The Pomp Podcast - #882 Bitcoin & Ethereum Are Going To Break Out Of Bear Market w/ Darius Dale

Starting point is 00:00:00 what's up everyone this is anthony pompliano most of you know me as pomp you're listening to the pomp podcast simply the best podcast out there now let's kick this thing off darius dale is the founder and ceo of 42 macro the leading macro risk management advisor in this conversation we talk about what's going on in the macro economy what's happening in the financial markets how darius is looking at various metrics and also what you at home should be thinking about as you invest your capital. I really enjoyed this conversation with Darius, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Pipe. Crypto is all about giving the

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Starting point is 00:03:36 is for informational purposes only. All right, Darius, how are you? I'm freaking great. Is this an appropriate interjection? Fire away, my friend. Yeah, no, listen, I'm like, if we're going to set the world on fire, let's do it again. I don't come here to set the world on ice, you know? No, let me start by saying, I don't, is Amazon the appropriate comparison? Shouldn't it be more like a Facebook, like a social network type deal?

Starting point is 00:04:03 It could be any of them. My point was just like, I think right now, if you said like to somebody on Wall Street, where you're like, hey, pick one stock that you have to hold for the next 20 years or 50 years or whatever. Amazon would be in that conversation. There's probably, I don't know, a dozen other companies, right?

Starting point is 00:04:15 Even maybe a Berkshire Hathaway or whatever. And I think that if you zoom out 100 years and you said to me, what's more likely to be there, that stock or Bitcoin? I think Bitcoin is the more durable asset over the next century. And it's not a knock against the company. It's just that from a durability standpoint,

Starting point is 00:04:34 like Bitcoin is a very special thing that has special properties that are built for durability. The decentralization is very powerful. I'm telling you, man, I tweeted this a few weeks ago, but I think one of the most positive things for the whole cryptocurrency ecosystem is the fact that Citadel and Kim Griffin

Starting point is 00:04:48 are getting involved in it. I mean, these guys are no slouches. They're, you know, he's probably one of the most respected, thoughtful, smartest, successful people in financial history. And so, you know, whenever he puts his battleship, you know, to a task, they'd succeeded that task. I mean, they went from being, you know,

Starting point is 00:05:04 arguably the world's best hedge fund or one of the top two or three best hedge funds to still maintaining that dominance in the hedge fund space, but then becoming the best market maker just like overnight because they decided to and they had the capital to do so. Do you think that he is doing it

Starting point is 00:05:17 because he truly believes in it or he just wants to make markets in it and make money? Or does it not even matter because if they're involved, that's a good sign? I don't think it matters, right? Like even if you're like, like they're a hedge fund. They're long and short,

Starting point is 00:05:29 all these different companies and credits. They can be long and short, all these different, you know, digital asset ecosystems, right? So like, I don't think it matters. I think the fact that they're involved tells you this has legs. Yeah. It ain't going anywhere.

Starting point is 00:05:39 When you think about where we are right now, commodity price, we had Peter Zahan come on earlier this week. And I mean, he was just in prime form. Good. And he was talking about wheat. He was talking about fertilizer. I mean, the whole nine yards. Yeah. What's your read on a lot of this?

Starting point is 00:05:57 And like, what are you talking to clients about when it comes to commodities right now, given the rush of Ukraine stuff? Yeah. So we're long. I mean, you know, I don't particularly have anything new to offer in terms of being long energy and ag, but with respect to commodities, to me, I think it's about the duration with which investors can anticipate, you know, the supply chain disruptions, not supply chain disruptions, sorry, the supply shortages to persist, right? I think there's a sort of underlying hope in the market that I can see sort of starting to peel away with respect to, you know, how quickly this conflict is going to drag out. And I don't necessarily mean the physical conflict, right? Obviously, you know, there's some tragic stuff going on physically on the ground in Ukraine. But I mean the sort of conflict between the West and Russia and potentially the West, Russia and China as it relates to, you know, sanctions and the dollar system and all that.

