Arthur Hayes and Will Clemente on the 2024 Bitcoin Halving

I think there are actually two force functions that are going to drive money towards this: it's the debt situation, just the fact that you know we're not going to default on your debt, there's a low probability that we'll have any kind of like a utopian AI productivity boom or something, the most likely scenario when it comes to debt is that the United States

will

have to let inflation soar, and then the other part is demographics, like You know, the younger ones take control. The capital allocation helmsmen, you know, are more digitally native, etc., so you know, I don't know if I necessarily think we're going to have these traditional cycles that we're used to.

Hello everyone, welcome to unleash your no-hype resource for all things cryptocurrency. I'm your host Laura Shin, author of The cryptops. I started covering cryptocurrencies eight years ago and as a senior editor at Forbes. was the first M met reporter to cover cryptocurrency full time, this is April 16, 202 before the Unchained episode polka dot is the original and leading zero-layer blockchain with over 2000 developers and the polka dot update 2.0

will

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Today's topic from the Network Ecosystem Community is the overall impact of Bitcoin and the broader crypto markets that are here to discuss: Arthur Hayes, CIO of Melstrom and Clemente, Co-Founder of Reflexivity Research, we welcome you to Arthur and what is happening? Laura being here next week is the fourth Bitcoin she has when we will see the number of new Bitcoins minted with each new block from 6.25 to 3.125. What is unusual about this particular holding is that the price of Bitcoin actually rose before the holding and that it actually usually happens about a year to a year and a half later, although it might seem obvious that the reason was the approval of spot Bitcoin ETFs here in the US.

I don't know if Arthur thinks other factors arose. at play, so feel free to mention it if you think there were others, but my main question is how do you think the fact that we had this new all-time high before the credit will affect the price trajectory after the credit and uh, so that people can tell the voices apart, why don't we start with Arthur and then go to Will? Obviously, the approval of US Bitcoin ETFs has been amazing. I think it is the best-selling product at Black Rock Fidelity, like the entire asset manager. room for ETFs in their history so they love all A entry fees and obviously we are seeing a few hundred million dollars of new Fiat being injected into the crypto ecosystem on a daily basis which is obviously LED for prices. to go up, so I think that's probably the big macro trend, obviously, you have the have.

Everyone likes to look at past cycles and guess how it's going to be exactly the same, but obviously every cycle is different. This is the main narrative of this. The cycle is sort of adding a derivative of Bitcoin that institutional investors around the world can invest in, so we're really tied to those flows in terms of how the price action will play out, and I think having that requires a second step. to that and maybe it will be much more pronounced in terms of its impact three six nine months from now, but I would say we are primarily focused on what are those daily flows coming out of the US, obviously, Hong Kong has approved its own spotcoin ETFs and those should launch soon so in Europe the UK everyone is trying to get ahead with this fee game in terms of a marketed asset manager so I think that's the trend that's kind of going on second fiddle in this cycle, yes, I completely agree.

I think you know even these previous historical cycles. It's hard to say. Is it because you have it? Is it simply due to macro liquidity cycles? Is it a combination of both? Is it the dynamics of behavior in the market? I think one thing is for sure. is that you know that having has a decreasing impact on the general kind of supply shock that we like to attribute to the market, you know, just in terms of the percentage of the general circulating supply relative to you know that It's kind of a reduction to half of the issue, so I don't necessarily think it will have an immediate impact on the market.

I think like Arthur said, you know you go out months from now and over time it starts, you know it's going to start to have an impact um, I think the story of this cycle is basically, um, you know, the fact that you've unlocked flows. liabilities to enter the market for the first time, um, this is something that we haven't had historically and You know, indices have been the beneficiaries for two or three decades, so I think for the first time, as Arthur mentioned, you know you can having all these pension funds, sovereign wealth funds, etc., that can do it passively. allocate things in a way that maybe they couldn't before because of regulatory or compliance reasons or whatever, and then you know, I think they're a different type of investor than we've typically seen.

How do you think that would affect the price or volatility of Bitcoin? But even things like Bitcoin decentralization are curious because of what they both think about what they know. I think I agree with you that we're in kind of a new phase now that we have this new class of investors here, but how do you think all those different factors are going to affect it? I mean, I've said quite firmly that, taken to the extreme, passive investing and we've seen this in traditional stock markets is toxic. to price Discovery, um, and we'll see how big these asset managers become in terms of percentage holdings of Bitcoin and maybe some other cryptocurrencies and shitcoins as well, and if their passivity and lack of commitment with the actual underlying protocols and what we're here to do, which is, you know, create a whole new financial system, that detracts from achieving that goal or not, so I think the jury is still out.

I don't know what percentage of the network is so total. I supply that Black Rock can co-own it's 1% or something, we're a long way from any kind of apocalyptic scenario, but it's definitely there, yeah, I think for me, for the foreseeable future, decentralization is not a big deal. worry. um, I think volatility will naturally decrease whenever Bitcoin gets bigger, more liquid, more volume, etc. um, I think the other side of that, you know, obviously, it's less favorable for someone looking to allocate just for the return profile that Bitcoin can generate, but on the other hand, you know, I think it risks the asset in a way. which you know maybe wasn't a risk five or 10 years ago, like I think you can argue that Bitcoin at 70k is riskier than maybe at 10K just because of the infrastructure, you know, the kind of decrease in professional risk now brought about by Larry, think about following and spending money on live TV and talking about how

bitcoin

digital gold etc.

Well, I would say that in many ways, as Bitcoin grows, it actually becomes less risky for a lot of these big pension funds, sovereign wealth funds, ETAs, and you both said before that you felt that way because, um. of the approval of Bitcoin spot ETFs, that's the main driver of this particular cycle, less than the fact of having it itself, but I wanted to pose a theory to you, which is that it felt a little bit like it was pure quantity of money that we saw come into the Bitcoin ETF place so quickly that you know way beyond almost all the projections that I had seen out there.

I was wondering if you felt like we reached this new all-time high almost in a delayed fashion and I'm sorry, I know that doesn't sound right because obviously this was ahead of schedule, but what I'm trying to say is that it's like the price maybe he would have been artificially depressed before because the Bitcoin spot ETFs had uh, the approval of them had been delayed for so long, you know, it took this court case and all that, so I wondered, basically, if he believes that maybe it had happened in time and you know we could debate when.

