Bankless - Bull Trap, or Bull Market? with Vance Spencer

Episode Date: January 26, 2023

Vance Spencer is the Co-Founder of Framework Ventures, a VC firm that got its claim to fame by sticking around during the 2018-2020 bear market, going all-in on DeFi before we had a name for it, and taking risks and finding gems while everyone else fled the industry. This is Vance’s 4th appearance on Bankless, because in addition to being a chad VC, he’s also adept at measuring the markets and understanding metas, which is what we’re looking to do here today. Bitcoin is down 66% from the top, but up 50% from the bottom! ETH Down 66% from the top, but up 75% from the bottom! Solana down 90%, but up 200% from the bottom! Meanwhile, Ethereum’s L2 ecosystem is HOT. OP is hitting ATHs. RPL is at its highs in ETH terms, nearing highs in USD terms… Aptos is somehow at a 16B valuation. Question: Where are we??? Vance has the answer. ------ Crypto Tax Calculator | Free Crypto Tax Calculator https://bankless.cc/CTCpodcast  ------ JOIN BANKLESS PREMIUM: https://newsletter.banklesshq.com/subscribe  ------ BANKLESS SPONSOR TOOLS: KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken  UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap  ️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  EARNIFI | CLAIM YOUR UNCLAIMED AIRDROPS https://bankless.cc/earnifi  ----- Timestamps: 0:00 Intro 6:24 Vance's Read of the Market 8:10 Ranging 9:40 Indicators 13:00 Apathy Market 15:30 Trends 18:41 Institutions 22:45 Is FTX a Permanent Stain? 25:45 Aptos 29:30 Alt-L1s 35:05 Private Markets 37:24 Crypto Gaming 41:15 Future of DeFi Tokens 43:39 Macro & Recession 45:40 ETH/BTC 49:40 Alt-L1s Over? 51:05 2023 51:50 Closing & Disclaimers ----- Resources: Vance Spencer https://twitter.com/pythianism  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

Bankless Nation, we have a special bonus episode for you today. We've got Van Spencer on. We're going to talk about a question that I think has been in our minds, has been in the community's mind. Where are we right now? Is this a bull trap or a bull market? I can't tell. And there's debate on both sides. The bulls and the bears are hashing it out. Not sure if we've hit the bottom yet and are on the road to recovery or if we've got more bottoms to hit ahead. So, David, what are we talking about today? Yeah, so Ryan, I think we're going to try and answer your question. Are we ever going to get three-eat, three-digit eth back? I mean, the bankless listeners will know that I am just not, I don't think that's in the cards. I don't buy it. But there's some, we're at an interesting inflection point in the market. Bitcoin is down 66% from the top, but up 50% from the bottom. Ether, also down 66% from the top, but up 75% from the bottom. Solana, down 90% currently, but is still still. up 200% from the bottom. Meanwhile, the L2 ecosystem is hot. OP token is at all-time highs. RPL is high as high in ETH terms. APTOS, somehow a $16 billion valuation. So where the hell are we in the market?

Are we in a bear market? Is this a bulltrap? Is macro going to send us a recession? And this is the last time to lock in profits before we all die. I don't know. But I want to ask some of these questions to Vance and just overall get an audit of the market. And so that's what we're we're talking about today. Yeah, Van Spencer, I think it's somebody who has got a good sense of this. That's why he was the number one person who came into mind when we were asking this question of like, where are we in the market? So, guys, before we get to you, Vance, though, got to share some good news for you. It's tax news. It's crypto tax news. Look at this headline here. If you do choose to sell, make sure you put this through the tax calculator.

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Get your tax. Don't defer. Don't procrastinate. All right, David, what should we be looking for in this episode? you teed us up with a lot of questions in the intro here. Is any human being able to actually answer those questions? Are we asking too much of Vance? Yes, and I hope and I think that he knows that.

And so no human can read the market. We don't know if we're going up, down, left or right. Well, we're definitely not going to the left. We're definitely going to the right because that's how charts work. But I think listeners should really kind of pay attention to like, all right, how much risk is on the table in 2023, how much exposure do I want to have? And like just think about positioning as we go into 2023. I think I'm a big fan of at the very least 2023 will be volatile over the year. And so think about just how how much risk do you feel like taking on this

year. Good for planning purposes. This episode is coming right at you. Before we get into it, first we're going to tell you about the sponsors that will help you go bank including Cracken, which is our number one crypto exchange. It's the one we recommend for 2023. Let's get to it. Cracken has been a leader in the crypto industry for the last 12 years. Dedicated to accelerating the global adoption of crypto, Cracken puts an emphasis on security, transparency, and client support, which is why over 9 million clients have come to love Cracken's products. Whether you're a beginner or a pro, the Cracken U.X is simple, intuitive, and frictionless, making the Cracken app a great place for all to get involved and

