The Pomp Podcast - #954 Travis Kling On Why The Fed Is Crashing The Market Intentionally

Episode Date: May 10, 2022

Travis Kling is the Founder & CIO of Ikigai Asset Management In this conversation, we discuss the market crash & the macro environment, where Bitcoin's price may fall to, what he expects the Fed will do in the coming months. the large pool of capital that is pouring into the Crypto industry, and how you can make money during a recession. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

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. Travis Kling is the Chief Investment Officer at Ikigai Asset Management. In this conversation, Travis and I talk all about the macro environment, Bitcoin, cryptocurrencies, regulation, and what he's seeing out there in the market. I really enjoyed this conversation with Travis, and I hope that you guys enjoy it. Before we get into this episode, though, I first want to talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the

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powerful crypto exchange whether you're just learning about crypto you're a seasoned defy dgen an nft enthusiast or a pro trader you're all invited to a better future go check it out today and let me know what you think. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp

or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Travis, what's going on, man? How are we doing, sir? You know, just pretty chilled day here

watching Bitcoin seem to fall out of the sky as people freak out. Low-key. A little low-key Monday here. I mean, great timing for you and I to go ahead and decide that we were going to do this. Let's start maybe with like a little bit of just market structure in general. The last two years has been pretty incredible for Bitcoin. Obviously, you know, the start of 2020 was kind of around $8,000, $10,000, ran all the way up to $69,000 back in November. What's your general read on like, maybe why some of that occurred and how much of it is like Bitcoin or crypto market stuff versus just, you know, the Fed stepped in and was going to pump asset prices and Bitcoin's volatile. So it went up. Yeah. If I was going to boil it down to one thing, well, I guess it'd be

like two sort of market adages. One is don't fight the Fed. And the other one is it's all one trade. and don't fight the feds been around for at least a decade. And it's all one trade's been around for the last two years. And basically what both of those kind of speak to is the same backdrop, which is central bank actions in the current monetary regime have such an overwhelmingly powerful impact on all asset prices, that basically everything else is almost just an afterthought. And that was the backdrop for the run-up after the COVID crash. And that's now the backdrop heading the other direction as the Fed is trying to tighten monetary policy. Yeah. I tend to agree that that is a huge driver, if not the only thing really to pay attention to

right here. What I want to do today is talk about Bitcoin, but I want to use it as kind of a discussion point for more of like the macro environment and a lot of the stuff that's going on there. If you subscribe to this idea of it is all one trade, Bitcoin to me seems like it's the most pure macro asset maybe, but it's still part of this kind of larger legacy financial market. And so you sent out a recent update. We've pulled a couple of the charts out of there that I thought just were home runs, frankly. And the first one, and I thought it was very telling that this was like the first thing that you led with was the price of Bitcoin and you overlaid a tweet on top of it. And the tweet says the former New York Fed governor Dudley, if stocks don't fall, the Fed

needs to force them. And it was citing a CNBC interview. And that was back in kind of early april which obviously was part um uh of this like price relief rally after bitcoin had dropped 50 and so talk to me a little bit about this like mentality coming from the fed whether active officials or former officials of like they seem to think that they are in control and they know exactly what they're doing yes i think there's there's two things i'd speak to about that chart the first one is just how tightly nasdaq and bitcoin are trading with each other and you can to see that they're overlaid uh on top of one another and they they look like exactly the same and then the second thing that i added was was that tweet uh which was was basically a former

fed governor writing a bloomberg op-ed article that was entitled like the like what it says in that tweet if if stocks don't fall the fed should force them to fall which is uh you know a pretty crazy thing for these boomers to be running around saying, but they are dead set on fighting inflation. They're terrified of inflation. Inflation is, um, you know, the hot button political item. Uh, the fed has become deeply politicized. The, the, the, the notion of an independent Federal Reserve, I think, is a joke at this point. And so the Fed has a few different mechanisms that they think through trying to sort of tame inflation with. But one of them is through this mechanism called financial conditions. And there's an index you can type in a trading

View or Bloomberg, the Financial Conditions Index, which is a combination of a few different things. But two of the inputs into financial conditions are equity prices and debt prices, fixed income prices. And so one way to tighten financial conditions is to make the price of stocks fall, make the price of bonds fall. And by doing so, the Fed has this view that through sort of wealth effect, people's net worth is going down because they're long stocks, they're long bonds, the prices of those are going down, their net worth is going down. As their net worth is going down, it makes them buy less things, spend less money.