That was, but at some point in the last clown he first tried to list one, well, you know, at some point in the last 10 years, obviously, that's a very, very long time. I imagine it's probably, historically, much longer than average. app, so assuming that then, do you still feel like this is going to have less of an impact or basically how do you see those two things coming together? Do you still think we will have a new all-time high? it's not going to be as high as it has been in the past or do you think it's still going to be a big jump from the most recent all-time high well I mean I think just look at why institutional investors are investing in Bitcoin because there's a whole narrative about the destruction of the sovereign bond market that basically started when the FED started raising rates in March 2022, so there is a reason why people are allocating

bitcoin

s, not just because Bitcoin exists and therefore I will allocate one way or the other.

Many billions have been invested in these products. There is a real underlying problem with the markets that is driving this, so if you take away Bitcoin, it was and still is pending. I think maybe we wouldn't be an all-time high, maybe a 50,000 or 45,000, whatever, but we've recovered from 16,000 after the FTX crash and that's all based on printing a lot of money per part of the Federal Reserve, the European Central Bank, PBC, all the main culprits for this Fiat to the basement orgy that is happening. globally and now institutional investors have a way of saying, "Okay, I'm not going to just sell my bonds now that I have something else to invest in that's not GLD and that's why you have all these entries, they're not only Bitcoins here and therefore I will do it." Assign that there is underlying economic stress, yes I completely agree and you could look at a chart of gold and you know gold has been rising in recent months and I think that is due to the fiscal situation.

I think that's ultimately the big picture for Bitcoin. There are actually two force functions that are going to drive money towards this: it's the debt situation, just the fact that you know we're not going to default on your debt, there's a low probability that we're going to have some kind of situation. utopian AI productivity boom or something like that, the most likely scenario when it comes to debt is that the United States will have to let inflation soar, and then the other part is demographics, as you know, the younger ones they take the helm of capital allocation, you know they're more digitally native, etc., so you know, I don't know if necessarily, I even think that we're going to have these traditional cycles that we're used to, you know, we have a super small man and nice, you go to the super cycle look look look look look I don't know, I don't know if super cycle means you know we have a similar movement, you know up to the Moon in a couple of candles, but it's kind Just for this fact, you know, I think there's an underlying shift in market participants and the type of flows that are now coming in, so I tend to think that Bitcoin will just trade, as you know, in an upward grind. up and to the right, maybe with less volatility, but more similar to how the indices have been trading, and you know, if you look at a lot of them, you know different risk assets again.

I think I think gold has been a reflection of this as well. A lot of people have really started to focus or at least become aware of the tax situation and I suspect that Bitcoin will probably be the faster horse in the coming years as they know how to protect themselves against it. It's funny because this is all about the super cycle or whatever you want to call it. I actually had that as one of my last questions, but I want to mention it now because I want to say, first of all, you just did it, but then another thing is that you're not the first person I've seen who actually says this and not in a way. mocking about you know 3ac or suu or something, so um, there was a tweet from nval raican that said quote.

The narrative of this cycle is a quote, this will be the last cycle, so Arthur, you were laughing a little about that, but why don't we seriously discuss it? Do you know what made you say that? what it might look like, but yeah, I'm curious to hear your thoughts, yeah, to be clear, I'm not saying that like we're going to just go up and never have any Draw Downs, as I think the draw Downs will probably be quieter, as such maybe you know 30 40 50% um, but I also think that the upside VA will also be limited, but I think that Bitcoin you will probably know how to trade more with this type of general movement up and to the right due to monetary debasement over time Arthur, yeah, I mean, I think maybe there's no permanent plateau, right, I'm not Irving Fiser in 1929 thinking stocks are never going to go down, that's just nonsense. thethings go up and down we're human, we overpromise a future and then it gets there and it's kind of like blah blah blah so I think maybe the cycle will be longer and the upside will be bigger but there will be 85. 90% of reduction in cryptography.

I'm very confident about that, but maybe we won't adhere to this four cycle because I think we're at the point where the global investing class and the proletariat are losing faith in this thing called K in economics and, you know, deficit financing. and so if we have a Bond Market Revolt that says, I don't want to own Jgbs Treasuries, you know, all these bonds from these bankrupt governments and here's this digital alternative, we could see a very bullish cycle. explosive and then maybe if we throw out all the Baby Boomers. With no power in the whole world, the younger generation also likes it, why am I paying for the health care of a group of Muppets?

Let's reorganize a system and then we might see more responsible governance in terms of spending and then at that point maybe a government bond. It's a better bet than owning bitcoin with a forward-looking view, so I think things can change, obviously we think that the same bunch of idiots who run the world are going to continue to do so and you know, the same kind of deficit. Funding policies will prevail for the foreseeable future, but that will not be the case five years from now. Things are different so I think that would be my C still for supercycle and I hope the more people say supercycle. the more I'll be ready to start dumping bags, but I don't think we have to wait yet, but you said you felt like we were going to see an 80 to 90% reduction again, absolutely fine and I'm just curious because I would have imagined that with the presence of this new type of spot investor in Bitcoin ETFs, they would like to make their small portfolio and maybe rebalance from time to time, but I don't.

I would imagine that a lot of them are long term and that would create a base that would prevent these massive declines, but you think that even with that we will see that we still go down from what I don't know how it was. 30 40 50% in 2008 and you still have the same type of passive investment mechanics, then there is a huge event risk and the markets reacted, so whatever the challenge to any narrative within two, three, two, two, three years. Okay, this is going to keep printing money forever, maybe the demographics change in terms of who's in power and those kinds of assumptions, um, are invalidated and you see this massive swing in the other direction like, well, maybe we don't need own this.

In much of Bitcoin there is something else that makes more sense and changing that narrative because it is so well entrenched could lead to a massive drop in price H okay, okay, but you don't necessarily see it because typically that has been in this four cycle with the but now you say it could happen, but maybe not because of this four year cycle. I think we could be in a longer cycle because there is a whole where we are coming to a collapse of the sovereign bond market or a belief that there is something better to own than an abundant treasury jgb or whatever, okay, so I know we were super far apart, this was super interesting, by the way, um, but now let's zoom in, so we're a week away.