Starting point is 00:06:45 You know, I think the most important news item of this week, you know, because obviously we got a lot of, you know, commentary out of the Fed last couple of days, last couple of weeks. And, you know, it's just been chatter nonstop. But to me, the most important thing was Putin said that to basically order Gazprom to stop taking payment in euros. And so if you recall, like Europe's basically Gazprom is this doctor daddy for Europe in terms of gas. You know, it's like 30 or 40 percent of their imports. And so by doing that, they're effectively sort of forcing Europe to abandon the sanctions. Now, I don't believe that Europe's going to go along with it, but it's a big deal because now they're effectively saying, we don't want your dollar system. get take scram what what happens like how can you're not go along with it if russia just says

Starting point is 00:07:29 hey we're only going to take rubles or i saw they may only take gold and then there's a video this morning that even uh so we were trying to translate like i think they said bitcoin which i don't know if that's true or not but let's just let's just say that they're non-euro non-dollar uh currencies if they're demanding that can europe say like no we're going to give you euros take them or like how does that work so europe is they're really acting tough i mean you're starting to see cracks Right. Like Hungary backed off a little bit. Germany backed off a little bit in terms of their willingness to sort of include Russian oil and gas exports in the embargo. But, you know, President Biden's over there now for the NATO meeting in Brussels. And, you know, he's going to make his sort of heartfelt pitch to these guys to hold the line, hold firm.

Starting point is 00:08:10 And really all it comes down to is how secure do the Europeans feel with respect to U.S. promises that are being made on liquid national gas exports? I mean, we have the ability to supply Europe. I don't know that we have the infrastructure yet. I don't know that Europe has the storage infrastructure to deal with a big transition like that. It's going to be very costly. It's going to be fraught with friction. But will they feel secure enough to say, OK, I'm going to leave Big Daddy Gazprom and go to Big Daddy Biden? And I don't know if that Europe's – Germany certainly didn't seem that willing to do that earlier this week.

Starting point is 00:08:44 So we'll see what happens in this meeting. You want to hear a wild story? Yep. So most people have no clue how the history of this came together. One of my favorite documentaries in the world is an eight-part series from the History Channel called The Men Who Built America. Oh, I love that. And it goes through John Rockefeller, J.P. Morgan, a bunch of – Andrew Carnegie, et cetera. Totally.

Starting point is 00:09:03 And while you're watching this, one of the things that just blows your mind is they used to obviously take the oil. They would refine it, and then they would move it to wherever it needed to go. And the way they would use that is they would use rail. Yep. And, uh, at one point there became this, uh, kind of domestic chess game of who could basically build a monopoly and prevent their competitors from some portion of that supply chain. So, uh, somebody grabbed, okay, I'm going to be the person who gets all the oil out. And then, uh, um, uh, Rockefeller was like, well, actually I don't want to be drilling

Starting point is 00:09:36 it. Maybe I want to be the one refining it. And then, okay, well now I have to put it onto these, uh, rail, but the rail operators won't work with me because they're going to try to basically cut me out of my own business and so the whole way that we got oil pipelines is he had this grand idea he was like well why don't i not use the rails why don't i just build a big-ass pipe to new york city and i'll take my refined oil i'm gonna push it through this savage move next to the train tracks too yeah like no i mean like literally okay cool you're not gonna put on

Starting point is 00:10:08 the rail i'm just gonna build a big-ass pipe and everything it's the easiest place to put a pipeline by the way and then he was like watch this and he put a big ass pipeline and he was like i don't need your rail like screw you i'm gonna go around you and so like the reason why i tell that story is we don't remember or think about it because it happened before we were all born that like that's how this stuff happens is literally there's an entrepreneur somewhere who's like i have a problem how do i do this okay i'm gonna build a big ass pipe and it sounds insane yeah and then they go and do it and now like there's pipes everywhere obviously all throughout russia ukraine getting natural gas getting oil etc and so when you think about that uh the reason

Starting point is 00:10:42 why i tell a story is not only that like there's infrastructure involved but it's not like we just gonna you know magically teleport oil from the united states now to like germany right like like this is a real industry with atoms that need to be moved around the world and it's expensive it's hard it's complex it's logistics all that stuff it's so oil is if we're in the context of oil and gas, oil is easy. You can just dump a bunch of barrels of oil on a ship and ship it somewhere. That natural gas is extremely dangerous and extremely expensive, extremely hard to transport and store. And that's why there's no sort of global market for natural grass. It just didn't make any, a lot of economic sense. However, if the price is right, everything makes economic

Starting point is 00:11:22 sense, right? I mean, there's a, there's a price for everything. You know, you can cure cancer if you throw enough money at the problem. The problem is we don't throw enough money at the problem. You know, we throw off money at the treating of the problem. And so I do believe that, you know, we're heading towards this multipolar world. And again, the fact that Putin really tripled down on this sort of whole idea and concept that, hey, look, we don't care about these sanctions. We don't care. Look, you're going to pay us for what we sell to you and you're going to pay us in rubles. And to me, that's a real sign and signal that he's in this for the long haul. Is this maybe not the checkmate move, but this is kind of the check on if you're playing out

