On The Brink with Castle Island - Quinn Thompson (Lekker Capital) on why the Macro matters for Crypto (EP.517)

Episode Date: April 8, 2024

Quinn Thompson, founder and CIO of Lekker Capital, joins the show. In this episode:  Launching Lekker Capital Quinn's investment strategy with Lekker Using crypto instruments to take a view on macro trends The significance of the move in the 10year How unusual is it to cut rates when inflation is running hot Is inflation the lesser of two evils? Why an inflationary reset is the only way out of our fiscal position Is Bitcoin more analogous to gold or NASDAQ? What are memecoins telling us about the crypto cycle? Institutional participation in Bitcoin dampening volatility? Quinn's views on the halving Will Microstrategy shares ever converge to the value of their BTC? Why it is often mechanically difficult to bring meme stocks back to earth Quinn's views on GBTC selling and the US govt's seized Silk Road coins Further reading:  Follow Quinn on Twitter Fortune on Lekker Capital

Hello and welcome to On the Brink. I'm Nick Carter. Today I'm sitting down with Quinn Thompson, founder and CIO of Lecker Capital, formerly of Maple Finance. We're sitting now and talk about the launch of his fund, his investment strategy, and why the macro does matter for crypto. I know that's a big debate in the industry. We also dig into the ETF rally, the halving, whether it's a catalyst or not, structural sellers in the market. And, Quinn's macro perspective. Really excited we're able to get this episode in. Quinn has been a good friend of mine for a long time and we're pumped to have them on the show. Let's dive right in. Hello and welcome back to On the Brink. This is a very special episode.

I'm sitting down with my friend Quinn Thompson in person. In person. In person in Miami. Neighbors. We've actually never recorded a podcast in my apartment here. So this is the inaugural. It's very clean and tidy as you'd expect from name. actually cleaned up for you. I appreciate it. It was not at all tidy this morning.

So I was special. It was looking rough. There's boxing gear everywhere. There's still some boxing gear. It's pretty remarkable to be able to record our podcast in the presence of a up-and-coming boxing great. Yeah, I consider myself more of a prize fighter now than a crypto investor. Well, luckily for you can do both. Welcome to the show, Quinn. Thank you for joining us. Thanks for having me. So let's start with, uh, an interesting career pivot on your hands. Obviously, you're ahead of growth at Maple for a few years and now you've an exciting announcement. So will you share with us your next move? Yeah, absolutely. So starting this month, I'll be transitioning out of Maple to launch NBCIO of a liquid macro crypto

head fund called Lekker Capital. This strategy is really borne out of my personal investment approach to the digital asset space, which is combining, you know, taking macro data points, traditional measures and metrics and applying those to the crypto ecosystem, understanding the correlations between how interest rates and liquidity affect the broader crypto economy and expressing views largely around digital asset related trades, whether that's crypto equities or liquid tokens or, you know, depending on the environment that might shift. So we've known each other for almost three years now. I would say you're certainly one of the more astute traders that I know.

That's very kind. I know a lot of crypto traders. Let me tell you that. What was it that kind of gave you the confidence to sort of take the sleep and start a fund? I mean, it takes a lot of guts to do it. Yeah. Well, first you just, you just go for it and don't think about the downside. But no, it's, it's been a while in the making. Even before I got into crypto, I was in when I was in the traditional world in the credit space was going to join a hedge fund. Got deeper into crypto, decided to make the jump. After my first role in crypto, before I joined Maple, I was going to join a liquid hedge fund as well

and, you know, saw the opportunity with the team at Maple to join a, you know, really rapidly growing company that I believed in. And, you know, here we are a couple years later after that run and really been building this, this track record, credibility and brand across the space, establishing myself. And I think refining my investment process as well, there's a lot you learn. living through the volatility of a crypto cycle or a few of them. And, you know, I think, I believe strongly in the returns and promise of the space and want to hopefully provide that value to LPs. So, you know, markets were picking up. I was building this track record and started having conversations with potential investors. And it just made sense of the timing because

these things take a while to get set up. You have to, you know, prove yourself over time. And the the sooner you can build the track record, the better. Yeah. So there's obviously a lot of, funds that trade liquid crypto back and forth, but you take more of a macro view. So you're kind of using crypto names primarily to express macro views. Is that fair to say? Yeah, that is. It's a debated topic in the space. I think on the one hand, you have that crypto natives, many of whom are like diehard technologists

and come to the space from less of a Wall Street background. they're entrepreneurs and builders, engineers, and, you know, building these projects and protocols and companies through the market conditions no matter what. They've weathered multiple cycles and have this very optimistic view. I think that's one approach. You know, we see it most commonly in venture within the space, as we know investment capital has been dominated by the illiquid venture portion. And then you have this other side, which is the macro, you know, these crypto natives, no one wants to believe macro is that impactful. And then on the macro side, you have people that think everything is macro and the fundamentals don't matter. And so