At the time of this recording and by the time the episode comes out, we'll be just a couple of days away, so what would be your best guess on what would happen to the price of Bitcoin in the short term? Yes, I tend to think. which will probably be something of a news sales type of event. I think anyone who was going to buy Bitcoin in the short term probably has already done so. Actually, Arthur took out a piece like two. days ago or something, I mostly agree with what you wrote there, um, yeah, I just think that, when there's an event that everyone is looking forward to, you know, the people who are going to buy it have already bought it, um, so I tend to to think that we'll probably at least cut it until then and then maybe start working at least in terms of the kind of direct impact of having it itself.

Yes, I tend to agree that it's all news, but again, you could be wrong, most people are already invested, so it's not like we're going to be short Bitcoin. Hey, I'm going to wait and maybe allocate more a week, two weeks, a few months after I get it. I think that's probably it. It's going to be very boring and we're entering the summer, people will be on vacation, so I think we're entering that boring period of low volatility and kind of just starting that period, so, a couple of others. things that I wanted to see, I know, you know, you've often looked at on-chain indicators for your analysis and there's one in particular that I was curious about, which is the realized price, which is basically where you take each coin you multiply it by the price of its last move and then divide the value of that by the circulating supply and you have said that you feel this is one of the biggest drivers of bitcoin price dynamics so what are you seeing now in terms of realized price ? and how that could affect Bitcoin in the short and medium term.

Yeah, I used to track a lot of on-chain analytics stuff pretty closely and what I found is that it's not that actionable to trade at least on short to medium term time frames. but I think it's decent because it's getting a kind of proxy for Bitcoin's valuation. There aren't many great ways to value Bitcoin. Some people like to look at the price of energy. This mvrv thing is. one of my favorite types of valuation methodologies that people have come up with for Bitcoin, so it basically compares the realized value to the market value like you just described.

Realized value is basically, look at the price that each coin last moved at and it essentially gives you sort of the aggregate cost basis of the network and then the idea of ​​comparing that to the current marginal trading prices is basically knowing where Is the market trading relative to the network cost base, so what we've seen historically is whenever this ratio increases to a ratio of about six to seven, the market tops out every time it goes negative. , it means that the market is underwater as a whole, so that's like when you want to buy, it's more of an art.

It's a science, but it's something that I kind of look at, okay, you know, in this kind of spectrum assessment, based on the point at which Bitcoin historically peaks, you can get kind of a rough proxy, you know. , what it is like, how it is traded and where perhaps it is located in its cyclical dynamics, uh, so right now we are sitting halfway between both limits. I really don't think there's anything super actionable to derive. From there, we are still not in that undervalued territory, but we are still not in that super overheated territory that was reached in late 2017 or late 2021 and out of curiosity with the introduction of spot Bitcoin ETFs and now, this guy of new class of holders that are represented by you know a large entity on the chain or even if they have multiple wallets, still it's like you know that all these people are grouped together now, that makes it difficult for you to do this type of analysis as if you are less able to detect certain trends that you could see before or how this affects your analysis.

I mean, you know, I guess you could argue that you know the coins maybe being transferred, but they are. You're not moving up the chain, but you know ultimately you know if people are redeeming the shares and the coins are moving, so you know you're still seeing that impact in terms of profit and loss type metrics. . um, but I think things like the gbtc sale recently, you know, that's been affected, we've seen a huge influx of worn out old coins that haven't moved in over a year, um, but you know, I don't necessarily think it's as something inorganic that is appearing and some of the data is just a reflection of market share.

Behavior like the coins haven't moved, but overall I don't think that's something I would say how I do it. I'm not following the MVR issue because of that, okay, so now let's talk about the macro environment that we're seeing the day after the Bureau of Labor Statistics reported that the Consumer Price Index, which is a measure of inflation, had increased to 3.5. % in the last year was higher than analysts had expected. It appears the market is now pricing in two rate cuts instead of three. So now you know if you believe that inflation continues without falling as projected despite these. high interest rates like what you think could happen in terms of Bitcoin well, I mean, I think and I've been harping on this for a while now, the Federal Reserve and the Treasury, at least from the US perspective. , they are net stimulants and because the US debt stock is so high and all these other fueled programs that have interest on excess reserves, taken together, they have been stimulants for a while because as rates rise, they pay more interest banks and rich people to spend that money in the economy properly, so I think focusing on whether it's two or three rate cuts or maybe zero is kind of irrelevant because the Fed is already fed and the Commerce is already printing money the more they raise rates if they do that, they print money, they lower rates, they use the markets, it's essentially stimulant too, so it doesn't really matter what they do unless the US is going to declare some Jubilee debt and simply extinguish all debt, the net effect is exhilarating, exhilarating.

There is more liquidity in the system, so I think when you look at Powell's statements about the DEA they depend and you know that a tenth of the CPI here and another tenth of the CPI there is just Bor mind, boring and dumb mind because it's not So. Does it matter that Bitcoin is going to go up, whether the FED cuts two or three times, if they cut everything, you know, there are some people who say they are going to reduce the pace of quantitative tightening, um, I know that 30 billion per month or something like that. that and he announced it again at the May meeting at the end of the day they have so many ways to print money it's not the quantitative easing that everyone understands since 2008 um it doesn't really matter so that's my my my particular My view on that particular situation, yeah, I don't really think I have anything to add, completely agree, I think interest rates are basically just measurements for people who buy assets.

Yeah, well, I wanted to ask you why you used something similar. in the language above, but I'm just going to ask you directly about this thing you tweeted and quote: People are still focused on rate cuts when they don't really care about interest payments or stimulus checks for people buying assets and debt. Degradation is programmed without a utopia. AI fuel productivity boom closing in debt to GDP, so can you talk about this as what do you see as this utopian AI fuel productivity boom and yeah, yeah, I mean, it's basically the idea that you know you would have this massive influx? productivity and, you know, a massive increase in economic output that was brought about by some new technology, um, but I also think you can argue that you don't want that productivity boom to happen too quickly because if it appears too quickly, then G it displaces too many jobs and then people will be out of work and then you know you have some problems there too, so it's almost like you know that not only would you need some kind of you.

I know the miracle in terms of this productivity boom, but it also needed to happen not too fast but not too slow either, so I think if you have a kind of probability distribution curve, the probability curve of uh, the probability of Basically, the US, you know, doing some kind of Dead Jubilee like the one Arthur just described is pretty low, because why would anyone want to keep the US debt after that, there's a chance of some kind of crazy productivity boom that shut down the debt-to-GDP ratio? It's also pretty low, you know, the real self of that distribution curve is that they just let inflation skyrocket like they weren't going to come out and say that, but I think you've already seen this in terms of, um, you.

