Bankless - SotN #46 - The ETH Trade with Su Zhu & Kyle Davies of Three Arrows Capital

Starting point is 00:00:06 Welcome to State of the Nation. David and I are super excited to have you tuned in to this special episode where we are talking to the founders of Three Arrow's Capital, a fantastic, very large investment firm. We're talking about their rotation into Ether the asset. David, they're pretty bullish, man. What's your take on this episode? It's always funny when we bring on guests who haven't historically been Ethmaxis and then they come on and they're more bullish. than us, like both of us put together. Yeah, that's exactly what happened. Suzu and Kyle Davies of Three Arrow's Capital. They are famous for generally just getting things right, having incredible reads on so many different things all at once, on chain metrics, you know, mainstream media and narratives, you know, crypto, Twitter. Look, man, they make the trade you wish you made, but they do it six months in advance, like almost consistently every time is how I think about them. Yeah. And And so let it be known.

Starting point is 00:01:08 Like traders can be successful. And these guys have been one of the most successful trading firms. And perhaps in crypto history, period, question mark. I don't actually know, but it definitely feels like that. And so they have a lot of prowess, a lot of clout. And so people definitely pay attention to what Three Arrow's Capital is doing. And recently, they have gotten very loud about their ether rotation. There was a very big podcast that went around on Uncommon Core with,

Starting point is 00:01:36 Kobe, a multi-cycler crypto trader and Sue Zhu, who's one of the guests, one of the two guests, one of the two founders of a three hours capital about the flippinging, right, ether flippinging, Bitcoin and the ether trade. And the just the magnitude of both Kobe and Sue Zhu publicly talking about their conviction about the Heath flippinging was a big deal in of itself. And so we got Kyle and Sue, which is actually the first time they've actually ever been on a podcast together. We got them both on to talk and go into more detail about this ether rotation, this massive just price run-up of ether. We are at six green weekly candles of on the ether US dollar chart and the ether Bitcoin charts. Ether just painted a $1,000

Starting point is 00:02:28 ether weekly candle last week with it's when it's previous 2017 all-time high was $1,440. So painting a $1,000 weekly candle is absolutely insane. And we asked, I asked Sue, like Sue, let's let's try and measure the magnitude of this move. And I ask him, do you think this is the biggest event in crypto's history? And he said yes. And that, that's bullish. that's pretty much how the podcast went. A lot of that back and forth, a lot of bullishness.

Starting point is 00:03:02 Guys, we usually do State of the Nation live recorded. We weren't able to do that this week just because of time zone conflicts. So this is pre-recorded and playing to you right now. But this is just a fantastic episode about the ETH trade, a trade that I think is the one to make if you don't have enough exposure to ETH right now. And certainly the three arrow capitals folks do as well. Just a few other things. before we get in what's new in the nation, in the bankless nation this week, we just dropped a fantastic episode with Vitalik on legitimacy. Guys, I can't say enough about Vitalik, of course, but this episode specifically, if you don't understand legitimacy, you don't understand crypto. That's what I walked away from that episode with.

Starting point is 00:03:48 It's kind of the theory of everything. It answers many of cryptos frequently asked questions, And I think you need to wrap your mind around the episode. And Vitalik was just brilliant at laying out the case for what legitimacy it is and why it's so important in crypto. David, any other reflections on that episode? Yeah, I frequently say that the crypto vantage point over just the world at large, not just the financial world, the macro world, but almost the whole entire world. The perspective and the position of viewing the world that crypto gives you is really advantageous.

Starting point is 00:04:23 And I don't think you can get that in any other industry. And that's really well embodied by this particular episode with Vitalik, where we just answer some very fundamental questions, not about crypto, but about the universe, the whole goddamn thing. And it just happens to apply extremely well to crypto and answer some of crypto's, like you said, the most frequently asked questions. And a composed theory of everything, which is embodied by legitimacy, I think really does a good job. helping people understand why things are what they are in crypto. And I think the fastest way I could explain this podcast and how it relates to crypto specifically is that crypto doesn't have any real-world assets. Ether, Bitcoin, they're all virtual.

Starting point is 00:05:08 And the reason why these things are valuable while still not being real or at least tangible is because of legitimacy. And so that's why Ryan says, if you don't understand legitimacy, you don't understand crypto. So if you listen to Bankless, you basically have to listen to this episode. Yeah, you have to. There's no other choice, guys. Also, one last opportunity we want to share with you. Our friends at Upshot are running a beta promotion for bankless badge holders. Upshot, of course, they are becoming the Zillow of NFT pricing. So you know how Zillow has a zestimate. So you can see the price of your NFT. They have that as well. And they've opened the beta to bankless listeners. You could basically do like a hot or not. Which NFT do you like better? Which NFT is worth more? and you earn directly from the Upshot protocol from your appraisal. That's what you're doing. You're saying this NFT is better than that one and you're earning USDC and Upshot tokens as well.

Starting point is 00:06:06 So make sure you check out what Upshot is running. You can go to app.upshot.io. There's also a link in the show notes. David, are you ready to get into this episode, man? Absolutely. Oh, before we do. I got to ask you the question. I ask every week.

Starting point is 00:06:22 What is the state of the nation? today, sir. The state of the nation is rebalancing. All of the crypto world seems to be rebalancing. There seems to be just a massive inflow into ether. And I think that also comes from outside of crypto. And so there are some institutions that I would not yet consider part of the bankless nation, but they are rebalancing into ether. And therefore, rebalancing into the bankless nation, all the same. Meanwhile, we have, you know, longtime bitcoins, rebalancing into ether. Generally, people are this massive trade, this massive move into ether that people are making is really people who were perpetually underway ether and just did not have a measured amount of ether

Starting point is 00:07:04 exposure and they are now rebalancing their portfolio into ether. If you've been in Ethereum since, you know, I got into 2017, Ryan, you got in, I think into the world of crypto in 2016. If you've been paying attention to Ethereum, you have been waiting for this moment. And the fact that it's actually here kind of feels like a unicorn, but regardless, it's here. The unicorn exists and people are rebalancing into ether. Now all you have to do is ride that unicorn, right, David? Rebalancing is the theme for today. David, remind me to tell you the story. I actually got my first DM from a Bitcoin maximalist that said, actually, I have changed my mind on ether. I'll have to share that story with you. Maybe we'll just

Starting point is 00:07:52 shared on the weekly roll-ups. But anyway, stay tuned. Well, for what it's worth, Suu shared similar stories on this episode. So there's more where that came from. Yeah, I don't know how rare that's going to be, but my first one ever. So sort of exciting. Stay tuned for this fantastic episode. We're going to dive right in. But before we do, we want to thank the sponsors that made this Bankless episode possible. Bankless is proud to be supported by Uniswap. Uniswap is a new paradigm in asset exchange infrastructure. Instead of a cumbersome order book system where trades are matched with other humans, Uniswap is an autonomous piece of software on Ethereum,

Starting point is 00:08:28 which is what Ryan and I call a money robot. No human counterparties or centralized intermediaries, just autonomous code on Ethereum. Input the token you want to sell and receive the token you want to buy. Something brand new in the Uniswop ecosystem is the Uniswap Grants program is now accepting applications for grants. We have been saying this for a while and we'll say it again. DAOs have money and they are in need of labor.

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Starting point is 00:10:31 If you're a developer or you just want to earn yield on your collateral, go to www.synthetics.io, where you can stake your SNX or ETH and earn fees from synthetics. Bankless Nation, we are super excited about our next guest. We have Suu and Kyle Davies. They are legendary crypto traders, founders of the legendary crypto fund, Three Arrow's Capital. We are talking today all about their ETH trade. Guys, someone said you were bullish on ETH. Is that true?