I'm a believer that the middle ground is somewhere in the middle. Sometimes it skews in either direction depending on the market regime. And my expertise coming from the traditional credit and and markets world is in that macro space. And, you know, when you're deep in there, you kind of see these different correlations and linkages between liquidity factors, interest rates, how equities are moving, how that plays into crypto equities, potential knock-on effects from strength in crypto equities to the crypto market. You know, when micro strategies stock gets bit up and there's a huge premium that allows them to buy more Bitcoin, these things matter. And so taking this approach, I think, you know, it's maybe a more measured approach from just a pure on-chain crypto native

style where it's long only. You know, I'm putting risk on and getting long in times when I think the macro backdrops really supportive and trying to express more defensive or neutral relative value or arbitrage opportunities when things are more sideways. So this weekend, we were actually in an Easter brunch together. Shout out, Bachela. That was a good one. Mike Bichella threw an Easter brunch, which was exceptional.

And you're telling me to look at the 10-year, and then, lo and behold, you kind of a bearish view of the 10-year rallied. And then yesterday, it did. Can you explain what you feel the relationship is between the 10-year and then crypto? Yeah, so it dates back to, if you think about this, maybe I'm going too deep here, but the if you if you look back to let's say going into 2023 everyone was calling for a recession and this view ended up being very wrong and people got you know raked over the coals for that if you were calling for a recession but as always there's more nuance to things we would have had a recession had the regional banks not been bailed out in March of 2023 and so looking back 18 months we've had

three mini what I'd call liquidity crises or bouts of trouble for the government, which was October 22. We had the Bank of England guilt crisis where yields shot up. Their pensions were in trouble. They stepped in the G7 central banks and fiscal figures. Weekend the dollar, lowered interest rates, provided liquidity. Six months later was March 2023. We had the regional banking crisis in the U.S. backstopped all the FDIC deposits above 250, bailed. banks out and then provided the BTFP, which was a liquidity facility for banks to save their underwater treasury positions. Six months later was October 23, which was the rise in U.S. yields. You had people on CNBC calling for potential 10 percent yields on the tenure.

And then obviously we had, you know, a huge reversal. Yelen came in and they reduced the duration of their government debt issue. And so the why I lay that out is, is it shows that although the economy is healthy and resilient, there's kind of cracks along the way. You know, it's not this resoundingly positive picture. And that's where you get, you know, conflicting views on the macro. But why interest rates matter. We saw it in 2022 when broader tech multiples and crypto got got really hit. But it's the underpinning of the whole, you know, financial system. And in today's, where we sit today is the economy is stronger than, you know, let's say less people are calling for a recession. The economy is so much strong. Maybe labor's weak

in certain areas, but it's strong. And things are going well with the biggest red flag being liquidity and interest rates. And the problem is the government has an ever increasing amount of debt they have to issue. It gets these things play out over very long periods of time. But they're tools to buffer that issuance have waned. So they drain the reverse repo facility from 2.4 trillion to 0.4 trillion, 400 billion in the last year and a half. They've, that the BTFP that they launched in last March is, is winding down over the next year. And the TGA, which Yellen used in the beginning of 2023, she ran it from 1 trillion in 22 to 0 basically in May 23 without issuing that government debt. So because of the debt ceiling, they spent the trillion dollars in the TGA and didn't issue additional debt.