And then that has a, you know, an effect of taming inflation over time. And so that that was that was really what what Dudley was speaking to and other other Fed officials as well, too. And and so it's in it gets you into this pretty, you know, kind of creepy spot of, you know, the Fed feeling like the best way for them to try and get inflation under control is to just hit everybody's net worth. and they can do that with uh you know maximum jawboning uh and then how much of that jawboning you know so jawboning is just this term of like you know talking a big game about something and then how much of that talk actually translates into action then sort of remains to be seen and is what's going to be front and center over the coming months so we've got a chart um that you

put in the update, which also has kind of the pricing of interest rates and the expect expectation. It's kind of this nice little curve that the market is pricing in up to 10 interest rate hikes and ultimately getting to 3%. We currently sit at 0.75%. And given how big the sell-off is, I guess one, just like how much weight do you actually put into kind of 10 or so interest rate hikes and getting to a 3% interest rate versus there's no way they get there and the Fed will have to capitulate on this plan well in advance? Yes. So it would be my pretty high conviction-based case that they are not going to get to 10 total rate hikes in 2022 and that the market is going to force them to slow down before they get there. And part of the reason why I would

say bullish uh how would i frame this uh bullish from here through the rest of the year you know over a sort of you know seven month time frame is that when the market realizes that the fed is not going to hike that many times then the expectation of tightening will be greater than the amount of tightening that actually comes to fruition and that that will provide a backdrop for asset prices to have a relief rally as less tightening than jawboned comes to fruition, if that makes sense. It makes complete sense. And I'm of the same belief. I may take it one step further. I can't remember if I said it was like a 70 percent confidence level that I actually think the Fed may have to cut interest rates at least one time this year. So the thought process would

be as they continue to hike interest rates, they enter that environment that you just described where they got to slow down, or they skip over a couple of times where they thought they were going to hike. I even think they may go further where given that midterm elections are coming, if they hike interest rates enough, they push us into a recession. All of a sudden, you know, the only thing worse than high inflation going into an election is an actual recession. And so do they give us kind of like a gut check? Do they say, hey, you know what, actually, let's cut one time to kind of give some confidence back to the market to try to equalize where we're at? What's the level of maybe confidence or thought process that that could occur? Yeah, so it would not be

my base case that they would cut this year, certainly not out of the realm of possibility. I mean, you can just see it in just in prices today and over. It's worth mentioning that this monthly went out May 1st. So this is kind of nine days old and everything's gotten much worse in the last nine days. So like every single one of these charts like looks meaningfully more pukey right this second than it did nine days ago when this monthly came out. And I think that looking at how much the market is forcing the Fed's hand right now, I think that they want to hurry up and get back to a quote unquote neutral rate to get back to 2%. but they just hiked 50 bps. I think it's highly likely that they hike another 50 bps in June and then another 50 bps in probably another 50 bps in July. And that'll get us to nearly 2% interest rates, right around 2%. And then there's no meeting in August, but there's

the Jackson Hole, you know, very large kind of meeting of the minds every year at Jackson Hole with the Fed. That's at the end of August. And then you have a Fed meeting in the middle of September. And I think by the time you get to Jackson Hole or that Fed meeting in September, you could have a setup where asset prices have continued to fall a lot. And then I think this is going to be all eyes on leading inflation and economic growth indicators. And it's my, you know, I would say medium conviction-based case that all of those are going to show month over month declines, you know, basically starting last month, and that we've had peak inflation. And you're going to see those leading indicators, you know, continue to roll over over the coming

months. And that's going to give the cover that the Fed needs under their mantra of being data dependent and so uh by being data dependent they'll be able to uh slow slow tightening and uh and then probably pause tightening you know maybe they go 25 bps in july or in september instead of 50 bps and then the market will be watching all of that and be sort of centering around uh this slow down. And like I said, it's all one trade and don't fight the Fed. And so a slowdown and tightening relative to expectations, these 10 rate hikes, I think provide the backdrop for relief rally later on this year. Yeah, it makes complete sense. One of the things that I keep going back to is this idea of if it is all one trade, how much pain will they allow for the

average person to suffer. And so recession, I think most people are like, oh, that sounds bad. But obviously, when things get overheated, people make really stupid financial decisions. And we've got a chart here that you included in the update that Bloomberg had, where they had a model 60-40 portfolio, and they're showing that it is having its worst year since 2008. And so if already in 2022, the 60-40 portfolio, which is kind of the standard in, you know, kind of the retail asset management game if that's having its worst year and they continue to hike uh it seems like this could get really nasty uh in that 60 40 portfolio is there any framework or thought process that you use to kind of say like here's the max pain that is allowed or is it literally

there is no kind of lower bound and hey they're going to keep hiking the interest rates so they get inflation and if you're the sucker taking the taking it on the chin then you know you're the sucker. Yeah. So a couple of things I'll say on that, you know, one, that chart you just showed looks way worse nine days later. So I'd say that, you know, that's the first thing I would say on on a recession. I think it remains to be seen whether or not the Fed can engineer like a kiss to zero GDP growth and then kind of back higher, a quote unquote soft landing, or whether or not They're just going to hammer this thing straight into a recession. I think when you look at the totality of the way the Fed has acted over the last couple of decades, it is not my base case that they would when you look at like what they have done, what they can do and what they're incentivized to do. So hammering this thing straight into a recession does not make a ton of sense to me.

It makes more sense to me that they would try and maximum jawbone right now, which they're doing. You know, you got these got Dudley writing an op ed saying we got to crash stocks. A lot of these other Fed officials are when they talk, you know, a lot of a lot of real hawkish jawboning. and that they're they're really trying to jawbone inflation down over the coming months and economic growth is going to go with it and if they can get that into an okay spot then they can just kind of back off and maybe you can kind of get this like kiss of a zero gdp growth and then back up and And then resuming, you know, you know, so like prior to covid, we were in the longest, slowest economic expansion in U.S. history with pretty low unemployment and very low inflation.