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you gotten? This last bull market had a ton of them. Did you get them all? Maybe you missed one. So here's what you should do. Go to Earnify and plug in your Ethereum wallet and Earnify will tell you if you have any unclaimed airdrops that you can get. And it also does proaps and mintable NFTs. Any kind of money that your wallet can claim. Earnify will tell you about it. And you should probably do it now because some airdrops expire. And if you sign up for Earnify, they'll email you anytime one of your wallets has a new air drop for it to make sure that you never lose an air drop ever again. You can also upgrade to Earnify premium to unlock access to air drops that are beyond the basics and are able to set reminders for more wallets. And for just

under $21 a month, it probably pays for itself with just oneirdrop. So plug in your wallets at Earnify and see what you get. That's EARNI.fI. And make sure you never lose another air drop. And Van Spencer is the co-founder of Framework Ventures, a VC firm that got its claim to fame by sticking around during the 2018-20-2020 bear market and going all in on Defi before we even had the name Defi, taking risks and finding gems while everyone else fled the industry. Vance, this is your fourth appearance on Bankless because in being addition to a VC Chad, you are also adept at measuring the markets, understanding metas, which is what we are looking to do here today. Vance, welcome back to Bankless. Thanks for having me. Good to see you guys. Cheers. Always a good time, my man. And like we've been teasing in the intro and just now, we're really just kind of looking to get a lay of the land.

Like what is the meta right now? Like because, like I said, we're kind of in this weird middle ground of being down bad, but up big from the bottom. So at just the highest of levels, when you look at the global rate of the market, how are you feeling right now? Like, what's your vibe?

Feeling good. Pretty good vibe. I think we're just ranging. I don't think we need to like overly classify if it's an echo bubble or a bear market rally or if this is the start of the new bull run. We're just kind of ranging between one and two thousand on Eath and you know 16,000 and about 25 like the psychological level of where three arrows got liquidated and when FTX shut down. I think that's kind of the the emotional high watermark of kind of like you know you need to clear that and put that behind you before you can really go anywhere. But we feel pretty good. We're kind of doing what we've always done, which is, you know, number one, stay alive. Number two, take advantage of opportunities in a market like that. And number three, you know, not get too worried about it because it's going to take a little bit. And that's okay. All right.

So let's talk about this ranging idea, right? I do think we're probably ranging, but let's define what that means. So by ranging, do you mean we've already seen the bottoms? Do you think we go back down to the basement that we were in with triple digit, ETH, God knows, what was Bitcoin under 15K, Goblin Town? Or have we seen the worst? So the bottom was 888 in June for ETH. That's the main asset that I track. And to be honest, when that weekend happened, that was like a weekend in June, I think, there were so much for selling that weekend. It was BlockFi. It was Voyager. It was all the centralized lending

dress, dust trying to clear their book and reduce counterparty risk and all the loans were getting called in. So people were selling crypto to return loans to these guys. You know, frankly, there's no credit left. And so that's not really going to happen again. We've blown up Tara. We've, you know, blown up or they blew themselves up, FtX. You know, there's Genesis, there's Gemini, there's DCG, there's those, but those really aren't, you know, as big in my mind. And so I don't know if we go back to the bottom. A lot of it is just macro dependent. But, you know, it was interesting to see Eath bought them in June and then all the tech stocks bought them in kind of the fall. You know, we were the first in and it looks like we might be the first out as well.

Yeah, that definitely tracks with the overall vibe of crypto always just being ahead of the game and moving faster and just being a faster canary in the coal mine. I think the thing that's been the most interesting to me is just looking about how the market has reacted to news. The news that Genesis indeed was going to go through bankruptcy, DCG's. not in the hottest position. Yet the market pumped right after that news. As soon as the news that Genesis was going to go through bankruptcy, the market went up like a global, like 20, 30%.

And so when the market, like, doesn't react badly to bad news, that starts to give me some sort of assurances that the worst is over. How do you feel about that take? You know, it's anything can happen, right? He thinks it's a mid-take, D. David. He's trying to be polite here. I think, you know, again, we're just in this range. And like, you know, if we're over 1,400, it's the dawn of a new bull run. If we're under 1,400, you know, the bottom might not be in. There's really no assurances or guarantees that you can get at these

levels. But I don't look a lot at macro. I look at like a few basic indicators. One is have interest rates peaked. And if you think about 2018, the 10-year peak, in November. The stock market, uh, bottomed in January, February and, and crypto kind of re-bottomed then as well. If you think a lot of this is driven by interest rates and liquidity, you know, we're over or at least I think we're over that hill, which is really positive and supportive. But the macro is still kind of unknown. There's a lot of, you know, potential, uh, you know, black swan scenarios call it. And so you really can't, you know, be too confident, but it just depends on how long your time horizon is. If you've got, you know,

got five or 10 years, or in our case, up to 15, these prices we like, we've been behind, you know, this is kind of what we're built for. It's hard to take a short-term view on crypto. And, you know, if you need guarantees about if the bottom is in and you only have a six-month time horizon, I don't feel too badly for you if it doesn't work out because you just need to have a longer-term time perspective. It just is what it is. And, you know, I've been through this like three or four times now.

and you just got to link them your attention. I mean, like, totally great. Can we just say, like, look, if you're, if you're only planning to be in crypto and holding your positions for six months, get out. And I don't mean this in a mean way. It's just like, honestly, it's just like, you're going to lose money. It's kind of like just, like, save yourself. I mean, I've seen so many people blow up, including last year, the biggest freaking hedge funds in crypto blow up with short-term time horizons and over leverage. I think that's got to be a key message.

