Unchained - Cobie and Chris Burniske on How to Navigate a Crypto Bear Market - Ep.355

Episode Date: May 24, 2022

Cobie, co-founder of Lido and UpOnlyTv, and Chris Burniske, partner at Placeholder Ventures, talk about surviving a crypto bear market, the Terra collapse, lessons they’ve learned from their mistakes, and much more. Show highlights: whether Chris and Cobie think crypto is in a bear market why Chris says these are the times to buy what effect the Terra debacle will have on the crypto industry why Chris was expecting UST to blow up why Chris thinks there is going to be another massive liquidation event whether an algo stablecoin could work why bear markets are sometimes a good thing how USDT was stress tested and proved its resilience how macro is affecting the crypto space and what the role of the Fed is when will we see the bottom of this bear market how meme coins are the symptoms of a broken system why this crypto cycle is different whether regulations are helping VCs rather than the retail investors why risky assets are the ones that could increase 10,000x  whether the future of crypto is multichain or not how developers signal what ecosystem is going to win in the next expansion cycle whether Cobie thinks staking is dying how Chris judges market bottoms and tops what lessons Cobie and Chris have learned from their mistakes what innovations will catalyze the next bull cycle what needs to happen in the future for crypto to succeed Thank you to our sponsors!   Crypto.com: https://crypto.onelink.me/J9Lg/unconfirmedcardearnfeb2021 Cross River Bank: https://crossriver.com/crypto Beefy Finance: https://beefy.finance     Episode Links   Cobie Twitter: https://twitter.com/cobie  UpOnlyTv: https://uponly.tv/ Substack: https://cobie.substack.com/ L1 trading: https://cobie.substack.com/p/trading-the-metagame?s=r Death of staking: https://cobie.substack.com/p/apecoin-and-the-death-of-staking?s=r Token unlocks: https://cobie.substack.com/p/on-the-meme-of-market-caps-and-unlocks?s=r Cycle Tweets: Why “the next cycle” reasoning scares him https://twitter.com/cobie/status/1524965475813568512 What projects will survive the bear https://twitter.com/cobie/status/1469253171885318146 His call to “buy” on March 12 2020 https://twitter.com/cobie/status/1238282793244860417 Which VCs will win https://twitter.com/cobie/status/1515667977118826500    Chris Burniske LinkedIn https://www.linkedin.com/in/burniske/ Twitter https://twitter.com/cburniske Previous Unchained episode https://unchainedpodcast.com/chris-burniske-a-blank-slate-of-state/ https://unchainedpodcast.com/chris-burniske-of-placeholder-on-the-downsides-of-icos/ https://unchainedpodcast.com/want-to-diversify-your-portfolio-try-bitcoin-say-arks-chris-burniske-and-coinbases-adam-white/ https://unchainedpodcast.com/how-to-value-a-crypto-asset/ Cycle Tweets Feb 2022 bear call https://twitter.com/cburniske/status/1495468570708426754 March 2022 bear call https://twitter.com/cburniske/status/1523021991619428352  November 2021 top call https://twitter.com/cburniske/status/1457884538806308868  DCA advice https://twitter.com/cburniske/status/1525906152881459200 https://twitter.com/cburniske/status/1500593438433021952  What could knock the market further down https://twitter.com/cburniske/status/1525157945079496705 https://twitter.com/cburniske/status/1524260987787902978  2017 ATH calls https://twitter.com/cburniske/status/1524838447784947712 https://twitter.com/cburniske/status/1524524188366635008  Trying to time the bottom https://twitter.com/cburniske/status/1523573129431240710  Chris x Cobie Luna https://twitter.com/cburniske/status/1524280637431164929  Feeling sorry for people who have lost $ https://twitter.com/cburniske/status/1524267901456248832 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the May 24th, 2022 episode of Unchained. Welcome to a new world of crypto-friendly banking with Cross River Bank. Request your Fiat on-off ramp, solution now at crossriver.com slash crypto. Buy, earn, and spend crypto on the crypto.com app. New users can enjoy zero credit card fees on crypto purchases in the first 30 days. Download the crypto.com app and get $25 with the code Laura. Link in the description. This episode of Unchained is brought to you by Beefy Finance, the multi-chain yield optimizer.

