与 CMS Holdings 一起赢在 2024 | 1000x

People have to buy their sports cars or whatever their chalets or whatever the hell you want to spend your money on.

Looks like Dan's rocking a Peloton back there.

Oh, yeah.

Dude, yeah.

Is that where the money went—the Peloton?

Yeah. And then, actually, I have a dinosaur in a crate.

Right. Is it real bones, or what are we talking about?

Oh, yeah, it's a fossil. It's like a fish.

We were debating before the show. We were like, “Dan's a real OG. Does he have a tungsten cube? Does he have a Lambo?” But you have a fucking dinosaur fossil. That's pretty dope.

All right, sweet. Welcome back, everyone, to the first 1000x podcast of the new year. We have a great guest, Dan Matuszewski, one of the longest-tenured crypto traders around, someone who's managed to weather the highs and the lows and stick around despite all of the ridiculous fatigue and silly things that happen in this space.

We're recording right after the SEC—about a day after the SEC's Twitter got hacked—and we had some crazy moves in the market. Dan, is that one of the top 5 stupidest things you've seen in crypto? Top 10, top 20?

I think it's top 5. It's top 5 because we're finally on the big stage, right? Every news—or at least every financial news organization on the planet—the headlines were just about it, right? You had senators tweeting at them.

I don't think any of that stuff will matter, but we just, as an industry, look like clowns. The SEC looks bad too, but of course we wouldn't be able to go through this like adults.

As an industry, I would argue we've looked like clowns for some time now, with FTX turning into just the greatest scam since Bernie Madoff and all the other horrible things that have happened. How have you managed to weather these crazy cycles and keep your head screwed on right? I think all the traders out there want to learn how you don't burn out amidst all this craziness.

1. Surviving Exchange Failures

The FTX one in particular, I think, was just that we had learned a lot of lessons a lot of years ago. So nowadays, people think about exchange exposure more than they did before FTX, but really, we got into a lull probably starting in 2020, where people kind of stopped worrying about venue risk. There was that brief period where OKX froze withdrawals and people got a little spooked again, but that didn't really affect U.S. people as much.

There hadn't been a big exchange failure in a while, and people got complacent. But back in the day, when we first started doing this—when I first started trading this thing—exchanges would go down every 6 months. They weren't really sticking around, so you definitely didn't keep more on there than you had to.

One of the things that we have as a best practice over the years is that we try to diversify exchange venues as much as possible, as much as you can, and really just keep an amount of money there that you won't get obliterated if you lose. We had money on FTX; we got popped. More likely than not, if any major venue ever went down, we'd have some exposure to it, but it was all an amount of money we were able to lose and continue to operate.

In dollar terms, it ended up being fine, whatever the risk angle that people are complaining about now. Everything went up, and you sort of got blown out at the lows. The long story short is that we picked up habits from doing this for so long that we're able to keep going, even when stuff gets pretty dark and you have exposure to it.

The counter to that is that if you diversify your exchanges a lot, you always take a hit whenever one goes down, right? You do have this tail risk of always getting clipped a little bit whenever these things blow up. We even use some mid-tier exchanges sometimes, and they go down more. We've lost a couple of those probably since we started CMS, and they were just a figure that we were always willing to lose.

It sucks. I didn't want it to happen, but it is what it is. There's a cost of doing business with counterparty exposure in this. I think that makes the returns on the liquid side sometimes look rosier than they are because people don't price that risk into it. I think a lot of people learned that as LPs in liquid funds this last cycle, when funds just got toasted because their exposures were so high on some of the venues and whatnot.

That, in particular, has helped. It's one of these things where, when you do this long enough, you start running up against all these scenarios, and hopefully you survive them and keep going through it all. I think I had the fortune of starting when the money didn't matter as much and the numbers were small, so you couldn't really hurt yourself enough to be out of the game.

When did you start?

I started trading this thing professionally in 2013. I was messing around with it in 2012, and then, in that first run—I don't know if it was Q1 or into Q2—when it ran up to 1,000 in 2013, I was like, “All right, I'm going to give this a go.”

I went to work at Kraken, actually, even way back then. They'd just gone live on the whole thing. Jesse started that in 2011, but it took him a bit to get it going. That was my first foray into taking a job in crypto.

Did you have a finance background before that?

Yeah, I was working at a hedge fund. I was doing more of the programming side of some of the automated trading to hedge the deltas for an options book that I was attached to. It was mostly a vol fund that was a little south of Boston.

I was pretty junior there, so I didn't have a ton of responsibility, but I had learned enough from the guys there. I was there for probably 3 years, so I knew enough about markets to understand that aspect of it. I had a technical background, which helped a little bit, but not a ton.

Back then, basically, you were going into a market that had negative infrastructure. There was nothing, right, in terms of actually accessing the market.

It would just not be there in 3 months, or it would just disappear. The methods for transferring money were weird, slightly gray-area if they were even allowed to be operating. There were all these odd payment processors that would take the action, like Skrill and LocalTill.