The Fed was barely able to kind of keep its two percent inflation target. But that was a tremendous time to own any kind of assets. If you owned any sort of assets over that period of time, you did really well. And the Fed's constituents are boomers and boomers own all the assets. It's a very good time to be a boomer. And I don't see any reason why they wouldn't want to recreate that now, which is part of the reason why I think it's my base case that they would just try and manage through this sort of soft landing, and then you go on pause with the Fed funds at somewhere around 2%, and you get inflation back down to 2%, 2.5%, maybe 3%, and that that's a fine outcome. and and you know in terms of things that i i would be watching that the fed might be watching i know they're paying a lot of attention to financial conditions which like i said can tighten through the decline of of stock and bond prices the the fed gets very nervous with uh short-term funding markets um financial markets globally this is a debt-based uh uh financial system globally ton of debt. It all runs by borrowing lots of money. And there's the short term funding market

where, you know, many, many, many billions of dollars are borrowed overnight in between banks and financial institutions and from the Fed and to the Fed and back and forth. All of that plumbing has to work seamlessly all of the time. And when there's even a small hiccup in that short-term funding market those hiccups metastasize into everything else very quickly the fed is terrified of that and they that is the sort of thing that they will not let get out of hand for long at all before they step in because this whole thing's a big rickety piece of shit and uh when the short-term funding markets start to uh show stress that is a sign that the jenga Tower is looking quite wobbly. And so that would be something to pay attention to. And then I think

I just look at the move index, which is the move index is like the VIX for bonds. It's like the volatility of yields, basically. And the move index is in a tough spot right now. It is very elevated. And if that were to see a spike, that's the type of thing that sort of precedes the type of hiccup in short-term funding markets. So those are the sorts of things that are sort of the flashing red alarm bell going off type of stuff. And they are looking on the verge of having problems right now. And like, look, you may fast forward a couple of weeks and all that looks way, way worse. And, you know, we may be done way sooner that, you know, than, than I would think, but it's just, it's the kind of thing worth paying attention to every day. So let's take your

base case of kind of, we end up somewhere around 2%, uh, and then they kind of chill out a little bit. Uh, Bitcoin today is trading somewhere around $32,500, $33,000. And I'll use Bitcoin as a proxy for the crypto market overall. When you think about that base case, how do you balance in your head macro impact on crypto prices with what I'll call more of the like micro market structure of crypto? And so using Bitcoin as the example, we know realized price is somewhere $24,000, $25,000. We know that, you know, 60, 65% of Bitcoin hasn't moved in a year. But we also know that the Fed is, you know basically trying to nuke uh asset prices and so like when you're evaluating what could happen and it's all probabilistic but like how much emphasis do you put on macro and fed activity

versus you know bitcoin or crypto people are crazy they're holding these assets there is no price at which they'll sell and like there's some safety there like how do you balance those yeah um we We definitely look at both in our investment process and we look at the I'd say the crypto micro market structure from a pretty quantitative perspective. And then we have a more kind of qualitative overlay that incorporates both kind of crypto qualitative fundamental news flow type of stuff and also macro. and macro is major league in the driver's seat right now you know i think the first chart you put up about the you know how tightly bitcoin's correlated to the nasdaq proves that point i don't see a reason why over the immediate term that bitcoin would or crypto broadly would be able to decouple from macro. You know, it's all one trade is that's as locked in now as it ever

has been. I do think that when Bitcoin's 50% off of its recent high, like it is right now, I do think you get into a situation where, you know, the supply demand imbalance in terms of the people, the market participants that are willing to sell Bitcoin more than 50% off of the top relative to the market participants that are willing to dollar cost average buying Bitcoin 50 plus percent off of the top, that that imbalance does start to swing much more heavily in favor of the buyers. And we're very clearly in that zone right now. We're coming up on a spot that's pretty important. We're a couple thousand dollars below current prices, the late July 2021 lows that Bitcoin held. If we were to lose that level, which would happen

And with a backdrop of, you know, even more stress in traditional markets than we're seeing right now, some of those stress points that I was just talking about a second ago, you know, I think it could get pretty gappy to the downside if we lose that that twenty nine thirty K level. And you could see a lot of Bitcoin spot Bitcoin change hands down there in the kind of kind of mid 20s range for Bitcoin. And that's usually the type of capitulatory price action that marks cyclical bottoms. And, you know, I think there's there's a decent chance we could see that that in, you know, coming up.

But those would be, you know, generational buying opportunities. That's like, you know, you're buying for your kids, kids at twenty four thousand dollar Bitcoin. And so one of the things that makes this setup different than prior setups is that the cat is out of the bag in terms of what asset class you want to own when the Fed eventually slows down on tightening or goes on pause and then eventually sort of goes back to a looser monetary policy. That's very different than the like 18, 19 bear market when the vast majority of institutional capital wasn't involved in this at all and didn't have any idea how to think about this asset class. I think that makes for just a very different backdrop. The cat's out of the bag. Like when the Fed goes on pause, there's nothing on planet Earth that's going to move faster off of the bottom than crypto. I'm highly convicted of that. I think a lot of smart money is highly convicted of that. And this tightening phase that the Fed is in, everybody knows that this is a pit stop until you go on pause and then eventually cut rates again. And so all of that combines into a pretty interesting situation where, yeah, stocks are nuking right now, traditional is nuking right now, crypto is nuking right now. but if you're not a forced seller uh this is a terrible time to be selling crypto to be selling