Beefy is the easiest way to earn more from your crypto. Deposit funds into Beefy's secure vaults to auto-compound yields across 12 blockchains. Got Crypto? Choose Beefy. Today's topic is the crypto bear market. Here to discuss our Chris Berniske, partner at Pleasholder Ventures, and Jordan Fish, aka Kobe, co-founder of Up Only TV, and author of the Kobe Newsletter. Welcome, Chris and Kobe, aka Jordan, excited to have you both here. All right. So let's just start by assessing whether we are officially in a bull market or what's going on. As we record, this is a week before this goes out. The price of Bitcoin is at about $30,000. It's down from its high last fall of $67,000. The price of ether is at $2,000, which is down from its high last fall of $4,800. What do you think this kind of current state of the market signifies? I think we've just reached the point where there is wide condescending. consensus on bear market because it normally takes a while, right, for people to have the

firm consensus together. When we're actually in a bare market, probably a little while ago, you had really bad price action where you had a lot of, like, I think seven to nine weeks after the top, you could sort of begin to have a lot of conviction that things were looking worse. The price action really changed. But I think over the last month, it's sort of become unanimous, even people that would have been annoyed about talking about the bear market before and I sort of accepted it. And it sort of flipped the other way where if you have any like sort of bullish or contrarian thoughts on price action, they get annoyed with you now for having a bullish idea. So yeah, I think it's like, I think it's pretty messy. Don't look good.

So generally better to be a buyer now than six months ago. Yeah, I definitely agree with Kobe that sentiment has totally turned and were majority bearish. which again, like when you zoom out over a long time is generally when you want to be buying counterintuitive. And then, you know, if you look at the charts and you mentioned the prices, Laura, you know, just looking at the majors of BTC and ETH, they currently sit about 60% down from all time high. Prior bears, BTC was pretty standard drawing down 85%. At least that was the case in 18 and 19 and 14 and 15. and just for context, you have to fall another 50% from 60% down to get to 80% down. Ethan, the last bear, which was really the only major bear it's gone through.

So this was 2018-19. Heath fell 95%. So once you're at 80% down, you actually have to fall 50% again to get 90% down. And once you're at 90% down, you have to fall 50% again to get 95% down. And so I think this is where the nuances of what is a big. bear market emerge. I toggle between log and linear scales. If I look on linear scales, the parabolas have clearly been broken. Like the bull market of last year is broken. I just mentioned the majors. A lot of long tail is down 80% plus seeing some things down 95%. So now it's really just a

question of like, how bad a bear market is this going to get? But for me, it's very clear we're already in the bear market. Yeah. It's so fascinating what you just said about Bitcoin especially, about how if it were to go down 80% total, it'd have to be 50% from now, which would mean $15,000, which then would be below the high from the 2017-2018 cycle. But one thing I just have to ask about

is because, of course, as we're recording, we're still in this fallout phase of the Tara Luna debacle. And at this moment in time, it's sort of unclear whether Tara is going to find a new path forward after tens of billions of dollars in value was wiped out. So, you know, how much of kind of this current moment you think is just the ripple effects of the Terraluna fiasco?

Or how much do you think, you know, regardless of that, that that was going to be baked in? I don't want to sound cocky or conceited. But I expected UST to blow up. I just didn't expect it to blow up so quickly, is the truth. It was like one of the things I was looking at is like a major liquidation event. And I put out some stuff on Twitter like, okay, this could make the BTC bottom a lot worse if they have to sell all this BTC. At a point, their accumulation of BTC was giving BTC a brief respite, I think, into the 40,000s. But so what surprised me is how quickly it happened and how vicious the unwind was last week.

