Bankless - Will Crypto Peak in 2025 or 2026? Onchain Data Signals | Michael Nadeau’s DeFi Report #5

Episode Date: August 26, 2025

Crypto cycles have always topped on a four-year rhythm, but are we heading for a Q4 2025 peak or an extended run into 2026? Michael Nadeau from The DeFi Report joins Ryan to break down the onchain and macro signals shaping this cycle. We cover Powell’s dovish pivot at Jackson Hole, global liquidity trends, and why loosening bank lending standards could fuel risk-on markets. Michael explains how whale Bitcoin selling, ETH’s breakout, and muted altcoin flows fit into the bigger cycle map. Finally, we dive into portfolio strategy, from core holdings to high-beta “hot sauce” bets, and why holding fewer, higher-conviction assets is the edge most investors miss. Michael Nadeau & The DeFi Report: https://x.com/JustDeauIt https://thedefireport.io https://thedefireport.io/research/how-many-assets-should-you-hold-in-a-crypto-portfolio#closing-thoughts ------ 📣BIT DIGITAL ($BTBT) | ETH-FIRST PUBLIC COMPANY http://bit-digital.com ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ------ TIMESTAMPS 0:00 Intro 3:01 Global Liquidity Insights 6:44 Market Valuations Discussion 9:53 Lending Standards & Bank Activity 11:49 Powell's Impact on Markets 15:34 Inflation and Market Psychology 17:38 Bitcoin Fear and Greed Index 18:58 Long-term vs Short-term Holders 22:45 Realized Price vs Market Value 26:34 Altcoin Market Dynamics 31:19 Extended Cycle vs Classic Cycle 35:06 Portfolio Construction Strategies 39:27 Core vs Non-Core Asset Holdings 43:10 High Beta Assets Explained 45:54 Cash Allocation Strategies 54:05 Upcoming Research and Reports ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures

All right, Bankless Nation, the question today is how will the rest of the crypto cycle play out? Are we going to top in 2025? That would be a classic four-year cycle. Crypto has had many of those. Or will we have a longer cycle? Maybe a top in 2026 and beyond, something a little bit different. I'm here with Michael Nato of the D5 Report. And this is an episode we do on a monthly basis.

Usually comes at the last Tuesday of the month. It's more of a crypto fundamentals episode where we look at a lot of the data, some of the on-chain data in particular and paint the story of where we are in the crypto cycles. Michael, how you doing today? Doing great. Thanks for having me, Ryan. Well, let's talk about the market right now.

So first, ETH has had a great three months or so, and including an all-time high late last week. So it ticked that all-time high number. Hadn't seen that in almost four years. It was like three years and seven or eight months, but who's counting? Now it is trading down. So maybe there's some resistance at the all-time high, at least at the time of recording.

Bitcoin has been okay, but it's had a sluggish three months or so. It is down a reasonable amount from its all-time high. It feels like alt-coin still haven't caught a bid other than Ether, but maybe Seoul is more recently performing okay against Ether. Anyway, overall, what does the market look like to you? Like, how are you feeling about where we are? Yeah, so last week was a big, big week, big catalyst with Powell speaking at Jackson Hole last week. Markets were pricing. two cuts, you know, going into that speech. But I think there was a lot of like sort of expectations of him being a little bit hawkish. And so I think the market was actually expecting maybe a sell-off as he was speaking last week. And we got the opposite. We got like a really exuberant market.

I think Eath was up 15% on last Friday. And so a pretty big move. And we've now, you know, sort of got both of those, those two rate heights are priced into the market now. And so now it's a matter of kind of looking out and taking a good look at what's happening in the economy. We're going to go through some of the numbers and sort of see where things are at right now in terms of liquidity and the business cycle. But I think you kind of hit on it at the beginning here of like, is this going to be a typical four-year cycle where we would top sometime in probably Q4? Or does the data point to sort of like kind of drawn-out cycle here where maybe we bleed into

26? So I think, you know, big week last week and now it's sort of like a reset and kind of like see where we're at and where things are going to head. Well, we're going to do our best to answer that question today's episode. I want to hear a bit more from you about Powell's speech last week and how that impacts things. Also, there's a question. You wrote this great post about how many assets, crypto assets you should hold in your portfolio. I want to get your take and maybe compare notes with some of the things that that I've been doing and see what you think makes sense. We can also talk about some high beta plays, maybe Zora, all of that and more. We've got to thank today's sponsor, of course. So Bit Digital, the ticker is BT, is a publicly traded company. They went all in on Ethereum. They sold their Bitcoin. It used to be a Bitcoin mining company. And now they hold over 100,000 ETH.

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This one stock gets you, ETH price plus, the staking yield. You can learn more at bit-difidigital.com. All right, Michael. Before we get into the question of regular four-year cycle and maybe it tops some time this year or extends into 2026, I want you to show us some of the numbers that you're seeing from a macro perspective.