It was definitely a weird market. It was a little more nefarious probably at that time. Silk Road was big, and it was definitely huge as a function of the aggregate volume going on. It was a little seedier than it obviously is now.

As the industry has gotten bigger, that's sort of changed. The characters were way more colorful back then because, if you were really into it, you were definitely a little further on the belief spectrum in a lot of different ways. Those people have kind of gotten washed into the whole crowd as time's gone on.

Yeah, we've definitely professionalized the industry a lot over the last 6 or 7 years, but it's still—I think Spreek had a hilarious tweet—this is still not a serious industry in many meaningful ways. It's just the people, the characters, what we do.

You look at half the things that people get up to in this market: What shitcoin is going to pump? I'm going to buy it before everybody else and then sell it back to them, and this thing's probably not going to exist in 2 years anyway.

Yeah, but part of that is value, right? I think people knock it, but I think a lot of the—look, this industry does have some entertainment value, and I think it has a way of sucking you in. You don't leave because it is a little addicting: the information flow, the communication.

It is fun, and I think that matters a lot. That's some of the value it has: It maintains and keeps a pretty wide, large group of people involved in it at all times.

Oh, yeah. Crypto's like the best video game that's ever existed in the history of video games. It's amazing. Now you have all these tools to play the video game.

You spend all your time on DEX Screener, poking around, or looking at order books and flows, and it's just... Yeah, there's a huge addictive quality to it, and at the same time, we're in an industry that we think is going to change the world over the next 10 to 15 years, which is super nice. But being on CT is just like watching a movie day in and day out, right? It's amazing.

A really neurotic movie.

And it's bottomless. You can start poking around in different areas. You can go look at 1 aspect of it and just be down the rabbit hole for days, then pop to another. You can never consume the entire universe of information at this point.

That was actually the thing that was kind of a hard transition for me. I felt that back in 2017 and 2018, I could cover basically the whole industry myself. There were obviously a ton of things going on, but you could sort of get a handle on most things. Now, when I'm on CT or looking at new stuff or my analysts are bringing me things, I've never seen this before in my life. I have no idea what this is. I don't even understand it at all.

Then you really have to spend time to get into it. The industry has definitely grown in terms of width, in terms of what 1 person can manage and trade effectively. You kind of need a team now, in many ways, if you want to cover the whole breadth of it.

Yeah, you can't possibly absorb all that's going on. There are too many aspects. Maybe in the depths of the bear market, when it's slow, you can grasp it, but definitely not now, when stuff's flying around.

2. Running a Crypto Trading Firm

How active are you, Dan? Do you have a whole team, or are you constantly trading every crypto sector? Are you running it lean and more trying to time things and get in and out more slowly?

I think we're probably skewed toward the more active side of the house, both personally and as a firm compared to others. How many are we now total? I think we're 11 total, spread between a couple of different cities. Mostly New York and Boston, then a bunch of guys remote.

We definitely do a fair bit of stuff in the DeFi angle of things too, whatever you want to call it. We're always banging around on new stuff and trying to get yield for assets we have. But we're pretty active on the liquid side. We're less active than when we started, but we still trade every day for sure.

We pump out a lot of liquidity into some of these newer protocols, specifically DeFi, DEX, and derivative protocols. We try to do a lot there where we can, and we run a fair bit of automated trading. We keep a lot of in-house programming and tech talent, and we have guys who just do dedicated DevOps, running nodes and staying on top of all that stuff. So, I don't know, we're pretty active on that front.

Then we have a co-invest that just does the venture. So we run the gamut a bit, but I tend to focus purely on the liquid side of things.

3. How CMS Survived 2022

This is the first time I've ever met you. I've heard about you ever since I got into professional crypto trading. You guys—you and Bobby Cho—have a reputation for having started a spray-and-pray fund at basically the best possible time, then basically riding that massive 2021 wave and somehow not getting blown out by the sell-off, probably just by actively trading, managing risk, and using some of the techniques you just mentioned.

We got lucky too. I want to be perfectly frank there. The history's always told by the survivors, but we zigged and zagged in a couple of the right spots in 2022, which very much helped.

Tell us some stories. You guys threaded the fucking needle. Almost nobody managed to do that. You were in that sort of top-5, top-3 fund category in 2021.

Literally everybody in the top 20, I think except you, got immolated spectacularly. What were you doing? Tell us some stories.

Yeah, we got a little lucky, first off, because the way we're structured, we have a pretty gross tax burden. It's all pass-through income, we all live in places that are very high-tax regimes, and most of our stuff is short-term capital gains. So we basically have to sell half our P&L in any given year just to cover the tax—in a good year, right? That changes depending on the breakdown, but that's the rough math.

