets. Furthermore, what constitutes FUD—fear, uncertainty, and doubt? I don’t have a historical reference point in my mind from having traded this asset class for so long.

You have to know whether something is officially the point where most people are throwing in the towel, or whether it’s the beginning of a cascade of negative headlines and souring sentiment that’s just going to continue and send the price lower and lower.

For me, what signaled some confidence while we were trading on the lows was that when the SEC dropped these final 2 lawsuits against Coinbase and Binance—2 very well-resourced institutions that can afford to fight—they’re not just going to fold their hands. Having had a little bit of legal experience in my own past from being involved in a lawsuit or 2, usually when the plaintiff files a lawsuit—and this has nothing to do with the SEC—that’s their moment of maximum momentum.

They’ve stated all of their claims and laid out their case the way they want it to be viewed. No defense has been formed, and the defendant is often caught off guard. From a textbook, law-school, theoretical perspective, that is maximum momentum. The momentum couldn’t have been further against crypto than it was at that particular point.

I think that’s a really solid way of framing it, and I think that’s accurate. The way that I would add to it is with Operation Choke Point. That was the SEC coming after altcoins, and there wasn’t as much of an event as there was this ongoing drip of attacks. It was, “Okay, we might just continue to see actions by the SEC against a variety of different altcoins. We don’t know when that’s going to end. It might last for a year, 6 months, or 3 months.”

With the SEC lawsuits against Binance and Coinbase, that was very much an event. It was a very concrete lawsuit. If they’ve sued Binance and Coinbase, it doesn’t really matter who they sue next. Those are the 2 largest exchanges in existence right now. Maybe they can sue Bybit or OKX, but that’s going to be baked into the price.

To your point, every action beyond that is less meaningful, because they’ve played their hand. They’re going after the largest offshore exchange and the largest onshore exchange. Then you start to think, “How could it get worse?” There are a few things that could have made it worse. For example, the DOJ could still come out against Binance, but I actually think that, at this point, it’s almost baked into the price. If a headline comes out that CZ is being perp-walked, that probably is a 3% to 6% sell-off, and I actually think that’s almost baked in.

Don’t worry—if you read Twitter, you get these sorts of ideas in your head. The worry about the DOJ is that, if they come after Binance and say that it has done something wrong, they theoretically have the power to freeze omnibus wallets. They could say, “This Binance wallet has conducted activity that we don’t like. We’re going to freeze it while we do our investigation.”

Again, this is not my view. You read Twitter and get these ideas in your head. If customer assets were to be frozen temporarily, this wouldn’t be an FTX situation where assets are gone. It would be more like a government agency temporarily halting activity in a certain wallet, where customers can’t access their funds or they’re frozen for a day or a week.

Then liquidity in the system gets gunked up, making it very difficult for institutional trading to take place, and you could see some pretty terrifying price movements. The prospect of that is maybe a reason why, if you’re long gamma and you’ve just ridden it up to $30,000 from $25,000 and you’re feeling pretty good about yourself, that’s a reason to lighten up on some deltas.

But who knows? This is pure idea generation, trader talk—what could go wrong? Avi and I are just sitting here, for the listeners, gaming out ideas about what could go wrong and what could go right. We have no idea.

These probability analyses are pretty—

Speak for yourself.

My whole job is to have an idea, Jonah. I never said it was a good idea, but I do have some ideas. Maybe we should do what Don Wilson said and model out the probability distributions of the worst case.

That’s how you’re supposed to do everything in trading. Everything’s a probability at the end of the day. Then you start to calculate the expected value from the probability, make decisions, and choose your best outcome.

That’s one of the reasons why I think we were both so heavily involved in this recent GBTC run-up. Post-BlackRock filing, it just made the most sense. If you’re going to bet, one of the most important things you can do when you have a trade or an idea in mind is figure out how to best construct that trade.

You might say that oil is going up, copper is going up, or Bitcoin is going up. Then you think about the reasons why it might be going up, and you think about the best way to construct that trade.

With the BlackRock filing, the bet was that Bitcoin had probably reached a point where it was out of sellers in the short term, because everybody who had exited on Binance and Coinbase had probably exited by then. A lot of buyers might come in because of the prospect of an ETF filing.

What do you think would benefit the most from that? There’s this great instrument, GBTC, which, if turned into an ETF, was trading at a 40% discount.

A discount code.