And the first is this. This is a chart we return to almost on a monthly basis. This is a chart of global liquidity. So set the context here. What is this showing us? Why is this chart important? And what does it tell us in August going to September of 2025? Yeah, this chart is just showing us that Bitcoin is historically quite correlated with global liquidity. This is looking at global equity in terms of all the central banks out there, things that are happening with the Treasury. With, you know, right now we have the Treasury is refilling the Treasury general account, which is sort of the checking account for them. It's factoring in. basically everything in terms of the global liquidity out there. And Bitcoin is extremely correlated to this. We continue to grow in terms of global liquidity. So no major headwinds,

I think, out there right now. We can see that we had a little bit of a correction in that chart in Q1. And that was expressed in the markets in Q2. And we've since seen that rebound. And we've seen the Bitcoin and the crypto markets and equity markets generally rebound as well. and that growth continues. So I don't see anything in the global liquidity telling me that that's a concern. And there's typically about a six to eight week lag in terms of what you would see expressed in the financial markets when liquidity turns over. And so to me, this is kind of like risk on sentiment can continue with what I'm seeing from global liquidity. So the projection of the global liquidity line, that's actually depicted in orange on this chart, is that it continues to go.

up kind of incrementally? Is there a step function change? I know we've got things like the big beautiful bill, some fiscal dominance in the U.S. and other countries, but is your base expectation that global liquidity will continue to expand for the next at least 12 to 18 months? That is, that's what I'm looking at right now. What's interesting here is I think there is a lot of sentiment or a lot of people have this view that we're late in the global liquidity cycle. And I think that's fair when you kind of look historically at that. We have a few other charts here that are kind of interesting in terms of like what we're seeing in terms of bank lending and the actual business cycle behind that and what that could also mean for global liquidity. Before we get to

those charts, why do people say we're late? Like maybe you could steal man their case. I think people think we're late because we, you know, if you look at that orange line, we've moved quite a bit over the last two years, like especially if you kind of look at the bottom of, you know, really where we came from in 2022, which is the last bare market. So we've made a move there. And then you also have just, I think, the sentiment of where valuations are at in terms of the equities markets and the performance from from Mag 7, which is driving most of that. This, that could be a little bit of a head fake to me because it really is mostly, yeah, and this is a chart showing just where we're at in terms of the forward-looking P.E. And we can see the pink there is the mag 7.

It's still significant, even though, you know, we're at all-time highs, we're still below where we were, you know, peaking in the prior cycle. And then when you look at sort of the middle of the index, the smaller companies, those valuations do not look like extreme at all. all. They actually look somewhat compressed to me. So this is... Can we talk about this? So some of these numbers that I see. So Meg 7, Ford PE, this is price to earnings ratio, of course. It's kind of a popular valuation metric for stocks and other cash flowing assets. For Meg 7, Ford PE 29. So P.E. of 29 and you have Ford PE of the large cap, S&P 500, 22. Okay.

And what we're looking at, I guess, is the Ford PE for the Meg 7 is off of the highs that we saw in just 2020 and into 2021. Now, this is interesting because part of the narrative for some of the dip that we saw last week in the stock market in particular was that AI is a bubble. bubble. You know, we've got tariffs that are causing inflationary pressures. We've got, you know, kind of always that job reports aren't looking good. And so AI has just, it's very expensive. And so these equities are a price too high, priced as if AI is going to transform the economy overnight. You're saying that's not what you see in the PE ratios. It's not. It's not.

This is kind of like a sort of a contrarian take, I think, on just the general sentiment out there. you can see in the chart we got up to, you know, the Mag 7 got up to a level of 38 in the 21 bull market. We're at, you know, 29 right now. And when you look sort of further, you know, into the smaller and the midcaps, you're at very like sort of historically normal levels, I would say. The big discussion is that, you know, AI is, we're in a bubble, right? AI is in a bubble.

But there's always some, some like major catalyst that's sort of driving the economy. I think AI in particular is interesting because it can make all of these companies that are in the mid-cap and small-caps actually more efficient and potentially more profitable. And that's sort of not getting expressed in the valuations just yet. And so you kind of have this undercurrent of potential productivity right in the market right now that we're actually not seeing being expressed in these forward PEs. And that to me is sort of interesting. It's kind of a contrarian signal from what the popular. sentiment is out there right now. And this to me makes me think the cycle could actually be extended a little bit

because if these companies do become more productive, more efficient, and they're able to generate higher revenues because of this and lower costs, then you should see an increase in that sort of valuation element of that as that gets priced into the market. And so kind of an interesting, you know, data point here. It does remind me of something that Tom Lee said, when he came on the podcast recently, which was like a bubble is just the assets you don't own.

It's kind of a measure of cope, basically, right? And so, oh, the bubble's over there, you know, people are pointing at it because maybe they're not invested. That could be part of it. So what are you seeing in some of these other metrics, some of these numbers like commercial industrial loans, and we could look at kind of the rate of lending that banks are doing? What are these numbers showing you?

Yeah. So, you know, when I look at the, we always kind of track what's happening with the banks. You know, what is the average bank or the net percentage of banks that are tightening lending standards versus easing lending standards? And this chart, you know, the red line here is showing you the percentage of large and smaller banks that are actually loosening their lending standards. And that chart is moving down and to the right. There's an interesting correlation to that.

The blue line is the S&P 500. And so when banks, you know, reduce their lending standards, that's typically, you know, allowing for more lending activity in the markets. It's like easy money. That's also part of the global liquidity store, isn't it? Banks are creating money. Banks are creating money. Banks can print money as well.