2021 was such a phenomenal run that we started prepping for the 2022 tax hit. We would make estimated payments, but not huge ones, and you don't know what your P&L is going to be, so it was pretty much all going out in Q1 2022. We started basically de-risking and taking a bunch of money off the table at the end of 2021 just because we had to, because we were going to have to pay that money.

So that was lucky, really, because we just knew. I had seen enough people get obliterated in 2018 from not having their tax money together in 2017 to know that if Q1 is bad following a good year, you have a real problem, because you're fire-selling assets, maybe at the level where you can just make your tax payment. Anyway, that was the first lucky thing we had: we had the cash on hand, and we had set aside the money from bonuses too, just to get ahead of that. We could make the payments we needed to make in Q1. That was all right, and it didn't force us to do a ton of stuff in the beginning.

We also had taken some risk off the table from some larger positions by using the borrow/lend desks. It was lucky that we structured them as term loans, so they didn't get called in the open market. We didn't do well: we took a lot of deltas down, and a lot of our book just got smushed. But we had taken enough risk off the table that we had bullets on the way down, and we were also able to keep paying and operating everything. There was no disruption of payroll. We let a couple of people go. I mean, look, you get aggressive hiring in the bull market, and you have to clean it up in the bear market. But for the most part, we kept the majority of the team through.

I will say the 1 thing I didn't anticipate, which I learned, was that we were very active with most of the bilateral lending desks: Celsius, Grayscale, and BlockFi. We had even made an equity investment in BlockFi. We were big players with all these guys. What I didn't really think about, which I should have, is that if 1 lender dies, they all die.

I knew it was very daisy-chained, and I knew there were really only maybe 10 people who accounted for 90% of the borrow, but I guess I just didn't factor in how bad that would be to unwind. Part of the problem we ran into in 2022 was that a lender would blow up, and we'd have to close all of our open-term loans with them. But by the time we were done with that, the next leg was falling and that was getting called in. We were just constantly paying back borrow and having to close things. That sucked, and in retrospect, that was the biggest thing we could have thought a little bit more about but just didn't at the time.

In the bull market, you get sloppy and lazy, and you don't think about what happens if it goes bad. But that was a real headache going on behind the scenes that I don't think people really understood. You had a 4-month window where every dollar of open-term borrow got called, and it was hard for people to get all that together. A lot of that money had been wired out into venture, and people just kind of assumed they'd always be able to borrow it from somewhere, and you just couldn't.

The market went to zero. The credit crunch that happened was wild. It just went to nothing overnight. By overnight, I mean 3 or 4 months, but it just happened, and it never came back. It still really hasn't come back. So that was a big bogey that we didn't really think about on the way down.

Yeah. The thing you said at the beginning, I think, is actually a huge source of alpha. You said a lot of people are in that position where, when they make a ton of money in a given year, they have to cover their taxes, which I think is why you see crypto so often top in January and February, as people are paying out their taxes.

Everybody calls that a meme, but after the cycles, that's just what we see.

I mean, that money's gotta go, right?

But it's gotta go. It's gotta exit, and people have to buy it. People have to buy their sports cars or, you know, whatever—chalets or whatever the hell you want to spend your money on.

Looks like Dan's rocking a Peloton back there.

Oh, yeah.

Dude, yeah.

Is that where the money went—the Peloton?

Exercise cycle.

Yeah. And then I actually have a dinosaur in a crate.

A dinosaur? Right. Is it real—like, bones—or what are we talking about?

Oh, yeah. It's a fossil. It's like a fish. Yeah.

Oh, wow. We were debating before the show. We were like, “Dan's a real OG. Does he have a tungsten cube? Does he have a Lambo?” But you have a fucking dinosaur fossil. That's pretty dope.

I know.

That's pretty dope.

I have a big tusk in the basement, and the guys are downstairs. On the main floor, we have everybody in a ring. We took an old townhouse and turned it into an office, so I'm in the upstairs room. Remember when we went to buy that dinosaur in France? Do you remember this whole thing?

No, I do not remember.

This was the peak of 2021. This was November. You could mark the calendar with a pen to the exact top. Anyway, when we did it, a bunch of people got together and organized it to try to buy this dinosaur. We ended up getting smoked on it. It ended up going way higher than we thought it was.

We sent a guy to France, and we had to pay a deposit in euros to be able to bid. I forget what it was—it was a couple hundred thousand euros to be able to actually participate. That was how you could prove you're real. The guy we sent, Jack, who's our CFO, was there to do it, and he got smoked. The auction went way higher than we thought it was going to go, so we didn't stand a chance. But at the time I was like, “Look, you're there. I don't even want to figure out how to get this money back. Just burn the deposit, because they have other stuff they're selling.”

So he got a bunch of random fossils. This thing is 10 feet long, which we didn't realize, and it's 800 pounds, so we have nowhere to put it. We were like, “Oh, we'll put it on the wall,” but it's fucking rock. It's a big rock. It's still in the rock, so it's way too big. It's just been sitting in the crates here for a year.

And this—what is it? You said this is a fish?