Yeah, it’s a discount code. If the price of Bitcoin doesn’t move, a 7% rally in the discount—from 40% to 33%—is the equivalent of, I think—I can’t do this math—an 18% rally in the underlying asset. It’s meaningful.

You get this positively convex asset. It’s an option. You pay a premium, which is that 2% management fee, and in return you get something that sort of—well, at a 40% discount, just going to par with no price movement from Bitcoin means you get a 60%—I think 65%–66%—return.

It was such a great trade, because you know why people are buying. When you construct the trade, you think to yourself, “All right, I want to be bullish on Bitcoin. I think the crypto market is going up. What is my highest-conviction trade here?”

GBTC seemed like a great one. We talked about this on the podcast, by the way. This isn’t just looking back and saying we bought it after it rallied. I think I’ve talked about GBTC on almost every podcast I’ve been on, because I think it was such an obvious trade at some point. Especially when it got to a 40%, 45%, or 50% discount, it was such an interesting thing to have in the book.

I think ETHE is at a 46% discount right now. That one is a lot tougher for me, mainly because the bet is effectively on the SEC approving an Ethereum ETF. I just think there’s a much lower probability of it getting approved than Bitcoin, because of all the concerns around it being a security.

I’m no legal expert, but I can read body language, and the body language of the SEC is that they don’t really believe anything other than BTC is safe. Gensler has said that multiple times. Obviously, there’s going to be a jurisdictional battle over this, because the CFTC has said some things and the SEC has said some things.

All of that is to say, GBTC was more attractive than ETHE for those reasons, and the move has reflected that.

I think in GBTC you will get the discount selling off again at some point. The reason why is that we don’t know whether the managers of DCG are economically rational and whether that’s the only thing they care about, or whether they also have reputational concerns, other incentives, or other stakeholders.

If they’re purely economically rational, in theory the textbook says they should just do nothing. The net asset value of that fund is determined by the number of Bitcoins held inside it. All of that was created when GBTC traded at a premium back in 2021 and before.

Whatever the price of GBTC does, it doesn’t change the amount of fees that Grayscale collects. It’s really just the price of Bitcoin going up and down that alters their fee. They collect 2% of the Bitcoin held in the fund every year.

From their perspective, BlackRock is filing for an ETF. Maybe they should feel like they’re supposed to compete, but they don’t really have to. Even if the price of GBTC gets fire-sold down to a discount of 90%, technically they’re still collecting the same fees.

Then, if that happens because everybody’s sick of waiting for Grayscale to apply for an ETF and sells all their GBTC into a vacuum to rotate into the BlackRock instrument—which is theoretically much better if it gets approved—Grayscale could buy its own shares back at a massive discount, convert to an ETF, or offer redemptions and earn 20 years’ worth of fees in 1 fell swoop.

That would be a scummy thing to do to your investors, but if you’re purely economically rational, it actually makes sense. I think there is some risk to the downside.

Yeah, I think they’d open themselves up to a tremendous number of class-action lawsuits.

I don’t know. I’m not a lawyer. Maybe it’s watertight. Who knows?

You’re 100% correct that, if there were no legal or reputational risk, that would make sense. My bet is that the probability is extremely low, because they’re trying to build a business and have a long-term business, as opposed to generating a lot of cash in the short term.

Nobody’s doubting that if they care about their reputation and want to build a business, they shouldn’t do that. It’s an interesting thought experiment. I just think it’s highly unlikely.

Exactly. They’ve come out and said so many times that they’re attempting to transform this into an ETF.

That being said, a lot of people have done a lot worse things in crypto.

Agreed. Let’s look at the flip side. Let’s say you’re managing GBTC and BlackRock comes out with a product that’s infinitely superior. No matter how hard you try to please your investors, they’re still going to sell GBTC and rotate into the BlackRock product.

Let’s say you offer redemptions. The golden goose is dead. GBTC is going to get redeemed, and the assets are going to be rotated into something more attractive.

Well, I think we’re also underestimating the laziness of your average investor in this product. There’s probably a substantial amount of money that stays in that ETF. Because it’s the largest and oldest, and because it already has a ton of volume associated with it, it may actually end up being the main ETF.

That opens up the possibility that the assets actually 10x. One of the nice things about the BlackRock filing is that it gives an air of legitimacy to the asset class and to Bitcoin specifically.

The other thing is that if BlackRock is filing for an ETF, it probably has a reasonable understanding of the probability that the ETF is going to get approved. I would place that probability fairly high, considering there’s a decent economic cost to producing the ETF.