Like, you know, Monday, Tuesday, Wednesday, you know, in communication with the different OTC desks, there really weren't that many buyers, very skewed sellers, major panic. And, you know, people are talking about like BTCs now, like the seventh straight week down and this has never happened. So like certainly that was a precipitating event that made things very bad, very quickly. I believe that if that hadn't have happened, there would have been some other kind of event that could have caused, you know, similar falls. But, you know, our bottoms like that, tend to be liquidation induced or leverage unwinds of some kind that then like trigger all these auto cells trigger all this panic and then everyone just goes into cell so we've had one of those

I don't think it's our last um of this bear I think we need at least one more um and I'll pause yeah I think that's right I like I don't think like this caused the bear of course um it probably made those few days, worse than those few days would have been. I was impressed at how, like, they sold a lot of Bitcoin, and I'm sure there was a lot of other large sellers, too, that either knew about this event, had an inside information on it or something. And things seemed to go okay. Like, we're not a zero.

That's surprising, which is a shock. So, yeah, but I mean, like this, like this price action, was going to happen anyway, roughly. Like global financial markets are in a bit of a collapse. Netflix is down what, like 90% or something. A lot of tech stocks are completely ruined. And Bitcoin's previous bear markets have never really existed through that kind of a scenario before.

So if you go to Chris's question about how bad can the bear market be, I think people don't really know yet because, previous Bitcoin bare markets have still been in reasonably favorable conditions. It's always been an equities bull market while Bitcoin's had its bear markets. So this will be the first time that that's not true if the stock market also continues to struggle. Yeah, I actually want to unpack the macro stuff a little bit more, but I want to just touch on the stable coins a little bit more before we do that. So a couple of things.

So, Chris, you said that you expected UST about. do you feel that an under collateralized Algo Stablecoin will never work? Or do you feel that it's just that terrorist design was not? I have a hard time saying anything will never work because you're basically betting against human ingenuity. And so there's lots of experiments out there to date. Most of them have lost their peg. Right. So it's a known hard problem that a lot of people are trying to solve. The tricky thing is, like, there's a few things here. One, like trying to operate an algorithmic stable coin is basically like trying to be a central bank before 1971, where you have limited reserves to defend your peg. And those reserves are actually, they tend to be even more transparent so people know when you're tapped out. Central banks learn the lesson in 71. And, you know, they switched to a new regime of infinite balance sheets to be able to defend their currencies. And that in some ways has given birth.

to Bitcoin, and there's a lot of downsides to that switch in 1971, but it has also prevented some collapses that we might have had otherwise or very prolonged depressions. Like, for example, I don't think, I don't anticipate we get a 1929-style great depression because the form of monetary and fiscal policy is now very different and evolved. So that's one thing. And then, you know, specific to Tara, I remember Alex Evans, myself and Joel Monegrove met with the Terra team and Luna was sub a dollar and I want to say it was at DevCon in Osaka. And I just had this one question. I didn't understand the system in full, but my one question was, does Luna either have to stay

stable or go up for this system to work? And the answer was yes. And for me, when I was like, when you're requiring a very volatile asset to either stay stable or go up permanently in the crypto market, that is eventually going to get severe. tested. And so it's not like I had like, you know, all these models and proofs of like, okay, UST is probably going to fail. It was more like UST had gotten severely tested before the, you know, some basics of the design were suspect. And there were, you know, other very smart people that were doing deep research to prove how this wasn't going to, going to hold. I think that maybe an

Argo stable could work. Like I don't want to be the person that says, no, it'll never work. And then like five years from now, there's like a perfect cargo stable and everyone's dunking on me. I'm very skeptical as to how. I think the main difference is it needs extremely large demand for some reason.

They're basically confidence dollars, right? It's like confidence that the system can hold up and you're happy to sit in those dollars as long as you believe. And if everyone believes, then there isn't enough people that want to exit so the system has equilibrium of

people wanting to enter and wanting to exit at the same time. But if an alga stable has that equilibrium broken and more people than the system can handle leaving, want to leave the system, then the peg breaks. And then in Luna's case, it's programmed to go to zero because you can, you can arb lunar in order to try and pump UST back to one. If like the exit is sufficiently larger than obviously that program to zero thing actually happens. But if there's a lot of, is sufficient demand, maybe based on like real world demand, like you can use this currency everywhere. Perhaps that equilibrium is like so large on both sides that it's hard to break or it's so hard to for it to become one-sided or something. So I don't know. If the like USA launches a CBDC and

it's an ALGO stable, like I think it like the thing they've probably got a better chance because the confidence, they've already got confidence dollars, right? Like it's already just backed by nothing. So it being backed by nothing, but an algorithm also makes sense to me. That's the exact right answer. It'll be the US government that launches the effective alga stable.