Starting point is 00:11:04 Definitely true. Definitely not untrue. Well, welcome to Bankless. We are excited to dive into this. This is going to be a really exciting episode. I've heard, actually, this is the first. podcast episode that the two of you are doing together. Is that right? That's true. Wow, first time. All right. Well, this is exciting. You know, before we dig in,

Starting point is 00:11:27 and I think that the context for this episode is all about the ETH trade that you guys have been talking about. But David and I want to get a sense of how you guys think about crypto. So the bankless platform is like, I would say almost notoriously long time horizon, right? So it's like, buy and hold, here are the crypto money assets. Defi is going to be big. Buy and hold. We place a lot less emphasis on the trading side of things. But you guys are traders. Can you talk about how that's different and how you approach crypto from a trading perspective, how that's different from maybe narrative investing, long-term buy and hold? We'll start with you, Sue. I think it is actually similar in a lot of ways, probably more similar than it is dissimilar. I guess one

Starting point is 00:12:13 bigger difference would be sort of reflexivity and seeing when certain ideas or certain narratives are sort of best best position to take shape. So a good example is like, you know, if you're denominated in ETH, but it's late 2017 or early 2018, you know, even if you believe in it, you may think also that ICOs just have millions of EF that they don't really know what to do with and they need to pay people with. So that that kind of, you know, may make someone who's a long-term believer in EVE think still that they have to first go into stable coins for. while and then by the bottom or buy when it's, you know, been flushed out. So I think just like being aware, despite the long-term view or the midterm view, what what the short-term actors are most likely going to do, sort of just thinking about those kind of flows is something that against keeps us apart, I guess. So, Kyle, what would you say to that? Yeah, I would say we're much more similar in your mentality here in the sense that for the better part of two years

Starting point is 00:13:15 we've been like long right so maybe 95% of the time would have been like pretty close to almost a full allocation long it's just a question of what we denominate in and what we you know and how what the composition of our book looks like so just so happens right now that we're extremely overweight, but it's not like we were, you know, we've been long crypto life all the way through, right? And that's actually, I think, something that really sets apart three arrows from a lot of other trading firms or market makers. Long-only funds, they're long-only, for sure. But for like individuals or trading firms, people that don't necessarily have to be long and have to make a decision, we made that decision. We made the decision that we, you know, we do take a core long

Starting point is 00:14:07 belief in crypto as a whole. So when you're going long, it sounds like there's like almost two layers to your strategy, right? So you have sort of the long strategy where you've got these fundamental assets that you denominate in. Maybe that changes too. Sometimes that's Bitcoin, sometimes that's ETH, but it's always crypto. And then you have like trade optimizations at the, at the second layer, as you was saying, when a narrative's time is right or when an asset is time, time is right, you flip into those trading positions to optimize. Is that a good way to think about it, Kyle? Yeah, I think that's reasonable. And part of that, I think we're involved in the funding trade. So spot versus futures looking at that basis. We're involved in,

Starting point is 00:14:51 you know, in primary investment across a number of different other projects as well. And so we, have a reasonable pulse on, you know, what we think is going to be big when and like if the market gets a little overheated. And I think that's why, you know, we're not just like a blindly long, a single, you know, particular asset for like a long period of time where we're rather saying the book is long, but now how do you want to denominate and how do you want this composition to look like? I see, I do see a lot of resonance with, at least with my mental models and maybe some of the things that we say on bank lists where we talk about, you know, maximize your exposure to the crypto monies. And that's what we call basically Bitcoin and ETH, and then also speculate in

Starting point is 00:15:35 the app layer. And that app layer could also be, you know, not actually applications, but also applications, but also perhaps, you know, just seed investments into actual, you know, companies and teams. Sue, when you mentioned that, you know, when we were talking about 2018, 2019, you were talking about all these ICOs that had all this, Ethan, didn't know what to do with it. And you integrated that into perhaps your model about the markets and your, and your trade. You know, generally, speaking more generally, what signals or indicators do you guys really pay attention to? Like, where, what sources of information do you really consistently look at to inform your

Starting point is 00:16:14 trades? That's a really tough question because it honestly depends. I mean, we try to be as intuitive as possible, actually, and it's kind of as macro. as possible. So I think, you know, with some smaller trades, it can be more, it can be more finessed or been more quantitative, but with like Bitcoin or Ether allocation or Bitcoin dominance, it's really the whole, it's really the whole, I think, environment that we're in right now. So I think that we're in a backdrop where Bitcoin is 3x off its previous all-time high, you know, 20 to 60K, and it's running into a lot of resistance, a lot of people selling at the 3x

Starting point is 00:16:49 all-time high. And this isn't a backdrop where Ether has had probably its strongest tokenomics upgrades as a base money that it's ever had in this history. And also in a backdrop where across many retail on-rams and also just emerging market on-rams, ETH is already outpacing Bitcoin as people's first buy. In fact, Doge is actually outpacing Bitcoin in some of these on-rams as well. So this environment is incredibly bearish for Bitcoin dominance. And also, it's an environment where now after the flush out in Eve, and I would argue there's been basically three flushouts from 2018 to now, three distinct waves of flushouts. There's pretty much no one that has ETH that doesn't know why they have it. Like, everyone who has

Starting point is 00:17:37 ETH now, they really put in a proof of work to have that EVE, right? Because you could have lost it so many ways. You could have sold it all to dollars at the bottom or near the bottom. You could have sold it all to Bitcoin during the bare market. You could have sold it. it all to, like even to applications, right? Like, Heath has outpaced a lot of applications by a massive margin now as well. So I kind of see that as sort of a massive scarcity play now that's happening, where ETH is scarce versus not just like against Fiat, but also scarce against the Bitcoin, the very overweight Bitcoin people, but then also even within Ethereum itself, a lot of ETH people don't have enough ETH because they either thought it was frothy when, you know,

Starting point is 00:18:15 layer ones were pumping and they sold to dollars. A lot of people did that actually shockingly, that I found out. And so that whole environment is just very conducive to ETH now and you're kind of seeing that squeeze. The articulation as to everyone who's holding ETH can articulate why they are holding ETH is not something that I thought about. That's a pretty cool perspective. Kyle, the last time you and I talked was actually in November of 2020. And we were talking about on my other podcast, POV crypto pod about how three hours capital was rotating heavily into into Bitcoin and really maximizing its Bitcoin exposure while reducing its defy and Ethereum exposure.

Starting point is 00:18:53 And this was coming right after, you know, Defy summer, right? Dify summer was definitely cooling off. And that was the right move. Bitcoin was like 10K at the time. And then, you know, just three or four months later, it was then 50K. And so let's start. I want to start our conversation there where we left off.

Starting point is 00:19:15 In November, you guys were overweight BTC and underweight, ETHDFI, that trade worked. When you rebalanced your portfolio next after that, after that trade worked, what did you rebalance your portfolio into? And was that the ETH trade that you guys find yourselves in today? Or was that, was there a middle trade between now and then? So the first thing I should say is for application layer for DFI, it's a completely distinct group. It's defiance capital. They have their own capital allocation. and they work with teams and they're long-only. So for us, if we believe there is going to be cooling off

Starting point is 00:19:55 of alts or defy or whatever it may be, we're not selling D-Fi. So we are very much, we have to head for something else. So that's a lot where, you know, we actually had a short on ETH, but the short was not a naked short, it was a short against a large portfolio of applications, right? with the thought being that we still want to win deal flow, we still want to work with teams,

Starting point is 00:20:23 we still want to be long-term invested in application. So this made sense. And dominance ran all the way up to 73%. I was calling for 2075. I think we got almost all the way there. But yeah. And then I think the next big portfolio allocation was leading into the Coinbase.