So what you're saying, though, Vance, is that you think maybe interest rates have peaked, okay, like you're uncertain of other macro events. Maybe, again, they haven't peaked. I'm going back to, I know you were there. Back to 2018, though. In 2018 and 19, you know, the most painful part of that bear market for me wasn't actually hitting the bottoms, although March 2020 is pretty damn painful. I was like, what's going to happen?

But usually wasn't hitting the bottoms. It was this just long, this ranging. period, this whole apathy period of like nothing's happening. Like nothing's getting built, you know, will, like at that time it was kind of existential. Are there any other apps on Ethereum that can exist here besides ICOs and like, you know, there's beginnings of D5, but it was so tiny that it really didn't matter. Are you worried about that kind of ranging that sort of apathy period this bear market? Or do you think this is not analogous to 2018, 2019?

The way I think of it is, do we need something new? Do we need new apps, new use cases, new things we haven't even thought of? Or do we need more of the same? More defy, more NFTs, more existing use cases. And during 2018, it was like new. It was, you know, we needed existentially something to use these blockchains for. Because if you went to the conferences back, then nobody was building anything. And, you know, anything like I remember Civic built a beer,

machine that used on-chain identity. And that was this consensus, 2018 or something? It was, yeah. I don't know. I don't know. I was like, no, we hung our hat on for like eight months. It was a real use case of law chain. So at that point, you needed like a whole industry.

You needed everything to change. Right now, I mean, you look at ETH. It's at like 1,500. There's about 2,500, 3,000, Eth per day. You know, it's printing about $8 million in revenue per day. That's pretty good. Like, there's traction. You just need more of that.

And if you get back into the cycle of people using NFTs and defy, and what that catalyzed by, frankly, is like the price of crypto assets going up because with crypto assets, price has the ability to fix sentiment in ways that is not, you know, applicable in traditional equities. You know, when Heath goes up in price, there's more credit because it's using defy. There's a bigger wealth effect because all the NFTs are priced in it.

You know, there's all these things that are cultural. People send more, people, people use more. If like, you know, that is, you know, how the cycle bootstraps itself and it's reflexive. So we need more of that, more of the same. And we need, you know, a surprise. We need a game to work. We need, you know, we personally think it'll be games because they have the biggest consumer top of funnel, but it'll be a game. It'll be maybe something in the content space.

It'll be something maybe people are building real payment rails built on blockchains. But the path is there. You know, I'm not like scratching my head, trying to think of, you know, how we could use blockchains. Like, I know what they're useful for. It's just a matter of can we get the flywheel to bootstrap itself. I think we can at a certain ETH price. threshold it will. And then I think games will pan out. And so, like, I'm not really that worried, honestly. You know, just kind of take a little bit, but I've got time. Yeah, to talk about Ryan's

apathy market where we just go through 12, 16, 18 months of just like, oh, we range and then we just realize that nothing's happened over that period of time. There are some things going on in the market, which I am conflicted about, is this a short-term meta trade just because things like staking as a service tokens are in vogue in the moment, and that's where attention is? Or is this something new that we need to pay attention to? So, for example, like, RPL is at all-time highs in Ether terms. Lido token is at its highs, I'm pretty sure, almost at as highs. Then layer two tokens, O.P is at all-time highs. The Arbitrum ecosystem is super hot. I know, like, some of these things can just be a short-term, like a medium-term trend, a medium-term, like narrative rotation trade.

but they also could be like some of the foundations for what ultimately does emerge as a bull market however long this ranging period takes on so like when we watch these trends again staking as a service layer twos actually show up in market prices how are you thinking about that in the short term are you like okay is there something to keep an eye on or is this trader's just going to trade um so the things i look for are uh number one you know, you have a lot of price discovery in these smaller tokens, just because you have like a lot of VC unlocks. You have like a lot of liquidity farm tokens that are coming out, you know, so on and so forth. There's a lot of ability for people to find the right price for these things. And you have all of the teams unlocking as well if they hadn't through the bull market. And so it's actually very healthy that you're seeing a lot of volatility.

And you're seeing a lot of dispersion as well between tokens that have a lot of revenue and those that don't. And, you know, you've seen that in the price movement of things like Lido and Rocket Pool. And I think that's very healthy. And so it's worth paying attention to that stuff because those will tell you kind of where the crypto-native bid really is. It's really at this point, it's hedge funds, it's retail, and it's a small smattering of institutions that are buying the majors. But the signals you get from the crypto-natives, what they're willing to trade their

stables for in a time of a pretty deep bear market, that's a pretty good signal for what might be the next meta or the next narrative. The other thing that I think of and just look for is, you know, does fully diluted valuation match circulating valuation. It's hard for me to make a judgment call on things that have like 10% circulating just because you're playing this weird, low float game. And, you know, like, is that the right price? Is that the wrong price?

It just depends on, you know, what the supply of unlocks is going to be in the future. And, you know, it's really hard to forecast that, especially if you're thinking about who sells and who doesn't. And then the final thing that I look for is, you know, which tokens are going to break? They're all time high first where circulating match is fully diluted. And that is usually a pretty good indicator of where things go next. And nobody's really gotten there yet. But some are close.