Yeah, exactly. So, yeah, I don't expect to see one anytime soon. In some ways, it's surprising that UST managed to get so big. And there were a lot of extremely smart people that were it wasn't a bit-connect type situation

where lots of people were saying like this is going to end badly it was sort of unanimous that it would end badly and a few people were suckered in instead lots of like people at like top crypto funds are now net worth negative from those events like even if they weren't

in Luna they were using anchor in some way and had things liquidated so yeah I don't expect it to work soon probably the US government that makes it work if anyone, they can prop it back up again. Yeah, Matt Levine had a great column in Bloomberg where he kind of broke down the elements of an Algo stable coin and he said the key ingredient is that you have to have faith in the system. And then said like, that's why, you know, when people lose faith, it just crashes. And then, of course, I saw people tweeting like,

oh, the U.S. dollar basically is that system. And then I was like, oh, right. And I was like, this is why the Ema's dollar is similar to an Algo stable coin. And like you, I don't want to say it's never going to work because, like, all the people who said, like, a plane will never exist, like, you know, you'll never create a thing that flies. Like, you know, they were all right up until that moment when suddenly they were wrong. Yeah, but lucky for them, they didn't have Twitter. So there was no record of it. They didn't get dunked on. We'd get dunked on.

We've got to stay open-minded. Yeah, well, that's precisely why as a report. quarter. I mean, also, I try not to have opinions because I don't want to miss a story. So, yeah, I keep my mind open to the fact that, yes, an Alco Stablecoin could work at some point. But generally, like, do you feel that now this incident has caused any worries about a general stablecoin contagion? Or do you think that in general, this is like kind of pulling out other ways this system might be over leveraged and that we might see contagion elsewhere in crypto over the next few weeks. I think if we do see contagion that, like, it's a good thing. I think a lot of people,

you know, when the UST thing started happening, a lot of people were saying it's an attack and then they were, you know, they were citing or Citadel or Black Rock or whatever. And I think there was even a statement from one of them or both of them saying like we don't trade stable coins. Exactly. But even if this was an attack and even if it was Citadel and or whoever, you're putting the sumtack of evil onto, the fact that an attack is possible means like the attack is going to happen one day no matter what. You can't say, oh, there was an attack on a stable coin, that's why it's down. It means the system was unsound and the system was able to be attacked. And if a system is able to be attacked, then like all the critics

are right, basically. So I think these bare markets and like this any kind of contagion from UST, testing where there's liquidity, you know, problems, testing where there's leverage problems. Every, I don't know if you saw, but there were a couple of things where a defy product on like BSC was using UST, but they'd hard-coded it to one. So that got rugged. And then there was some contagion from those things that were like imagining that their stable coins were also pegged to one as well.

And there was just like a mini sort of domino effect of. of places that assumed UST would always be $1 that also collapsed. And those are just weak points in the ecosystem. And these bear markets are very good at washing out everything that is weak and is not fundamentally sound in order so that the entire system can end up a little bit stronger afterwards. Like, you know, every time Bitcoin's been through a bare market, I feel like the ecosystem, the participants always come out like a little bit more sure of.

what's next, where they're going, and it's a little bit more resilient. For some reason, Algo Stables, that hasn't been true. People just create another one every year or two. We've got another Algo Stable, it collapses. But maybe this event is so sufficiently large that that might not be the case. But I do think any contagion from this kind of stuff is good. Like you saw a USDT, tether depegged very briefly, went down like 6% or something. And a tether collapse would be terrible for the spaces. it's, I don't know what its market cap is, but it's pretty big. So that being tested, and then I think they had the largest redemptions they've ever had, I think they had 10 billion

or so redemptions go through. And that happening, I think that's a very good thing, because now that is also slightly de-risk. Still, Tether could blow up one day. I personally don't believe that it will, but you have to test these things, otherwise you can just be building on the sand or whatever the old fable is. Yeah, and I totally agree that, you know, know, these tests are key. And the analogy that's elegant is it's just a fire burning through the forest. And it clears out, you know, all the scruff. And then the really solid trunks and trees and whatever, you know, they stand the test of time. They actually grow stronger. And then you clear space for new saplings to sprout. USDT is a tree trunk, right? Kobe just talked about,