And that was a huge stimulative effect. So you have all these things that have culminated in a stronger than expected economy, a stronger than expected risk asset market. But looking forward, there's still large amounts of debt to issue. There's still this quantum that has to be absorbed by the market. And ultimately, that's funding the asset. come from somewhere. So I'm of the view that overall, it's a, it's a supportive time for risk, but why in these acute periods of liquidity or stress and interest rates matter is it dictates how all other assets trade. And as you approach these times where the government has to

pick up issuance in Q2, commodities in inflation expectations are higher than they were, you know, kind of in the last 12 to 18 months. It makes it more difficult for the had to be dovish and really kind of can stress the Treasury market and that will follow on. Eventually, we've seen time and again the governments step in and calm the markets via some liquidity mechanism. But you have to have these bouts of weakness to provide that air cover for those. So the long end of the curve rallying, the expectation among traders there is that were due for more inflation and you would require more compensation to hold government debt. Is that kind of the theory?

Yeah, that's right. So what has kept the economy strong and all the risk assets strong is liquidity in these ways that Yellen at the Treasury and Powell at the Fed have bolstered markets. The downside for them is that the same things that bolster the economy and stocks bolster commodities and inflation. And all of that easing or looser monetary policy is good until it stems and brings inflation back and causes commodities to increase and then forces more restrictive monetary policies. So in this window of people calling it the Goldilocks where everything looks good, there's not a lot of inflation.

It's important to peel back under the hood where commodities are stronger today. The rate of change of inflation is no longer going down. It's actually inflecting. There's still the same amount of large debt numbers to issue and less and less buyers. So that's the market expectation, I think, is that, you know, as inflation expectations are strong, this is a liquidity drain on net and higher long bond deal. A steeper yield curve is needed to compensate. How do you feel about the fact and how unprecedented is this,

that inflation is still running ahead of the target, and we are with the market's pricing and cuts in June, I think? Yeah. It's not that unprecedented when you look back at how these things play out, because it's all incentives. At the end of the day, Yellen and Paul and the folks in charge, they want to get reelected the way to do that. is a strong economy or to increase their odds.

So they're trying to thread this needle of no one wants to cause a recession and unemployment to spike, but they also can create a problem on the other side if inflation spikes back and, you know, Biden has to get on TV and call them the American people on inflation. If you actually look back to this period of 1966 to 1980, there was about four or five peak to trough, peak to trough, peak to trough, peak to trough and inflation. And everyone has very short attention span, so wants inflation and deflation and inflation to cycle in and out by the month. But actually, the average time peaked to trough was about two years in that time. And we peaked in middle of 2022 in inflation.

That means we're probably troffing right about now and should see the way these inflation cycles work. It come back. And, you know, 10 to 30 year treasury bonds at four, four and a half percent. don't make a lot of sense if inflation is not going back to two for the next five years. You're losing a ton of real purchasing power. And in reality, there should be a term premium, you know, probably that lifts those yields to five or six to account for that volatility of inflation. From the U.S. government's perspective, it's kind of the lesser of two evils, right?

Because they have to service their debt. Structurally, there's fewer buyers of the debt. China and Japan appear to be divesting as far as we can tell. and we're spending more at the same rate as in the depths of COVID. So something has to give, and it seems to me like they are willing to accept higher inflation in return for the economy, you know, for the government debt not crowding out the entire economy. Yeah, you can date back to early civilization that shows the most palatable way to deal with this is inflation. And that's ultimately what you kind of have to choose because you will get

fired out of office if you cause half the country to lose their job and stop the inflation. But you probably keep your job for at least four years if it's only their grandkids that lose their jobs. So I mean, it seems like they're talking out of both sides of their mouth, giving lip service to getting inflation down, but then engaging in cuts. Yeah. These actions, of the last that I laid out where they ran down the TGA in early 23, bailed the banks out in 23 skewed debt issuance to coupons versus duration. Those are all yield curve control, you know, monetary, you know, manipulation. But put yourself in their shoes.

They're not going to come out and say, hey, guys, you know, we told you 2%. we need it to now be four in order to grow our way out of this. Just bear with us. It's just going to take five years. You know, your low income, we know you can't afford much, but it's going to get worse before it gets better. That doesn't sell as well. Right.