And so you do have this playing out right now. If you go to the next chart, which is just showing the actual amount of lending activity, so we know banks are kind of reducing their standards and they're willing to lend, we aren't really seeing a ton of lending. So the last year or so, it's about our annual rate of change right now is about 5.6%. That's historically lower than normal. So you have this dynamic where the banks are seem to be willing to lend, but we don't see a ton of demand for that just yet. And you can see in that chart like towards the end there, the last period where we saw like a significant expansion was in 23. And we aren't even close to those levels. Right. And we're. And we aren't even close to

to those levels right now. So this kind of like feeds into the idea that maybe this, maybe we're earlier in the business cycle than we actually think. So kind of an interesting data point here. So the banks are relaxing lending standards at the same time. They haven't actually issued that many loans, at least compared to historic. So that represents some basically dry powder that they can deploy back into this economy. And that could act as a liquidity stimulus here. Correct. Okay. Speaking of liquidity stimulus, actually. I'm wondering if you'd give us some insight on Powell's speech.

So this was last Friday. This, as you mentioned, is what sent, was it Friday or was it Thursday? It was Friday. It was Friday. Okay. This is what sent in market soaring, including that 15% day for Ether. What exactly did Powell say? It must have been dovish.

I haven't watched the full speech. I've seen some clips, you know, but what was the crux of his communication? at this historic speech. Yeah, he basically, he was not hawkish. So I think a lot of people thought he was going to potentially be hawkish. And, you know, the Fed has to sort of balance what's happening in the labor market, which is weakening right now with what's happening with inflation and what their concerns are around tariffs. And I think leading up to the speech, we've seen them leaning more towards we need to get, we need to stamp out inflation. That's sort of the priority is to focus on

inflation and tariffs. But what I think he signaled during that speech was that actually we're now becoming more concerned about the labor market. We do have another, we'll have more labor market data that comes out before the next FOMC meeting in September. So if that

comes out worse than expected, then there's a chance. I think there's a chance that we could see a 50 basis point cut in September. That is not priced into the market. we're pricing in a 25 basis points cuts is about 86% right now. 86% probability of a 25 basis point cut in September at the FOMC meeting.

Correct. So that's now being priced in. So that you had the move right on Friday. So the markets reacted to this. And now we sort of, it's priced in. And so now looking forward, you have to sort of project out what is going to surprise the market. It could be that he doesn't cut, right? That would be a negative catalyst.

we actually don't get the cut, or that we actually get a 50 basis. The labor market data comes out worse than expected. We had major revisions to the labor market data last month. It's a chance that, you know, we'll see a lot of times the data comes out. It doesn't look so bad. But then they revise it down. The market doesn't react as much to the revision. It reacts more to the initial release of the data.

So we'll see. But I think the surprise here that could be the bullish catalyst is that that shows more more weakening and they actually cut 50 basis points, which is what happened last year, last September. Do you think, is Powell going to just throw, is he throwing in the towel on the inflation fight? Is he like, ah, 3%'s fine? I mean, like, he's never going to say that, but reading between the lines, is he comfortable with higher inflation moving forward? Well, I think that was the other sort of takeaway that the market was having is that they

may need to adjust the inflation target. There was a, I believe, like an AI readout or something that came out. from Bloomberg that was reporting on this. And I don't know if it was a hallucination. I actually haven't looked at that. If that was actually a hallucination of the AI and it just became a narrative in the market or if he actually, I haven't seen his actual statement on this. But I think the perception was that yes, they're sort of like leaving behind this idea of

two percent inflation targets and realizing that, you know, three percent may be the next target. And if you're if you're sort of explicitly stating that to the market, you're kind of. of saying like, you know, we're going to inflate away the debt. And that is an environment where, you know, asset prices should do quite well. And so I think that the market's trying to digest what that actually means. And if that is actually what is going to be the policy moving forward. And some of these rate cuts then, of course, like weakening job market doesn't sound good. I mean, that feels like it's veering into unemployment, maybe increased prospective recession.

but at the same time, rate cuts imply kind of risk on market in general. One of the metrics that I was seeing is there's like, we're almost at all-time high in terms of the amount of wealth that's in money market funds right now. Money market funds, of course, are these very short-term treasuries where you can pick up that yield, you know, the four and a half percent or so yield, 4.14% yield, something like that. And as those rates go down, as it creeps down to, you know, maybe 3.75 or 3.5, or 3.5, or even three, then keeping your money parked in money market funds, there's like $8 trillion

dollars in money market funds right now, is not going to be so attractive. And investors are likely going to unlock that liquidity and look to deploy that in the wider market. Is that, like, I guess, why is it the case that Powell reducing rates leads to risk on markets? Because isn't he doing this just to stave off some sort of unemployment or recession? Yeah, no, I think that's a great way to frame this, that you know, you sort of have weakening in the economy. We're seeing that in the labor market. And to get that back on track, to get CEOs hiring again and sort of bullish on market conditions, you need to cut rates.

And like you said, when you do that, you have all this money that's sitting in market, all this dry powder sitting in money market funds. And people will have to start to look at that and say, does it make sense for me to stay here? if rates are coming down and the real interest rate is dropping, right? So now if rates are coming down, inflation's going up to 3% and you're sort of collapsing, that real rate is collapsing. That tends to be what drives capital into things like gold and Bitcoin that don't have a yield. So that is, I think, the setup and sort of the psychology of the market as this starts to play out. Let's talk about the psychology of the market with respect to crypto-native assets. This is a chart that shows the fear and greed index for Bitcoin, the asset. What is this showing you?