I know, man, hinting at basically changing the inflation target and I think you know they want inflation to be 3 to 4%, they don't want runaway inflation that will cause civil unrest, but they need it to be able to do it. pay the debt in nominal terms, well, yes, I mean we also have elections this year. I don't know if it probably seems like you guys think that plays a role as well. Well, then Arthur, when I move on, I mean. I think I heard a very good presentation. I forget the man's last name is Matt, he is a strategist on a BCA investigation and he gave a geopolitical breakfast a few days ago and my biggest takeaway was that he had a great chart and showed a projection.

Spending under a presidencyTrump or a Biden presidency. Trump thinks he will spend more money, but Biden will also spend a lot of money, so ultimately it doesn't matter who wins the election because they are going to hand print money. He tells it to those who are his voters. Trump wants to do tax cuts, but he has green energy or whatever, so it doesn't really matter. It's a fun little circus that everyone can watch about two old men fighting in the media, but. Other than that, it's irrelevant. Well, one thing I think you do think is. The important thing is the end of the bank's term financing program because you wrote about that, so you talk about how you think that will affect the price of Bitcoin, so I came out publicly before btfp expired and I said that would be net negative liquidity terms because the banking system had been under pressure because all these banks that were basically soft-bailed out by this program would no longer be able to access it and in the weeks and months leading up to the btfp ending , the Federal Reserve and the Treasury came and said: Hello banks, we would really like you to use the discount window because we think it is a better way to access financing.

We were going to destigmatize discount window access and if people in the know know, Banks usually only access a discount window when they are about to go bankrupt and other banks will refuse to deal with them if They know they've tapped into this discount window, so the Fed and the Treasury are trying to. They say they use this policy measure and it's a great policy measure because it's been around since, I don't know, 1913 or when the Federal Reserve was created. and therefore it doesn't have a negative stigma like the bank financing program is seen as a bailout of the banks, which is bad politically for most American voters and that's why they had to end that and then where they put the discount window and there are some nuances to how they differ, but at the end of the day, the FED has unilateral authority. to change the way loans are given through the discount window and continue with the same bailout under the btfp, so I was wrong, they came up with another way to bail out the banks, they just use a discount window, they told you everyone yes If you have problems use this here and they can change the terms however they want and that's a politically benign thing compared to the Btfp which was a political hot potato okay let's talk about something else that I think has been a hype about the crypto industry for quite some time now, which is just the regulatory environment in the US, you know, I hilariously asked Olaf Carlson a question about this and he said something like it's always been like this, so it's no different, but you know when we have something like uh coinbase, which is the largest entity in the US um, you know, for the crypto space, uh, in this lawsuit with the regulator and um, ya you know, I mean, that's just, yeah, obviously not, that's not a good look or even good. for the industry, I think just because it perpetuates this notion that it's a lawless thing, but I just wanted to hear your opinion on, you know, what you thought the market was thinking about issues like that, yeah, for such a large entity as a base of coins.

I don't really think it matters much, to be honest, I think it's something that you might worry about in the United States every time you know that bridge is crossed, but it will take time for many. those things to resolve, you know, we also saw the Unis trade, you just know, the SEC also issued a Wells notice, you know, I think it's good that a lot of the 2022 things have been resolved. I think you've had a lot of what you know, like selling off of Genesis and Gemini over the last few months, and you know there's been a lot of GBTC outflows that we've seen, things like that in terms of like a direct impact on the market.

It's been something that I've been watching, but I think a lot of that has been addressed, um, we've seen it at least for longer. I don't want to take a couple days of data and extrapolate it, but we've seen over the last few days that some of the gbtc flows have slowed down, so you know that's a very good sign, but in terms of trying to try, you know how you're going To do it. position themselves based on these cases. I think it's very difficult to do. I think if Coinbase wins its case, it's a really positive catalyst for a lot of alternatives, although you know, I think if Coinbase won its case.

The Unis trade was also if they got sued I think the alts would probably go crazy in that case and well before we started recording you said you felt Coinbase was mispriced and I was curious to get your take on why I think . it's priced wrong Laura I do yeah guys come on dude here we go here we go look I think to me the Coinbase story is basically that the street is not really pricing the revenue of the native cryptocurrencies, I think a large part of the cryptocurrencies. natives understand um I think Coinbase is probably the biggest type of risk-on style play in the public markets since maybe Tesla about five years ago.

I think the street still sees Coinbase purely as an exchange that I would say they're doing or at least across the market, they made a lot of kind of strategic pivots to shift towards what I call sort of a crypto super app, so so to speak, so that you know, for example, the income from betting. I think the other big one is. base, so in the last 30 days the base has made 30 million Topline revenue for coinbase just based on the sequencer fee which annualizes to 360 million a year. I think that could increase a lot more as Bas gets more traction.

We're starting to see a lot of projects moving to the base and, you know, we're launching frch here next month. I think that's probably going to have a massive kind of wealth, you know, wealth effect on the base chain if you go back to the end of last year and basically watch the Geo airdrop. I remember I went to this like happy hours like manad and Wormhole hosted this happy hour and everyone was there, everyone was talking. about how they had gotten the Goto airdrop and then, you know, the months after, if you go back and look at basically the activity in Salana, uh, after the GTO airdrop, it's basically like right when it completely blew up and I think something like that.

The wealth effect of that played a decent role in initiating that and igniting a catalyst of activity in the soul. I think Frex Airdrop is saying that they are giving away all the chips. to users and are potentially going to float the entire supply out of the door. I think that could be a pretty big cat in terms of the wealth effect and people speculating on other things with some of that money. so I just think you know that Bas has a competitive advantage over all the other Ethel TOS because of the Coinbase distribution, right? You know they have 100 million users, um, all the kyc, etc., they're just going to plug in, you know, all the daps on coinbase directly on the back of the actual platform and it's going to completely abstract away the fact that you are on chain and coinbase users won't even know they are interacting on chain so I personally feel really bullish on Bay.