I mean, I don't know where debt GDP is today, maybe 120-ish percent, something like that. Given that context, there's only a few ways out. One is a demographic miracle. like I guess in the 70s women entered the labor force in the 40s post-war we had you know significant growth

and the baby boom a productivity boom some new technology is invented maybe it's AI that's what some people think right or kind of an inflationary reset or we could default also I don't think we're going to default is that you see it the same way

Yeah, exactly. It will be inflation. And whether, you know, historically the last 10, 20 years, we've really had more monetary asset inflation than we have goods and services inflation, long host of reasons, you know, globalization and cheaper, you know, relative production elsewhere in the world. And that's sort of reversing and has an inflationary effect, too. So in reality, it's good to have some level of inflation. You just can't have it get out of control. And, and, and, policymakers will choose to to maintain some level. But these things take a long time to play out. And that's why I think having these views and understanding where the tides are shifting, you know, but not getting too loss in the sauce there and being able to bring it back to, you know, day-to-day markets, managing risk. So returning to crypto, I mean, a lot of Bitcoiners kind of expect that we're in this period of monetary repression where basically the savings of the private sector are confiscated to restore the government's

debt position. But at the same time, when yields are high, crypto tends to sell off or when yields are rising. So what is the interplay there as you see it? Yeah, it's more of the rate of change and the implications of those rising yields. If yields are steadily rising kind of slowly, we saw this middle of 23. We've seen this start of this year even where the tenure bottomed at 3.8 in late December and is back to kind of mid-fours now, but has been a pretty controlled rise. That to market participants equals more of a strong economy.

Rate should be higher. Growth is higher. And it's less of a bad thing than, oh, no, inflation is, spiking. It becomes problematic when the long end of the curve tightens financial conditions basically in replace of the Fed. We had Powell at his latest press conference come out and say, yes, we revised up our growth projections for the year. Yes, we revised up our inflation projections for the year, but we're still on the same exact cutting path that we were in December. Doesn't make a ton of sense. I get it. It's a long game. You know, they're,

they don't even have inflation in their projections, which you'd imagine are biased. They don't even have inflation back to 2% for the next two years. So he's attributing it to bumps in the road in the process. But bringing this back to crypto, yes, and broader risk assets, if the Fed or monetary is too dovish, that it sends inflation expectations, commodities higher, the long end of the curve tightens financial conditions by itself without, you know, the short. short end of the curve being dictated by the Fed. And overall, that's bad for multiples, bad for growth.

And kind of, that's markets. You know, it's supposed to work that way where things are getting too frothy and there's a natural meter that kind of brings it in place. This is a big debate, obviously, we have in the industry, whether Bitcoin is analogous to gold, which some people describe, I guess, is a negative rates hedge or whether it's more analogous to the NASDA, we were having conversation this weekend.

You said it could be both. What's your mental model there? It's dependent on the regime. Crypto in some ways is lucky that in Bitcoin, that's focused on particular, can take the shape of this shiny new technology that everyone wants their hands on. Then it looks more like the NASDAQ. Animal spirits are high. Sentiment is high.

Confidence in the economy and growth is high. and people are looking to go further out the risk curve. Where it can be more like gold is in a monetary debasement hedge type of situation, negative real interest rates. And an example that could have been October when Bitcoin bottomed in August, it's kind of September and started moving while the equity markets were falling, the Nasdaq was falling through the end of October, but Bitcoin was moving from end of September way, you know, a month before. And that was more what gold was doing as well. We had the invasion

of Hamas and Israel, some geopolitical conflict that caused gold to rise. And we saw Bitcoin, you know, express a flavor of more gold-like tendency there. Let's see. It kind of shapeshifts between the two, depending on the broader market regime. I think, the optimal case for for bitcoiners and crypto is if if Bitcoin starts to trade more in line with gold that will tell you that it's more legitimized cemented into the to the financial system trades with more purpose and and correlations because that's what I think most people agree it to be but for the next until the technology is more mature it's always going to have this flavor of NASDAQ and tech.

Yeah, I mean, the kind of onlookers will kind of disparage Bitcoin sometimes by saying, look, it looks just like the Nvidia chart. So you're not getting any unique exposure that you can't get through large cap. Yeah, that ignores the chart looks good, I guess, if you put them side by side. But if you run the regression analysis, they're actually on a daily basis and weekly and monthly basis, there is actually quite significant dispersion there and provides a valuable portfolio, you know, hedge or uncorrelated exposure. What do you make of the meme coin frenzy to start the year? I mean, that's all anyone's

talked about. What does the rise of meme coins so quote unquote early in this cycle, like tell you about the nature of crypto markets? I think it's a balance between, I I hear both sides, which is, oh, this cycle, crypto participants have gotten smart. They know that the ultimate thing, the ultimate and final boss of assets that people speculate on in a bullish environment is meme coins. They go from Bitcoin to ETH to Seoul to alt coins, and then the final is meme coins. So having lived through that, market participants are like, oh, let's just go to the final thing. we know eventually is going to rip the most.