Yeah, so shifting over to some crypto data here, this is showing me that, I mean, we just actually dipped into fear like a couple days ago. For Bitcoin. Just because Bitcoin's been basically flat on the three month, hasn't it? Right, right. Yeah. And it's kind of interesting. I mean, we're in like a risk, more of a risk on maybe, you know, we'll call it East season right now, where Eath is outperforming Bitcoin. Bitcoin has been shopping for the last, like, last month or so. And yeah, well, we just, we're at neutral, which is kind of interesting to be on neutral, even dipping into fear a little bit with with Bitcoin price, you know, in between 110, $115,000 or so. So to me, that's, it's not greed, right? I mean, this is the thing. It's like,

markets don't end, crypto cycles don't end in the neutral territory. Exactly. And if you, you know, if you look at the right side of that chart, you know, we sort of barely got into the blue zone, which is extreme greed. And that's where cycles at, you know, just more recently, that's where cycles end. And we're certainly not there right now. That said, this is another chart that's interesting, which shows kind of long-term versus short-term holders. And what does seem to be the case is some of the very long-term holders of Bitcoin, some of their Bitcoin assets are getting sold. There was recently, I think that was, in August, right, a Bitcoin whale selling $8 billion worth of Bitcoin.

This is like 2011 level Bitcoin, 2012 level Bitcoin, something like that, and $8 billion sale out there on the market. And so what is this chart revealing to you about long-term holders versus short-term holders and how healthy are we looking on this score? Yeah, and I think this sort of points to why Bitcoin continues to sort of consolidate and chop in this kind of 110, 115 range, you just have a lot of early holders of Bitcoin that are clearly happy to exit at these levels. And you can see that massive blue spike there that we just had recently. That is just showing a lot of Bitcoin holders that are very early. It's measuring

coin days destroyed, right? So it's the amount of, it's telling you that those people that sold were holding that Bitcoin for a very, very long period of time. And so, if someone sells, you know, someone buys Bitcoin, let's say under $1,000, and then they're selling it at $110,000, you basically need, you know, 100,000 plus of capital to come in to keep the price where it's out there. And so I think this is playing in to just why we're essentially churning somebody's long-term holders in Bitcoin. And we need to sort of like set a bottom on that and then get a new, a fresh influx of capital into the markets. So some of the big Bitcoin whales are selling.

I guess if you're thinking about it from their perspective, look, I mean, they bought in what, or, you know, maybe they mined 13, 14 years ago or so. And now they're selling their Bitcoin. At that time, it was just like, what, criminal money, this weird, you know, internet money, magic internet money thing. And now this time they're selling it to BlackRock, BlackRock ETFs. So some of those Bitcoin whales are like, okay, well, this is, you know, about what we thought, a good time to sell a portion, at least, of our Bitcoin.

We're selling it to Black Rock and the institutions. This has really been the institutional cycle. Now, this spike up, this blue spike up, is this alarming to you? Or is this what typically happens at this point in the cycle? Like, what does this tell you about how earlier or late we are in this cycle? So I wouldn't say it's alarming. It kind of, it's more of an explanation, I think, of just kind of what's going on out there. And we can see that it's typical.

this is typical that as you get later into the cycle, people that have been holding onto Bitcoin for a long period of time are more likely to sell a portion of that or exit. So it's not super alarming to me that this next chart is showing the realized price. And this is, we're always tracking realized price relative to the market value

because when the market value separates from realized price, which is really the proxy of like kind of the average cost basis of the network, only looking at on chain data not exchanges. But it's historically been a really good signal for us. And this is grinding up. And it's grinding up because of this dynamic of long-term holders selling their Bitcoin, their realized value may have been a thousand or less than a thousand.

And that someone buying that the realized value is the current price. And so the realized value is grinding up. And I think this is just like the other side of what it looks like when long-term holders are selling. and you know we've we got up to like seven on the market value to realize value in the last cycle we're at like 2.1 right now and this can get kind of give you an idea of where we could potentially top out here so we're at 52,000 for realized value right now and you know if you get up to three or so you're pushing into that you know 150 160 range maybe that's kind of where we're heading like maybe in q4 here We'll see. Imagine a world where traditional finance meets the power of blockchain seamlessly. That's what Mantle is pioneering with blockchain for banking, a revolutionary new category at the intersection of TradFi and Web3.

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Want to stay in the loop on Unichane? Visit unichane.org or follow at Unichane on X for all the updates. What about some of these other charts? Your D-Gen meme coins versus the D-Gen coins versus the non-Dgen coin activity and, you know, the alt-coin season index. What is this telling you? Yeah, trying to get a sense of just, you know, animal spirits out there. This is Salada Dex volumes here, this Dgen versus non-Dgen. This is that this is something we put together to just try to get a feel for sort of animal spirits and just risk on sentiment out there. We are seeing, you know, decks volumes are still,

I would say, depressed from where we were Q4, early Q1 when like Trump launched his meme coin and all of that was going on. So it's still somewhat depressed, but it's coming up. Like, we're seeing that sort of like build build up a little bit. If we go to the alt season indicator chart, you know, we're at like a 57 right now. So we're kind of like in the middle zone. This to me is a little bit misleading right now because this is largely driven by ETH currently. And we've seen ETH just really pulling liquidity from a lot of other alt coins actually. So like a sort of, looks like we're having an all season right now, but on this chart, but it's, it's isolated to, I would say, ETH and some ETH-like kind of beta plays that are available, but there's still a lot

of dispersion in the market. This is what we expect. It's really kind of a stock pickers, you know, market out there right now, I would say. Okay, so all of this now, Michael, equips us to maybe more precisely answer the question we started this episode with, which is, can we expect a stand four-year crypto cycle, which means this could end sometime in 2025. Or do we have some sort of more extended cycle, something that lasts into 2026 or beyond? I'm not going to say the super cycle, but something that's elongated from previously. Because what you just talked about, everything to this point has been, okay, the standard crypto play of first Bitcoin has a run and it pumps.

and then there's an ETH season, and then after ETH season, you get kind of the longer tail of Altcoin-type season. And okay, we had our Bitcoin pump. Now we're in Eth season, and we might be there for a while, and then next is Altcoin. And typically what happens, this always happens in four-year cycles. I want to throw a chart your way. This is from a post from ALO on Twitter. And he posts this basically, this is the cycle tops from previous cycles.