It's a 10-foot prehistoric fish.

That's incredible. We gotta get a picture of this thing once you actually put it together.

To be fair, I haven't opened it, so I don't even know if it's in there, but it should be. I don't have anywhere—I don't have a single piece of wall that will hold it. I don't even know if I could structurally hold it. So anyway, that's sitting in the case.

And this is why crypto sells off. Crypto sells off because people take their money to buy prehistoric fish and pay taxes. So I think maybe we can build an index for this and for credit crises. I see this happen over and over in crypto. When you have just a complete amount of froth in the market and people are doing absurd things with their money that they never thought they would do otherwise, that's always such a good signal.

Well, Dan's on cycle number 4 now, so by then he's earned the license to buy some prehistoric dinosaur fish.

I mean, I guess Dan's a fossil himself in the crypto industry, so might as well have some fossils.

4. ETF Flows Will Reshape Crypto

Do you think we're in froth mode right now, Dan? Or do you think this thing is just gonna send after the ETF launches?

This one's hard, so I'm going to say this: I don't have great insight into what's going to happen over the next couple of weeks. If they reject it, it's going down. But assuming it's going through—which seems to be the consensus, and people smarter than me in that world think it will—I think it's going to be noisy for a bit.

Just because this thing exists doesn't mean people are going to move immediately. TradFi moves at a speed that's a little bit slower. So I do think that even if people want to put that position on, it's not just, “Day 1, boom, get me.” There'll be some of that, and that will matter. Retail is a force, so they can come in and rip this thing.

But I think you're going to need a couple of weeks to a month until you get a good idea of what baseline flows are going to be. The back of that is that there's going to be sustained inflow, and it's going to matter. It's going to be good, and it's going to be net cash moving into the industry as a whole. So I think it's going to be a big tailwind.

You also have a halving, which matters. I think it's going to get wilder toward the end of the year. But in the next couple of weeks, I don't know. I don't have a bet. I don't really have a good plan. If anything, if it gets smushed, we'll try to grab some, but I don't have a good plan other than that.

It's way out of my wheelhouse to know how this stuff's going to move. I don't have real conversations with people who would be putting money in this thing. I'm guessing.

But do you think so? I mean, one thing that the market was talking about a ton is that right after the fake tweet from Mr. Gensler, ETH/BTC just ripped. It ripped super hard, and it seems like people are very under-positioned for that in general. Are you thinking of getting long ETH after the ETF, or what do you think in terms of rotation placement?

Yeah. I think there should be some reversion there, right? ETH/BTC has just gotten so shellacked. Also, do you remember when the CME futures launched and then the next month ETH/BTC tripled? That was the bottom to the second. I think a lot of people are looking at it the same way.

If you put a gun to my head, ETH/BTC trades higher on the back of this thing and drifts up. That would be my guess.

Why do you think ETH is so cursed?

I think it's the easiest, most liquid thing that you've been able to sell against Bitcoin for a while, so people who want to get longer have probably done so. I think that's just the simple answer. It's harder to sell the other basket of alts. You also would've gotten carried out in it as stuff bounced.

I just think that if you were like, “I need to—I want to get longer Bitcoin,” selling ETH against it was probably the trade for the last 6 months.

I think we're seeing that market dynamic shift a bit. If you remember, back in the last 3–4 months, every time ETH/BTC would rip, the entire alt complex would sell off because it was super clear that everyone was long the alts against short ETH. This is actually the first time that I'm seeing ETH/BTC up 2.5% and alts are actually doing okay relative.

It seems like people are starting to work out of that position, and that should, in theory, be helpful for ETH/BTC. So load up on your Lidos, your Arbs, your Optimisms, and just close your eyes and wait. But I don't know. The tough part is that if this is “priced in” and BTC tops out, how long do we get a rally? I think that's the tough part.

Yeah. I don't know. I'd probably guess it's a couple of months. I don't think it's going to be the whole year unless there's some real change—unless activity on ETH goes through the roof, your burn gets so high, and this whole thing starts to feed on itself.

Is that something that you actively trade? Are you putting on these positions to try to capture these moves?

We'll trade ETH outright. We don't trade the spreads of things, like SOL-ETH or AVAX-SOL. We just don't do a lot of pair trading. I've said this a bunch: I wish there were a real index product for the top 50. I don't know how you'd do the weighting so it wasn't just Bitcoin, but something that you could use as a generic hedge of exposure.

Absent that, sometimes we'll go long alts and sell Bitcoin and ETH against them, basically 50/50 most of the time, or whatever we have lying around that doesn't have great yield. But for the most part, we're not taking exotic pair-trade bets. As the ETH-BTC cross itself, we don't really trade it. Yeah, what's up?

You mentioned earlier that the combination of the tailwind from ETF inflows plus the halving is absolutely massive, and you're expecting a bullish second half of the year, Q4. Like, so am I. I'm so ludicrously bullish that I can't see straight, and what I can't figure out against that backdrop is: if you have this steadily rallying benchmark asset, what are you supposed to rotate into for the beta plays?