Meme coins. I hear that, but you can't look the other way and say, okay, we actually might be farther along in the cycle than people would like to expect or like to admit that we are. So I think there's a middle ground. I see merit in both sides of it. The most important thing is the fact that they are one of the most true forms or signal of froth in the market. it. And the second you start saying, okay, you know, this is a risk. It's popping up. You know,

they can go on for one month. They can go on for three months. But when you start talking about it and you get your friends that are like, no, I think those signals are, have deteriorated over time and in predictive value. That's when you kind of know, okay. And then you start getting more pushback. So it's a, it's a measure of froth. You know, the ETF flows gave, gave this market a huge second wind following, you know, a little bit of a sell-off in January around around the launch. And yeah, it's not great. It's not a time when you see meme coins ripping that you want to be, you know, going very, very, very, very risk on and adding leverage.

I think you need to take qualitative and quantitative. There's measures, right? Like, qualitative, it's a sign of excess speculation. People aren't happy with the one X that Bitcoin's going, so they're speculating further out. But then quantitatively, that's more supply of assets on the market. That's more liquidity that goes into these non-core assets that gets sucked up. And it does eventually reach a tipping point, which we may or may not have seen. So it's important to pay attention to it.

Yeah, I mean, it's one of the, I guess I'm fighting the last war in that I saw the meme coin frenzy. And it made me think that maybe we were further along in the cycle than we might have. expected. I think that's true. I, I, but maybe this maybe this cycle is different in the way you mentioned there's an anticipatory effect from the kind of market veterans. And so they anticipated the mean McQuine frenzy by diving in, even if there isn't a lot of external new retail and trust in crypto. Yeah, I think I think exactly it's it's both because one other thing about the cycle that's been different is you look at the median or mean drawdown in bitcoin that's used an example 13 to 15 it might have been 80 percent you know 17 18 might

have been 50 percent 20 21 might have been 40 30 30 to 40 percent and this cycle we've really only had 15 to 20ish percent drawdowns and I think you know one of the things I talked about with the ETF is that it's over a long term vol dampening because because opening up this new cap line of capital access, the ETFs, you bring in a structural buyer. That buyer might be $0 someday, might be $100 the next day and minus 50 the next day. You know, there's going to be outflows from the ETFs at some point. But it's not, the ETFs don't open up negative, you know. And so this creates more dampened downside volatility, which over the long haul is really good.

And I was having this conversation of this is the super cycle and things. Well, I think to me, the definition of a super cycle is just reduction in the volatility of every four-year cycle. It's like a super cycle, you might still have 30 or 40 percent dips, but then we finish a year higher or something versus these disastrous. And I think that ETF is the start of that because, you know, you're just starting to trade more like a mature asset where things just don't go straight up for a year and down per year and Like, that's kind of like child's play. Yeah, I have the same theory that obviously there was institutional, quote, unquote. That's not one homogenous category. There's lots of different kinds of institutions.

There was institutional participation in Bitcoin before. But there seems to be a new breed or genre or type of allocator, especially if you have Bitcoin perceived as a portfolio asset within some kind of target date portfolio or some all-weather portfolio where you have a defined allocation to Bitcoin, to gold, to equities, to fixed income, whatever, if you have rebalancing those portfolios, that sterilizes volatility. Because when Bitcoin sells off, if you have a 5% target, then you buy more. And if Bitcoin rallies, you trim it. So to the extent that is how some of these large, buyers think about Bitcoin, I think it's volatility damping.

Yeah. On to my least favorite topic to having, that's due, I think, on the 20th of this month. Yeah, 19th, 20th. What do you make of it? You know, I've been on the record since last having or before saying that I don't think it has a meaningful, I don't consider informational shock at all. Yeah. Which I don't think anyone who understands finance would disagree with me on.

What do you make of the sort of the having dynamics here? Yeah. This one is, I feel like no matter what you say, if it's one of those where people, if they believe it's a huge catalyst, we'll find the price movement in the chart that shows like, oh, it was bullish around the having. Obviously, there's those global liquidity ones that line up well. I think it's a data point. And I think that it's less important than every, you know, fundamentally less important than everyone kind of touts it to be. But it, but it can have psychology effects on the market, people's behavior and positioning going into the event.