bitcoin and if you got cash on the sidelines you know you're setting up for like a an incredible buying opportunity so it's fascinating to kind of hear you talk through this not not not financial advice of course not financial advice nothing on this show is financial advice entertainment purposes only uh one of the things that ends up being uh really interesting is if we go back to 2018. And we look, Bitcoin had peaked in 2017 at $20,000. It had drawn down and it was sitting somewhere around $6,000 or so, $5,000. So it had drawn down like 75%. And I think a lot of people were like, oh, it's down 75%. Like this is the bottom, quote unquote. And they're getting very excited. Obviously it puked all the way down and eventually hit, I think it was like 3,200,

give or take. And it was very much a puke, right? There was kind of this grind down to 75% drawdown and then you hit that 3,200. And then pretty much from there, once you hit the bottom, grind it up and everyone knows kind of what happened from there. Is your expectation from a market standpoint that these types of markets will just grind down, eventually hit some bottom and then recover? Or do you think that there is kind of that puking or that final capitulation that occurs that could send prices down, I don't know, maybe a couple thousand dollars in one kind of rabid move? Or how do you think about just the expectation you would have for what will eventually be the bottom, whether it's now or some lower price? Yeah. For a bunch of different

reasons, the setup here is not comparable to November 2018. It's just not the same for a much bigger asset class. It's a much more institutionalized asset class. That was an almost entirely retail-driven market. And you had this hangover from 2017 that was much more excessive than the price action that we had in 2020 and 2021, especially in Bitcoin, I would say. And so, I struggle to compare the two. I struggle to compare the 6K level that we bounced off of in 2018 a bunch of times before we broke in November and got cut in half. I don't think that's comparable to like, say, this 29K level from July 2021. That's not to say that I don't think we can lose 29K this time around, because if the stress gets bad enough in traditional, which there's quite a decent chance that it could, we could lose that 29K level. Um, but the, and it could, like I said, it could, it could get pretty pukey. Um, but the, I think the ability and the willingness for the market to look through, uh, the short

term volatility and that short term pukiness to, to look at this asset class broadly and Bitcoin specifically and say, this stuff is all much higher a few years from now. just makes now incomparable to uh to like that 2018 time frame when like you know people just thought all this stuff could go away after that after that uh november 2018 price crash and one of the things that i i remind people of a lot because in this monthly market update that we've been looking at charts in i i had these monthly highlights just like a bullet point of like my subjective view on the most impactful sort of news announcements over the course of the month. And one of the things that I track pretty closely that's just been astonishing is

the amount of venture capital coming into the space and the magnitude, the breadth and depth of the capital raises for projects and then the amount of of vc fund raises so like the funds themselves and then the projects that they've been funding and you put that together and just like the aggregate amount of capital permanent capital that's permanent capital that's coming into this space uh it's stunning and completely different and you're talking about hundreds of projects that already have years of runway today, and then VCs with billions and billions of dry powder that they're sitting on today, if not another dollar is raised into crypto VC. And all of that is going to be deployed over the course of this year and next year and the year after that,

if not another dollar of permanent capital comes into this space. And it is that capital that will fund the projects and the innovation that will drive additional adoption that will put a bottom in for this market and cause all of this to head higher than it ever has been before. And I'm about as highly convicted on that as I can be on anything. Yeah. I tend to think that everything involved with the fear of the market is very, very short term. Uh, we could be talking weeks, right? I don't think that, uh, this continues for six months and then we get a bottom or anything like that. Like it feels, uh, maybe we're not quite there yet, but definitely there's way more fear than, uh, uh, than usual. And so that usually tends to be a pretty good, uh, indicator. Talk to

me about, uh, there's two different elements of the market. I see people talking about, uh, on the internet a lot i don't know if you necessarily have unique thoughts here but but just i think people hearing kind of how you view them given uh the investment strategy that you all have at the first is michael saylor he's accumulated a ton of bitcoin uh he recently put uh what i would consider a pretty small position it seems like where he borrowed against some bitcoin and bought extra uh do you worry at all that there's like a price where bitcoin could get so low that uh he would become a for seller accelerate downward price pressure or like like what's kind of the the risk maybe of somebody like a michael saylor and micro strategy to a market from if you're just

looking at price right obviously there's a ton of benefit like how do you just evaluate what that impact would be on the market or what you're paying attention to there so a couple things i'll say on sailor one after their latest earnings called it was like widely misquoted or taken out of context of what their situation is in terms of being like liquidated or that sort of thing they they could have a margin call on that separate i think it was i think about 200 million dollars worth of Bitcoin in a separate entity that has some covenants around it. They could get margin called on that, but they're also in the position to contribute more Bitcoin from their balance sheet into that entity to shore up the collateral requirements for that. And so it's not a

liquidation or like a death knell margin call type of situation like people were talking about. You know, so I would say that. And then I would also just say, though, that like crypto has a tendency to like it has fat tails from like a statistical probability perspective. And crypto just has this tendency to do things that you thought were incredibly unlikely or virtually impossible. And to have those types of events come to fruition at a higher likelihood than you would assume. And that's what I mean by like fat tails relative to like a normal distribution type of deal. And so, you know, I would never say never with something like that. But I think it's a very low probability. I would also think that if Saylor ever got into some kind of tough position where I don't even know what that would look like, you know, where he contributed Bitcoin from the balance sheet into this covenant restricted, you know, side vehicle that he has.