And Bitcoin cycle top, there was one in December of 2013, the next one, four years later, December of 2017, the next one. Again, four years later, November, December, 2021, these are all of the previous tops, right? For as long as I've been in crypto, as long as I've been learning about this stuff, we've always had four-year cycles. Now, whether this is the happening or this is a liquidity cycle, it just seems to fit this four years. And so if we have the same thing play out, okay, four years from November 2021, well, that's November 2025, Bitcoin top, November or December 2025. That's this year. So that means a cycle top in Q4. And if we're going to argue against that, Michael, then we have to say, oh, this time is different. And those are dangerous words, I think, at any market and in particular, crypto. So what do you say to this? Do you think, think this is going to play out in these four-year cycles again. And so we can expect, I guess, a frenetic next couple of months as we race to all-time highs. Bitcoin hits a top and then it hits another top and then maybe we get a very brief alt-coin season. Or does this extend

into 2026? And we have something that crypto has never had before, which is an extended cycle. Yeah, this is the million-dollar question. And I think historically you want to bet on like, what's happened in the past tends to play out that way. And there's, I think, several reasons and I think just market expectations, psychology, the way that global liquidity cycles have actually lined up with the four year, with the Bitcoin halving cycle. All of these things, I think, have sort of played into why it's had these kind of clean four year cycles. My thinking on this is that, you know, I don't want to fade that because historically it tends to hold pretty well. But I think you have to be open-minded to the fact that we just shared a bunch of data, you know, showing that maybe the

business cycle is earlier than maybe we think it is. And so that's a bit of a contrarian signal to this like idea of topping in Q4. And, you know, the thing that would probably extend the cycle in my view is we would probably have to have a correction. And in historically September can be a down month, even in like the last year of a cycle. So I would be more bullish on cycle extending into 26 if we see like a decent little correction here, but we stay within the kind of like bull market support range. So that might look like, you know, Bitcoin, you know, correcting closer down to 105k or so. Maybe Eath, you know, comes back down. to the 4k.

I would be looking for Eth to hold that 4K range, which was resistance for a long period of time. And if it can turn that into support, that would be bullish. And this was sort of like, people are getting a little bit, maybe over their skis right now. Maybe that resets the market a little bit.

And then we let things kind of like build up again. But that's probably what would be necessary. If we start to run off, like if I see ETH, you know, run back up to 5,500 towards 6K, or so, I would be thinking that it's probably more Q4 type type scenario. And then you have like alt season coming after that. But if we get the correction and things kind of calm down, to me, that's a better, that's a better market structure for a longer, you know, drawn out cycle. And it's just important to realize that like, you know, those, these crazy bull markets we've had in

the past, I don't think that's, you know, we're seeing like, you know, there's a law of diminishing returns as well with, with these assets as they grow. And so the amount of the move to the upside and the amount of the move to the downside should start to sort of like compress, which I think I think we're seeing as well. It's interesting on the business cycle side of things. Tom Lee, once again, he thinks we're mid cycle with respect to equities. At least that's what he's kind of broadcasting. And there are some reasons why this time actually might be different. This is the institutional cycle. And it seems like the institutions are sort of driving the price action this cycle and the way they haven't previous. Like most. cycles previously have been very retail driven. In addition to the point that, you know, all of the metrics, the on-chain metrics that you study, none of those are really bleeding red, are they? Like, not at this point. I mean, the alarms aren't going off. They're kind of in the neutral territory. And we just got the genius bill, didn't we? We just got some major crypto-favorable

regulation. There's going to be more stable coins on chain than there are right now, aren't there? And that's got to feed into it. In addition to the Fed dynamics, which you said, looks like we're going to be cutting for the first time in a long time, starting in September. So all of these reasons does kind of feel like this cycle could be extended into 2026. I guess maybe just if you were to bet right now, you know, kind of like you were forced to choose. Do you think we top in Q4 of 2025 or do you think we get that extended cycle into 2026 or maybe beyond? I tend to kind of fall these events as they go and and kind of see where things are going. I think right now the way I'm thinking about it is it's probably going to actually extend

and we're not going to see, you know, the market has a way of humbling everybody. And I could definitely see a scenario where, like you said, the other thing that I think isn't being talked enough about is just the big, beautiful bill, you know, changes to corporate taxes and just like we didn't show earlier the ISM chart. the ISM has been in a period of contraction now for like 30 months. And we've never had a scenario where we like kind of went, we ended a business cycle after. Yeah, that was this one there where you can see it's just shopping.

And we're still underneath the 50 zone. This is like a survey of all the people that are out there in the manufacturing sector telling you whether they're bullish or bearish on adding inventories, hiring. and we've never had like a cycle end after 30 months of chop like that. You typically will actually see an expansion there. And that tends to coincide with, you know, risk on sentiment, alt covencies and things like that. So this is like a really interesting, to me, this is a very powerful chart that tells me that that makes me think that Tom Lee has, has a point that we're like closer to mid cycle here. and then when you think about potential changes to regulation

with banks being able to hold more treasuries on their books, that equals more lending in the economy. And what we talked about earlier with AI and productivity gains, like there's definitely something to be said for like this could extend. And maybe that's the, that's what humbles people. Maybe people sort of anticipate that. And especially if we get a sell-off, people may think, well, it's over. We topped, and then you get the surprise.