I think it's probably the biggest competitor to salana just in terms of being kind of a high performance, high performance TBS network that has pretty low rates, especially after EIP 4844 and I think that's something that you know that the street doesn't. I don't even know what the base is and they're definitely not extrapolating the potential that you know there's a ton of activity going on there and sequencer fees that Coinbase can profit from. Yes, this makes a lot of sense to me. but I agree that the people these comments are intended for probably do, they and they, uh, don't see any of that simpler for you, like it's Binance smart chain for white people, that's what It's Bas, yeah, pretty much, I think that's pretty good. oneliner on it I love it Arthur keeps it simple so we'll talk about other innovations in bitcoin in a moment but first a quick word from the S that makes this show possible, polkadon is the original and largest zero layer blockchain with Over 2,000 developers and the anticipated polka dot 2.0 update will be a massive accelerator for the ecosystem, upgrading the infrastructure with 8x higher transaction throughput and 2x faster block times.

Central time perfectly adapted to the needs of each protocol. The bridge without trust is internally and within. ethereum Cosmos near binance smart chain and reviews tokenomics and implementing a token burn to reduce inflation, perfect for gamey and defi to build growth and scale with one of the most active crypto communities in the space. pokka dot recently announced a partnership with legendary games bringing the best games like nft Rivals with over 650,000 players and 43 million transactions to pave the way for gaming in the polka dot ecosystem get your website three ideas to market quickly with an economy make it work for you think big build big with polka dots join the community at polka dot.

The network ecosystem community let's go back to my conversation with Arthur and so we were talking about the foundation, which is a layer two on Ethereum, but we're currently seeing a trend of this upselling of new Bitcoin layer 2 projects, which which is very interesting to me. there's craa, which is botanical stuff from ZK, which oh my god, I interviewed them now, I'm forgetting, but I think it's more like a sidechain. I remember that it is decentralized, which is very interesting. There is a construction based on bitcoin. There are a lot of these like. A little bit of style stuff, um and then of course there are the ones that have been around for a while, like Lightning Stacks Liquid Root Stock, um, so do you think you could see a future where Bitcoin layer two is as active as they currently are?

Ethereum for sure, but I think it will come down to what the incentive is for Bitcoin holders to use one of these. So is there any native proof that you know of for the staking revenue that comes from providing your Bitcoin on one of these chains? They ask them what kind of applications are there and they will have to give some performance to the user to move their Bitcoin because if you think about Bitcoin, I guess Maxi is the most conservative in the crypto ecosystem for them to move. Bitcoin from your wallet to one of these new chains, they're going to have to have something very compelling, which is why I'm not super In The Weeds on any of these new l2s.

I know I see all kinds of Muppets coming towards me. telegram saying I'm blocking the Bitcoin L2 fund, so there's something there whether it makes money or not. I don't know yet, yeah, it's not something that I've delved into a lot, you know, I think it's potentially a solution to the kind of long-term security budget, a problem that people like to talk about and attribute that Bitcoin is 100 years ahead of time every time the supply runs out and new coins no longer enter the supply, um, the other thing. are the orals as well, so the kind of combination of, you know, potentially having some kind of challenging activity on top of Bitcoin U with ordinals that is generating fees for the Bitcoin network, you know, I think that increases the security of the network to long term I think that's a positive thing, that was actually my next question, so first of all, you're definitely going to feel like the security budget is a concern and Arthur, are you okay with that?

Yeah, well, you know, did you just say that? You feel like ordinals are a way to potentially solve it. These layers two like Arthur, what's your opinion on ordinals? And I love ordinals and have a bag to show for it. Obviously, I'm really investing in Oil Wallet, and we're going to do something. fun so stay tuned we have some good drops coming but I think at the end of the day bringing culture to any of these chains is obviously a positive we've seen what meme coins have done to Solana I mean the salana TPS. It's been proven to be absolutely true as people started trading these things and 75% of transactions started failing on Solana so good luck becoming the new ethos of this cycle so I think obviously , when people want to have fun on the network, that drives. activity, generates fees, why should that happen in bitcoin?

Anyone who says this is garbage or spam or whatever, it's an open system and therefore the block space is there, people have found a way to use it, they're paying. We're willing to pay for it, so let them do it. I think ordinals are great. If we can continue to push this narrative of on-chain ordinals, culture, and digital artifacts, we will bring a whole new type of person to Bitcoin. equos system and energize people who just had Bitcoin sitting around doing nothing to express themselves on the chain so I love them and out of curiosity I'm sure you both heard that Roger Ver just published a book on theBitcoin hijacking and has raised this.

Bitcoin block size debate once again, this debate is actually filling up my notifications on Twitter a lot or it didn't last week, and obviously you know that the Bitcoin block size is a megabyte, uh, it has a borderline a little bit, you know. transaction fees there, so do you like it? Is this showing up on your radar? Do you like that that's said and done or do you feel like this is reviving some kind of debate or what's your opinion? This is the first time. I've even heard about Roger's new book, so I don't really know, yeah, same thing.

I mean, anyone can fork the code, this open source code, see how many people use it relative to the current bitcoin, how much more money. Does Roger want to lose in another mining, some Shain dog? Yeah if someone wants to cast a to knock you out do it but I won't use it okay so similar to ordinals we are now seeing runes being cast soon which is a protocol meant to be similar to BRC 20s um, but I guess what's different is that it will use the unspent transaction output model or the utxo model, um, it will launch the moment of having and the creator Casey Rore, who also created ordinals, said that these will be completely on-chain , the payment fee is on layer one and said in the Hell Money podcast quote that if runes are successful, they will drain liquidity technology and attention from other cryptocurrencies and bring them back to bitcoin, so do you have any opinions about runes and also agree that they could divert attention from other cryptocurrencies to Bitcoin?

I'm sure, but I guess we'll see proof in the pudding of what they like. It depends on what you actually release with them, is there going to be some new meme coin or some new way of expressing yourself that's different and then we'll see? I don't know, yeah, I agree, okay, so there's not much opinion. In this I mean it's like someone came out saying yeah I have this new layer and it makes 1 million TPS good for you buddy let's look at some real applications on this so let's talk about it for a Secondly I mean that we're seeing that, you know, Meme coins in Salana, obviously, have become a huge thing, in general, it seems like in the last few cycles, you know, Bitcoin has found its little niche where it does well, but often he likes others.