Starting point is 00:20:51 About a month before that, we were looking at it thinking this would be extremely bullish Ethereum, basically, for many reasons. But basically, this is when we started to think, you know, it was time to start moving that allocation around. And then, you know, a little bit before we went, you know, very, very overweight. What was the connection between Coinbase and Ethereum? Can you elaborate on that? For Bitcoin dominance, like it takes a certain kind of narrative for a law,

Starting point is 00:21:26 for a Bitcoin dominance to work. But part of that is not capital raises or because anytime there's a capital raise, people have to make a decision. And anytime there's, you know, like for example, anytime there's applications working, people have to make a decision or anytime there's a decision, there's some sort of diversity. that happens and people look at on-chain metrics and they look at many different things, right? And I yeah, so around a Coinbase IPO where they've got, you know, it's the largest US

Starting point is 00:21:57 exchange with many different assets on it. And a lot of their marketing is around, you know, people trading those assets. And yeah, I think by and large, that was going to be a like a big Ethereum bold case. Sue, anything you want to add to that? Yeah, I think also, you know, the Coinbase shareholders, they're very overweight, Eith, I think, in general, too, just in terms of both philosophy as well as their own coin holdings, I would suspect. So I think, I mean, in late 2017, I think Brian Armstrong himself said he owns more Ethereum than Bitcoin. And so I think I think Coinbase, like I mentioned, is very bullish for Eith because it's, it's sort of their, it's sort of their bread and butter almost at this point. Sue, in August of 2020, you on a, on a

Starting point is 00:22:45 podcast. Again, I also think POV Cryptopod, you said that you thought it was unlikely that ETH would ever flip in Bitcoin. But recently on the UncommonCore podcast with Kobe and Hazu, you and all the other guests seemed pretty convicted that Ethereum would flip in Bitcoin at some point in time. Do you remember what the catalyst was that changed your mind on this? And when did this happen? For me, I think it was a number of factors. One is Raul Paul. I think actually is quite influential. Am I thinking? Just seeing his idea that new high net worth investors coming into the space institutions, they ultimately respect network effects, and they respect the size of the network and the utility of the network.

Starting point is 00:23:25 And so I think when people start looking at it that way, if that's their framework, and they don't come in assuming a monetary maximalism will take over the space, then I think that if you start putting metrics side by side for each of the networks and each of the coins, then I think Ethereum stacks up very well. And I think there's also something to the idea that that people want a productive store value as opposed to a nonproductive one. I've heard that quite a bit in people I've spoken with where they don't put a whole lot of non-prolative SOVs in their portfolio if you're a pension fund. You don't even put gold in a pension fund, but you do put productive assets like commercial reads, like, like, you know, things that earn a yield. And so a lot of people are really interested in what happens to Ethereum once it has a yield.

Starting point is 00:24:09 now that it has one, people are seeing it. And I think, too, that, I mean, if you asked me back in August 2020, I would have said that, you know, it looks like Sailor is going to be the first, and then there's going to be a lot of other companies that do this, putting Bitcoin in the Treasury. But, you know, it's already going into mid-Q2, and it's still not that many companies that have done it, right? And the kind of price action doesn't appear like there's a lot of treasuries doing it.

Starting point is 00:24:35 And so once you see this kind of skepticism toward this, just like everyone's going to hold this in the treasury, then the sort of the game is open again. And the, you know, the kind of battle for store value continues. And so that kind of made me think that if these things are all true, then one, you know, retail already likes Eidth more than Bitcoin because they resonate more with the internet of value as opposed to digital gold. And then two is institutions want to own what other people own. And on top of that, they also like production. active SOVs. And then thirdly, you know, we've already had a nice Bitcoin run and we've already had sort of activation of supply, you know, above 60K. That kind of really puts the pieces in place, I think,

Starting point is 00:25:20 for kind of seeing that. Kyle, I definitely want to get your opinion on if you think Ethereum is flipping Bitcoin. But before we get there, Sue, you said that, you know, you're seeing just a lot of interest in productive assets over nonproductive assets and perhaps positioning a trade based stuff of that. But what do you personally believe? Do you personally believe in productive assets over nonproductive assets? Do you have an opinion on such a matter? I do, but I think it's not as relevant what my opinion on it is at any moment. It's ultimately what people decide, right? Like if people, if we're in a wartime and no one, then there's very low activity, then the Bitcoin, then the Bitcoin monetary maximumist argument can be the most valid because then people really do

Starting point is 00:26:04 value that slight potentialization edge that Bitcoin has over Ethereum, right, as a, like, as a base money. And so, but, but if we're in an environment where people are not going to be able to quantify that value very well of how much more Bitcoin is decentralized than Ethereum, just like, you know, in Ethereum smart contract space too, most of people can't quantify the difference between Ethereum's, you know, the essentialization and Solana or some other chain, then you are going to have a lot of people be quite okay with that. And I think it ultimately depends on what users need crypto for and what people want to use them for. And I do think that in a much larger percentage of cases than people right now believe that is going to be a preference for Ether.

Starting point is 00:26:53 So, Sue, I think some of the bear case around Ether up to this point is part of the case that, yes, people, recognize that ether will become a productive asset stake it is enabled, but you just mentioned another crypto network called Solana, right? And there's not just Solana, there's, you know, Cardano, there's a finance smart chain, all of these things. Many of these are staking assets, right? And so all these other layer one assets can become productive assets as well when they're staked. But you made a distinction, which I think is important. You called ETH a productive SOV asset, which means, of course, listeners will be familiar with store of value asset, which implies some level of monetary premium, right? And Bitcoin, of course, quite famously has a fantastic monetary premium. People believe it is a

Starting point is 00:27:42 store of value. The bare case for ether up to this point has been, I think, that even if ether becomes a productive asset, people won't value it as a store of value. It won't, will not have a monetary premium. It has all of these competitors, these other layer ones that can also do the same things it is doing and, you know, it's not Bitcoin. Bitcoin is crypto's reserve asset, has the store of value property. Those use cases won't flow over to Ether. I want to ask about that, the store of valueness of Ether specifically, and whether you think that is a moat that other layer ones can't overcome and how it has started to achieve this in your mind. Can you reflect on that? Sure. I think it's, first of all, it's very hard to just come up with a new store value, right?

Starting point is 00:28:31 Because it's not just about the tech, it's also about the community and about the coin distribution, about the genie coefficients, about how did people work to get the supply that they have and how do they value it? So I think that in a way, it's quite beautiful for Ethereum that has been done proof of work up to now because each ether that has entered supply has been costly. and that process has made it so that supply has decentralized out. And that is going to be a huge struggle for a lot of proof of stake networks where, you know, the fairly smaller number of participants are going to have more of the coins. And it's very hard to distribute away. So I think distribution Ethereum has a huge edge. I think also in terms of the competition for smart contract block space, I

Starting point is 00:29:24 do think that anytime you have smart contracts actually being deployed on chain and being used, whether that's on Ethereum or another chain, I actually think that's very bullish for Ethereum because it goes against the entire Bitcoin-not blockchain argument, which is that blockchains are not that useful. The only use case of blockchains is money. Well, it turns out not. And then, you know, with interoperability and with sort of bridging of assets across chains, you know, Ethereum stands to be in very good shape in an on-chain world because there will be a huge number of participants who do value the highest decentralization for on-chain activity, and more so there will be a lot of developers that build applications for that.

Starting point is 00:30:04 So I think it's almost kind of ironic because I think despite the whole ETH killer narrative, it's actually, I think these have been actually very good for Ethereum, because one is pushed the application progress very quickly, is push the scaling progress very quickly, and two, I think it's that it's shown the world that there's actually a lot of demand for on-chain a space. Like you think about BSC, right? BSC has shown that if you did have lower fees, then here's what users would actually do if they had this. So our take has been up to this point that there are two crypto assets that are merging as a store of value, Bitcoin and

Starting point is 00:30:39 ether, right? And others could emerge as a store of value, but like not anytime soon and probably not this cycle. Does that take overstate, you know, what you're saying? Do you think other layer one assets could become a store of value in the future? I think Doge, I think Doge arguably is starting to look like it could be because it's got absolutely incredible volumes, right? And it's got absolutely incredible memes as well. So I don't see. And it's also very old.

Starting point is 00:31:06 Also very old and very decentralized. So I don't see any reason why it can't be. And I do think Doge is something too where it definitely helps Ethereum in a way because it just chips at this idea of Bitcoin Monetary Maximism because Bitcoin Monetary Maximus because Bitcoin Monetary Maxim wants to say it wants to assess. assert that 21 mil supply cap is the reason why it has any value. It wants to assert that, you know, these are all the reasons why it has value. But meanwhile, Doge just comes in with no cap and outperforms. And it also kills the narrative that, you know, there's no alt that can be

Starting point is 00:31:37 up in stats. Well, actually, you're up actually a massive amount in Sats in Doge. So that, that kind of just the presence of Doge, I think, has been one of the biggest bearish Bitcoin dominance cases because now everyone sees Doge and they're like, okay, then I don't have to just you know, denominated in stats. I don't have to just, I can also just see what's fun and I can explore all these different assets. And so that, I think, is also becoming a store value. I mean, it's also very cheap, right? And it's very usable. So it's, I mean, granted, not many, many people are using it. But it, it does offer a different niche. But you guys aren't long doge, right? Where are you? We are not, we're not long doge. Why? What's the difference?