I'm so bad at this, and you guys have more experience than me and are more plugged into the market than I am. Dan, I want to ask you: what sectors are you looking to play for the bull market that you see coming? What are you rotating risk into, or are you just waiting for now and going to try to get into the higher-beta stuff later?

The way we generally try to play this stuff is that you used to own Bitcoin and ETH when they rip, and then, when they flatline, things spray out into the most liquid alts. That's mostly the other L1s. Now you definitely put the L2s in that bucket, too.

Call it the top 5 other L1s, plus ARB and OP, and pick a couple of others if you want. Basically, it's stuff that's pretty liquid but definitely higher beta. The thing was, this time, ETH just didn't do that, right? Bitcoin would just rip up, flatline, and then the rest of the alts would rally.

That's generally how we look at it: you see the cash move in and real money come through in the majors, which has just been Bitcoin and ETH, and then you wait for the stuff that's going to spray out. The longer tail of stuff will rip, too, but there are capacity issues once you start getting outside the other L1s, depending on how far out you want to go.

Also, weirdly, the inflows that are about to come in are going to come in on TradFi rails, and you can't take your BlackRock Bitcoin ETF and diversify it into BONK, right? There's no mechanism to do that. Maybe Bitcoin will just outperform everything else this cycle. I don't know how to think about it.

Yeah, but if you think about it, Bitcoin is getting bought on a cash exchange somewhere by a crypto-native person who's now getting cash, right? Then they're going to take those bullets and do something with them. I think that's the way I generally try to think about how it moves through the system.

Yeah, maybe. At least some percentage of the Bitcoin that's getting bought will indeed rotate into something else. That's a good way of thinking about it. I was assuming that, in the past, when there were big Bitcoin inflows, they were going onto random exchanges, and then eventually the people holding those Bitcoins would get bored and rotate out the risk curve. But no, you're right. You're absolutely right.

What is actually going to be super useful is the ETF becoming a marginable asset inside brokerages, as opposed to GBTC. I think there's only a couple of people who will lend against it. That's actually super useful for people who can use their Bitcoin as a lending product again, right? You can borrow against that pretty easily.

Yeah.

Yeah, it becomes a much more useful asset. Just like, overnight, Bitcoin becomes so much better to buy because you're not tying up capital that you can't do anything else with. That could actually lead to another credit-boom cycle.

Schwab or Fidelity will give grandma leverage to buy the BlackRock Bitcoin ETF, too, so you don't need to try too hard to imagine scenarios where people get pretty levered long.

Or you could have 100 Bitcoin worth of shares of the ETF, and now you can use that to get a margin loan to buy a house. It's so useful having that thing, unlike Grayscale's version of it.

Yeah. Grayscale's version absolutely took out some of your competitors.

I can't believe the wrecking ball that that thing caused. We got hurt by it, too, right? When that borrow was getting called in, we had some of that spread on, and it just torched us. There was nothing you could do about it, either.

That's what I was saying: with stuff like that, there wasn't a ton you could do to avoid it. The thought was always, “All right, if BlockFi fell down, I'd just go borrow it from Celsius or Genesis.” The problem was that everybody was dead, so you're like, “Fuck.” There was nobody to go to anymore. Unless you could find something bilateral, nobody wanted to face anybody anyway, so it didn't matter. I don't know.

5. Staying Sane Through Crypto Cycles

After hearing that, honestly, how do you keep your head in the game? This is something that I work on a ton with myself, and I don't really have a great answer. This market sometimes just takes you out and slaps you around, and being able to keep your head in the game is difficult.

So many people make a few million bucks and check out. It's like, how do you keep your head in the game? You're like, “All right. I'm going to get back on. I'm going to keep attacking this. The bull market's around the corner. Let me stay on top of it.” Do you take vacations?

I got nothing else to do, so that helps. No, I say this a lot, definitely to guys who are younger: there are going to be periods where it's terrible. Just take that time and do something else. Because 100% of the time in a bull market, you just start letting other aspects of your life fall to shit, right? You don't keep up with friends. You're not talking to your family. Your health is suffering.

Use the down periods, when there's nothing going on and the chart's terrible, everything's just getting cratered, and you have a position. Use that time to get your life in order, because you're not going to get it when things turn. You have to be really good about your time management. I think that's something you take a couple of cycles to figure out.

When it's slow and bad, like all of 2022, you could basically have gone away and fucked off, and it wouldn't have mattered. You would've come back and everything was the same price it was when you were there, and you didn't miss a damn thing. Use that period when you can, if you have the resources, obviously, to get the other aspects of your life squared away. I think that's a big takeaway that I've gotten over time.

Otherwise, you've got to remember that when it's the worst, when everybody's getting blown out, that's when the opportunity is. Just chill. You don't have to do anything. This is also why we don't use a lot of leverage. Even though we were very active with the borrow, and we obviously have used leverage, we try to avoid it.