So it's an interesting setup for sure. It's not a clean. I don't feel super strong in either direction, but I could definitely see the case to be made that this can extend for a while. We will check back in with you then next month and see what you're seeing in the horizon. So one question, of course, is how do you play these cycles?

And you wrote a great post. I really enjoy talking to you, crypto investors, crypto natives about how they structure their portfolio. And maybe the key question that you attempted to answer, at least for your style of investing, is how many crypto assets should you actually hold in your crypto portfolio?

There are a number of, I think, mistakes that people in crypto make. You know, one is not having a long-term time horizon, of course. You know, another is just like playing on margin, over-trading when they should be holding that type of thing. Another thing I think mistake that crypto investors tend to make is they can have too many assets inside of their portfolio and think by having a greater number of assets, it quote unquote diversifies them. And so they're balancing out their risk or they just kind of like hop on asset to asset and they sort of follow narratives. I want to hear about your strategy. So if they're playing the game like Michael Nato is playing the game in crypto, how many assets,

should they be holding? What's your rationale when you try to answer that question for yourself? Yeah. So, I mean, I think the most important thing for me is to build conviction in like in a four or five different assets, themes, you know, that that you can have conviction in for a very long period of time so that when the market turns against you, you don't, you know, panic. So I think this is something a lot of people that come in new to crypto, maybe you get excited because you're learning about Bitcoin and it's a bull market and and you're buying it, you're seeing all this bullish sentiment on crypto Twitter. And then the market turns on you and you sort of panic sell because you never built conviction. You never built a long-term thesis or you had a plan for how much of your,

personal income that you wanted to allocate to that asset. So I think the key thing for me is to do a lot of research and develop really strong conviction. That allows us to just look through, like just FUD and and you know, just market cycles. So we like to, we focus, Bitcoin has always been the largest asset in the portfolio. And the way that that typically looks is you've got an allocation of Bitcoin. We have a long-term thesis on Bitcoin and why that should get to like gold's market cap, which still has like a 10x move on it. So as long as we have that view, then we want to pair that with the other core themes that we believe.

to be true, and that is that we think all of assets are going to come on to public blockchains. That's not going to happen on Bitcoin. That's going to happen on smart contract network. So we want to have conviction in a few of those as well. And the way that we, I think, the way that you can sort of outperform Bitcoin, which should be your benchmark, is to understand how capital rotates within crypto, within the larger business cycle, within the larger global liquidity cycle. We just had one of those rotations from Bitcoin to ETH over the last few months. And so that to me, this is to me like the key thing is to have conviction and assets understand sort of how crypto assets correlate with the larger liquidity cycle, business cycle.

And then you can sort of like adjust your allocations as you move through the cycle. So that's kind of like your core asset. Well, let's talk about that for a bit more. So you've got the core assets, which is kind of the foundation of the house, the foundation of your portfolio and some of these assets are the assets you really denominate in essentially. So for you that's Bitcoin. And so any investment that you're trying to make has to be investment that you think on the time horizon will outperform Bitcoin, for example. And then you also have other core holdings. I think you include Ethereum as part of this. And at times you've also included Solana

based on kind of the different seasons. So these are the core assets. One thing that strikes me is sometimes I think traditional investors, Michael, they pick the wrong kind of denominator of returns. I was just actually looking at a chart of gold versus the S&P from the date at which Nixon got the U.S. off of the gold standard, right? So, you know, 1971 from that date. And it turns out in gold denominated returns, the SMP actually didn't perform at all. In fact, gold had a return 20% above the S&P for that historic SMP run. And some people say, well, that's a snapshot in time. It's like, yeah, it's a snapshot in time.

It's post Nixon taking us off the gold standard. And so you were better off holding gold from 1971 than investing in the SMP 500. That's very counterintuitive. And the reason for that is because investors often denominate their returns in dollars. Problem with dollars, though, is it's an asset that is in. inflating away. And so what you, if you denominated in gold, well, you actually haven't outperformed just holding gold in that in that period of time.

Anyway, with respect to crypto assets, it's important that you are thinking about outperforming some of these core assets in your portfolio. It's not enough to go invest in some D5 protocol or something else and just outperform the dollar. That's easy mode. What you want to be outperforming is Bitcoin, Ether, Solanas, and these core asset holdings. And I think that's important for investors to really benchmark themselves against and denominate their long-term returns in. Yes. And, you know, this is really hard to do, by the way, like, you know, the percentage of even crypto-native hedge funds that actually outperform Bitcoin is very, very low.