Starting point is 00:32:16 It's something we may belong in the future, but it's definitely an interesting asset that I think caught everyone by surprise as well, a lot of people by surprise. But I think it does show the power of, I think it does show the power of memes, right? And it definitely contributes to Ether's meme being more stronger than ever. Because with the ultrasound money meme, now it gives space for Ethereum to come in and say, well, we are actually even lower inflation. and, you know, you get a natural yield from holding it. So that kind of contrast is going to be very stark for people when they check out the space. Kyle, before I ask my next question to you, do you have any reflections on what we've been talking with you recently?

Starting point is 00:33:03 Yeah, the only part I would add is deflationary asset is really going to resonate with a lot of people. I think there's this point where you're, you know, your bullish Ethereum, the network. and especially you see all the fees that are happening on. And then, but you ask about the value rule. And it's just a speculation on that. But once you can see that it's a deflationary asset or it gets, I mean,

Starting point is 00:33:28 it's no longer a meat. It's just like it's actually deflationary. And I think that will, that moves a lot of people, the needle for a lot of people. Kyle, some people are still skeptical that deflationary assets actually going to happen. We are still in a pre-implementation

Starting point is 00:33:46 world of EIP 1559. And of course, the proof of stake to, you know, like the proof of work merge has not happened yet. So some people will say, yeah, there's a ton of execution risk in taking the position that you're betting in a deflationary asset. What would you say about that? Yeah. I mean, I definitely believe in, you know, discounting execution risk.

Starting point is 00:34:09 But that's like what makes a great trade too, right? Or a great investment. So, I mean, if it was fully priced in, like, I don't know, maybe he could be 15K right. So I don't know where it would be, but... Yeah, it'd be a very different investment. We, 15K is fud, Sue? What's... If everything is priced right, I think 15K is fud, but...

Starting point is 00:34:29 Wow. I do want to get into it that specific number, but first I want to ask Kyle. Kyle Sue here was on that podcast with Kobe and Hazu talking about the inevitability of the flippinging. Do you agree? Yeah, yeah, I definitely do. I think the closer it gets too, like it just has to make a run at it. Especially the nice thing about the current state of the Ethereum roadmap too is there are events happening in like two months and like seven months out.

Starting point is 00:35:06 So even after 1559, like there's no cell catalyst. Like you're still waiting for just the next one, right? And it's within a reasonable time. If it's like years out, yeah, it's a little bit different story. Or if there's no, we're post, like in a post proof of stake world, then now you need to price it and just believe it's going to hit, you know, the correct whatever, you know, PE ratio or however you're valuing these things. But pre that, yeah, you can just execution risk.

Starting point is 00:35:38 If you believe in it, you believe there's less execution risk. Great trade for you. Yeah, Ethereum seems to have a lot of arrows in its quiver. And we've talked to a decent, we've danced around the subject around like mainstream media and, you know, public narrative with this current like ether move and overall how you guys position your trades. And I kind of want to attack that subject a little bit more directly. So how are you guys waiting mainstream media and its current like understanding of this

Starting point is 00:36:09 space, the Bitcoin, the Bitcoin trade, the ether trade, the everything else trade. But also, more specifically, do you guys consider like the energy consumption part of this, perhaps this Ethereum move as of late? Or do you guys think perhaps that's not here yet? I think it's not quite here yet because the merge hasn't happened. So I think you will actually need the merge to happen before the mainstream media will pick up on it. Because that's just the way media is. So I do think that that'll be another great catalyst. I think also, It's a big contrast to late last year, right, where FBTC went to 0.042 on the beacon chain activation and also on DFI somewhere. And that was kind of like a, like it's kind of like a premature move in a way because that was right like when Bitcoin is about to get, you know,

Starting point is 00:36:58 Sailor is going to buy an absolute monster load of Bitcoin. There's a lot of, you know, high net worth and corporate buying of Bitcoin. And so that was almost like a, it was too early because it was too far away from EIP. 1559, that was more just an idea at that point. That was getting traction. But like how I said, like now we are in the midst of, you know, the media picking up on the fact that, you know, Ethereum may become more deflationary than before. And the media is picking up also on the fact that defy is not just, it's not just a small meme anymore. It's not just a niche. It's something massive, right? We have, you know, we have global governments looking at how to, you know, deal with

Starting point is 00:37:36 defy and how to encourage it even. And so I think. that that kind of backdrop and also nifty's as well i think you know we haven't discussed nifty's yet but i think nifty's is incredibly bullish for either because now culture uh culture is now native to ethereum and i think once you get culture as well that's actually when a lot of people wake up because they say well i can be bearish on bitcoin as store value because i think it has no use but i cannot be bearish on culture existing on ethereum i just that that's an incoherent position to take right uh so i think the fact that you know athletes and artists and musicians are are, you know, getting very active in the nifty market, that brings incredible cultural prestige

Starting point is 00:38:14 to the idea of Ethereum as a settlement layer. And that, I think, is actually incredibly difficult for anyone else to fight against either, because that does have a lot of network effects. I want to say something about this and ask a follow-up on this, because this is something David and I have been talking about for a while, like the most bullish thing for Ether is to be understood. And I still feel like we are so early in the cycle of the world actually understanding Ethereum and Ether. I mean, you look at like Google searches and Bitcoin is way up there. Ethereum's almost nothing. NFTs have done something, but people still haven't associated NFTs with Ether as an asset. I'm curious how early you think we are. It feels like mainstream

Starting point is 00:38:58 understands what Bitcoin is. Like Bitcoin, digital gold. People on Wall Street can articulate that. If you ask random person in the street, he could probably articulate that as well. But they do not understand ETH or Ethereum. And this is where I see much of the upside. So if you consider that EIP 1559 is going to happen, proof of stake is going to happen, right? The majority of the bulk case upside is actually the world understanding these things and for the first time understanding ETH the asset. And am I overstating the case here?

Starting point is 00:39:33 I feel like the world is maybe like 5 to 10% of the way to understanding Ethereum. And there are very few people who actually know about EIP 1559 in Feeburn and that issuance is going to drop deflationary. Like there's a very small cult group that knows about it now. Am I overstating the case? How early are we on that, Sue? Maybe you first. I think we're very early in terms of people getting a proper understanding of Ethereum.

Starting point is 00:40:00 I think nowadays, even most, I mean, like even skeptics, they roughly understand. how Bitcoin works, but just in terms of the basics of how Ethereum works, it's a more complex chain, and there's a lot of activity going on. So a lot of skeptics don't even realize that a lot of the skepticism that they have toward Bitcoin, they can't use on Ethereum in the same way. So I absolutely agree with you. I will say just as a slight counter to that, though, is that I do think that retail, they're naturally much more drawn to Ethereum in the first place because they already don't resonate as much of digital gold, and they also, they, you know, either they participated in ICOs back then or they, you know, nowadays they participate in, you know, some of other activities.