that he borrowed uh like that whole situation there's just a tremendous amount of like uh extremely well capitalized bitcoin bulls that like in the same way that you know el salvador's bitcoin bonds before you know before we had stress in the in the bond market and they put the the volcano bonds on hold like that those those el salvador bitcoin bonds were like oversubscribed And my guess was they were oversubscribed, at least in part, by people that are just very bullish Bitcoin and see the developments happening in El Salvador as being good for Bitcoin broadly and willing to support that. I would guess you would have the same type of support available to Saylor if he were to get into a tight spot like that. Yeah, I think that's actually a really interesting way to look at it as to there's just certain things that happen in the market, regardless of the economic kind of underwriting of it. There's people who say this is good for Bitcoin and therefore I will participate, whether it's bonds, et cetera.

And then if you actually can overlay, it is a good economic decision based on their underwriting. Then there's just even more folks who are willing to kind of step in. if that makes sense. Another group or person that seems to be in a similar but different situation is the Luna Foundation and this idea of trying to peg UST to $1. How do you think about the similarities or the differences with Saylor, but also kind of the potential risks or things that you're looking at for market and the price of Bitcoin as that kind of unfolds in that situation? I think they are somewhat comparable, and I would broadly ascribe more risk to the Luna situation than I would to Saylor's situation. I mean, you're dealing with a, you know, sort of algorithmic, algorithmically controlled, but also backed stable coin.

It's pretty incomparable relative to any other stable coin that's been in existence in crypto. There is risk present there. But I still think it's like, you know, relatively small. And they just had an announcement that came out overnight about some stability mechanisms that they're putting in place. There are several stunningly well-capitalized entities that are in support of this Luna situation that are the types of entities that have a very outsized influence on just what the crypto market is going to do broadly. like it's like you put jump and three ac into a room and you go how much you know this room controls how much of what happens in crypto broadly and it's like it's like a real a real amount of what happens in crypto is a function of like what jump and three ac decide is going to

happen and and you know these guys look like they're in in you know position to be very supportive of this thing but it is like i said a newfangled you know type of deal and so there's there's risk present and I would say a higher degree of risk, um, present than the sailor situation, but it's not my base case that you're going to see some, some kind of blow up there. Yeah. I tend to think that that's probably a very fair analysis of like, there is more risk because of the peg, et cetera. Unlikely that there's some massive, uh, blow up. But I think your point about why there's a lack of blow up, uh, is, um, mispriced by people in the market, right? Seeing a jump, seeing a three AC, uh, and some of it may just be like folks in the

Bitcoin community, uh, may not understand or recognize, uh, the size, the enthusiasm, the level of participation from those groups, uh, in a lot of this stuff. Uh, and then some of it is just, uh, almost feels like there's people, uh, in various communities that are just cheering for destruction of those types of things, right? Like kind of like a, I get to say, I told you so, uh which is like a very um kind of weird exotic uh development of uh rather than like the open mindedness yeah i call it i call it big short syndrome okay explain yeah like it's it's big short syndrome it's like people are begging for these enormous blow-ups because the people that shorted the subprime crisis in 2008 were like heralded as such heroes like Michael Burry's

like a great example of this right and uh Michael Burry like hung on to this Tesla short for however long and I mean I think got like blown out of the water on it basically uh before it ended up working uh which is uh there's a lot of irony to that but um people are like always looking to like be the like sky is falling bear and then like nail that trade and then they get to like you know parade that they like nailed some big short type of thing and like you know that mentality has sent a ton of people to the poor house over the last decade or so or you know looking back over um the history of financial markets over over many decades uh and and uh you know being being overly bullish and highly levered sends people to the poor house as well too um you know

such i guess like what is it like whatever bulls and bears both get to eat but pigs get slaughtered or something like that so yeah yeah and i guess part of this also is there's a bunch of folks who uh outside of the bitcoin community today we saw norel rubini i guess is working on like a tokenized dollar uh cryptocurrency uh there's plenty of other folks who are still skeptic bearish uh flat out maybe even shorting the market uh but it does feel like you're starting to get one some specialization in crypto so there's some people who are bitcoin there are some people who are part of ethereum or the smart contract platforms or nfts etc 2016 17 maybe even in 2018 like you could just be i'm a crypto investor and you could pretty much touch or understand most of

the market, I do think that that bifurcation is changing a little bit. But with that comes this feeling of like a zero-sum game where people say like, oh, NFTs are going to work, but X is not going to work. Or, you know, Ethereum is going to work, Bitcoin won't work or vice versa, et cetera. Like, how do you think about specialization in the market today? And then also, is it a positive sum game where like all of this could work or some of it could not work and some of it does work, but like they're not necessarily tied together as much as they used to be? Yes. I mean, tribalism has been around for a long time in crypto forever, right? It doesn't strike me that tribalism is any stronger today than it has been.