Starting point is 00:11:56 the geopolitical chess, right? And you say, okay, I'm going to go because I have this concern about the nato expansion you know whether you agree that he actually thinks they're going to do it or not whatever he pulls the chest move up okay i'm going to invade and it wasn't just i'm going to invade the eastern part of ukraine it was like i'm going to try to take over the whole country i'm going to bomb the hell out of you i'm going to come from all sides whatever when he does that i don't think most or i think most people agree that he did not believe that he would get global coordinated sanctions in the uh speed and severity of which they did he thought he had you're bent over this knee correct yeah and now all of a sudden he's like okay i'm backed in this

Starting point is 00:12:32 corner what do i do i could fight this or you know what here's my like escape hatch i'm just gonna say like i don't care i've got this whole other system i'm gonna go build a there's reports that he's trying to build a system uh payment system with iran he's got the whole china thing they're trying to build some sort of uh indian rupee uh like account system with india like does he just say like oh you guys are making a mistake i'm basically going to try to help accelerate the world off the u.s dollar system or like what's what's going on here yeah well you put in those terms i mean like to some people you might be a hero now that's a very small minority but you know most scott most anybody will tell you that the world is moving away from the dollar system right

Starting point is 00:13:10 it's obviously been a very very slow pace but the you know the reality is is we obviously need ever since the global financial crisis you know the dollar system has really come under question in terms of its inability to function for the largest parts of society so maybe this is the catalyst that gets everyone thinking about, okay, how, where, how do I, you know, get off this system? And it's, to me, I think digital assets are in cryptocurrency in general, like it's a, it's such a novel concept in the concept of, okay, wait a minute, we've been using this as an investment vehicle because we see all the nefarious activity going on with central banks and fiscal authorities. But now you're actually, we have the technology now to actually get off the dollar

Starting point is 00:13:48 system if you want it to. Now, the reality is as long as the U.S. has the biggest Navy, people aren't really going anywhere if they truly want to maintain and that world may not be what everyone thinks it's going to be right like the transfer of a world reserve currency to whatever it could be the greatest thing since sliced bread there's a lot of pain suffering etc that happens there and i think that there's folks who uh maybe haven't thought through that aspect of it 100 we're not so we'll be we'll probably you know our kids will be in college if not if not older by the time we fully transfer off of the US dollar reserve system. It could take much longer than that, obviously. And the reason I say that is that in order to transfer off of a reserve system,

Starting point is 00:14:28 you need to replace the current reserve, unless you're saying that all current account balances, deficits, and surplus are going to go to zero. If you're going to maintain the same imbalances in the world in terms of who produces what and who overconsumes or underconsumes what, then you do need to have a reserve asset. And in order to have a reserve asset, one, you have to cede sovereignty if you're a nation over your currency and your monetary policy to a certain degree to get the dollars out the door into those capital buffers. And also you need a big enough liquid bond market or liquid, you know, fixed income market for that to take place. You know, right now everyone's like, oh, it could be China. It could be, you know, some

Starting point is 00:15:03 other country. And it's like, it ain't China. China doesn't have enough money for the system to function. If we switched to China, the entire global economy would shrink really quickly. And so that part of the reason, you know, the global economy is as big as it is, is because we're willing to run these massive current account deficits and pump so many dollars out the door that capitalize central bank balance sheets that then further capitalize, you know, the growth of credit and all these other economies. So it's a system that works kind of, but it's just not working at an optimal sort of rate. Correct. You've got three charts for us today. The first one is Bitcoin and Ethereum. And we're going to pull it up here. What are you looking at when you

Starting point is 00:15:38 see the Bitcoin and Ethereum kind of charts are related with each other? Yeah. So those two charts So what we call our volatility adjusted momentum signal on the top panel and the bottom panels are probable range analysis. So without being too technically jargony, but what one thing that so the chart on the bottom, the bottom panels where we show the ranges, those ranges are quantitatively linked to the volatility adjusted momentum signal. So if something's bullish, there's more skew to the upside in the range. If something's bearish, there's more skew to the downside in the range. When an asset tends to sort of hug the lower boundary or the upper boundary of its probable range, it's usually a leading indicator nine times out of 10 that, hey, look, I want to transition to a more bullish or bearish state. And so right now, Bitcoin and Ethereum have been bearish for a while, as you might imagine. It's denoted by the red shading at the upper panel.