Yep. So this is something that, and if you think about what percentage of, you know, investors even have an allocation to crypto, I saw Bank of America surveyed their clients and 75% of them have zero exposure to crypto. So if you're just in, if you just have 5% in Bitcoin, you're outperforming the average investor. Never mind if you have, if you're, you know, probably like the millennial generation has a larger allocation to crypto assets. And if you're playing that game, you should be, your focus should be on how do I outperform Bitcoin. I think when you get in this part of the cycle, actually, you know, there's been very, very few assets out of outperform ETH. But if you can outperform ETH, when ETH is running, that's, that's just, you know, that's just, shows even more scale. Like, what are the beta plays on ETH? And so we try to, we try to,

you know, we have our core asset, you know, holdings. But then we also have, and that's typically 70 to 80 percent, we also have crypto equities, which I think are interesting to have in that core asset holding. You can sort of get broader, almost index-like exposure to the entire crypto asset class by being in some of these crypto equity companies. I think I've used companies like Robin Hood and Coinbase as like the next, you know, JPMorgans, Morgan Stanley is like these are the next, these are going to be the financial institutions of the future. And so those are, those are companies. I think you can, you can just have a long-term thesis on and hold those forever. I want listeners to hear that because because the core part of the strategy in the way you run it

and this is similar to the way I think about it is basically so if Bitcoin ether, these assets, these core assets are so hard to outperform, right? Don't try to outperform them. Hold a bunch of them. All right? And so that's why your portfolio is essentially 70% these core assets. Because you'll have to play on hard mode and try to outperform. You just buy those assets and leave that as your core holding, right? Yeah, yeah. Let's get into the other parts of the portfolio.

So you've got the core holdings, and then you've got a category called non-core, longer-term holds. What are these? And how are they different from core holding? Because they're both longer term, but they're, you know, non-core, longer term implies something different implies it's non-core. Yes, so these are assets that we can build a long-term thesis for, and we have data that we can track to make sure that the KPIs and things are tracking towards our thesis, but they are higher risk than the core assets, than the L1 assets, than Bitcoin, that maybe the crypto equities. And so there's more risk, right?

So there's probably more upside. And if you're looking, we would never add a non-core longer-term hold. again, if we didn't think that that could significantly outperform Bitcoin in our core assets over a period of time. So an example of an asset that we like in this category that hasn't been doing great, but we have a more long-term view on this is something like a world coin, where it has a very large addressable market. We think it has a use case that is critical to like the future of the Internet and what's coming with AI. So we can kind of build a fundamental thesis around that asset.

we cover this project. People can check out the report we did on it. But that's something that is also higher risks, right? There's other risks that are coming into play that you don't have, I think, with your core assets. And so a smaller allocation here, so that reduces your downside if you're wrong, but you can sort of, you know, potentially increase your returns if your thesis plays out and you do get the outperformance that you're looking for here.

For you guys, this is about 10 to 15 percent of. the portfolio, right? So 70% in those core assets and then 10 to 15% in the non-core longer-term holds. When you say longer-term hold, like we're talking years, I would assume. We're not talking months, but how long is longer term? Yeah, like we would typically, you know, be looking at like a cycle for some of these thesis to play out and some of these ideas to play out. It could be anywhere from two to four years or so. And sometimes in crypto, crypto can throw you off.

And like maybe your thesis didn't play out, but the asset just caught a narrative and it runs a little bit. And we'll trade that. We'll trade in and out and try to keep our core position, but maybe reduce, you know, if it takes a larger percentage of the portfolio.

The last category here is the high beta risk on assets. So this is kind of the hot sauce. So this is another for you guys. It's 5 to 10% of the portfolio. And if you add those numbers up, you get 100%. But what are the high beta risk on hot sauce assets?

Yeah. So this, you know, we track data on everything. You know, we're curious and we want to deeply understand like capital rotations within crypto. I think this is critical to just understand, you know, where sentiment is, where the animal spirits are. I think you can look at meme coins and actually get a view, like based on what you're seeing in meme coins, it can give you an idea of kind of actually what's happening.

happening in the market. So that's where we would put stuff like that. We do fundamental analysis on meme coins. It sounds crazy. But there's ways to analyze sort of wallet cohorts of holders. There's ways to analyze flows, you know, to and from dexes from various wallet cohorts. We'd like to look at whale holdings and then see what whales are doing on various meme coins, um, deep coins that we like. And we look for coins that look like they have something different about them in terms of the holder base, um, in terms of, of maybe the average holdings of the holder base. We also look at like the person,

we call it whale retention. So the percentage of holders of a coin that have ever had more than like 100K of the coin. And then we will look at various points in time to see what percentage of their peak holdings they still have. So we strip out the noise from the price. But we look at, you know, what's going on with sort of whales and general just kind of of hodler behavior with some of these coins. And then the key thing is to understand, like we were talking about before, when are these market inflections?

Why does alt season occur? Why do these, why does this wealth effect sort of bleed into sort of the longer tail of assets? And so we want to have a thesis for that and small allocation here. Small allocation because these things can just bleed out on you. And like we've seen, we showed the alt season chart earlier. And, you know, it looks like we're having like a little mini alt season, but that's mostly ETH. And most of like the longer tail assets are actually bleeding against ETH right now.

So that's why this is a smaller allocation. But when it does sort of turn, you can kind of get that like sort of hot sauce on the portfolio. This is like, you know, you pair the L1 with the culture coin, you know, of that network. And you can have some outperformance. We've hit a few meme coins this cycle because we were, you know, curious and doing some of the work here. And so we do sort of recommend like a small allocation. Yeah, I know one that would probably fit in this. I don't know if you guys have taken a position on this so far.