Starting point is 00:40:40 But I do think that there's something very fascinating about the fact that I think retail has been more overweight either than a lot of institutions up to now. And I think that they've been right as well. And that kind of actually is almost like a fractal of like crypto itself where retail has also been ahead of institutions and also has been right. You know, defy was invested in by retail mainly during its first runups. And so that kind of almost like makes it that much much more powerful in a way that it is grassroots individuals and as opposed to entities that have been capturing a lot of these moves. I got to say, retail being first is one of my favorite things about crypto. It's just great. I love it. Hey, bankless nation, I hope you're enjoying the interview

Starting point is 00:41:20 thus far. In the second half of this conversation, we go into the specific details of the numbers behind the ether trade. Like I said in the intro, ETH is on its sixth weekly green candle in a row, both against the dollar and against Bitcoin. And I asked Sue to help us measure the magnitude of this move. And his answer was a really fun one. And then at the end of this conversation, we zoom out and have the conversation about crypto cycles. Sue and Kyle actually have differing opinions about what the future of crypto cycles looks like. Sue thinks that this is generally going to be perhaps the last crypto cycle. Kyle is not yet convinced. And then we get into price predictions, whereas Sue, unlike most of our guests, Sue did not dance around the issue

Starting point is 00:42:04 and actually gave a specific number of what he thinks Ether could run to in the short to medium term. Stay tuned for the second half of this episode. But first, before we get there, we have to take a moment to talk about some of these fantastic sponsors that make this show possible. Gemini is the world's most trusted cryptocurrency exchange. I've been a customer of Gemini since I first got into crypto in 2017, and it's been my main exchange of choice to make my crypto buys and sells. Gemini is available in all 50 states and in over 50 countries worldwide, and on Gemini there are markets for over 30 various crypto assets, including many of the hot defy tokens, and it's one of the few exchanges that has liquid dye markets.

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Starting point is 00:44:35 So I want to get into this actually, the details of this current Ether move and specifically the Ether trade. So right now Ether is on its sixth, a weekly green candle, both on the dollar and on BTC. Ether just painted its biggest green weekly green candle ever, almost $1,000 in one week, absolutely massive for an asset. that's previous all-time high was $1,400. It's up 25% in the week. Meanwhile, like Ether BTC is over 0.07, which it's only been higher or it's only ever been higher versus Bitcoin for like, I think a total of five or six months in all of its

Starting point is 00:45:19 lifespan. How do you guys explain this massive move of Ethereum? And also, can you help us measure its magnitude? Because, you know, crypto is crazy. So sometimes crazy things are actually not all that crazy because, you know, we're inside of a, we're inside of just a crazy world. So it's hard to measure craziness. So can you guys reflect on that? How big is this move? And why is this move happening? Kyle, let's start with you. Yeah. Well, I think there was a real power to prove like a proof of Lindy.

Starting point is 00:45:52 So before something like hits an all-time high again, especially after a big flush out, there's always a question of, you know, is this a dead cap bounce or is this, you know, what is the value of this asset? And that's not correct. Like that, I mean, Lindy just means, is it alive, right? That's the definition. But, but actually people don't realize it until you start breaking all time highs. So, so for Bitcoin did it first, right, versus it's 2017 all time high. But for Ethereum now, this is like when people wake up. This isn't, you know, when people capitulate or they take profit or whatever. Like, this is when people that were in Ethereum, that heard about it, that had some money allocated, probably lost a bunch of 2018. This is when

Starting point is 00:46:40 they load up. And that's, I think, what we were saying. Like, any time we're looking at all-time highs, it gets me excited. Because same goes for like NFTs. You know, we saw Cryptokitties in 2017, but then we saw nothing for a long time, right? But now we see an emergence again. This is a proof of Lindy. Like the likelihood of a big NFT boom again or like a continuation is now actually quite high, right? Whereas just as of last year was demonstrably lower, right? So I think that's that that is really important, actually.

Starting point is 00:47:23 Kyle, what about this, right? So this almost seems to be playing out almost in a, similar way to the way 2017 played out. I don't know if you think that it's kind of a fractal to 2017 or not. Maybe you could comment on that. But the one thing that's different is ether right now is approaching half a trillion dollar market cap. This is not the case when it started its run in 2017. So isn't it going to take a lot more money, more capital, bigger buyers in order to move the price in the way that it did in 2017. Any reflections on that?

Starting point is 00:47:58 And where's this money coming from? I mean, there is just so much money in the world these days. And people were saying the same thing about Bitcoin when it was like 10K. And anytime I went to 10.5, people just thought it was going to be crushed again. And then it went straight to like 55, all the way up to 60K. So I think that is much more remarkable in terms of the volume of dollars that went in to buy Bitcoin. But yeah, there's just so much money in the world. Like if you have to ask yourself, like, where is the incremental dollar to go in this?

Starting point is 00:48:30 I always feel like that's the wrong question. And I mean, the answer here is going to be, it's going to come from Bitcoin and it's going to come from dollars, basically, right? But I just feel like if you have to think of like who the incremental buyer is every time, that's what's going to, that's just you're looking for reasons to sell. and if you're looking for reasons to sell, you will always find them. This particular argument to me never holds weight. Like, who is the incremental buyer? Because, yes, obviously at the top, there's no incremental buyer. But like, did your analysis truly bring you to like a good conclusion there or not?

Starting point is 00:49:07 I think that is, yeah. Well said. So let's talk about the magnitude of this move. In my opinion, this Ethereum move, both versus dollar and versus Bitcoin is perhaps one of crypto's largest events ever in its 12-year history. Would you guys agree with that kind of bold statement? Sue, let's start with you. Yes, absolutely.

Starting point is 00:49:33 I think that it's broken key 2018 levels, and it's at the point now where, like, I know people that have flown around the world to move their Bitcoin cold storage to buy either. Like, I know that that sounds kind of insane, but I think that that'll continue if it gets to point one, right? Because in the previous, you know, near flipping, cycle, you know, there were a lot of talks about Bitcoin OG's moving to Ether and Bitcoin Cash

Starting point is 00:49:56 and this kind of stuff. And that, like, then turned out to be a panic and people say, well, that's repudiated or that's refuted, right? But with this key, I think the key break was probably 0.05 and then 0.06 a couple of days later, you know, you kind of can't, it actually, it actually kills off a lot of arguments, like against sort of a more pluralistic distribution of value in the crypto space. It's definitely making a lot of people wake up, right? Because now if you're an allocator, you look into space, you sell even the banks, right? JPM Morgan, they were putting out research about how Bitcoin, you know, analyzing the digital goal thesis. And then they put out another thing about, you know, just covering the Ethereum bull run and then saying how, you know, there are

Starting point is 00:50:38 actually a lot of reasons why Ethereum might outperform. You know, the clients are demanding it and the coverage is also demanding it. So I think that, and actually, I strongly believe, I mean, Mark Cuban, I think a great example of someone who, was skeptical on crypto as a whole, but then seeing the adoption of on-chain activity through defy and nifty's came to realize that this was the next inheritor of sort of big tech vision. I was speaking with a billionaire big tech investor the other day. And he was saying how the reason he allocated to crypto is purely because of the idea that, you know, he's been long all these, you know, big tech internet stocks for many years now. And he thinks that it cannot continue in that direction.

Starting point is 00:51:20 for that much longer. Like there, he's asking himself almost like, who is the incremental buyer sort of in your speak? But he's almost thinking like, you know, if the generational trends move toward a more, you know, distributed future, then it's still very early because no one understands this yet, right? Very few people truly understand this as sort of the inheritor of the new internet.

Starting point is 00:51:44 So I think that it basically allows like, price is the best predictor of price and price is also the best, you know, it makes all the narratives, it makes people listen to all the narratives. So it makes people try to understand. And that process is making a lot of people wake up in analogated. Sue, are you seeing Maximilus capitulate then? Or are they going down with the ship? I mean, it's tricky, right? Because if you're, if your brand is a Twitter or Bitcoin maximalist, then you can't really capitulate in public because you'll lose followers. But I'm sure privately a lot of these people own a lot of ETH actually. And I think they're not incentivized to talk about it, but they

Starting point is 00:52:25 definitely do. You can see it in the price action on some of these exchanges. You know, the FDC volume has been incredibly high on BitFenex, for instance. It's been about a third of the ETH volume on several days. You know, that's people who currently own a ton of BDC selling that BDC specifically for ether, right? It's not it's not dollar based buying. So, but yeah, like that that kind of kind of also goes along with the idea that, like I was found it funny, right? Like either people, they used to always hold a lot of Bitcoin because they'd be like, well, the market is irrational.