Starting point is 00:16:25 But they've been hugging their probable ranges pretty consistently for the last week or so. And that typically is like, hey, look, I'm sick of being bearish. I want to break out. And when it breaks out, the range shifts and changes. And so I'm watching that like a hawk, you know, that kind of leads me to the second chart, which is where I show net liquidity. So the net liquidity is the Fed's balance sheet minus the Treasury general account balance. That's sort of a more accurate depiction of how much liquidity is being pumped into or removed from asset markets at any given time by the monetary and fiscal authorities. And what you see is that, you know, you pull that chart back as far as it goes, it's a, you know, 0.9 something correlation to the S&P.

Starting point is 00:17:02 Well, every once in a while, it deviates. Either, you know, S&P goes meaningfully higher than it or meaningfully lower than it. The last time we had a meaningfully lower deviation was in September of 2021. And, you know, we had that massive melt-up in October of 2021, which, by the way, we nailed. That massive melt-up was a function of, look, we deviated too much. The monetary conditions, the net liquidity conditions didn't change. Well, they haven't changed much since early 2022, but we've had this massive deviation

Starting point is 00:17:30 in S&P terms and risk asset terms away from the net liquidity line. And so the key takeaway was that, okay, now we're on the other side of op-ex. Now we got more color and clarity on the Fed's tightening path. We're still waiting to get more info on quantitative tightening. We're probably going to get that in the Fed's early May meeting. But for now, it seems like the coast is somewhat clear unless we get a meaningfully adverse shock from a geopolitical risk perspective. Now, again, I'll say this every week, so I'm blue in the face. I have no idea what we're going to get from a geopolitical risk perspective. No one does.

Starting point is 00:18:00 I'm not even sure Putin does. It's a rapid fire game of chess right now. So in the context of not knowing what's going to happen there, we're saying, look, the market could gravitate back towards that blue line. The red line in that chart,

Starting point is 00:18:12 the market can gravitate back towards that blue line. And you kind of look at it on a, you know, just on like a correlation basis. It's somewhere around like 4,700 on the S&P in terms of where you could get up to before anything else changes. And that to me is, that's a, that's a, that's a,

Starting point is 00:18:26 if that happened, you know, again, there's a kind of a one or two month window here where that could happen before growth starts to pick up to the downside. And if that does happen, obviously you're probably going to see Bitcoin and Ethereum do some positive things. When you start to look at inflation as a driver, I know you've got the Europe inflation charts here, but we're obviously seeing this all across the world. Is that a huge tailwind or driver of this? Or do you think that that's more of a narrative on Twitter or in the media, but these assets aren't really trading in any correlation or impact by inflation? No. So, so one thing that's happened with, with, with crypto, and this is something

Starting point is 00:19:03 I said back in October, 2020, I think I was tweeting at you and I said, Hey, look, the more institutional firms adopt cryptocurrency and digital assets in general, the more correlated it's going to become to S and P and NASDAQ, because, you know, they have, you know, sort of fall targeting, you know, risk budgets and things of that nature. And so, you know, it's all going to start to become one kind of big trade and that's exactly what happened. And so, you know, The sort of inflation hedge aspect of the crypto digital asset space sort of got lost or got buried underneath the, no, wait, this is as far out on the risk curve, risk spectrum as you can possibly be in terms of the realized volatility of the asset. And so that really, in my opinion, that institutional adoption and obviously the institutional puking of these types of assets really weighed on that. So, you know, I don't believe that it's lost its inflation, you know, hedge kind of, you know, inflation hedge, you know, ability.

Starting point is 00:19:56 It's just that the risk, you know, kind of the widening of risk premia in this most recent kind of, you know, two to three months, really, you know, going back to November has been kind of overwhelming factor. But it just in terms of explaining that chart so that I sent that chart because the topic du jour this week for sure is kind of this meltdown in the bond market. You know, I want to say it's like the worst first quarter on record in the bond market. I mean, as far back as we got the data, which is, you know, to like 1970 something. So I'm sure there have been worse quarters, you know, historically. But as far back as we have that Bloomberg index. And so, you know, one thing that's really been roiling the bond market and keeping me up at night because I'm long bonds like an asshole is the fact that, you know, this European inflation dynamic is really it's been it's been a big surprise. Like we all know the U.S. inflation dynamic has been a big surprise to the upside.