So I do believe that the having is not this thing that at once was when supply, annual inflation was at a much greater percentage relative to the total supply. Yeah, I mean, we're talking about a reduction of annulation. by less than 90 basis points. Exactly. So that used to be, you know, hundreds of basis points and really impactful. But I do also believe that there were probably ETF buyers, you know, traditional institutional investor interest, people looking to quote unquote front run the having knowing that it's always played out in this manner. And that is, in my opinion, probably some of the impetus for recent Bitcoin buying. and ETF inflows.

So that has an effect on positioning the date of the having, you know, being a couple weeks out now. I think you kind of get an ETF-like day where it's this highly anticipated event that we know everybody is looking at and we know is generally viewed bullishly. So you won't have the market completely falling out before then. ETF. We saw volatility increasing as we got close to the ETF because day one of the ETF flows could have been at $10 billion would have been the most positive catalyst ever. Flows could have been negative $2 billion. No one knows. So you have volatility increasing. And markets are somewhat bolstered leading up to that event. So my thesis is it plays out

similarly to the ETF in that it's this kind of target date. No one. wants to get too bearish ahead of it. No one wants to sell off to 55, 50K ahead of it because expecting market participants will buy in anticipation. And the upside, you know, the upside could go, but we need a more supportive macro environment. So I kind of think, oddly enough, the halving being around April 19th, 20th, lines up to when about, I think, broader macro rolls over when inflation and commodities and interest rates start to really kind of show their teeth again and expect that we get a more extended correction slash regional top end of April through May, maybe middle of June. But I'm also hearing this more and more talked about now. So that's

never a good thing for your views if it's becoming consensus. Yeah. So I think we had similar views coming into the ETF. My predictions for the year were that we would tap 80, which came very close to that, but that the week of the ETF approval, Bitcoin be flat down, which it was. But of course, we had a rally leading up to the ETF, as it became more certain. Is that the kind of thing you expect? There's a significant anticipatory effect, whether it's first order or second order people anticipating the anticipation of others as we come into the having then kind of a sell-the-news type event and then sort of headwinds thereafter yeah that's that's my overall take um weakness into that date is not a good sign to me it means things are a bit

leakier than you would like to see for example around the ETF prices ran up to 49. Yeah, from kind of the 20s in October when we started hearing about it. Right. And you can kind of look at this window of, okay, we had these huge ETF flows. The market was pricing in some continuation of those flows. We scaled those flows down to some negative days. It's a bit choppier.

And the market is settled in this 60,000s, mid-60s area, plus or minus. And, you know, going into that, having you would like to see a stronger, stronger, you know, impetus up. If to me, if that doesn't happen, it actually indicates even potential more weakness on the backside of it. And this mid-late April date you are focusing on for macro catalysts, where in the data do you get that from? Yeah.

So there's a number of indicators and aspects to the process that point to the this, but looking at the yield curve interest rates and kind of how intra-week, intrammonth cycles play out, you usually get some initial scares in the steepening of the yield curve and rising rates. You can look back to these periods in February of 23, July of 23, you know, some moments in 2022. And the market kind of usually shrugs it off. We've seen, like I said at the beginning, interest rates are up 30 to 50 base points this year, but stocks don't care. And so you get these little ballots. We had one to start the year, the first couple days of the trading year in January.

We had one around some of the inflation prints and Fed meetings, but the markets just shrugged it off. But the problem is it's getting to a point where you can't no longer shrug these off as one-offs. Commodities are still ripping inflation expectations, et cetera. And at some point, you know, third, fourth, whatever it is, times the charm. And so I kind of think, you know, using some of that framework and the way charts and things trade, I kind of see kind of mid-April as being a potential tipping point. On to another controversial topic, micro strategy. It's become kind of a beloved retail stock.