You look at Lido, you look at things like Maddo. You look at things like, you know, even Eath is pretty close. Like whichever ones break first, you know, that usually has a chance to become the next meta. Vancewell, we're on the subject here. And you kind of mentioned it briefly as cryptonatives are kind of buying. Like look at what they're doing. and you said some institutions are buying. I want to talk to you about institutions for a minute.

Do you remember this was another mantra coming out of 2017? The institutions are coming. It was a Novagrat's thing. I'm surprised he didn't get that one tattooed. Got something else, though. But, all right. Sorry, Novo. Sincerely, sorry.

But, okay, so what about the institutions then? Are they freaking, we don't talk to them as much. I mean, we probably should from time to time. Actually, we're having Eric Peters on, I think next month, David, the podcast. I don't intend to ask him this question. But what's your vantage point? Are the institutions like scared shitless about 2022? I mean, you had Algo Stable Coins go to zero.

You had major institutionally safe hedge fund through his capital collapse. You had the number three exchange, maybe number two exchange. I don't know what this is. suddenly they're missing $15 billion. Oopsies. Like, are the institutions freaking out about this and heading for the for the hills? Is that going to cause a bare market? Like, or extend it?

What do you think about institutional buyers? So this was the real, really the first cycle we had institutions. And that's lost on, on some people. The 2017 wave was basically just ICO capital and crypto natives punting around. And it was very Bitcoin heavy. This was the first cycle. where the institutions really got in, the blockchain fund of funds got really big. You know, everyone got pulled up on the institutional side.

I think the problem with the institutional side is that a lot of people were sold a very specific dream of crypto, which was FTX, which was GBTC, which was putting Bitcoin on, you know, S&P 500 balance sheets, which was the NFT and Metaverse Wave. And everyone who fought to allocate at these crypto institutions now just looks kind of stupid. But it's not just a crypto thing. It's all the fake meat companies that are down 99%. It's, you know, phase clan stock, which is down 99%. It's all the car makers, which are fraudulent.

It's all the gross stock funds that have gotten beaten up. It's not just crypto. It's just the memes. It's the narrative stocks. Right. And so like whenever you think about, you know, what might the institutions be thinking, think individually. Think about a 32-year-old analyst or associate who's trying to make it to partner

who put their neck on the table to fight for allocation into FTCS and now just got completely buckled and is trying to figure out what they do next. Probably isn't going to be launching another headlong into crypto strategy or fund or allocation. Those things are just going to take time for people to recover from. I think the good news is that Robin Hood, you know, the growth tech stocks, the fake meat, you know, companies, those just don't have any tailwinds. Like, they probably may, they might not ever hit their all-time highs again. Like, there is just no structural momentum behind them.

If you think about what I said earlier where, you know, crypto was the first into the toilet and maybe it's the first out. The reason is because it has a bunch of progress. It has a bunch of applications. It has cash flows. You can, you know, value it, you know, a reasonable manner. And a lot of these other things don't. You know, Robin Hood, no matter how big it gets, a payment for-to-flow business model means that it's really never going to generate a ton of capital at scale. And so I think it's going to take time.

The institutions aren't all gone. It's just some made unfortunate decisions to allocate into funds or, you know, investment opportunities that didn't pan out. But that's just kind of how it goes. And it's unfortunate that there isn't any continuity, you know, of someone who's just like the crypto guy at, you know, like one of the big endowments. Because, you know, that way it would be better. They would allocate during the bear market.

They would not just come back and buy the top, kind of like they always do. But, you know, that's just life. They just have pretty bad timing pretty much across every cycle. All right. So I get that argument. I just want to advance, take the devil's argument case for a second. Okay, the fake me companies and the meme stocks and et cetera. Yeah, they're down bad too.

All right. But they didn't have a, you know, $10 to $15 billion fraud who bribed one third of all Congress that literally kind of went bankrupt. The biggest fraud scandal, whatever we're calling this thing now since Enron, does that cause a permanent stain on our industry in ways that maybe the other mistakes that were made during the like cheap money era haven't? What do you think about that argument? So I think first of all, you know, Nicola founder Trevor Milton, he's in jail. You know, Chimov launched, I think, 20 SPACs that have all pretty much gone down 95%.

there's a fair amount of blame to be passed around when we're thinking about 2021 and what exactly happened. SBF is the biggest fraud of them all. He has funny hair and he looks strange. And so people like to write headlines about him and all the strange things that he does. And that's just like something that we're going to have to collectively live through throughout the case. And that's happening in October. So it's not away anytime soon. But everyone right now is just shocked or or I think they're coming out of the shock. They're probably like, you know, dealing with it now. But in the fullness of time, I think people will realize that crypto has real use cases,

has real traction at scale. Many of these other more speculative companies and projects and ideas did not. And conflating them is just a stupid idea because that's how you get sidelined. And so I think right now, if you're describing things, institutional LPs, you need to be very honest about it's not like this metaverse future that's like 50 or 100 years away we have traction now. Defi is better, faster, cheaper. Games have a structural advantage if they're built on blockchain rails. There's many other interesting things that are happening that are generating cash flow. You know, you just have to lead them back to water, but that's okay. This kind of has