It's just always been strong. And I think that even within the tribalism, there is a view, you know i guess like the most extreme examples of tribalism there isn't this view that like hey we all we can all win here but i think once you get outside of the like tail of like the extreme tribalism that even bitcoin fans and e-fans and solana fans and nft fans the large majority of those even if they have their favorites can still look at the thing and go this whole pie has a lot more room to grow. And there are strong structural inflows into this asset class and this technology, directional flows, to my point earlier about the amount of venture capital coming into

this space. There's structural inflows into crypto that, yeah, you have outflows and people are worried about the Fed in the short term, but over any kind of medium, longer term horizon, that's up and to the right, super highly convicted on that. And then also, like, there's no other asset. There's no, there's, there's nothing that derives more of its value from network effect than crypto. It's an even more pure expression of network effect than like through value creation than even a social media platform. And so to that end, it's like, if more people are coming to crypto, you know, even if you're a Bitcoin fan and more people are coming to ETH or you're a Solana fan and more people are coming to like ETH NFTs, that broad pie growing adds to the value of

the asset class as a whole, because all of it is so much driven, the value of all of it is so much driven by network effect. And so there's plenty of room for like everybody to win from that type of setup. Yeah, I tend to agree that that is true. One of the most popular questions I get right now is how people can make money in a recession. As you think about asset prices falling, the Fed stepping in with higher and higher interest rate increases. How do you think about positioning a portfolio? Is there psychological things that you look at? Are there frameworks you use? Or are there tactical things that you're employing in terms of actually being able to make money during a recessionary period? Yeah. So I guess recession is an economic

term. I think recession versus like market, strong market, like asset price decline, I think of those things as two different things because we could end up in a recession in like Q1 of 2023 or Q2 of 2023. And like the NASDAQ could be way, way higher off of its lows when that recession hits because asset prices and economic growth are like two separate things. And asset prices are so strongly a function of what the Fed is doing. And by the time the Fed goes on pause, or the Fed slows tightening, which will absolutely rip all asset prices with crypto leading the way, that could still be sort of like potentially too late to cause to like keep us from dipping into a shallow inflation or a shallow recession rather. So I would, I would, you know, kind of delineate

between those two things in terms of positioning you know it just kind of depends on what your outlook or like what your i guess goal for your you know everybody's in different positions with their you know i think there's a lot of just like kind of everyday retail folks that that are watching this um you know have some cash on the sidelines you know now's not a good time to be using leverage at all. Knife catching is not a good idea for retail traders. It's like never a good idea. If you've got cash on the sidelines, when crypto is more than 50% off of its top, starting the dollar cost average into buying more Bitcoin, buying more ETH, uh historically that has worked out incredibly well um i think that there's no reason to think

it's not going to work really well right now um and you know i think the fundamentals of this space are unequivocally getting stronger and that is not being reflected in price action right now But that is a temporary disconnection as monetary policy from central banks is in the driver's seat. But that will pass and it might pass sooner rather than later. But that will pass and fundamentals will still will move back into the driver's seat. And so there's there's nothing to be worried about from a longer term perspective about the viability of this asset class. crypto broadly is going to continue to eat the world and we will get with just a small amount of hindsight we'll look back on this pullback like we look back on a bunch of other pullbacks that

you know people barely remember but you just want to make sure that you're in a position to keep playing the game you got it you got to be in a position to be able to continue to play the game because the asset class broadly is going to create trillions of dollars of value over the course of you know, this decade and the next and probably the one after that. That makes sense to me. The number one question I'm getting from all of the live viewers is they want to hear your thought process behind selling Bitcoin for other assets and some of the more tactical stuff you're doing. I don't know what you're allowed to say and not say from like a regulatory standpoint, but anything that you can provide in terms of some insight there, I think

people are super excited to, uh, to hear from you. Yeah. So I think the one thing I'll say is, so I went, I went on, um, uh, we actually talked about you pop. I went on Yano's podcast like two weeks ago, empire podcast. And we were talking about all the way back in September, 2018, when Yano was like doing the camera and the microphone set up for the pop podcast back then. Correct. Uh, yeah. So we reminisced on that and how far those guys have come. Uh, but on that, on that podcast i talked about this eth merge uh this kind of this kind of eth merge uh catalyst which in my view is the most significant most telegraphed catalyst in the history of crypto um and i think if you know which is like a pretty hyperbolic thing to say but i think if you look

back on the history of crypto for something to be a bigger catalyst a more significant more telegraph catalyst than this it would either have to be something in bitcoin or something in eth because if it was something in any other asset it just wouldn't have by definition wouldn't be as significant as being in those two and like the halvings in bitcoin uh are different because they're programmatic. And they're also just less significant, in my view, relative to this ETH merge setup, which is ETH going deflationary, ETH turning into a yield generating asset, and ETH moving to ESG friendly. And I think we all know what a behemoth ESG is. And it's a separate conversation about the legitimacy of that movement. But I think we can all agree that it's a big