Starting point is 00:20:42 That's the blue line in the upper panel. That's the city's U.S. Inflation Surprise Index, which measures kind of like how surprised are economists by inflation at any given time. So the higher the number, the more surprised economists are in terms of their estimates. Well, the blue line is obviously he's been trending kind of right around its all-time high for the past, you know, kind of really nine months. But the red line, I mean, it looks like a, you know, for lack of a better phrase, looks like Viagra. Niagara. Europe's inflation surprise momentum and the kind of shock to there, the positive shock to inflation in Europe has been on the orders of magnitude as a positive shock to inflation in us. And I think about US inflation. It's all we talk about. You're going to leave

Starting point is 00:21:21 here. You're going to complain about inflation. You're going to talk about inflation. I'm going to talk about inflation. It's all anyone talks about these days. Now, multiply that times three, and that's where Europe is right now. And so that big shock to inflation really catalyzed a massive repricing in the European sovereign debt market that started in early January, and it continues. And it's probably going to continue until, you know, sort of A, those dynamics get under control, i.e. inflation peaks in Europe. Our model has that occurring in the second quarter. But more importantly, you know, that repricing in the European sovereign debt curve is probably still hostage to, you know, the fiscal response to all this inflation pressure,

Starting point is 00:21:57 Because Europe, they're kind of talking about, you know, maybe cutting gas taxes, issuing checks to households to sort of help help offset prices, which I think is a stupid. I mean, dear God, that's the dumbest idea I've ever heard in my entire life. Let's increase demand to help fight inflation. I mean, but they'll try it. These people, these people, we've seen enough from these ridiculous economists, you know, over time. So they have they have no choice. They don't know what to do. They're literally this is my whole theory on this now.

Starting point is 00:22:26 Inflation is bad. And, uh, rather than understand like, Hey, if I have a pistol, if I have a machine gun and I have a nuclear weapon and what is the intended target and what is like the appropriate measure, they're just like fire, fire, just shoot everything. And next thing they know, they're like, all right, that didn't work. Shoot the next one, shoot the next one. And they don't stop and just think and say to themselves, why is this happening? And I think part of it actually is because they're so deep in the weeds.

Starting point is 00:23:00 It's hard to see the simple idea. Stop increasing demand. I know. If you stop increasing demand, it may not solve the problem, but it puts us in a path that is more likely to address the problem. 100% it will solve the problem. Price is set at the margin of supply, the intersection of supply and demand. If we know we have supply chain disruptions that we can't do anything about,

Starting point is 00:23:23 then you need to shift the demand curve. It's as simple as that. I mean, it's literally, it's as simple as that. This is like macroeconomics one-on-one or yeah. So like, I don't, I don't, I don't understand, or sorry, microeconomics is microeconomics. I don't understand the, the kind of the confusion among policymakers

Starting point is 00:23:38 or at least the unwilled, the sort of the prior willingness, because the Fed has moved, I'll be fair to the Fed now. They had a previous willingness to sort of write off the sort of supply shock driven inflation, which by the way, I was doing some work on this this morning at like 4.45 in the morning. we have never had a serious inflation problem in the u.s without supply issues so so what is the

Starting point is 00:24:02 fed's point every time we have an inflation problem in this country it's supply driven we never had a demand driven inflation only time we had that was in the housing bubble but that's not really you know consumer price inflation that's asset price inflation it's different so it's it's preposterous to me that we have this sort of they even had that debate but it seems like they're playing giddy up and more importantly catch up on a quick basis here what do you guys think what questions you got oh john what's up boys do you see anything that you think could be a catalyst for bitcoin specifically yeah so i mean it goes back to to sort of what i said earlier with respect to that net liquidity

Starting point is 00:24:37 it's like in the absence of a bear catalyst all things being equal risk asset should be higher in price yeah i mean i'll say that for quite quite um you know seriously there's no reason for risk assets to be trading at anything much significantly south of $4,600, $4,700 on the S&P. Maybe Bitcoin should probably be closer to $45,000 or $50,000 just based on that chart. And so the fact that in the absence of incremental negative catalysts, which obviously geopolitical situation can and has proven to provide plenty, you could just see sort of a natural repricing higher as a lot of the light positioning that's kind of been created by some of the drawdowns you know, kind of gets gets tested a little bit. I mean, a lot of folks have sold and a lot of

Starting point is 00:25:22 folks have taken down risk. You know, we've had, you know, lows of OPEX in January, lows of OPEX in February, lows of OPEX are headed into OPEX in this month as well. So we've seen a lot of positioning come down in terms of our analysis. And so maybe people feel a little bit more comfortable after reassessing the situation and saying, hey, look, well, Fed's moving, but rates are only at 50 basis points. They're still deeply negative. You know, maybe I got time on this economic cycle. And I'm starting to hear that, actually. We obviously have clients that we speak to on the hedge fund and mutual fund side. And there's certainly a pocket of them that say, yeah, but not soon. And I tend to agree on the growth side. The growth, the economy,