Trends take off on other chains and ordinals was the first time we saw a trend that had taken off on another chain, it actually made it to bitcoin, um, but I don't think it's necessarily, yeah, as easy as you know what happened. . like there are other attempts to do things that maybe haven't worked in Bitcoin, so do you have theories about what makes something successful? You know when you're trying to transition back to Bitcoin. I think it's basically what Arthur just said, you know, there are people excited about this, it's fun, you know, your friends are getting involved and that gives you reasons to get involved in it, um, I think with a lot of these networks, the problem maybe less.

Well, you know some of the things that have made you commoditized to a certain extent in terms of having a high TPS, for example, it's much more about knowing BD or how to create economic incentives that allow you to make profits. the people you know get you people who come and use these things yeah we'll see who knows it has to be fun it's going to be fun it has to DJ like it's not professional all that like it's not fun if you're not doing it because you're not You don't care if you lose all your money, but that's how you have fun, then it won't attract any kind of attention because Bitcoin has a very good value.

Bitcoin is cryptographic money, it is the most difficult. money in cryptocurrency, so I know people say oh no, Bitcoin doesn't do anything, that's the point, so the conservative nature of Bitcoin is its biggest asset, so I'm not that worried about that, maybe you know that mcoins can or may. We can't get to bitcoin or defi, we may or may not get to bitcoin or whatever, as long as we're still the best money ever created, then we're doing a job, yeah, one thing I forgot to mention before when we talked about the issues regulatory, I think you could argue that if you know all these D5 projects that are shutting down, that's actually kind of bullish for memory coins, you know, I actually think any type of crypto project that you know of, um, to potentially get a ETF in the future, I think the one with the highest probability might be Dogecoin because it is a commodity.

I mean, I would say it's a much purer commodity profile than ethereum, for example, so I think it's kind of a bar wallet of knowing that Bitcoin is hard money and then meme coins basically like these, ya you know, speculative assets, you know speculative activity will continue to increase because you know several things about the fact that we have a dopamine epidemic in the world, but monetary degradation, you know? Trends in gambling have been going up and to the right since you know the US basically changed the regulation on gambling from the federal level to the state level.

I think all of these things are lining up for a sort of bar portfolio, if you will, of Bitcoin and mem. coins to become more and more favorable wow, that's a super, so I mean, look behind me. I've got Omar in a hat, right? He's rocking his little dog, his dog in a hat, so everyone knows what to do. The hat stays on, and so do I. I want to hear a little more about why you think Dogecoin is more of a pure commodity than ether. Can you elaborate on that? Yes, I'm asking how you own it before.

I don't know, but I'm being a little cheeky in saying that, but I think you know you have something like a doge where there's a completely fair release, no one to control it. I think it's like a lot of Pur's argument that the fact that it's a commodity, a lot of these meme coins I know that if they have a fair launch and there's no pre-sale, no one controls it, they just exist, so I think those things they have a much higher chance of being seen as commodities by regulators than maybe some D5 project that is you know, generating yield or sharing fees with some of the users, well, I mean, it's also interesting because it's like Satoshi Nakamoto, creator Jackson Palmer walked away, so yeah, he's actually denounced Dogecoin, pretty much quit yeah and then obviously now.

We're looking at this, you know, the SEC investigation into the Ethereum foundation, but this actually goes back to my initial question or my initial question about layer two in defi, so I know you guys are not regulatory people, but I just OB L defi has taken off. in ethereum and you know, the Unis exchange can be sued by the SEC, so you know, I don't know if that could be another way for defi to take off in bitcoin. However, I think the real challenge with Bitcoin is that the Bitcoin scripting language is not set up to handle smart contracts in the way that Ethereum initially was, so I think you know that's why, in some ways, So, there are almost these solutions, but anyway, that was just a thought I had, so now let's talk about Ethereum. and defish things um Arthur, you're an investor in Athena, which is the hot new synthetic dollar.

I'll call it no St coin. I know, I know the guy will kill me if I don't say that, look, they're sensitive to language um, but I think it's good, I think it's good because, um, it's true that the word stablecoin is probably not the word you want. use for something you know like Athena, uh, which is not like a judgment on Athena. itself, but the point is that you know that the interest rate you pay can be quite high. The DAT before recording Bloomberg reported that it was currently at 37% and I'm sure you know that there are some critics who say that Athena could be the next teruna, so I would like to know what your response is to the people who say that, so the first thing is that anyone who says that and probably lost money on teruna deserves to lose all their money because they didn't.

I didn't understand what they invested in. It was very clear from the beginning what Teruna was, an algorithmic stablecoin. I remember when I told my analyst what this Luna thing is, why it is so valuable and he knows that he did a little. I wrote and then he sent me an article from a professor. I forgot where the professor was from and it was like how algorithmic stablecoins die. It's called death spiral and I read this. I like it. Well, that's how GNA fails and guess what. I still bought a little bit because the numbers went up and I knew I was buying a piece of the dog and I hope I can get off the train before it hits zero, but when the death spiral started in the summer of 2022, I was Well, well, here it is exactly why this is going to fail and not that I know there's a whole test with dwan and jump trading and all that kind of stuff about alleged fraud or whatever, but in my opinion the thing told you exactly. how was it going to fail, it failed exactly the way it was predicted to fail, you have no, I don't know, reason to be upset because you lost your money, you just went out at the wrong time and it's a completely different thing than then Athena says, which is a synthetic dollar, it's hedged against cryptocurrency with a short perpetual swap or a short futures contract, a completely different product, it doesn't have the anchor, I guess, fund or whatever you want to call it that guarantees this 20% interest rate. and no one knew where it came from, they basically sold Luna and Bitcoin to pay us people rewards, which is completely different than saying "hey, I have a variable interest rate that can go from negative to infinite" and depends entirely on the demand for leverage in the crypto ecosystem and how much those synthetic dollars are worth in terms of interest rate, so of course Athena is not without risks that the funding rate could turn negative, it might be less desirable to hold it. because you are getting a better return on some type of Ro World asset, like an on-chain treasury bond, that's five% or whatever, the biggest risk is the capital that is held on the C crypto exchanges themselves if they can't pay out the winnings properly if they get hacked or the money is stolen, those are risks for Athena, right, it's just a different set of risks, choose the risk you want and then you'll know to invest accordingly, but it's a completely different risk profile to Terraluna, that is not so.