happened for the past two or three cycles. So it's not really anything new to me, at least. I think there's just a great sober analysis of like positioning crypto, the crypto markets relatively shoulder to shoulder with some other like frontier technologies that are coming out and saying, hey, like, we had a fraud, but like there's other, there's other frauds too, and now our frauds are shoulder to shoulder with their frauds. And so, like, this is all, this is all just the way that finance works. And I do appreciate the take that, at least in comparison to, like, you know, the plant meat technology, crypto rate of innovation is still probably the fastest there is on the planet, probably. Like, our iterative cycles and our innovation that we can

get inside of a bare market is unprecedented. And Vance, you talked about just like the difference between fully diluted valuation and market cap and being able to build our way. I think my interpretation of what you're saying is like, well, even when our valuations might get ahead of us, we can still build our way back up to those valuations. But I want to put on the screen here the Aptos chart, which is currently standing at a $16 billion network valuation. Yeah, that fully diluted. $16 billion network valuation.

Absolute mooning in price to all-time highs. when you see the Aftose chart, what do you see? Oh, sorry to the stream because the visuals didn't make it up there. Sorry about that. But same question. I'm a realist. I just know that it doesn't have any apps built on it. There's no ecosystem.

There's no network. And frankly, I think it's a little embarrassing. But, you know, like, I'm not the judge jury and executioner of, like, what gets to go up in price. And me just being, you know, I think the non-charitable. version would be salty about this. You know, I think I could see how people would arrive at that conclusion, but I don't know, there's always going to be the speculative excesses of crypto to see it like totally dominate a market cycle and pull away from things that have traction.

I think we just need to get past that at some point. And so, like, let me, can I ask you? So, you know, some of our friends, some of the people David and I associate with and kind of that chart that we just showed really triggers them. like it makes them angry it makes them angry it pisses them off um in ways that maybe aren't entirely mentally healthy but like i also feel that i mean like um if you have a blockchain without traction without use cases without selling the thing that blockchain sell which is block space and it's valued at i mean isn't that what we just went through in 2022 does it

Does it make you mad at all? Does it piss you off? Or you just like kind of zen about it? Like, whatever. I mean, the long-term, like, future will bear out however it does. And the short-term kind of things don't matter. How do you feel about these things? Have to take a long few. You know, most of these things eventually correct to the point that they should be valued at. But all blockchain assets trade expensive. That's the reality of the situation. And they trade expensive because, you know, we at least think that we're building into this massive addressable market that we should be able to capture in the near future. But like it works for us and it works against us. You know, eth is a $1670 billion asset right now. That's expensive. That's bigger than most software companies, but the size of Salesforce.com. I think it's, you know, pretty cheap. We've, we've certainly, you know, expressed that position in our book. But, you know, if you come to it to a software company, I could see those investors being like, how could it trade so high?

This is complete bullshit, whatever, whatever, whatever. And so it's a feature in a bug. You can't have Aptos trade that high without Ethereum being there. Sure, I think the ratio corrects at some point, but I've never really been able to figure it out. But, you know, like you guys did. Most of these blockchains were multi, multi, multi-billion dollar valuations of the like the long tail L ones. And it just happens.

You know, it just is what it is. Well, XRP still hasn't gone to zero, of course. It's worth still billions, although they haven't hit an all-time high in over five years, which is kind of interesting, whereas, you know, Eth was in the last 400 days or so. But I guess, you know, my understanding of framework and how you've positioned yourself, this could be totally wrong. I'm not an LP. I don't have the inside scoop.

But you guys probably missed a lot of the quote-unquote alt-l-1 trade of 2021 and 2022, early 2022 at least. I don't know if that'd be fair to say. Certainly, like, I did, and a lot of people in the bankless community did. And to the point where it felt like I was almost taking, like, crazy pills. If I go rewind January of this year, things were much, much different. And we had Luna mooning. and if you'd say anything bad or like contrary to sort of the narrative against any of these kind of alt-one trade it could be something simple as like I don't think this is worth what the market thinks it is right now something like that you get absolutely pummeled to the but to the point where I felt like I was a little crazy what what was the effect on you like having maybe I don't

know if this was your position too, missed some of these alt-one trades. Did you think that you were like wrong for a period of time? And how do you kind of deal with that? Yeah, explore that with us. Yeah, I mean, my job isn't to hit everything. It's to hit enough and be unique enough that, you know, I produce a portfolio that has really good returns and doesn't look like my, my competitors. and, you know, was I, we didn't hit the old L1 trade. You know, we were really kind of in the defy and now gaming kind of those types of investments. You know, frankly, like, in the fullness of time, our portfolio did better than if we

had allocated to those at the time when the fund could have allocated to them. So I really wasn't that worried. I think more of it in terms of like, what should I learn for the future? You know, are the learnings that, I should be aping into every alt L1 that I see and hoping that it goes to $16 billion fully diluted and sell into retail. I don't really think that's learning. We've had a lot of opportunities to chase fast money, but we've really never taken them. We take a long-term view, which means protecting the brand and trying to do things that we think have real product market fit and traction.