Starting point is 00:52:56 I need to have some Bitcoin just in case. And then big people out of them, they hold a lot of ether because they're like, well, the market's irrational. I have to hold some ether just in case. So it ends up being like everyone 50 50, but for different reasons. You know, that kind of a lot of people are like doing Pascal's wager there now. And they're just saying like, even if this is like, well, not what I believe in, the market, I don't like, I prefer well.

Starting point is 00:53:15 So I just buy the one that the market wants. I don't kind of fight against it. I actually think the hardening of Ether's monetary policy is bringing some of the sound money people that have been Bitcoiners for a long time over. Because the one criticism that I think had a lot of validity from the Bitcoin side is like, what's Ether's plan for issuance into the future, right? And you know, Ethereum would say things like minimum vile issuance and they would say, yeah, but show me the code, show me the demand.

Starting point is 00:53:43 And now that's starting to harden. Do you think that's part of the transfer here, the issuance, policy being, you know, formed and articulated well. I think for sure, part of it, I think like Kobe mentioned the previous one, like there's always a camp that thinks that ether's just too centralized. There's too much control by the core devs. And so it can be captured. And then once governance is captured, then the whole chain is kind of, it doesn't have

Starting point is 00:54:08 that credible neutrality. So I think for those folks, they take a very philosophical stance against ether. But I think, yeah, I agree with you. for a lot of people who just say, you know, ether is really not optimized for ether holders, which has been the case actually for Ethereum for quite a long time. I remember in 2018, I think one of the big ODC desk, they put out of paper saying, like, ether inflation is just way too high. We need to lower the block reward from three to two ether, three to one ether.

Starting point is 00:54:33 And, you know, after some time, they ended up doing it and ether price went up. But, you know, there was just in the beginning because it was growing so fast in utility, there was never that concern for the ether holder because they were already getting, like, you know, I think for the core devs, there was this idea that, well, you're already up 200x, you're already up 100x. What else do you want? Like, I'm just going to not even think about what either holders want. But I think the bear market, what it brought out was sort of a, like a renewed kind of shelling point that ether had to be a proper sort of value, kind of a repudiation of Jeremy Rubin's idea that you could economically abstract ether out of

Starting point is 00:55:05 Ethereum. So, you know, people kind of heard that and then we're like, well, definitely that's not going to happen. And here's why it's not going to happen. So I think Bitcoin, some Bitcoiners who saw that, we're like, okay, well, now this is an investable asset because people are at least committed to this being an asset as opposed to something other than an asset. Because there were quite vocal people in Ethereum who said, ETH is not an asset. To make it an asset would be to harm Ethereum's goal, right? That was actually a very popular view in 2018. Yeah, it was. Right on. Kyle, any reflections on what we've been talking about so far? For me, it's all about on-chain activity, to be honest. Like, uh, DFI-Summer. DFI

Starting point is 00:55:44 summer was fully incentivized, but then it came back and it's still, and the yields are still good. And sometimes it's even happening on other chains that are EVM compatible, right? So anytime I see on-chain activity, I just feel like it's a bulk case for ETH. I don't really care where it is, especially since the first bridge people always build is to Ethereum and everything is EVM compatible these days. So yeah, for me, it's all about on-chain activity for Ethereum. I can't remember where I heard this. Sue, maybe it was on the Kobe podcast that Thero's Capital is the largest single holder of ether.

Starting point is 00:56:22 Is that true? And if that is true, or regardless if that's true or not, when is this trade over? When win sell? Question mark. Definitely not largest, but I think I said one of the largest. One of the largest. I think that is definitely true. I've been trying to figure out what qualifies as one of the largest and made sure we bought the needful amount to qualify as such.

Starting point is 00:56:44 Like I was just saying to Kyle, like it'd be such a shame if we bought like these other coins and then we didn't have enough ether. Like and then it went for this move. Like that would just be like it'd be really sad actually. Like I would actually shed a tear. Well, welcome the board, guys. So so. But you know like the cool thing about ether too is like even as the market gets more efficient, whatever, like you can kind of imagine a role where you still have a lot of yields for it. You can put it in defy and get yields.

Starting point is 00:57:12 you can stake it and get yields. There's just so many, there's so much activity happening, right? And there's so many ways to use it. I think that that's really attractive. Whereas, like, now with BDC, like the GBTC trade is dead, it's actually negative. And then with BDC as well, it's just a very inner kind of thing. And originally I thought that WBDC would be more bearish for Ether than it was because I thought like each chain would just like lionize Bitcoin as like the store value collateral.

Starting point is 00:57:35 But that really hasn't happened at all. People do prefer the actual native asset. Even on BSC, people prefer B&B. and so that kind of preference for the native asset, that kind of, that kind of native asset nationalism, I think I kind of underestimated. And I do think that what WBDC actually did was convert a lot of Bitcoiners to Ethereum because they just put their BDC in there for the yields because they saw their friends getting it. And then they're like, hey, wait a second. Like, this is actually, it's actually kind of cool. And I need to own some of this, like, ether instead.

Starting point is 00:58:03 And so that that actually is what actually happened. There's this reserve asset quality to it, ETH on DFI. Go ahead, Kyle. Yeah, I think one of the other, like, ultra bull cases for me is people realize this past year that they could store their net worth on Ethereum, whether, and maybe not even in Ethereum. For like a lot of people, they just earn stable coins, right? And they'll happily earn their yields. But that would then become, like, their primary source of how they would store, maximize,

Starting point is 00:58:35 and earn their net worth, like on their nesting, right? And then naturally, yes, of course, like once you're using a like a platform and a network, like, of course you go like buy it, right? Like at some point, if you have a high risk tolerance, you buy a lot. If you have a lower stock, you buy a little. But like you're bullish it, right? And I think that is maybe the like single most pivotal moment, let's say, in the past year and a half where people both created a lot of net worth but also happily store like a large percentage of their net worth. just like in the Ethereum network. Are you guys ETH Maxis now, ETH holders for life?

Starting point is 00:59:14 Kyle, do you have an opinion on this? We're crypto. Okay, so we are on chain and crypto maxis and happen for like a while, right? And if Ethereum, we believe, is like undervalued given the, you know, the amount of activity on the network, then yeah, like we're probably going to be overweight Ethereum, right? So, yeah, like, I mean, if it, if things were to change, like, they were to realize its value or if the on-chain activity were to slow down, or if another network that was not EVM-compatible were to gain traction, then like maybe I would change my thesis.

Starting point is 00:59:50 But yeah, for like, for the time being, like, I really don't see that at all. Like everything has to be EDM-compatible to be, you know, for people to want to interact with it basically right now, right? So I think, actually, I think there was this like, idea. And there still is this idealism that at some point people will interact with the blockchain and have no idea what's on the back end. Right. And this is still a beautiful vision. But the reality is like the only way to get even close to this vision right now is for you to be EVM compatible. And and for me, anything that is is basically just full of

Starting point is 01:00:28 Ethereum. Sue, anything to add? Yeah, I think that, I mean, we definitely I always try to pride ourselves on being as sort of basing as possible. So like with new information coming in, you always have to change kind of a bit how you want to be positioned. So like, you know, if tomorrow Chinese government comes out and says Bitcoin is the only accepted currency, then you have to go buy a lot of Bitcoin. You have to probably sell your either to buy Bitcoin. But, you know, so there's always non-zero events that can happen that make some assets more bullish than others.

Starting point is 01:01:00 And I think that that's always true. So I think that the risk reward for Ether is actually even better now than it was before. It's arguably a better risk reward now than it was during the deeper market where I think you really have to be a true believer and kind of be a deep tech thesis driven investor to make that trade because you're getting dumped on by everybody right at that time. So I really like applaud the kind of thesis driven kind of investors that went in at that time. But I think also like my hope is that they don't kind of just want to, you know, sell for their 10x, 20x to 30x now and then and then move on. Because I have seen a lot of people do that. And I the thing I tell a lot of crypto natives too is like if you look if you just talk to natives all day, you're just to see people around you and then be like these are like everyone's too rich now. We have to sell because everyone's too rich.