We try to do it not as just an outright loan, but leverage causes an issue of time. Suddenly, you have to have things happen, or at least it adds a clock aspect to it. If you could just not do anything, it's great. Then just don't fret. Just chill. People get overworked. I think it's because the industry is moving so fast that everyone feels they need to be doing something at any given time.

6. Crypto Still Has Real Utility

Do you still believe in the industry as much as you did on day one? You mentioned earlier in the podcast that, back in the day, in 2013, there were real crazies, real believers.

Are you still a real believer? And if so, what do you see this transforming in general? I want to hear your philosophy.

I still buy the idea that stateless money is a very big, important thing, and I think the ability to just send value to whoever you want is super useful. I think stablecoins are also a massive leap, and I think they’re a huge tool.

That being said, I think the industry has become more of a casino as time has gone on. Not that it wasn’t in the past—it was just a smaller aspect of the flows. I think it just dominates now, and people don’t even try to hide it. I don’t think it’s necessarily a bad thing. I just think it is what it is.

I agree. Casinos in real life kind of suck, but look at BONK. Your odds are way better than double zero, right? And it’s probably more fun, and you get to tweet about it.

Yeah. And you get to be part of a community, which I think is missing.

Yeah. People want to be part of something. Like I said, I don’t feel strongly either way about it. It has definitely become a bigger portion of the ecosystem, basically every year since 2017, once ICOs started to kind of never come back.

Do you think, to the serious people out there building on crypto, there’s anything valuable that’s going to get built that we’re not paying attention to, be it games, real-world assets, DePIN, or any of the shit that people are talking about these days? Are you focused on any of that?

I don’t know. I tend not to give it a ton of thought until it’s too late, and that’s fine because most of the time it’s just been a fade. I was even skeptical of stablecoins for a really long time. When Tether came out, I was like, “This is stupid. Why wouldn’t you use dollars?” And then as time went on, I was like, “Ah, this is why.”

I’m probably just irrationally pessimistic about things initially. But you’ve got to remember, there have been so many cycles of this stuff, right? It was STOs, then remittances, and every 2 years there’s a new thing. Those have generally just been a fade.

I honestly like that. I like that approach because I think that’s how you see the market with clear eyes: when you recognize that there are tailwinds to this, that useful things are probably going to work. But at the end of the day, we’re traders, and we’re just here to make money. We’re here to focus on that. We know that this is the most inefficient market we’ve seen in our lifetime, so let’s figure out how to take advantage of that in the biggest way possible.

I actually think that if you focus too much on the fundamentals, you just get lost in the weeds. It’s about, “What are the good trades? How do we make money?” I know it sounds kind of silly to be like, “All right, we’ll throw out the fundamentals,” but it’s true. I’ve just seen so many people in crypto get sidetracked by that.

Yeah, I don’t know. Maybe I’m just not smart enough to be in the weeds thinking about the ramifications of all this stuff. Here’s an example: real-world assets. I cannot square in my head how that’s going to work in crypto. Maybe I’m wrong and people just figure it out, but in my mind I’m like, “I don’t understand how these two are going to jibe.”

Would you buy it on a narrative? “Real-world assets seem to be gaining traction among the community of short-term investors. I’d like to get ahead of that before it migrates from Telegram to Twitter, and then I’ll pitch it back out when the thing goes parabolic.” Do you do those short-term meme or narrative trades, or not really?

It’s more like, “All right, this real-world asset thing is flying. 3 names have tripled. What are the other names that haven’t, and why should we own those?” That would be more what we’d do.

Smart.

We’re just not early enough to catch the whole thing. We’re reactive.

But you did do a ton of VC in, I guess, 2018, 2019, and 2020, during the doldrums of that bear market, right? And then you 1,000x’d a bunch of shit.

Yeah. A lot of that logic was just that tokens had become very out of vogue. There was a period in 2019 and 2020 when it was, “Tokens are worthless. Equity is the thing. This was all a joke.” And we were like, “I don’t know. I think people still like tokens. I think they’re going to like them.” So we were just doing it.

We also did very well out of the gate, and we were financing everything we were getting a look at for a period because we had so much money coming in from the trading side that we just kept cutting checks. That was also just luck—we had a lot of things happening at the same time.

Part of the thesis was that we had a lot of excess capacity. We were new and hadn’t done a lot in venture anyway, so we figured, “Let’s just see where this stuff goes.” Then we caught a period when there had been massive underinvestment on the token side of things.

I honestly think we’re sort of in that period right now. I wonder how you’re thinking about venture right now. It seems like prices haven’t necessarily caught up with what tokens are actually doing. Right now, I’m still seeing deals for $15 million, $20 million, or $25 million that probably can come out at $50 million to $100 million if the market stays hot.

I actually think that seems like it’s a good time to start the spray-and-pray again, from my perspective.