Starting point is 00:26:01 we got PMI data this morning out of Europe, Japan, or Europe and Asia, and it was still quite robust. It's slowing still, but it's generally robust and at a level that implies the economy is still hanging in there. And so back to going to my core thesis, which is the economy is hanging in there now, which keeps a floor under risk assets for now. And in fact, the fact that net liquidity is where it is, it's actually acting as a magnet for them now in the absence of bad news. Eventually, that floor is going to fall out once the growth data really starts to pick up to the downside. And again, our estimate of when that process is likely to commence is kind of like you too. Darius, what are your thoughts around Bitcoin and like the relationship and like

Starting point is 00:26:40 correlation to other cryptocurrencies, such as like Ethereum, and then you were talking about the S&P correlation as well, how it may become more correlated to the S&P. What are your thoughts around all that? Yeah, so I mean, with any asset market, you know, you want to have positive breath, like i.e., you know, a bunch of the little things, you know, all feeding into the big thing going up

Starting point is 00:27:01 is a bullish indicator. And so with respect to Bitcoin, Ethereum and all the other kind of, you know, digital assets and shit coins, poop coins, whatever you want to call them. If you see sort of like Bitcoin, Ethereum doing okay or reasonably well, but those things not, that's usually like a bearish kind of leading indicator. Like, okay, these things, the liquidity situation, because liquidity

Starting point is 00:27:23 tends to impact sort of more illiquid things most at a higher rate. When assets are highly liquid, the incremental liquidity doesn't have a big deal. But when something trades like from price A to price B, the bid-ask spread is really wide. Those types of liquidity dynamics really do matter in both directions a lot more so when you see um poop coins you know starting to do well that's a good sign that bitcoin and ethereum probably are about to enter a bull market or at the bare minimum of a multi-week multi-month phase within a bull phase within a bear market um which do have which obviously happen obviously i have i'm not sure by the way you guys know this better i do what are poop coins telling you right now uh i think that uh there's two ways to look at the market

Starting point is 00:28:06 people get real mad when i say this but whatever i just tell the truth uh it is a casino for the most part. Uh, but the whole thing about the casino is that you can win if you play certain ways. And so there are certain games to play that have higher probability. I would also argue that the data suggests, let's take venture capital as an example. Uh, the outside of the top five or six firms, the best investors in the world in early stage venture build indexes. So if you look at like all the angel list, uh, uh, research, et cetera, building an index of early stage, uh, opportunities ends up leading to outsized returns because the power law game being in the deal is more important than all of the details around the deal and that is true you know if you were a seed

Starting point is 00:28:51 investor series a or series b doesn't matter what the valuation was in facebook game on you made a lot of money a lot of money over and over and over again so in one way there's a lot of uh asset managers that you know reach out to me for various reasons uh and i see them that's what they're doing they're building a huge index of this long tail of crypto and the idea is uh some of them are 5x some of them are zero but some of them are thousand x yeah and maybe the most um at least where i know the returns are public uh multi-coin is a great example they have a fund where i think uh for sure two maybe four thousand x return investments in the same fund so now they cash on cash returns holy cow so now they didn't build a 200 you know uh kind of investment index but i

Starting point is 00:29:44 don't know they got 30 40 like it's not five either right so it's not super concentrated but they did it and there's a couple of thousand x's in there yeah when you start doing portfolio construction it doesn't matter if you're doing this in the stock market commodities crypto whatever you're going to have an outperformance and that fund specifically i think is up over 100 x right or whatever and uh um here's where it gets crazy is in one of the funds that we manage uh we were an lp in the fund a very very small check and and you know thought these guys were smart and said hey look we're going to give you a small check let's see how this goes we'd like to get to know you better maybe we can share some deal flow whatever yeah nobody at least us like if we're

Starting point is 00:30:25 really intellectually honest nobody thought that that was going to happen yeah but it's the asymmetry i play the power law i play yeah then if you go and you look we've seen this in early stage venture before as well. So I think that's part of it. It's just like, how do you play this crypto market? Right. The second thing that I would say is I think that people are starting to try to wrap their heads around. I don't think there's the right answer. What does it mean if you're the user, but you get some sort of economic exposure to growth? And so, for example, if you're an early user of Facebook, you get to say like, Hey, look what sees when I joined. Yeah. That's basically your claim to fame right i was yeah or like twitter or whatever you can make oh i joined