Starting point is 01:01:50 But like actually, no, you happen to be in the bare market of one of the best assets in the history of assets and you bought it with your friends. Like you actually deserve to be rich. you don't have to be ashamed of it. You can just prefer to keep staying rich, right? So that kind of PTSD from the bear market, I actually think has caused a lot of people to sell too early on the way up. And so I think that, like, for us, we think that, you know, Ethereum has reached the critical mass point

Starting point is 01:02:20 where people can't ignore it. And the scaling is coming in a variety of ways. Even if it doesn't come purely on Ethereum, it'll come through side chain. type solutions, it'll come through other solutions. And on-chain activity, like Kyle said, is very good for the entire Ethereum bull case. And so I think you want to give that time to play out in sort of the fullness of that vision. Like right now, there's a lot of talk about CBDCs and this kind of stuff. Like, I actually think that a lot of these will be ruled unconstitutional by a lot

Starting point is 01:02:51 of jurisdictions and a lot of like judiciaries. And what they end up having is, you know, governments that they want to do UBI. Like, they don't have to create a CBDCs. they can just like do it on a public chain and then you know whether that's Ethereum or on another chain like that that happening is also very bullish for Ethereum right it's also very bullish for on-chain activities so I think there's still a whole lot of like misunderstanding even now with ether at 4k about what it is and what the true vision could be so I like to see a lot of those things properly play out like to see a go deflationary I I do think that there will be a lot of trading opportunities as

Starting point is 01:03:26 you get closer into flippinging as well because because there will be a lot of emotional stuff, right? Like some people will be selling to Bitcoin, some people will be selling the dollars, some people will be buying more. And so I think that that'll be very volatile. Like I don't think that will be not volatile, but I think we're nowhere near those points yet,

Starting point is 01:03:45 where we are now. So I think we spend actually quite a lot of time. I think to some people, it may seem simple that we're just talking about like long Bitcoin or long Ethereum, but there is this illusion of diversification, right? And you can spend a lot of time hunting for like the right alt or the right this or whatever and then buy like six of them and then want it some more and then buy like six more of them.

Starting point is 01:04:09 And before you know, you got a portfolio of like, I don't know, 20 different like random positions that you may or may not believe in. Whereas if you had just like decided to denominate your portfolio in ETH, you would have outperformed everything. Right. So I think we spend a lot of time just trying to figure out, you know, what are you denominated in and to what degree are you denominated in that. And then, yeah, we happily trade around other positions too. But that is by far the most important. Well said, guys. Look, if flippinging,

Starting point is 01:04:41 that would be a major event, right? The first time that Bitcoin was flippened by another crypto asset. Where does this leave? I guess, you know, two things. One, where does this leave Bitcoin? And then secondly, where does this leave other Eith killers? Kyle, we'll start with you. Yeah, I think the problem with, let's say, other layer one smart contract like blockchains is they may or may not have more activity, but the amount of fees being paid on them is tiny compared to what's being paid on Ethereum. And that's part of their value at, right? Like high TPS, low fee, whatever. But actually, for me, the whole value of Ethereum is the like sheer. volume that people are willing to pay in fees, the on-gen activity, right? And so for me, like,

Starting point is 01:05:36 like, I'm, it's all about that. It, like, yes, if there's a flippening, that maybe you get a higher monetary premium to it. That, that I think would be like the obvious case. But, but, but yeah, like, everything, when I think about like ETH killer or like other layer ones, everything comes back to like, well, is it EVM compatible? Because if so, then I just buy more use. And is it like how much like in fees is being paid there? And if it's like not very much, then like, okay, I don't really care. Like so or maybe it's good for some other narrative reason, but it's not like a like an SOV kind of asset.

Starting point is 01:06:14 David calls himself a fee maximalist. I've heard him say this before. And I think that's kind of what you're saying to you. See, what about you? So if Bitcoin loses the throne, does it lose its value proposition as sort of of the reserve crypto asset, all the liquidity that comes with that throne. And what's the fate of Bitcoin after that? Go ahead, Sue. I'm still undecided on this. I will talk about this a bit in the COVID podcast also. And I lean toward it being short midterm, quite bearish for Bitcoin

Starting point is 01:06:42 because it would be, you'll have a lot of people who have actually been sitting in Bitcoin saying that, wow, this is like a stale long almost. Like I have this long for this thesis, but it's been disproven because it's not the most high liquidity. And it, you know, so that would be quite a scary moment for them. And I think that then that would be the real test for the Ethereum community. Like, will they then sell back to stats and stack more stats or will they really just hold ETH? And if they do just hold Eith, then I think that that's, it's going to be very hard to attract additional dollars into Bitcoin because then at that point, like I was just speaking with one of the,

Starting point is 01:07:15 one of my good friends in Ethereum. And he was saying how, you know, if Eith flippins Bitcoin, the wrong question is like, is it bearish for Bitcoin. The next, the right question is how many days would it take Doge to flip Bitcoin next? Because he said he flipped Bitcoin very quickly in early 2018, and then XRP came right after, right, and almost flipping it. And so like he's saying like that, like if he's flipping his Bitcoin, he says you go all in on like whatever is the third coin at that moment because that's like kind of like the obvious trade that would happen. So I do see that as kind of being like highly emotional and highly disruptive time if that would happen like you're

Starting point is 01:07:47 kind of alluding to. And I think there would be a lot of interesting opportunities for, for sure at that time. You know, I think long term, it's a different question. I do think that, like, I still believe in all of Bitcoin's core, core kind of strengths. But the ultimate question, like Kobe said on this podcast, is like, does the market demand these things, right? Does it demand Bitcoin caliber essentialization?

Starting point is 01:08:12 Does it demand fixed supply? Does it demand this kind of fixed issuance with like, basically very few upgrades and, and, you know, this kind of, kind of ossified protocol. Does it demand this? And that's also something that only the market can answer, right? That can't be answered by any individual because the needs of any individual are not relevant for the market. The market and society, if it demands an on-chain future, then that will be very likely in the form of Ethereum as a store value. And if it demands a more austere version of that on-chain, of that kind of the future, that's maybe more,

Starting point is 01:08:49 regulated and then more like government friendly and then like custody friendly then it'll go toward more that camp so i think like the the bullish bitcoin dominance case has kind of always been the pro-custody pro kind of you know regulated on-ramp case that bitcoin has has generally done better in but even now you know ether had now has all the same on ramps as bitcoin does on those same things right either also has CME and either also has the great scale trust and the ETS. And so that that, that that definitely does make it very, very hard for people to attract incremental dollars into the system when you have this compare contrast. So one more thing I would add to that is I think the Bitcoin, like the, the heart of the Bitcoin narrative is about self-custody too, right?

Starting point is 01:09:42 But if you look at the main thesis of the past year, it has not been about self-custody. It's been about centralized custody, right? So this, I think, is a huge problem, actually, for Bitcoin. It is not a beautiful future to have centralized custody with regulated onramps. It is a beautiful future to have self-custody. And so, yeah, if that were to change, then I think it can be a wonderful store value. But if it is, like, in centralized places, I don't know, it kind of defeats, It hurts the narrative a lot.

Starting point is 01:10:13 Thanks for the win. Yeah. So zooming out, is this the last cycle that crypto is going to see? Do you guys have opinions on this? Kyle, let's start with you. I think that there are more cycles, to be honest. I think Sue has a slightly new one. He's got a different answer than me.

Starting point is 01:10:34 That's why you have both of us on that, right? So, yeah, I think there are more cycles. I just think we're nowhere near the top of this cycle. Like an Ethereum bull run is not the top of the cycle. Like we got to, there are other things that are going to be, but it's not an Ethereum like on-chain bull run. Like that's not it. Yeah, I think it's also, it comes down to how you define cycles, right? Like I was speaking to Avi at Block Tower about this and he's like, you know, like your super cycle theory has already come true because there are people talking about like Bitcoin versus Ether.

Starting point is 01:11:04 And the only question is which one do they buy? It's not a question of like, is crypto a scam. It's the only question of what do you buy? What percent? And so we've already made it. Like we're already here, guys. Like, it's already super cycle because no one is even saying it's a scam anymore, right? And so you definitely will always have drawdowns.