And so we're happy to kind of let our theses play out and be proven wrong or right in the fullness of time. but I don't think the learning for me was, you know, allocate to all the L1s. I think the learning was a lot of them were probably pumped up by cheap credit and probably customer money. There was a massive, you know, overinflating of, you know, what they thought the fundamentals were. And, you know, if I look back and also if I look forward, I can tell which ones are generating a lot of revenue.

I can tell which ones, you know, are actually going to be attractive to institutions. And I can tell which ones are frankly going to just going to be the few. of the industry. I think eventually we're going to see these more speculative all L1s, tokens, etc., die. And we've already seen a lot of that so far. And I think generally the market is tending towards my perspective rather than the opposite one. And yeah, you also have to remember that back in the day, ETH had not transitioned proof of stake, EIP-155 was not in, it had not scaled. All three things of those were the main motivating factors to launch these all L-1s. And frankly, that those aren't there anymore. So let's see. And, you know, if you have some like eigenlayer

where you can use Eath to secure your Oracle, blockchain, or middleware, why launch more with tokens? It doesn't make a ton of sense. There's a couple more sectors of this conversation that we want to touch on, Vance. The state of the private markets is something that I want to pick your brain on. But also, I know that you, of course, pay attention to macro because how can you not? And there's just always this looming fear of recession on the horizon. So I want to ask you about those. two things. But first, a moment to talk about some of these fantastic sponsors that make this show possible. Uniswap is the largest on-chain marketplace for self-custody digital assets. Uniswap is, of course, a decentralized exchange, but you know this because you've been listening

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The private markets have been volatile just as much as the public markets because they were super overinflated a little bit over a year ago and now have come down quite a lot. At least that's been what I've been seeing. Vance, can you give us an audit of just like the state of the private markets? So, like, how are the supply of deals? How are the valuations of those deals? is framework right in a bunch of checks right now? Like what's overall going on from your neck of the woods? We're still deploying.

We announced an investment today. We announced another investment last week. So like we're certainly doing things. I think things have just gotten a lot more grounded, lower prices, more of a focus on revenue, more of a focus on, you know, what address will market are you tackling today versus, you know, what market do you need to invent tomorrow? And, you know, at the sea level, which is kind of where we're, replay. Not a lot has changed. Like, you know, things have gone down in price quite significantly,

but other than that, we're still seeing a lot of flow, a lot of entrepreneurs, et cetera, et cetera. I think where things have changed the most are at the growth stage, you had OpenC at 13.3 billion valuation, you had Alchemy at 12. You had Circle at nine. Coinbase is worth 12 billion right now. So, rewrite everything to that, and you probably get a valuation for those startups of a few billion, you know, if you're, if you're being charitable. And that has... Aptos is worth more than Coinbase right now? Oh my God.

Yeah. So, you know, we'll keep in mind, like, you know, Coinbase doesn't have the same concept of like fully diluted in circulating supply. So it can't really like play those types of games. Sure. And so, you know, the value of Aptos, who knows what it actually is? It can't be determined. But things have come down quite a lot.

We still are waiting for like the class of, point 21 to come back and raise because they're going to need to. But there's a lot of startups out there. And the reality of the game is that it takes a thousand startups to produce one that's good, or 10, you know, more charitably. And we're just seeing that process play out in real time. But we're getting to the 10. Like it feels like we know where they're going to be and what the names might be.

And that feels good. Parents, your framework has really leaned into the whole gaming side of things. but from what I've seen on Reddit, gamers hate NFTs. So how are you fighting that fight? So Web3 games are uniquely positioned to offend both existing gamers and crypto people. Crypto people don't think it's fully decentralized.

Gaming people don't think it's a real game. And so who's going to play it? The answer is a lot of people. There are tens of thousands of people trying Alluvium, playing, you know, it's not even connected to NFTs yet, but like the game is compelling. There's a community forming around it, and it's very crypto-native, and it can scale. You know, on the Web 2 side of the Web 2 studios that are coming in, you know, Stardust has 80 customers right now that are building on top of it that are, you know, not going to do the full token feedback

loop, you know, reflexive Axy game, but they're going to put NFTs as shields or swords or, you know, the virtual currency will be tokens. Like, we're making baby steps. And so I don't really expect to get a lot of love from really the crypto people or the gaming people. We're just going to create a new market. But the good news is I'm being proven right at a small scale, like things like pixels, which another game on Star Dust has 40, 50,000 monthly active users are scaling. It's growing.

It's more of a larger blockchain apps on a blockchain. These things are already happening. I just am waiting for it to get from smaller scale to larger scale. And then I'll be able to say that, you know, I was definitive right. But that's a this year story. David, I'm curious. Have you heard crypto people like hate on crypto games for not being decentralized enough? I'm wondering where that's coming from.

Usually it's the, oh, it's just a Ponzi scheme with a skin layer on top of it is the typical critique that I hear. Or it's not a real on-chain game. You know, not all of the game is on-chain. It's like, why would we want to put all the game on-chain? We're not trying to build like the most on-chain game. We're trying to build a game that appeals to people that don't. I definitely don't hate it.