Once it’s approved, the way BlackRock works is that it incentivizes its advisers to go sell its products. We’re going to have a lot of people trying to sell a Bitcoin ETF for BlackRock. From a top-line cost—not a monetary cost, I don’t think it’s particularly expensive. The cost is more reputational: Why would they go through all the effort to get this thing approved?

I don’t think it looks particularly good if they try to get a Bitcoin ETF approved, the SEC comes out and says the Bitcoin markets are manipulated, and people then look at BlackRock and say, “Were you trying to get us into a product that’s manipulated?” It’s more expensive from a reputational standpoint than from a monetary standpoint.

I also think that a lot of these problems are in the process of being solved. A portion of the filing had an entire section dedicated to market surveillance. Every time the SEC has rejected a Bitcoin ETF, it has been because the SEC has claimed that the markets are manipulated.

I think the SEC coming after Coinbase and Binance is going to help tremendously with getting an ETF passed, because there’s going to be more regulatory oversight around exchanges. Second, BlackRock is introducing market surveillance for Bitcoin, and that should help with perceived manipulation in the markets.

The last point can’t be understated. Once this thing is approved, there are going to be a lot of people whose job it is to sell a Bitcoin ETF who probably historically haven’t cared that much about Bitcoin. There’s access to a lot of capital, which is why I think long-dated, wingy options are a very good trade right now.

It’s possible that once it gets approved, you get a stampede into the asset class. From a trader’s perspective, I’m a seller of ETH/BTC up until the moment the ETF is approved, and then I’m probably lifting as much BTC as I possibly can in the book.

ETH is under a lot of pressure right now because it’s lost the narrative, but that will shift at some point. I’m looking at 0.5 to 0.55 as a level to start scooping up ETH for the long term.

That’s a good way of thinking about it. Obviously, it’s exciting to imagine registered investment advisers and institutional BlackRock people going out and selling the idea of Bitcoin as a portfolio hedge and a diversification holding.

To me, what’s most interesting about it from the long side is that, if you’re an institution right now, what are your options to get long Bitcoin? Let’s say you’re listening to the 1000x podcast, you’re bullish on crypto and Bitcoin, and you don’t really care about alts. What do you buy?

You can buy spot, but that’s not capital-efficient. If you want to buy $1 million worth of Bitcoin, you have to spend $1 million and park it somewhere. Commodity futures and interest-rate futures don’t work like that; they’re much more capital-efficient.

You can go and buy some Bitcoin futures, but they trade 50 to 100 basis points over spot during rallies and then converge back down. You keep having this negative roll-down that eats up all your capital efficiency and then some.

If you’re a U.S. domestic finance company or a London finance company, maybe you aren’t necessarily comfortable trading perps on Binance. Then there’s GBTC, which is this weird thing that’s a little bit hard to understand. The discount is super volatile, and you’re not exactly sure how much Grayscale cares about its stakeholders or how much it cares about fee collection. You don’t know whether it will convert to an ETF.

Even if you assume the best, you have to prepare for the worst and assign a probability to the worst. There just aren’t a lot of good ways to get long Bitcoin in 2023, which is crazy.

A BlackRock ETF would be the gold standard for getting long Bitcoin. You could do it in a very capital-efficient, portfolio-margin way alongside the rest of your ETFs.

We haven’t been talking about alts at all on this podcast.

Zero talk about it, because I’m still under the impression that it’s going to be such a dead period for alts. I mean, how many alts are supposed to buy FUD? It’s just been—

Did you genuinely just lead off with Polkadot?

Polkadot is a particularly smooth downtrend versus ETH, so that’s why I started with that one. Solana is a little choppier, and you’d have a harder time hanging on to a short in that one.

I think Polkadot is—

I haven’t heard a single thing about Polkadot in—

Well, that’s just it. Look at the chart: Polkadot versus ETH on CoinGecko or TradingView. It’s the smoothest downtrend I’ve ever seen.

At what point in alt space do you say, “All right, we’re at peak FUD. Maybe it’s time to buy?” Could there be a scenario where the SEC just straight-up loses to Ripple and the judge says XRP is not a security? What do alts do then?

Then alts probably rip, but I don’t think they rip until that happens. You need retail to come back in, and retail is nowhere to be found. Institutions aren’t going to be buying any of this stuff.

The reality is that most of these things aren’t that useful. We’ve talked about this before on the previous podcast with Novo: we’re in the “show me” phase. Most of these things are not there. There are a couple of things that are obviously useful, and most of them are just trash.