Let's say Athea couldn't fail, but she would fail for different reasons. I have a question for you? I think let's say Athena becomes 20 25% of the global total oi in perss um, do you think that reduces the funding rates signal because they're basically going to let you know that they're going to reduce the funding so the funding doesn't? be both a reflection of the absolute demand of people who want to be long in the bull market. Well, hopefully what Athena does is match what a dollar is worth in the euro-dollar markets in trfi and what a synthetic dollar is worth in crypto.

In the capital markets right now there is a disconnect because traditional allocators, you know, are not willing to take counterparty risk with all the centralized exchanges, so dollars are synthetically more expensive in cryptocurrencies. Now, obviously, speculators are willing to pay that rate because Bitcoin is up 50% this. year, okay, I'll pay 30% annualized for excellent. I'm still making money, you know, based on the interest rate, that's why people are willing to pay the high rates, but if Athena is very successful, say they will. 30% OI and they are reducing funding rates, so we match the value of a dollar in trfi and the value of a synthetic dollar in crypto.

I think it's a good outcome because it makes leverage trading and hopefully derivatives markets cheaper. grow in terms of um the open interest in crypto yeah that's interesting so you're basically just saying it allows more people to be long crypto because they don't have to pay as much funding yeah so a dollar off cryptocurrencies and a synthetic dollar within cryptocurrencies should be equalized. Athena is just one of many entities arguing that difference, um, so Arthur, one question, well, I actually had two questions for you. One is, first of all, you know, it just launched at the end of February and the current one.

The total value locked is already 2.4 billion. Did you expect it to grow so much in such a short time? No, and I think that's a testament to the excellent execution by Guy and his team. I met them in August of last year. They asked us to be founding advisors and and help them, you know different things and you know I've been talking to them quite regularly and giving them my opinion on this or that, obviously I'm not involved in the day-to-day running of the thing, but I am To say I'm very impressed with what they've been able to do in less than a year since I met them, this is probably one of the best teams I've seen in crypto in terms of execution, whether it's the marketing side, it's about getting the technology correctly, it is about understanding the risks, theguy is a great communicator, you know, he goes on all kinds of different crypto podcasts and explains how to take pressure from people saying you're a scammer, this is just another part of you, you know why I can?

Do this to myself, great, then do it. He geared up, built a team, and built Athena, and what have you done? I think it's a testament to the team, um, why they've been able to get Jer 2.4 billion in TVL since then. In February, they are now incorporating Bitcoin. You know, doing basically the same strategy instead of just Ethereum. I was curious and I don't know if this will have any effect, but could Bitcoin affect dollar returns in any way, if so, I mean it would be a second order effect in terms of how people trade perss.

What is the financing? Is it short or high? I'm not too sure again, it's just that it's a variable rate, so whatever. the market is willing to pay then they will be able to capture that okay so now let's zoom out like we've been focusing primarily on bitcoin but obviously we've seen often that you know when it comes to these crypto markets like the price of Bitcoin rises and then interest goes to other altcoins. So what effect do you think we'll see in this cycle? You know, things like Ethereum Salon, just like the rest of the cryptocurrency markets, how do you see things developing next? well, what bags do you have?

I want to hear some, I need some, you know, what's going to show up here, how degenerate we want to get here, oh, DJ to the max, man. I'm trying to make money with the left curve, my uh, my bag of biggest meme coins is this thing called Zin coin um so Zen is very big. He's pushing this too well, listen, I got excited to buy my bags like 3 times higher. than what I originally bought, so I got pompous, but um B Zen is a big thing in the US. It's like a nicotine pouch, basically people use it as an alternative to smoking or vaping.

It has become very popular among boys. My age, 20-25, is also very associated with a similar culture, so a lot of people like, I don't know who NK are, NK guys, um, they are very popular, like streamers or personalities of the media. with people my age, uh, as well as with Tucker Carlson, he's been a big proponent of Zen, so it's associated with a kind of quote like bass culture, so to speak, they just threw the bass in and then it was We're about to launch a rewards program where you can scan the back of the can like there's QR codes on the back of the can and get tokens so I think it's interesting it's pretty interesting so if you think about it true, if it's going to be like the right side of the bell curve, it's the first type of crypto rewards program that subsidizes both the use of a product and, on the part of the company, on the part of the pmi, subsidizes the income in in theory, uh, I think the biggest risk is obviously PMI coming after them and saying you need to shut this down, but in theory, you know people are basically getting paid for you to use Zen on the tokens, that allows them to buy more Zen or you.

I know that the Zen trends you are buying are becoming free while contributing to the pmis. You also know Zin's sales, so that's something I've been excited about. I think overall the meme coins I've been on. What interests me is like cultural currencies, basically how to tokenize different cultural movements. I don't have any bag of this, but I do like Andrew Kang's thesis on Trump and basically you know if these things are like tokenized arrests, how many times is it Trump? I'm going to be mentioned in the media between now and the end of the year, probably a lot more, you know, more than zero, um, so things like that are pretty interesting to me, um, outside of that, like I mentioned, you know Coinbase It's probably my biggest. holding out on Bitcoin Arthur, what about you, what are your theories?

I mean, obviously Solana is the hot kid on the block this cycle and we're seeing their TPS numbers completely, which is fine, I mean, it's just a function of them being successful in attracting a crowd of traders. meme coin degenerates and want to trade in salana, does that mean salana is going to change in terms of market capitalization? No, I don't think so, but again, like you said, the price of bitcoin goes up, everyone feels richer and they get into all these kinds of, you know, different kinds of alternatives, obviously, I've been pushing this narrative like AI currencies. .

I've been, you know, a big believer in coins, but there are also others out there, like TOA. and bit tensor has done it very, very well. I think i.net is a big airdrop that people like, so there are all these different types of narratives and then you have all the new new L1 l2s that are being launched. uh this cycle so again all the alternatives will come together the question for an investor is to choose the one that resonates the most with you focus on your bets to make the most money at this particular time that you can because obviously , most of these things are completely bad and are not going to live up to what they said they were going to do in their attractive set of images, so you should be very clear of this when the market starts to turn around when the people start asking the question oh well, let me look at all those users, let me measure the TPS compared to what you told me two years ago, when I invested in this, how many AIS do they really have?