movement and people are focused on ESG type of stuff. And a move from proof of work to proof of stake is a step towards ESG. And it comes at a time when ETH, there's never been more institutional eyeballs on ETH. There's never been a greater willingness and ability of institutional capital to buy ETH in size than there is today. It is not the same as the COVID crash. It's not the same as the COVID crash. What did ETH get down to on the lows? Did it get down to 200 bucks on the COVID crash lows? I don't remember the COVID crash lows. I know in the 2018 crash, i think it got down 70 bucks 75 bucks covid was what holy cow at the absolute low he's got down to 90 on the covid crash 9 90 you know the market cap was like you know when he was 90 the market

cap was like probably i don't know 10 billion dollars or something crazy like that right like incredibly low like you can't uh uh institutional capital could not buy eth in the spring of 2020 It was just too small. It was too unproven. It was too volatile. And the the just the the the thesis was not well understood for ETH at that period of time. And all of that has changed a lot since then. OK, yeah. So on the lows, Ethereum's market cap got down to $13 billion. Institutional capital is not buying a $13 billion asset. They cannot.

It's not possible for them. Whereas now, ETH is a $285 billion asset. Institutional capital can buy a $285 billion asset. And so I think all of that combines together with a setup for, and look, there is risk that inflation remains stubbornly high. And if we go back to that orange and black chart that we just looked at, 10 rate hikes in 2022, if we can't get these leading economic growth and inflation indicators to roll over, the Fed, I think, is just going to have to keep tightening. And if that ends up being the case, you don't want to be long any of this stuff because the price is just going to keep going down. And, you know, you increase the likelihood of like a really nasty outcome that forces things to go on on pause and pushes us into a recession and a full blown, you know, nasty market crash in all asset prices. But that's not my base case. But there there there is a risk that inflation could remain stubbornly high.

Ukraine definitely presents risk there. The China lockdowns definitely present risk there. Although the people that I talk to that understand the Chinese economy the best, there is not agreement on whether or not China lockdowns are inflationary or deflationary for like US inflation measurements. There's just not agreement on that. So I think it remains to be seen on that. But there's risk to my view, for sure. But my base case is that inflation and economic growth indicators are going to roll over in the coming months. And then it sets up for the Fed to decelerate tightening relative to expectations, either at Jackson Hole or at the mid-September FOMC meeting, which lines up really well with when the ETH merge is going to be put on. And you put those two things together, and it has a potential for incredibly explosive price action and crypto broadly. But ETH in particular, dude, if they go on pause, like plus or minus a month of the merge, ETH is going to teleport. It is going to teleport. And I think it looks like ETH is in heavy accumulation mode right now. and uh you're gonna get to like the depths of the summer when there's no eyeballs on this market

when trading volumes are at the absolute lowest and uh people are getting all bared up and all this body is going to be it's going to be held by people that aren't in the mood to sell it anywhere close to the bottom and you can just and i remind people like on the on the on the late july 2021 bottom uh which didn't really have much of a particular catalyst to it i mean you could look at the b word conference with elon and jack dorsey that did kind of put the bottom in eath went up 120 percent in a straight freaking line off of the bottom and that was nowhere near as bullish of a backdrop as what we potentially have with eath merge lining up with um the the fed decelerating tightening and so that's one of the most

attractive setups i've seen uh you're going to have every traditional uh investment fund on the planet that's going to be trying to make up their entire year which has been going real shitty for almost all of them up until this point and like if you're trying to find the fastest horse like to borrow paul tudor jones moniker btc will move real well off the bottom as well too i think eth to just like you know so did you basically uh in some way say hey look bitcoin is uh what it's been there's market structure etc eth for the reasons you just laid out uh you just think has more upside to it and so you guys basically shifted and then did you also go look at other assets as well or like how did you think about outside of the bitcoin eth you know kind of blue chips if

you will did you guys go take a look at like oh if everything goes up the things that are the smallest cap will go up more or how would you uh i guess analyze that part yeah yeah we don't really play that game so to speak and you got to be cautious with liquidity and as you move outside of btc and eth very quickly that stuff when the market's pulling back a lot and when you're in a you know when traditional looks like shit like it does right now that stuff goes no bid to a degree that like you know that stuff goes down 50 and then it goes down another 50 you know and then it might go down another 50 right and uh so i think you got to be real careful moving down market cap the two things i'll say is on that one we've been spending a ton of time in metaverse

and and bitcoin gaming play to earn in-game assets we've been spending a ton of time on that uh and are captivated by that space it's very early um it the the those assets the way the in-game economies work right now it's like pomp you know you and i talked about this before it's like i used to say like bitcoin's the most reflective reflective asset on the planet uh well like play to earn is like definitely more reflexive than bitcoin like it's inherent in the nature of uh the way those in-game economies work that it's just very very reflexive so to the downside it just gets like real nasty in a hurry um so that's not where i think we're in the mood to deploy capital in anticipation of a bottom but then all this stuff's gonna it's all

gonna probably run harder than everything else off the bottom as well too um but but you want to you want to see which of these projects sort of make it out of you know some really nasty price action and actually can retain users and grow users and compel people to get back into these in-game economies so we're paying a lot of attention to the innovation that's happening in metaverse and play to earn uh mostly from the sidelines in terms of capital deployment but we're paying a lot of attention to it and then i think the other thing you would look at is like if if eth runs hard what happens with the rest of the layer ones what happens with solana luna avalanche cosmos dot um near like what happens with all of these and i think it remains to be

seen um i think historically you know you could see eth run hard and then have some kind of rotation into other layer ones the exact timing of that is like definitely difficult to say trying to time that is like you know not really a game that i would suggest most people try and play um but you know each each market cap is so so like i'll give you like an example right like so each market cap is let's call it 300 billion right now so let's say it doubles from here uh That would be like 5,000 ETH, a little less. And that would be like $600 billion market cap. And then let's look at like Solana, for example.