You get to this point where you have to ask, “Who is going to be buying them, and for what reasons?” A lot of people in 2021 tried to make arguments that they were buying these for fundamental reasons, but the fundamentals have died on a lot of alts right now and probably aren’t coming back.

We’re in a situation where, until you get some sort of positive news about altcoins, you’re going to have pockets of outperformance. You’ll have specific alts that do well. For example, something like Stacks, which is tied to Bitcoin and is regulatory-compliant, seems to be how people are choosing to express alt beta right now.

People who would probably normally buy a large swath of alts are sticking to a smaller universe, which makes sense. There are going to be things that are useful. For example, you look at Arbitrum or Optimism, with EIP-4844 coming up, and those alts probably do well.

Maybe even something like MATIC. I don’t know if you saw recently, but its NFT drop with Nike is now integrated into Fortnite. That seemed to fly under the radar a bit. MATIC has been performing pretty badly, but it seems like there’s at least some organic traction coming up again.

I think there are going to be select outperformers, but in aggregate the complex probably doesn’t do particularly well. You probably don’t do well buying alts as a BTC-rotation trade until either ETH/BTC is at 0.35 to 0.40, in which case retail comes back in, or you get that XRP headline saying, “Hey, XRP is not a security.”

That game of alt hot potato that you would play in 2021 is probably going to be very hard to come by right now. You probably need to do some actual work and not rely on the work of others, because it’s very easy to get dumped on by Crypto Twitter. A lot of the alts that I see talked about very actively on Crypto Twitter end up being the worst-performing coins.

I missed altcoin season. I joined this market too late. It’s been Bitcoin season since I joined, and honestly, I think you’re right. You can’t just buy a basket—a market-cap-weighted basket—of altcoins and hope that works as a BTC-rotation trade.

Then you’re literally buying things like Polkadot, which are still high in market capitalization. These aren’t small ecosystems from a market-cap perspective, but from a relevance and potential perspective, they’re utterly irrelevant.

When you’re dealing with custody, there’s this concept of a qualified custodian. You want to keep your assets with a qualified custodian and make sure you’re adhering to the rules as best as you possibly can.

Let’s say you have a token in MetaMask, Fireblocks, or another custodian that isn’t technically deemed a qualified custodian. Compare that to a secondary transaction in private equity. You go out there and buy stock in Company A from an investor who invested in the Series A, and the company hasn’t raised its Series B yet. How do you actually own that? What do you actually own?

You basically have a bunch of signed contracts that may hopefully hold up and, in most cases, do hold up perfectly fine. But you essentially have an email chain and a bunch of documents with no version control, and maybe a ledger. Maybe they use Carta.

How do you know that you actually own this thing? The answer is that it’s a little tough. If you own a token in your MetaMask, you verifiably own that thing. You know that you own it; you are the holder of that token.

There are a lot of things about crypto that just make sense. I can very easily foresee a future where all private transactions and all public securities transactions are represented on the Ethereum blockchain, because it’s just a better overall system.

That doesn’t mean the SEC coming after crypto is killing crypto. It just changes crypto. What you end up with is probably something like Aave, Solana, or any alt that the SEC has said is a security simply having its token trade publicly as a security and registering as a security.

A security doesn’t mean illegal. It doesn’t mean fraud. It literally means, “Go register as a security.” There may or may not be some tokens that work as securities, and there may or may not be some tokens that don’t work as securities. There are definitely tokens that work as securities, and there are definitely tokens that don’t.

Some business models will die, some will adapt, and some will change. This is by no means the end of crypto. We’ve also been discussing this for a long time: the bifurcation of crypto into regulated, KYC, institutional-type crypto and the offshore, crazy, underground market of crypto. Both of those things are probably going to exist in parallel, and there’s kind of no way to stop that.

That’s probably a good thing. You’ll end up with bridges between the 2, but those bridges will be heavily regulated. Perhaps those bridges will have lower take rates than the bridges that act between developing and developed markets right now.

I’m just going to go back to commodities, because that’s my comfort zone. Trading houses like Trafigura and Vitol act as intermediaries between places where there’s a surplus of commodities—which are often places where JPMorgan won’t do business, like Iraqi Kurdistan or Chad—and places where there’s a deficit, like China, where JPMorgan won’t do business, or France, where it will.