I’ll tell you something that’s been interesting, and I didn’t even really understand that I didn’t understand it: how much building other primitives on Bitcoin is happening, and how hot that is in Asia. There’s a whole market that’s big and relatively cheap on the venture side that we’re just ignoring here. That’s everything they’re talking about.

You saw this happen, right? A couple of these tokens roofed and went to billion-dollar valuations, and nobody had even heard of them here.

Is this really all coming out of Asia?

That’s as far as I see it. One of our guys was over in Hong Kong for a month, and he was like, “This is the only thing people are talking about over here—ordinals and stuff like that, and building DeFi on Bitcoin.” But nobody talks about it here.

That’s kind of interesting. It should be very good for Bitcoin miners, that’s for sure. Just get the fees up.

As a business I perennially hate, it should be very good for them.

Yeah. It’s funny. It’s such a terrible business because you know that your income is basically going to zero over time. But at the same time, these things 10x’d in the last bull cycle.

I’ve seen so many bad investments in this industry over my time. Of all the bad investments I’ve ever seen, 90% of them were miners. It’s just always terrible outcomes for everybody, except for the handful in Asia that you don’t have access to, which crush it.

Mm-hmm.

Marathon’s done okay.

Yeah, I think you’re right, though. That has changed a lot now that a lot of them are public. But that’s just scarred into my brain, so I think I can’t shake it.

7. The Worst Crypto Investments

Well, speaking of that, what’s the worst investment you’ve ever made in crypto?

We had a lot of rugs.

Yeah.

There are a lot of zeros, a lot of smoldering craters in the book. Those are probably some of them.

I think the biggest ones that I fucked up were when I was at Circle. We were trading OTC, and we had just started trading ETH OTC. It was the second asset we had gotten. We had a New York tech fund that was coming in and buying 100,000 units of ETH every day.

I remember thinking, “These guys don’t know what they’re doing. These guys are clowns,” instead of just looking at it and thinking, “This is a thing, and people are throwing real money into it.” At the time, it wasn’t a ton, but basically not getting balls long ETH then was a huge mistake.

Especially because I was seeing it. I was watching the flows, and I was impacting the market. I was just fading myself, and I was like, “I don’t know.” Looking back on it, I was like, that was the easiest layup that I just didn’t take.

Yeah. I mean, this market—it’ll teach you a lot of lessons, that’s for sure. There are always going to be things that you sold out before the 1,000x, or that you held for too long and then just got rugged completely, like Luna. That’s just part of the addictive part of it.

We did that round that they did in January, and the money was gone in February.

Oh, really?

Oh, yeah, yeah. That was a huge one that we just got obliterated on. We punched that ticket, and then it was dead.

Remember when Do Kwon and some trading company executives who shall go unnamed went around and tried to raise money at the last minute from everybody in the market to try and prop up the price of Luna? That was the craziest pitch I have ever heard in the history of my business endeavors. That was insane. I couldn’t even believe it. They were like, “Yeah, yeah, we want to raise $1 billion.” Well, how do you know $1 billion is the right amount?

Do Kwon’s like, “Yeah, well, we looked at all the exchanges, and that’s how much is on the offer and the stack, and we just want to take it out.” I remember saying, “Well, what if there’s more in the stack, like an iceberg—extra volume that’s there that you can’t see?” He’s like, “Oh, well, we just think that the news from the raise will scare off the offers. So will you just give us $100 million?” I just remember thinking through this. I was like, “Is this a real industry?” I mean—

No, it’s like you said: not a serious industry. I remember that pitch super well. So we called. I remember asking him, “Hey, how big is the hole?” We were on the phone with Do. “Oh, you know, it’s $2 billion to $3 billion.” “And you want to raise $1 billion to cover a $2 billion to $3 billion hole?”

“Yeah, we take out the offers, and it’ll scare the market higher.” Yeah, it was crazy. Anyway, I’m sure you’ve seen a bunch of those, Dan. What’s the worst pitch you’ve ever seen in crypto?

Oh, God. Some of the original pitches in the ICO boom were existing venture-backed companies that were just like, “We’re gonna do a token,” and that was it. They’d take their existing pitch deck that they had just used for whatever their Series B was or whatever, and then at the end they would just be like, “And we’re gonna launch a token.” There were a ton of those. This went on for months when the ICO boom was going, and people were like, “This is just free money. I’m gonna launch a token.” We saw at least a dozen of those where I was like, “There’s nothing here besides your existing equity pitch, and now it has a token and you can only invest in the token.”

There were some funny ones. There was another one that was for chefs. I think it was called Ambrosus or something like that. The 2017 ICO pitches were the best. Those were the most half-baked by far.

I know. It was nice because it was so clear what was happening: you understood that you were basically investing in this thing that had nothing, absolutely nothing, behind it. Whereas as we’ve progressed, things have been dressed up a little bit. People put little flares on it: “Oh, no, no, no. We’re actually solving this issue.” And I’m like, “Guys, just tell me how the token’s going up. That’s it. That’s what really matters at the end of the day.” It’s funny.