This uses how much data you've actually put into the Chain compared to what you thought two years ago, so when you start asking those questions you want to be very clear on most of the good stuff that's going to be smoked, so You're in a big moment, it's time for you know, put it on, forget it for a while, they'll become really intellectual about things, yeah, I think generally the natural flow that we see is, you know, like in . Like most assets, you know that at the beginning of the cycle people hold Bitcoin and then I think in this cycle it has also been ethical and soulful, and then you know that the wealth effect grows due to the appreciation of that type of value central. assets, money simply flows down the risk curve.

Another thing that I guess I forgot to mention that I'm really excited about is the social fi um. I don't know if any of you have used Front Tech, but the beta version. that V1 was pretty clunky and not very smooth at all, like super super slow, but the concept itself is basically something like, you know, not token gate, but they call them keys, but essentially token gate, the access to someone and something like a private group chat or being able to, you know, ask someone questions or get their opinion on the market or whatever, or even if you had to uh, non-crypto people get involved like you know big celebrities. . being able to just have conversations with them, um, I think that could be pretty big and I think it probably has the highest chance of any crypto app attracting non-crypto people, um, and wait, you'd say that even on something like farter Which I know it's social, it's essentially yeah, very similar apps, right, I just think these F apps probably have the highest chance of getting any of these, like you know, mainstream artists, celebrities, influencers, whatever you want to call them, involved. in cryptography.

We're not going to come in and do something that you know about liquidity farming or something like that, what's much more likely is that they're going to come in one of these apps like frch or farter where you know the kind of on-chain experience is almost completely abstracted, uh . and then all they have to do is basically continue like a group chat and talk to their fans and you know they can also filter out all the haters because no one will want to buy your key, no. one is going to want to pay a thousand dollars for your key if they hate you, so basically you're in this private group of people who you know really want to hear what you have to say, etc., and then you just go around the AI, which they were both saying, there's a lot of buzz in this kind of crypto and AI sector and there are so many different ways that these two technologies can come together, outside of the different variations that we're seeing.

There are some that you are particularly excited about and that you think are more interesting or investable in. I mean, I think you don't want to invest in anything that's like an app other than some kind of open source model. like you want to invest in some kind of AI infrastructure, whether it's computing power storage chips, so all the really successful narratives in crypto are like, oh, let's create a decentralized network of people that provide computing power or We are going to create a decentralized people data storage network for AI. That's the kind of thing you want to get involved in because then they don't have to pick a winner.

It's like how many open AI or anthropic startups are going to launch a business because they simply decide to. do the same service themselves internally and we're already seeing that, as you know, a lot of Silicon Valley VC startups are just zeroes immediately once the open AI decides okay, we like to do that very well, we have a better distribution, we have the model um. We can completely disintermediate it, so I think you'll want to, as I like to say, focus on AI food groups, calculating power and storing any kind of related currencies, it's very easy to build a very compelling narrative around those, yes, I am.

I am optimistic about the crypto AI overlay. I just think from a narrative perspective it makes a lot of sense. However, I am not positioned on anything, but I like the file currency thesis. I think it makes a lot of sense. Well, the last two quick questions we started talking about the have and you know, as we mentioned, there's often a new all-time high after the h, but we said this year it's going to be a little different, so out of curiosity, what's your? Bitcoin price projection for year-end this year-end or in general, well, two, we can do a year-end for

2024

and also, what do you think the next all-time high will be okay?

My end of year price prediction is 99,999 and my um all time highest prediction is 900,000 n well basically $1 less than 1 million Bitcoin wait on the next one in the next cycle yeah oh , wow, okay, defined cycle because we had whatever we like for three years and five. years, okay, look, I'll say 120,000 in a year, um and I'll say 500. I'll be a little more conservative than Arthur at the end of the cycle for the next cycle, okay and how do you define the cycle based solely on each time this guy liquidity cycle peaks and, um, I don't know, you have like you know some G7 country that comes out and bans Bitcoin and people are suddenly afraid to hold it or something, and I think that's probably The most probably the catalyst that culminates this current cycle, um, is that you have some kind of coordination, basically, like capital controls, like the money is going, you know, a country that we have already started to see as an omen of this in countries like Nigeria, who like it.

Obviously, it doesn't really matter, but I think there's a decent chance that you might see that on a broader scale at some point and that's probably I think that's what maybe culminates the cycle, uh, Arthur, what do you think? I think that if they were going to ban it, they would try to do it, they would have already tried it, they already have done it. My case Bas is to look at China in China. Bitcoin is not illegal, it is not illegal to have Bitcoin, it is illegal. I do a lot of things in China, obviously, very controlling, the kind of policies they have there, but they haven't considered Bitcoin to be illegal because I think they know it's very good publicity when you do something illegal that you can't actually enforce.

In a broad sense, individually, yes, the police can come to your house and put a hammer, put an M16 to your head and say: give me the private keys. You know a few different people, but on a large scale it's very difficult to enforce a ban on private ownership of Bitcoin, which is different than it being in gold, because in 1933, FDR in the US banned private gold ships. . It's very easy to enforce that policy because gold is heavy and you know it's very easy to find someone who has a that stores a large amount of gold versus a private key that you have in your head, okay, okay, this has been hugely fascinating discussion, thank you both so much, um, personally I'm also excited to see if the event happens on April 20 420 or the 19th, which I think because it was originally projected for 420 and now I think it's shifting a little below GMT time or like guessing what time zone it might be, could be very subjective there I know, but last estimate.

I saw that it was the afternoon um yeah, UTC time on the 19th, so obviously at least on the east coast it would be um, it would still be the afternoon of the 19th. I don't know what that would be in Asia, that would be the 20th oh, that would be fine, so maybe for some, maybefor half the world, they'll be able to experience it on the 20th anyway, okay, thank you so much for joining, where can people learn more about each of you? Crypto haaz on Twitter, a mailstrom fund on Twitter too and I have a Haze crypto substack.

You can find me on Twitter at W Clemente II and then at the research firm at reflexivity research.com. Perfect, thank you both very much for joining the chain. Amazing thanks. So much for joining us today to learn more about Arthur Will and Bitcoin after watching the show, not for this episode. Unchained is produced by me Laura Shin with the help of Matt Pilard Ju Rovic Megan Gavis Shashank and Mara thanks for listening Unchained is now a part of the coindesk podcast Network for the latest in digital assets. Check the markets daily 5 days a week with presenter Noel aters.

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