Frankly, those intermediaries get paid spectacularly to intermediate. Because they’re regulated and legally compliant, I think blockchains fulfill similar functions. You can have certain chains that are popular in markets that are less friendly to American regulatory oversight, and other markets that are very compliant. You’ll have very regulated bridges between the 2, with lower take rates.

What you mentioned about some tokens just being securities—and that being fine—I couldn’t agree more. You have exchanges like Nasdaq that can list both securities and non-securities, like commodities. There are already venues that can list both types of products.

You could have Bitcoin and a token that’s a security on the same exchange, with the same liquidity. In terms of the business models to your point about certain business models changing or getting disrupted, maybe the exchange landscape looks a lot different in 10 years as a result of this regulatory picture.

Maybe you end up with Nasdaq, EDX—the new Citadel and Fidelity thing—or one of these other new venues competing with Coinbase and Binance. It feels like there’s room for a new player or 2.

There’s definitely room for a new player. I don’t think it’s a coincidence that all this regulatory action is coming out now.

Look, we just tagged $30,000.

Let’s celebrate and sell everything. Now we can drink this glass of water, maybe something else later.

I’ll finish my coffee.

It’s funny. There’s a book behind me right now called The Alchemy of Finance by George Soros, and basically I can sum up the book in 1 word: everything is reflexive.

That didn’t sound like 1 word, Avi.

The 2 words are “everything” and “reflexivity.”

I think that’s very true right now. The more Bitcoin goes up, the more people believe the ETF is going to go through, and the more people buy Bitcoin. The more people buy Bitcoin, the more they believe the ETF is going to go through, and the more pressure BlackRock is probably going to put on the SEC to get this thing through.

It’s a sort of virtuous cycle right now. The only thing that has made me a little nervous about this rally is that the equity markets have gone the opposite way. The Nasdaq is down 1%, and the S&P is down 50 basis points, so I’m keeping a close eye on that.

Coins have a lot of catching up to do with the Nasdaq, which took off and left Bitcoin in the dust. That’s why I’m not as worried, but I am keeping an eye on it.

There are a couple of interesting bullish data points out there. We have a macro team that we pay attention to.

This happened on the last inflation print in May: if you look out 1 year from when the Fed funds rate crossed over the last inflation print, the 1-year return from the S&P was 13%, and the 2-year return was 31%. The 2-year return of 31% compares with an average of, I think, 15% over the period that the study tracked.

There is some evidence of general bullishness in the market to come, that we have inflation under control, and that this sets up a very nice environment for Bitcoin to tag $40,000.

That being said, I’m still a seller on the headline that the ETF is approved. I’m definitely a seller and will try to buy back in a little lower.

Me too. I’m not saying that as a headline trade, so take all of that with a grain of salt.

It’s pretty cool that it just tagged $30,000 in the middle of the podcast. That settles our bet from the previous podcast—or several podcasts ago—where we said, “Is it going to hit $24,000 or $31,000 first?” We both said $24,000.

And here we are, trading at $30K. I think you're supposed to sell a BlackRock ETF approval headline as well, to be covered a bit lower—a tactical type of trade. Over time, in general, when thinking about pre-positioning for fairly well-telegraphed headlines and events, I have a fairly bad track record of it in TradFi, but in crypto it seems to work.

I think the reason is that everybody and their mother knows the halving is coming next year. Everybody's probably right that BlackRock will get its ETF approval eventually, at some point. Sure, you can get long ahead of those things, and in TradFi you would. The markets would price it in almost immediately, and then when the event occurs, it's kind of a nothing burger.

But there just isn't enough capital in crypto to pre-hedge a halving event, right? Think of the amount of dollars it would take to buy Bitcoin up to the net present value of Bitcoin, where the amount of miner selling is halved into perpetuity. That amount of capital just doesn't exist. The amount of capital that could flow into Bitcoin seamlessly with a BlackRock ETF—there isn't that amount of capital in Bitcoin right now.

So the market can't trade to where it should go after all of that buying has taken place. I think crypto being a small market, relatively speaking—of course, it's still a megacap asset, but it's a small market—makes it easier to trade ahead of these events that would normally chop you up in TradFi.

Yeah, I'd agree with that. I also—and this is just reflected across the spectrum in crypto—there are a couple of things that happened in the last week that reminded me how slow the market is to react to things in crypto. One is that GBTC didn't have its crazy move until the Monday after the BlackRock filing was announced. I think there was a big reason for that, basically.