Ah, man.

Yeah, God, that was a special time in crypto. I still stand by 2017 as the wildest period I’ve ever traded through. 2021 was a mania, but it doesn’t hold a candle to 2017.

I mean, it was just so much fun, honestly, back then. Also, I was bright-eyed and bushy-tailed, so maybe I have just a little bit of nostalgia for those days. By the time 2021 came around, I was definitely a little bit more jaded. But in 2017, I was sitting there clicking, spamming my ETH to get into these ICOs, hoping that I paid enough gas to fucking get in. You remember those?

Was it the SNT ICO where ETH just stopped working for, like, 2 days?

Yeah.

I was like, “How is this okay? Everybody’s just accepting this.”

Status.

I remember the BCH fork happening, and there was a very sharp guy that we had on the desk who was convinced that, “Oh, the fork value will come out and Bitcoin will go down by whatever it is.” Instead, they both just rallied afterward, and the Bitcoin price never even went down. And he’s like, “Isaac, I don’t understand. People aren’t pricing the fork.” I was like, “Dude, it doesn’t fucking matter.” Nobody cared. I was like, “They’re just gonna buy both now.”

Yeah. At the end of the day, the only thing that matters is how many eyeballs are on an asset. If there’s a fork happening, more people are looking at it, so I guess it’s going up. It’s just funny how that works.

We made a fortune on that trade because OKX was still crediting you the fork. The way it worked was, they have coin-margined futures. They still do, but that was the dominant one they had then, and it was really the most liquid future because BitMEX wasn’t as high as it was. So we were massively short the back of the curve, and you post spot as collateral, but they credit you the fork, right?

So you get the fork for free, and the curve collapsed into the event. We made a fortune on this trade because we just kept putting more and more of it on, and the market just didn’t care. I remember talking to Jeremy and Sean at Circle about it, and they were explaining it, and they kept trying to find the loophole. I was like, “No. The only loophole here is OKX just takes our money.” But they always have that risk. Really, we’re always bearing the same risk.

Anyway, I was like, “This is free.” I was like, “It’s free money. People just choose not to want it.”

Interesting. The only free money I’ve ever been given in crypto is when the ETHW versus ETH fork happened, and FTX undercredited us ETHW versus our ETH. So we complained over the customer service channel, and then SBF replied with, “Oh, sorry, guys. Just take some more ETHW,” and magically airdropped us 1,000 tokens.

Looking back on it, it didn’t matter, right?

It’s amazing.

Why not? Give them free shit. Might as well take it anyway.

Yeah. Have some fun.

Yeah.

Our DevOps guys did a cool trade with that one. All the assets became worthless on the ETH proof-of-work chain because you didn't have to deliver them, so all the pools got super imbalanced immediately, and you had a couple of blocks to do it. Our guy who runs DevOps had an ETH node running on the first day, on the first block, and he was able to drain all of it and take about 100 free ETH proof of work on the other side. It was a really complicated trade that he pulled off, but it ended up making a ton of money, and I was like, “This is just the dumbest sort of reason, but why not?”

That’s a sick trade. We ran something similar but way less sophisticated, which is that we actually came in after the chain, and everything was priced ridiculously low. We thought there was a reasonable chance that some of these things could turn into meme coins. So we just bought all of the meme coins that were on ETHW that were priced at effectively zero for the USDC that we had on there. It didn’t end up working. I think maybe at some point during the bull market it might actually work.

It might. You still got them, yeah?

If I still have them, I basically own a bunch of these meme coins on ETHW that I bought for literally $5, and I own 10% of the supply.

You gotta go lobby OKX to get them to start listing them, and that’s how you get it.

Dan, I'm late for a date with my wife. I gotta jump, but you guys keep going.

Yeah, do what you gotta do. I gotta jet too, actually.

Yeah.

Yeah.

Okay.

So it's been real.

Well, dude, this was an awesome conversation. Ton of content. Super packed. Thanks for coming on. You gotta come on again once—

Any time.

—you get the fossil put together.

Yeah, seriously—

This fossil is never getting put together. It's in the box forever. Maybe—

We'll raise a DAO for TaskRabbit to put together the fossil for you.

Just to put it together. It's fucking heavy. We had to carry it up here. For the next one, I'll see, but it wouldn't fit here. It's too big.

That's so funny.

Maybe you should make a Game of Thrones-style boss chair for yourself made out of ancient dinosaur—

Oh, like—

Whale bones. Yeah.

That'd be pretty sick. Yeah. You gotta—

Like have the intern do that. There's a CMS intern on Twitter. Just hit him up and get that thing assembled.

Be like, “Listen, you're hired. You just gotta make me a chair.” All right, dudes. It's been real.

Great to meet you, Dan. Thank you so much.

We'll see you.

Really appreciate it.