Vance, if the Vance Spencer, the framework thesis for crypto gaming, is 100% correct. Can you kind of give us what that looks like over the next one to five years? Like how do games progress under your vision for crypto gaming? It'll feel like when NFTs first became popular, when all the DFI people were like having fun, they thought they were inventing the future, it was going to be dominated by DFI, and then NFC started happening and people were like, that's not right. Those are dumb.

Those are just JPEGs and monkeys. And, you know, that doesn't involve defy. And so, like, how could we be left out? That was totally me at first. 100%. For like two or three months. It happens. And, you know, then the NFT people got rich.

And it was like, these people, like, how could they do it? No taste. And, you know, some of respect for the elders. You know, first of all, it's happening. the background, nobody realizes that people are playing things like Lovian or playing things like pixels or, you know, like a lot of these games are starting to ship their first iteration. And you're going to have a couple of days where it just feels like Stepen did, where that was like all anybody was doing for like a week. And you're like, how do I buy the shoes and like,

should I be doing this? Like, this is stupid. And like, it's only popular for people in other countries. So I'm not going to do it. It'll feel like that. And it will happen a few times. And then you'll see the burn on, on Eith or an L2. and that's when it's going to become real for people. And what you're going to see is that it won't look like the exact same stack. Some of the wallets will be custodial. You know, that'll offend a lot of people. The whole game won't be on chain.

You know, that will offend a lot of people. But it'll bring a lot of new people on the crypto blockchain rails just like the Reddit point system did. And that's what I'm looking for. More people. Vance, D5 has been kind of down only for a while now. It feels like two years. Maybe it has been two years.

I mean, there have been sectors, there have been tokens that have gone up, but overall down relative to ETH, certainly. Is it going to make a comeback at any point in time? I mean, like, some people are just pointing to you now broken tokens, broken token economics, no, like bad governance systems, no actual revenue profit attached to the token itself. What do you see the future of defy tokens, even some of the blue chip ones, which I know you're kind of like, you're fundamentally bullish on some of the original defy types of applications like trading and lending and these types of things. But what about the tokens?

So I think a lot of the defy use cases are leveraged to the price of the major assets. And so, you know, that's a category where you just need more of the same. You know, you need more speculative interest in crypto. You need more people using ethos credit. You need more people buying NFTs. Those are all Defi use cases, and those are all largely driven by the price of crypto assets. And so, you know, there is a point where that flywheel gets stronger and stronger. It's above a price point where we are today, in my opinion.

But, you know, that's kind of the bulk case for defy. It's the most endogenous use case that's on chain. You don't need to invent anything new. We know it as product market fit. And we know how the tokens can accrue revenue. There are a lot of broken tokens, but those are more of a symptom of not having product market at scale versus not being able to hand the revenue over token holders. So that's kind of like one point on defy. But you see, you know, even in this market success stories, the new number one app

on defy is Lido. It is adding, you know, as of yesterday, 65,000 eth per day stake through Lido. That is a lot of ETH. That is a lot of money. There's a lot of fees that can be redirected to the token. So, you know, people choose to see the thousands of tokens that didn't work instead of the 100 or so that did. But we're not in the business of the thousand tokens. We're in the business of picking the winners. And, you know, it just is what it is. Nobody said this is going to be easy. But there are signs of traction. There are signs of life there. And yeah, you know, it's all good. We just hold for longer. That's my opinion. Holding for longer has been a facetiously optimistic or good strategy for me. It was like, oh, I'm down. I'll just keep on holding. And I mean,

a lot that were really, really worked with ether. I don't know how going down the long tail of tokens, how much that works out. But, I mean, it's worked out prior to this. And so, there's one last line of question that I want to talk about, which is just macro and recession. I do know you pay attention to macro. I also know that you won't ever give prescriptive advice because you're not so foolish to do so. But as it relates to just how you think about things and things in 2023 and beyond and what other people should be things. thinking about as it relates to macro. What are you thinking about? Because the banks are laying off people. People are talking about that that's a canary in the coal mine. Tech has had massive,

massive rounds of layoffs. What are the first thoughts that come to mind when you hear the word macro in recession? I've heard it all before. I would say that's probably my first one. I've listened to all the Macro podcasts. I've heard all the takes. They're all, you know, reasonable. Earnings might go down. The recession might be bad. You know, there's a lot of evidence which suggests usually stocks bottom before the economy actually does just because you have people cutting rates and doing things like that.

But, you know, I don't find any of the like macro-dumer predictions too compelling. There's a lot of people, smart people, who thought the world was going to end last year, that oil was going to 300. You know, and we were going to be trading like sticks of butter for like wood. But that just didn't come to pass. And, you know, I think now with interest rates, you know, hopefully having peaked, we're on the other side of a market that's driven by liquidity and interest rates. And that's how I think about macro.

I don't really pay attention to it too much. Yeah. I mean, macro doesn't need to be super favorable. It just needs to be, like, not entirely hostile. That's at least my framework. Ryan, you want to bring up the ratio? Oh, I thought you wanted to bring up the ratio. I'll bring up the ratio.