Starting point is 01:11:21 I mean, even in normal bull markets and equities, you have drawdowns. And I think that, I mean, defy arguably against ETH is already like in a bare market for some time now. You know, I think it's down like 40, 50% in ETH. And so there's kind of always a bare market everywhere and there's always a bull market everywhere. And I think that that'll be kind of the, you know, I think in 2018, 2019, I predicted that we will see all coin correlations go very low. And I think that we're really seeing it now where I think just like the last two weeks, the realize all coin correlation has gone to like 30% or something, which is like the lowest like ever. I can't remember the exact number. But that is a sign of maturity, right?

Starting point is 01:12:00 It's a sign that like there's no concept now of like an alt season. Like nowadays you see like some days, Ethan is up 12% and a lot of alt are down in dollars. And so like that kind of, you know, I think Doge is contributed to that too, or like, Doge can be up 20% and everything's down. And so I think that that kind of decoupling of coins versus other coins is very healthy. And, you know, after this continues more and more, I mean, single stock correlations in most healthy stock markets are around 30% as well. So you can definitely have markets where, you know, one coin gets very frothy and then it cycles

Starting point is 01:12:33 over to another coin or, you know, all coins fall back, you know, 20, 35%. 40%, but I don't think you're going to get a 90% fall in ether again. Like, I don't think you get that chance again. Um, and the reason why I believe that is because I think the structure of cycles is that it's very often the market gives you that one capitulation and then it's over. Right. So like dot com, you get that 95% down in Amazon and then you don't get that, you don't get that ever again. And then even the dip buyers, they're hoping for that 20% dip in Amazon and they don't get it and they don't get it for like years. And, you know, eat this bull run has been exactly that for a ton of people where they like keep hoping for that proper.

Starting point is 01:13:07 you know, bare candle and like that capitulation and massive liquidations come, but then there's spot buyers that buy it right up, you know, and it re and it engulfs a red candle in like two days. And so, like I said, like I don't think we're anywhere near the point where you have to be thinking about going like very conservative. I do agree with him that that point may come, but even if you don't look for that point, I don't think you have to worry as much because this is now an institutional grade investment, right? It's not it's not an investment, which is. a caliber of like we can fall 95% right like after 2017 ICOs having that much supply and having to dump it to pay their employees like yeah you you actually can lose 95%. Now I think we will not

Starting point is 01:13:50 have a 90% drawdown again. I think that that actually is a very contrarian view in crypto because of the nature of cycles. But I think that if you zoom out of crypto itself and you put it into let's say overall disruption in tech cycles, Max Payne is actually shallow dips because it gets everyone who's been used to bigger dips just to not own enough of the asset that they need to have, right? Guys, this has been a really fun episode and you guys are fantastic. Thanks for guiding us through the thesis here a little bit in the trade. We've talked super cycles, no more 90% drawdowns.

Starting point is 01:14:28 We talked about the flippinging. Sue, I want to end with this question because you said 15K earlier in the episode. so it was FUD, 15K price of ETH, that is. What is a realistic price for ETH in this bill, bull cycle for this trade that you're making? What's not FUD, sir? I think we'll go over 25K at least. I think also that you,

Starting point is 01:14:56 when the price comes off the block top, if there is one, I don't think that it will be the style of the old one. Because I think that if you think about the way that 2017-2018 market microstructure was, it was very inefficient, right? There was very like poor liquidity at that time, like BitFenix was 12% below Coinbase, for instance. So like some would argue like the actual prints aren't even real, right? The 1400 print isn't even real and some of these prints aren't even real. Whereas now the market's incredibly efficient. The volumes are incredibly high.

Starting point is 01:15:31 Crypto volumes are now already higher than exchange volumes on social. exchanges, you know, finance volume is higher than Chinese stock market volume. Coinbase volume on some days is higher than, you know, NASDAQ. Actually, that might not be true. I think it's higher than some things. FTX volume is incredible. I mean, like in the Deribate options market volumes are just absolutely insane. And I think that all that stuff, that's not coming back, right? But that's not going back to the way it was because now people can get higher yields, people can do things, all this kind of stuff. So I think that in general, my experience in bull markets is that it goes higher than the most ardent believers believe it will go.

Starting point is 01:16:07 And that that is actually the max pain because they sell it based on a dollar view, based on the fact that they can now buy a house, they can now buy five houses, they can now buy a boat, they can buy a bigger boat. And then they, and then so Max Payne is actually them like having been believers, but then not making,

Starting point is 01:16:22 you know, the full move of the full move because they think, you know, they're too focused on their own life basically and in terms of like what that money means for their own life. And that's actually the entire story of like, pretty much all good assets, right? All good assets get priced out of...

Starting point is 01:16:37 So I think another point, kind of back to the idea of why I think Ethereum is such a strong investment, because it's one of the few assets, I think, that is going from many to few, in the sense that the wealthier people are trying to figure out how do we get more of this from many people. Whereas a lot of, like, other coins, it is few people who own them and they want to sell them to many people. And so this like few to many and many to few, I think is very bullish, because it shows the quality of the asset. Kyle, give us your price prediction before we head out.

Starting point is 01:17:11 I'm with Sue. I'm with Sue. I'm with Sue. I got nothing new to add to that. 25K would be a nice target for that. I think for that to happen, you need to see 1559 happen on schedule, and you need to see proof of stake. You see those two things. 25K is reasonable. David, what do you think of this? We did an Heath Bulls episode, and even our most bullish Eath Bulls. This was in December. Their top was at 20K. Now we're at 25K, Eith. Pretty incredible. David, what you got? Last question. Yeah, Sue, this is a complete, complete, well, slight change of subject, but you often say this phrase, prefer wealth. And I actually haven't really completely integrated

Starting point is 01:17:51 what that means. And so I'm just hoping to ask you directly, what does prefer wealth mean? there's this idea of like log wealth and linear wealth right and the and the idea of this I mean we kind of saw the Twitter fights about it with Paradigm and then SBF where SBF is saying like I prefer linear wealth and then paradigm saying no all humans prefer log wealth is just the question of how log and all this kind of hilarious stuff and that's kind of where the prefer wealth meme came out and I think for me what it means is that when you make a investment decision or a trading decision, you do the one that is to optimize for wealth as linearly as possible because that is the truest former wealth. And also that you don't try to let like life things

Starting point is 01:18:39 come into that. It's almost like a venture approach, right? Like if you make a venture investment in something, because it has no liquidity and it has no market to market, you don't constantly think about how do you sell it? Like you just ride it up and down. You just prefer owning the thing itself. and I recommend people to view crypto in the same way, where you've done this investment into it and you just let that sit in that actual bucket and you don't think too hard about what this can now buy you in the real world or what this can.

Starting point is 01:19:07 I mean, obviously make sure you don't go broke, right? And make sure you take care of yourself and definitely fine to spend. But you also have to have some part of your brain thinking deep tech, venture, long-term thesis, because that's the whole point of being in investing space in the first place, right? And so I think that, you know, that's been kind of my, I guess my, like, lesson to people on Twitter, which is that, you know, it's actually, it's actually totally fine to own assets. And if they go up, you can keep owning those assets, especially if you believe they will continue to make you wealthy. There's no need to, let's say, like, like basically have this mentality that you're constantly looking for when to cash out and when to dump and, and when to.

Starting point is 01:19:51 to kind of start spending the money that you've created. You can just grow wealth, basically. Prefer a wealth denomination in crypto money assets. I think that's what we're saying. I want to end with this quote from from Sue. It's pinned to the top of his Twitter right now. If you don't understand crypto and refuse to learn, it's going to be a tough century for you. I love that. I would say the same thing about ether. It's going to be a tough century unless you understand this asset, this asset class. Gentlemen, it's been a tough century. Gentlemen, it's been a tough century. a pleasure to have you both on bankless. Thanks so much. Thank you. Appreciate it. Thanks for having us. As always, guys, risks and disclaimers, of course, crypto is volatile and risky. ETH is volatile

Starting point is 01:20:34 and risky as well. You could lose what you put in. None of this was financial advice, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - SotN #46 - The ETH Trade with Su Zhu & Kyle Davies of Three Arrows Capital

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