Starting point is 00:31:05 early yeah but you didn't make any money you didn't get anything for that whatever now what i think the promise of these dows and all this stuff which frankly right now i don't know if we've seen one like really work yet but the ones that people are trying that's their whole thing is hey if you're early and you are participating in the community like could you get some of the upside fascinating idea is anyone going to figure out how to do it whatever i don't know right i think That's where the market's got to kind of figure it out. So I think that's part of it too is similar to how you can buy Bitcoin,

Starting point is 00:31:34 you can mine Bitcoin, or you can earn Bitcoin. You can do things and people pay you the Bitcoin, right? I think people are trying to figure out like, well, what are all the ways that you could get exposure to these other assets? And some people will buy it. Some people will yield farm

Starting point is 00:31:47 or whatever their equivalent is. Some people will earn it because another person pays it to them. But some people may just participate in these communities and get it directly from the treasury or something like that. So it's fascinating. So when you say communities, because I was thinking like, you know, with the problem with like VC and that type of finance and CIFI and centralized finance is the gate is super high, as high as any gate in centralized finance.

Starting point is 00:32:12 You can't get involved in the deal flow. You literally have to be a credited investor and more importantly, a plugged in and credited investor. Is it the same in digital asset space? That's a trillion dollar question. this is one of the reasons why i'm very uh cautious i think with a lot of this stuff is um one of the caveats you have to answer this question is well what jurisdiction are you talking about yeah so different jurisdictions around the world have different rules there's obviously some areas where they're like hey we want to be a leader here like guns blazing

Starting point is 00:32:44 everything's game right go uh there's other places where it's the exact opposite and they're like hey hey, hey, hey, like, no ICOs, no this, no this, no this. But I think that there's a moving target. Like, part of the problem right now is that every market participant is simultaneously learning at the same time. So the regulators, the entrepreneurs, the technologists, and the investors

Starting point is 00:33:11 all are, in the last two years, what's an NFT? so if the people building the airplane kind of in midair are figuring it out there's no way you can expect let's say regulators politicians uh taxation accountants lawyers like they're also like running along trying to keep up with it and so like just at that you know framework alone forget each individual asset or whatever it's just really hard yeah and so when people are like oh we need clarity we need clarity like absolutely we need clarity but you almost play this cat and mouse game a little bit like the entrepreneurs and investors have to figure something out then we need the clarity of regulation then we need this then this and you constantly keep going

Starting point is 00:33:56 and if you go back to uh the example we used in the beginning about the oil pipes yeah like it was somebody got presented with a problem yeah and they created a solution i'm sure that there was zero regulation around oil pipelines you know you just started building pipes and then what did he do then he created a problem yeah and they were like hey we probably should have that oil pipeline go down main street yeah so then they're like we should create rules right and then and then there's another and so you keep doing this it's like this is a story as old as time this is not unique to bitcoin cryptocurrencies whatever i think the question is just like how quick it's all happening. Right. And so it's just complex. And I don't know if

Starting point is 00:34:38 there's a right answer to it yet. But I do know that from every conversation I've had, I've talked to regulators, politicians, investors, entrepreneurs, and just users. They all are saying there's value here. We need clarity. Go. How that gets figured out, people smarter than me will figure it out. That's brilliant, man. I don't have much to add. I just, my, my, my fear is that because it's happening so fast and obviously the internet enables the speed of these sort of development, right? Like it's, it takes a lot longer to build an oil pipeline from Texas to New York in 1800 something than it does to, you know, create a digital sort of protocol. Correct. And so the speed of it all, I think might scare regulators into overreacting the second they see

Starting point is 00:35:23 something bad happen and that's typically what happens right the regulators show up after the accident correct that's that's the uh challenge and to give them credit i actually think that they have been um i would put them in the box of uh cautiously optimistic and not nearly as reactive as they could have been yeah now one of the the critiques of that approach is people are going to keep running and so they're doing it in an environment where there's no clarity yeah so i think that like you have to ask yourself would you rather a regulator overreact and come out with clarity immediately and everyone's like well that doesn't work right or would you rather than be slow operate with a little bit less clarity but get it right and over a long period of time

Starting point is 00:36:08 probably you want the the latter right is the the short-term lack of clarity if they get it right now the doomsday scenario is there's no clarity and then they get it wrong and then they come like it's like there is bad scenarios as well yeah i guess there's bad scenarios but let's be let's what the regulators care about right at the end of the day is like the regular mom and pop getting fleeced out of their life savings right and so as long as that like this sort of development in the crypto ecosystem isn't designed to just fleece people for money then i think the regulators are very much inclined to avoid listen you know stymieing the growth listen this is i just gotta get this off my chest do you want to know where mom and