Okay. This is a last subject and then we'll let you go, fans, because I know you got a meeting. But this is the thing that I've been keeping an eye on for a while now, which is, of course, the Bitcoin Ether ratio that I've now put up on the screen. I think this is one of the most highest signal charts in crypto. To me, it's the sign of health. Maybe I'm biased, but when Ether goes up versus... I think you are biased, sir.

When Ether goes up versus Bitcoin, I think that's kind of healthy. And ever since EIP-1559 in Proof-Stake, we've seen a general, like, uptrend in the ratio, except for the last two days. Vance, when you see the ratio, what kind of signals do you think it tells us? I mean, right now, if you zoom out, like it's, we've just come out of this massive years-long downtrend, and it's now kind of reestablish itself at a higher level. The whole way I think of it is if you're bullish, EIP-1559, the merge, you know, all the flows and the structural, you know, basically supply of Ethereum, that will matter on the

ETH-USD pair, but really what I look for is, you know, can all of these factors drive ETH to flip Bitcoin? And I think the answer is probably yes. And then once ETH does that, you know, ETHUSD will be in charge of its own destiny. So, you know, that's kind of how I think about it. I really don't follow this chart other than like very long-term time horizons, but I think it looks pretty healthy. Ethan Flippins Bitcoin. Do you dare to provide a time frame on that one? I don't.

I don't. You know, it could take years, could be sooner than that. But the math is pretty clear. And when you have the math on your side in terms of the supply of these assets, just think of it like, you know, you mix a bunch of elements. together, the lightest ones are going to generally float to the surface. It doesn't really make sense for the heaviest one to be on top, especially when that's getting sold in the market and the miners are down bad. So that's kind of how I think about it. Really, just to drive home on that

metaphor, light versus heavy, can you unpack that real quick? Sure. So, I mean, the lightest assets should float to the top. You think about like mixing salad dressing together. You know, you generally see the oil float to the top. Right. But why is ether light and why is Bitcoin heavy? Bitcoin is heavy because it has, I believe, about 300, 350,000 Bitcoins printed per year. And at a current cost of 22, 23,000, that's like $7, $8 billion of selling pressure that needs to be absorbed somewhere. So call it $500 to $800 million per month of buyers that you need to go find versus Eath, which has zero supply being issued. And you don't need to find those buyers.

And this may sound small for a market. that has billions and billions of dollars per day, but not having the persona of people who are coming in and selling these coins every single day, every single month is actually a very big thing if you've spent any time looking at order books. Just like all of the pricing is set on the margin, the most consistent buyers, the most consistent sellers and one asset having them, whereas the other doesn't, it's just a massive difference. And so it's heavier. It's also bigger in the aggregate. You need more buyers anyway to keep it up there. And so those factors, I think, will weigh on it and we'll see what happens.

Michael Saylor can do it. I expect him to announce something at some point. Just feels like, you know, he's been out there, maybe buying a few coins. So, fans, it's just not a matter of when. It's just a matter of if for ether flipping Bitcoin. Yeah. I mean, I think if you're bullish on crypto, you're pretty much bullish on that ratio. Because if the industry just stays how it has been in the past,

what are we just going to be doing Bitcoin again? Like that doesn't really hold my attention at least. Well, what about this question, though? Do you think that the Alt Layer 1, the Alt Layer 1 wars are over? I mean, so every bull market we've had kind of a round of new contenders coming after Ethereum's throne, will that happen again? Yeah, of course. There's a market for being early to stuff. you know people want to be the next teeth killer that'll always persist even even when eigenlayer

launches and you never ever need to have your own token and like we'll find a reason for one because there's product market fit to being early for things there's product market fit for entrepreneurs launching tokens and so you need to just be cognizant of like you're going to have things like app does happen every but will you get fewer like I'm wondering if like the the investment opportunities move up the stack a little bit like you will get fewer you'll get fewer but you know ethel and it is still like the biggest venture outcome that people can target right and so you know people aren't launching a lot of defy protocols right now because they don't think the opportunity is there it's the opportunity is 100x larger to launch a base layer if you can become the size of Ethereum still it's still

yeah it's gonna be like that for yeah geez you know it is what it is but uh no need to be upset I like this Zen attitude Vance has towards these markets. Do you have any other thoughts for us? Any any kind of advice? So what should we expect in 2023?

What should we get busy doing? No advice of any sort. Don't leave, read, try to stay involved, try to support entrepreneurs. It'll take longer than you think, but it'll kind of happen sooner than you expect. you know it'll happen all at once so i would just say enjoy the time where it's not super crazy

and you can afford to take a beat are there still 100x opportunities out there somewhere isn't i'm not answering that question uh i hope they are david you have anything else for vance before he close this thing out no that's it vans thank you so much for for coming on in just showing your thoughts i think everyone just got a little bit wiser on the stream thanks guys always a pleasure appreciate it got to remind everyone of course none of what we just talked about was financial advice purely entertainment it always is on bankless risk and disclaimers got to let you know as well crypto is risky if you didn't know now you know so is defy you could lose what you put in we're headed west though this is the frontier it's not for everyone but we're glad

you're with us on the bankless journey thanks a lot