Surprisingly to me, honestly, I thought post-ETF the premium would compress. significantly because micro strategy was his public listed liquid name that you could trade as a proxy for Bitcoin. Now there's a pure play alternative. I was surprised by the enormous premium to the underlying micro strategy is a lot of defenders on crypto Twitter now. What do you make of the enduring significant premium there? This one is kind of near and dear to me because actually is some of my first most viral pieces of content. I still. started writing about this last summer and my whole thesis dating back this was in july was the trade that's bad for uh micro strategy but actually good for the ecosystem which is the etf and

no no one needs that proxy anymore so i actually had this trade on in in august of of 23 it worked out like a convergence trade yeah the long btz short msdr had it on actually at the on the day of ETF launch as well when I thought of sell the news. But yeah, I haven't been in since and gladly. Like I just, it's a very risky play to be doing when there's momentum in the market. Because ultimately what you're doing is you're longing Bitcoin and shorting micro strategies and micro strategies is levered Bitcoin. So you're you're putting a floor by longing Bitcoin how low micro strategies can actually go relative to that.

And it's it's a tough people talk about. this in terms of gamma and short gamma, you know, type of style. So it's a dangerous thing to put on the timing, you know, it can obviously be very lucrative. We know that rational people are not paying $2 for $1 Bitcoin exposure. Like that this happens all the time, game stop, etc. It's fully in meme or whatever you want to call it territory. But you can get, this can last for six months. It can last for a week. You just, there's a lot of underlying factors. that make it a risky trade. So not something I want to go near when people are talking about it, to be honest.

I think it's funny because the higher that goes, the more Bitcoin they can buy. But we've seen them pause issuance here because I think there's some issues around how much equity they can issue without diluting control for Sailor. Yeah, Matt Levine had a good column about this yesterday as well, where he talked about meme stocks. And there's oftentimes no structure. way to bring them in line with sort of the fundamental, whatever the fundamental is of GameStop. With micro strategy, it's just costly to short.

Yes. So it's not trivial to actually achieve the conversions. Yeah, it's prohibitive to express a short position from a collateral and cost basis. And really just you're playing with fire. I think typically for all the crypto equities, they're usually anywhere from 10 to 20 percent of float is in short interest. And that's kind of Tinder for a potential. You know, you get one sovereign buying Bitcoin

or you get one type of these upward risk headlines, and you can be having to cover that really quick. Do you buy this theory that there was a large fund that had this trade on and they had to cover their shorts on MSTR, which is why I rallied like crazy? I don't know. I've talked to, to my knowledge, a lot of the people that have engaged with this type of trade or looked at it. And they're all still alive and they all see the risk.

So I tend to think it's more of a market dynamic. You know, you just get these squeezes. There's such great short interest just from everybody, not just one fund. But you might have had it. I'm sure people lost money on it. I don't know of any blowups, though. Yeah, I know people like to think that. these professional fund managers are blowing up all the time.

It's like the headline whenever there's like a down 1% day in stocks, it's like who blew up, you know, on Twitter. So two structural sellers, maybe, GBDC and today everyone's in a tizzy over Silk Road. Potentially the government sees some Silk Road. Coins are stolen from the Silk Road, I think. And they sent a Satoshi or something to Coinbase Prime. what do you make these two possible catalyst? Obviously, everyone knows about GBDC.

What's kind of the lingering effect of GBDC on the market in your view? Yeah, we talked about damping volatility, people rebalancing. That's the case number one that crypto participants are, you know, they're seeing when prices are ripping, GBDC-E outflows are higher. Prices are coming down. GBD outflows are less. So that's an example of people taking this more measure. non-crypto-native-like approach to managing risk and rebalancing,

there's a finite number, well, as long as, if Bitcoin price goes to infinity, that number can go up to infinity. Yeah, it doesn't seem to be working. GPDC's AUM is like up this year. I think it's safe to say by now most of the structural sellers are out. We had the different bankrupt estates, the Genesis is, the FTCs, all these. So I think we're past that meat, but it's also unknown how much of the GBT sales are recycled into the other ETFs for lower fees. So that's a data point the market doesn't have and isn't all that bullish.

But I expect that the outflow is kind of asymptote at some point. And that's just going to be the steady stream. But what's the important thing is as a percentage of total ETFs, assets and total flows, this will reduce over time, but just definitionally. So I think that's the thing to look forward to. On the government sales, the best strategy there has always just been by the rumor because it's never that bad. And for all we know, the government, you know, wants to accumulate as much Bitcoin just

like everyone else. And these sales have been anticipated for years. They never really come to fruition. Even last year when they actually did execute some, they didn't follow up. even after saying they would. So that's kind of one where you like to get along that hysteria. All right, Quinn, you're my Margaret's Maven. Thank you for joining us.

This has been fascinating. And best of luck with Lecker. Thank you so much.