Starting point is 00:36:48 pop investors are getting fleeced being told to buy negative yielding fixed income right you know where else they're getting fleeced they're getting fleeced by being sold all kinds of madness like if you look at the average age of some of these financial networks uh some of these political shows etc it's 50 60 65 year olds right and i always say this watch the commercials yeah they are selling these people rocks yeah for thousands of dollars they're like you know all the hands out pans a night like like young people watching like this is insanity at 2 a.m you're running commercials And like the reason why you're running the commercial is because somebody's

Starting point is 00:37:41 buying it. Right. And they're selling them. Like, uh, you ever seen the, uh, uh,

Starting point is 00:37:46 in sports, they do the commemorative, like so-and-so just won the Superbowl football and like all this stuff. They do the same shit for like random things. And they're like, we stamped this into a gold bar by the commemorative gold bar for the 1905 Buffalo nickel. Like literally that's what they're selling.

Starting point is 00:38:04 What? And so again, like I understand, I get it. i don't judge uh the businesses what i judge is uh the hypocrisy of like 100 don't do this but we're cool with this right and then like you you just start to unpack it and you're like dude we're no complaining no anything we say is going to change this stuff right what we have to do is we have to compete and in the market entrepreneurs and investors have to compete

Starting point is 00:38:32 in a way that provides better solutions superior technology etc and that's the way you affect change in my opinion the most more so than like i mean we could literally kind of you know how they cut up like football highlights we could go and take like a late night political uh channel and just go through the 2 a.m commercials we'd have a field god we'd have a field day yeah like they're selling literally in one commercial they're selling uh what do they call it um uh what are the listening devices the hearing aids they're selling a hearing aid and then they're selling a buffalo nickel and then they're selling canes with like uh what are the um the knee sleeves the copper fits right we all know the commercial like you literally are selling elderly products

Starting point is 00:39:15 yeah mixed in with shitty investment products totally that's the 2 a.m commercials yeah or the midday i mean like you just fall asleep in your chair you wake up at 2 a.m wake back up at 2 p.m like and like oh you bought copper fit oh you didn't know that you actually bought a subscription that comes for every you know week and by the way you have to call and you need to know six languages to get out of the subscription you're like yo what oh yeah here's all the now cds now one through a hundred you remember those cds and now like now 2000 i used to slap man don't try to play around don't play now now like i just i don't know man it's uh uh you're absolutely right you're spot on man i think there's a i think that the core of it is there are smart people

Starting point is 00:40:04 trying to solve problems and whenever there's smart people trying to solve problems naturally there's going to be some you know kind of excess and and kind of you know you know all this ill illicit activities that come along with that but generally down the middle when smart people are trying to solve problems and they're capitalized to do so good things happen for society so facts all right where can we send people to sign up for 42 macro oh i'm just a smart person trying to solve problems. We have a big problem right now with bonds, but I was in that, uh, 42 macro.com. Um, and then, uh, come check us out. 42 macro detail on Twitter. Um, you know, we all have bad trades by the way. They, uh, the button on the homepage just says, invest like a champion.

Starting point is 00:40:39 You know, you're balling. If that's what your button says, it doesn't say sign up. It doesn't say click here. It says invest like a champion. That's look, I don't want retail investors to invest like retail investors. I want them to invest with the same information and sophistication that, you know, all my hedge fund clients have, you know, they get the same research that Citadel nuggets facts one last thing i'll add in is i see in the comments brit burns just said can't forget the drug commercials for combating side effects from other drugs those are the best the side effects are like 10 times longer than the cure it's like i'm like i don't think i want this anymore and i'm good with the cancer they're like have you ever breathed air in a city in

Starting point is 00:41:15 the united states you may have mesothelioma it's like oh my god i don't want to go outside all right buddy thank you so much for coming appreciate you guys thank you see you later man thanks so much for listening to today's episode i really hope you guys enjoyed this one make sure you're subscribed on apple spotify or your favorite podcast player and if you're looking to try to transition to get a new job in the bitcoin or crypto industry we've got you covered head over to palmscryptocourse.com we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more, and I'll meet you guys for the next

Starting point is 00:41:56 episode.

The Pomp Podcast - #882 Bitcoin & Ethereum Are Going To Break Out Of Bear Market w/ Darius Dale

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