So Solana has a $23 billion market cap. So if ETH doubles to a $600 billion market cap and Solana also doubles, then ETH would be $600 billion and Solana would be $46 billion. market cap but and then like solana relative to eath that would be flat over that period of time right because like they both doubled right and i think at some point the market looks at that relative value spread and they go okay eath is 600 billion dollars solana's you know 46 billion dollars you know whatever that's that's six seven percent relative market cap that spreads too wide and it should be something closer to 10% or 15% or 20% of East market cap. I think there's a potential for that type of relative value trade to emerge.

And the timing of that, you know, remains to be seen. And like I said, that's like a, that's a pretty tricky game to play. So, yeah, it, um, it feels like there's just so much, uh, to underwrite as you expand the kind of investable universe. Uh, and I think this kind of idea of a market structure and it brings us kind of full circle in this conversation to like, it may all be one trait, right. In terms of, uh, it seems like crypto, uh, goes down together. It goes up together. Uh, but you have to start to underwrite, uh, risk and reward. And how do you do that is, uh, uh, it's pretty difficult. Um, before I let

you go, uh, I, well, I have two questions. One, uh, I think that you were in LA and I think you've move now to Texas. Uh, what's, uh, what's the geography arbitrage or whatever that, uh, uh, kind of thought process there. I'm sad you didn't move to Miami, but I understand. I think you're from Texas. Uh, and then also, uh, one of our sponsors is eight sleep, but what's, uh, what's the sleep schedule looking like these days now that, uh, that you're back in Texas, even though the market is, uh, literally as we're talking in a free fall and, uh, uh, we're just watching everything bleed everywhere yeah so did did move full-time to austin november last year my girlfriend and i were doing airbnbs for a while last year in austin bought a house in austin here

full-time i'm from collins station which is like two hours north of here my family's still there my mom would have killed me if i had if i had if i had moved from california state taxes to a zero state tax environment and i'd gone to miami instead of texas my mom just would have killed me um yeah so and austin austin's great love austin um enjoying my time down here enjoying the proper suburb life like like rapidly adapting to the proper suburb life after spending a decade in like venice and then manhattan and then chicago before that um so enjoying my time down here and then i haven't ate sleep uh and love it and um pretty focused on sleep i've got this like a garmin watch if you like know this thing it's

got a pretty pretty good sleep tracker on it uh i'm pretty good about getting at least seven to seven and a half hours a night um i need to move my bedtime up a little earlier i'm doing about 12 30 to 8 30 right now i need to get that to like 11 to 7 Cause there's, um, some of the like circadian rhythm type of stuff. Like I should be, but I don't know. I've always been a little bit more of a, of a night owl, but, um, yeah, I, I, I'm super focused on sleep. And I think, uh, when I skip it, I feel it immediately.

And, um, you know, I'm 37 years old. I'm not getting any younger. So you look 22 and, uh, you're already tracking everything. that's uh as long as you're tracking everything right like i think that part of it is uh once you know what works for you like everybody's different but once you know what works for you like to your point if you stray from what works you feel it like once you get into it right and i'm the same way it's like if i uh you know i need eight hours right so if i don't get eight hours i'm like dude you just know like i'm a little bit more irritable i'm a little bit sluggish like all these things

And so it's just like a daily reminder, like, Hey, get your ass to sleep. Stop, you know, wasting time, all this stuff. So it makes sense. Where, uh, where can we send people to find you on the internet? Uh, if, uh, if people are not already following you. Yeah. Uh, Twitter's great. Travis underscore cling on Twitter. Uh, we write this monthly update letter. So if you go to eki guide.fund is the fund, uh, website. And then if you click on content, uh, it kicks you over to a different website, which we just had to do for regulatory reasons. But we have this content depot called Kana and Katana, which is the pin in the sword in Japanese. And that's got all the past market monthly update letters. You can sign up for future ones there. And it also has this little

tab there where you can see just every month, the bulleted monthly highlights from all the past monthly updates it's like a it's probably the best thing to show like crypto skeptics to give them a sense of like how much has happened in this space over the last like two years or whatever when you look at when you look at it all in one place uh we've covered a stunning amount of ground since the first time you and i got on a podcast in september 2018 i mean it's like i mean even since we did the covid one in may of 2020 dude we've covered a lot of ground and the the all this fed tightening stuff all this stuff is a hiccup dude it's like all uh this is this this too shall pass and the outlook for this space broadly has never been brighter so everybody should be excited yeah

i tend to think that is a great way to uh to view the market bleeding would stop that'd be nice but uh other than that my friend i uh i appreciate you coming on i think people really enjoyed this and what they'll have to do to get in the future. So thanks so much. Always a pleasure, man. All right, talk soon. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one.

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