You could make the argument that I made earlier about how GBTC could trade down quite a lot if they acted in their own best interest. But what really sent GBTC soaring was the rumor—unsubstantiated thus far, but circulating on crypto news sites and Crypto Twitter—that Fidelity was going to buy Grayscale, or was looking to buy Grayscale. Do you think that was real?

I think it was just—yeah, that hit the tape and it just ripped. I think it was a little bit of both. I think it was people reacting slowly, learning about it over the weekend, and then coming in on Monday and making their bets.

The other thing that's interesting is the miners. I talked about this, I think, 2 podcasts ago at this point—how bullish I was on miners for 2 reasons. One was transaction fees; the other was the pivot to AI that was coming. By the way, every miner is now pivoting to AI, and people just didn't seem to appreciate this.

Hut 8 was a great example. They signed a contract to provide HPC on June 14, and then 2 days later proceeded to rocket. This was actually before Bitcoin rocketed, so people just aren't paying attention to the sector at all. IREN is pivoting to AI. They have a lot of chips, and they're going to rent them out to people who want to train models with them.

Well, yes, but it's not about the chips because it's a completely different business. You need a specific type of chip, but it's more about the facilities and the access to people who know how to build out those services. For example, cooling is important in both Bitcoin mining and HPC.

They have all of that set up: the people who know how to build out those services, the warehouses and facilities, and the power contracts. The actual product is radically different and requires a decent amount of upfront investment, but the overall operations are very similar.

A lot of these miners, like Hut 8, IREN, and Cipher, are going out there and saying, “Hey, we're just going to repurpose some of our facilities to provide HPC,” because it seems like there's a tremendous amount of demand. They're diversifying the business and generating more revenue. Hut 8—I mean, since I mentioned it—is up a ton.

Let's work through the mechanics of this a little more for the listeners. I'm going to pretend it's just for the listeners and not for me, even though I'm curious, too. Okay, so a miner pivots to AI. What does that mean exactly? Let's walk through the sequence of events. They start using some of their people and facilities and hardware to—

That's the key—not hardware, because the hardware doesn't transfer. You can't provide HPC with ASICs. ASICs, again, are application-specific.

Okay, so no hardware—it's in the name. What does that do for hash rate? What does that do for miner selling? Why would that mean less miner selling?

It doesn't mean less miner selling. I just think it's good for the miners.

I see. So you're talking about a trade for miner stocks. You're not saying, “Hey, resources are going to get diverted away from core activity and there's a stock underweight?”

I don't think it has any impact on Bitcoin's price, other than—in equities, it may have an impact on Bitcoin's price in that it makes mining companies healthier, right? If you have diversification, you have less of this potential for selling on the way down in the future.

That's something I hadn't actually considered until you asked this question, but it's possible that miners, moving forward, will get liquidated less often as they become better and more robust businesses. It would make the market healthier, for sure.

It would also tell the world, “Hey, look, crypto has provided a series of infrastructure plays that are relevant outside of just crypto.” To me, I think there are a few examples of that in crypto, and miners being a new one would be good for the space, frankly, as opposed to just this energy narrative.

There is a market for energy-consuming compute—purpose-specific computation facilities—outside of just 1 application. That 1 application sort of laid the rails for other applications. I think that would be a healthy narrative, frankly.

I think so.

Yeah, I think that's a reasonable takeaway. But these types of things seem to take a while. The main point is that these, especially these TradFi-based narratives, seem to take a while to really percolate. Crypto seems to move very quickly because there are a lot of people watching crypto, but in TradFi it takes a while to percolate.

Jonah, there are opportunities for crypto-focused investors to trade the TradFi-linked assets—these trusts, Grayscale, maybe BlackRock, mining stocks, Coinbase stock. There are all sorts of opportunities out there, and in order to get it right, I think that is a pretty substantial source of alpha.

Yeah, I think we've had a really good discussion today.

Likewise. Always great catching up with you.

I appreciate Bitcoin deciding to rip through $30K on the podcast.

It's still ascending.

I know, it's still ascending. What a move. What a good day. I mean, we're all feeling pretty dejected a couple of weeks ago, and now everybody's euphoric again.

I know. I hate it. I like feeling happy when everybody else is dejected and I can start buying, and then I get really nervous when everybody gets euphoric.

Anyway, we'll see how this goes. Good luck out there, everybody. This is not investment advice. Crypto is risky, tokens are risky, and crypto-linked securities are risky, so be careful, do your own research, and we'll see you again in 2 weeks. Thank you.