But I noticed that you put out a report on this as Zora. It's a potential, like kind of high beta risk-on type of asset that seems to have. I don't know if you've done the on-chain analytics for this type of an asset. But that, you've also done reports on things like pump fund. I believe, those types of assets would fit under this high beta risk on five to 10% of the portfolio, right? That's right. That's right. Yeah. So these are the meme coins, sort of what's the next meta type type stuff? We saw stuff with AI agents and things like that, you know, in Q4 up last year. So yeah, this would be sort of the far end of the risk curve. Where's the meta? Where's the animal spirits going? And yeah, that's kind of how we think about the hot sauce portion of the portfolio. if people are adding all of these up,

how many assets is this for someone like you? So, you know, I like to have less than 10 is actually, I think, a good number to have. We have a few more than that right now because we're kind of later stage and we have a few more of these sort of hot sauce assets in the portfolio right now. But I think once you get over 10 to 15,

it's like it's just a lot to keep track of. We do this, you know, 24-7 and we're studying data And so, you know, that's manageable. But for the average person, if you're working, you know, another full-time job and you're not living in this every day, I think you want to just probably be more concentrated in your core. Just develop your long-term thesis, have your core holdings and sort of DCA, you know, into that over time. Probably what I would recommend. But for more active investors, you know, you can get up into the 10 to 15 assets. This is the strategy, right?

It's high conviction on a small number of assets. and that allows you to basically double down on these things, right? This is why I think of this play is kind of similar to like sort of a, if Warren Buffett was a crypto native, how would he play things? It's kind of that, right? He like picks specific stocks, but it's pretty concentrated bets into many of them. Another question I guess I have as you think about your portfolios, what's the role of cash in this portfolio?

And by cash, I mean kind of whatever, treasuries, you know, the stable coins, where you keep your dry powder. let's say, and how you choose to deploy at different parts of the cycle. But just in general, what's the role of cash? And I'll go back to Warren Buffett. I was looking at Berkshire recently. And right now they have pretty historic highs, maybe not the highest it's ever been, but pretty historic highs with respect to how much cash they are holding,

about 30% in short-term treasuries in the money markets we were talking about, which is pretty high for Buffett, which implies he thinks that there's going to be some buying opportunities into the future. That's essentially how he plays things across equity cycles, right? He kind of stacks up his cash as things heat up. And then when there's blood in the streets, he deploys. And I think your strategy is to take a similar tactic with respect to crypto. But what does that imply for your cash position at different points in this cycle? Yeah, it's a great question. And I love the, you know, I love bringing Warren Buffett and like Charlie Munger into this, because they historically were, you know, not super, not super interested in crypto and had some

kind of nasty things to say about it. I learned about investing through those guys. And so have deep respect for that. I was reading their books in college. And that's kind of how I developed a framework for investing. What's interesting to me is that that's my background, but I'm, you know, mostly in crypto now these days. And so I think it just shines a light on. Like, you can learn from people, even when they disagree with you on certain topics, you can still learn for people. I think people struggle with this. Like if they disagree with somebody on one idea,

they throw out the other ideas. So it's kind of nice to combine both of them with crypto and sort of their philosophy. But yeah, coming to the cash. So we, you know, for me, and I'm probably a little more conservative on this, we always like to have plenty of cash on the sidelines. And it's almost, in some ways,

it's like a barbell where we can sleep at night because we know that, you know, we have allocation. We have plenty of risk in the market, but if there's a drawdown, I'm not panicking because I want to buy that. I want to buy fear and sell into greed. And the best way to do this is to maintain a healthy amount of cash. We typically have more than 10% of our portfolio in cash.

It's a little bit less than that right now. But that's sort of like the way that we manage is this. We can pull cash off the sidelines if we think we're really going into risk on. add that to our sort of crypto portfolio. But there's always plenty of cash to, that's just sort of earning some interest in keeping us, making it easy to sleep at night. And that's just my style. And that just works for me. I think it's some of it's a personal preference. I like that too. Just like one take on this is you probably don't want less than 10% of cash in your portfolio, at least not too much less at any point during the cycle. But you should be

looking during this cycle, again, if we play out into 2020, late 2025 into 2026, to have more cash than that 10%. So you're leaving the cycle with, you know, 15, 20%, 20%, 25%. You don't have to get Buffett level 30%, but that should be the objective, which requires you to start thinking about some sell targets as well. Yes. Maybe we can talk about that in a future episode. Mike, that's all the time we have. This has been absolutely fantastic. I should remind folks that people can actually access your portfolio and those 10 plus assets that you hold in the DFI report in the premium version of the DFI report. We'll include a link to that in the show notes.

What type of research are you going to be working on in the weeks to come? Yeah, so we do have TDR Pro now. That's a weekly email that goes out, and we just share our views on the markets and what we're seeing and any changes to the portfolio. And then we produce a weekly report on just interesting stuff we're seeing out there. We're actually, we haven't covered hyperliquid yet in the DFI report. So that's going to be a report coming out on Friday. Part of the reason we haven't covered it is

Hyperliquid is almost in some ways like a permission chain in terms of accessing data. So we finally got some good data to look at Hyperliquid. And maybe this informs, you know, a bare market thesis for that. So we do like to do a lot of work ahead of, you know, when we actually make our buys. And so, yeah, we're going to do a deep dive on Hyperliquid. And yeah, we just keep getting better with on-chain data and people can follow that reaches. We'd share a lot of it for free if you want access to the portfolio. That's a $25 a month product. Awesome. And it's well worth it, Bankless listeners. I'll be looking forward to that Hyper Liquid report. Actually, I don't know what you're going to think in terms of is it still a buy because it's definitely done a run-up,

but is printing some numbers at the same time. Bankless Nation, got to remind you, of course, none of this has been financial advice. Crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone. one, but we're glad you're with us on the bankless journey. Thanks a lot.