you know, like, if it was 10 billion of redemptions or even just in the billions, that's, that is a lot of liquidity that is flowing to and from the system that they're able to meet. Die and Maker Dow is also, I think, a tree trunk of the forest. And it has proven resilient. Like, die occasionally faces liquidity issues, but the peg is strong, right? And it has been severely stress tested at this point. Maker gets some heat for being conservative, but I think now the conservative approach is proving prudent, right, because you just want to survive. And if you continue to survive,

continue to be integrated, if that trust grows, then you become, you know, more and more systemic to the system. And there are other good teams that are working on improving the liquidity of stables while also prioritizing stability. And I got some heat for mentioning gyroscope in the same context as Maker. And I understand, like, Maker has been around for a long time and is the king or queen of stables. And explain to what gyroscop is? It's a project we're checking out.

Yeah, it's built on Balancer. And it's basically nested pools of stables. And so they use a primary automated market maker for creation against that pool and redemption. Really, it's the, I mean, the team behind it has, done, I would say, as much diligence as I've ever seen a team do on making sure that the mechanisms are hardened for main net. And they've had a test net for a year. And you can, of course, go and check it out if you're listening. But I think the experimentation with stablecoins is not

going to end. Right. That's going to continue. It's a huge market. And I think specifically as it as it pertains to algorithmic stable coins, we're going to see what the action is against Doquan and Luna. And if it is super severe, people might experiment with algorithmic stable coins less. Most people do not want to go to jail for running experiments. So that's another shoe to drop where we just don't know exactly, you know,

what the charges are that are going to be brought against Luna. Yeah, I do think one, that will be one bit of contagion, though I think, I don't know about the US. But I think the UK have now said they want to regulate stable coins. I imagine the anti-crypto parts of the US, like extremely happy that this collapse happened. And it was so large and so retail heavy and on a product that advertised itself more as a savings account

than anything else with Anchor. So I think the state, like you might get the stable act back or whatever it was called in the US. And I think that contagion is now inevitable because it was such a large event, the regulators will feel like they have to do something. Yeah, it was interesting because I had the author of that Rowan Gray on my show. And I actually thought he made good points just on an intellectual level. And yeah, people were really not happy with that episode. Because, you know, my audience is definitely a crypto crowd.

But, you know, I actually thought he had important arguments to make. Okay, so we touched on this briefly before, but obviously now we're in a really different macro environment than crypto has existed in for pretty much all of its history. You know, crypto has pretty much only existed in this sort of zero interest rate environment. And so now that that era is ending, how do you think that will affect things going forward or how do you think it already is affecting things? Rates have fluctuated a bit through Bitcoin's existence. We are getting, I believe, towards the higher end of the range, at least when you look at like 10 years or 10 year T-Bels.

If you look at, for example, 10-year treasuries over, you know, 30, 40 years, so going back to the late 1970s, they are very clearly on a downtrend, right? And we've had a major move in rates, but they can't go up all that much because it'll start to put stress on how the U.S. government funds itself, right? And this is actually the game of chicken that the Fed is in in where they have to scare markets enough, bring down asset prices, cause people to stop spending some because there is a wealth effect when people made a lot of money off of assets where they just keep spending. So, you know, I forget who it was at the Fed, but someone a few weeks or maybe even now a month ago said, like, we need to bring down asset prices. Not so candidly, but that was the

communication. And so the Fed wants to scare the market, right? And bring down asset prices, is bring down spending and really bring down inflation, but there's only so high that they can raise rates in order to do so. And so that's where it's more of a game of intimidation, I think. And so my view is like, we're not going to a super high rate environment. We're not going back to, you know, Volker years where, you know, bonds are yielding 15%. I'm not enough of like a macroeconomist to say exactly where rates are going to top out, but there are people who think that like you could see 10 years roll over,

meaning like they stop shooting up in yields here relatively soon. So just fundamentally the important thing I think for people listening to understand is the Fed Funds rate is the basic rate that defines the cost of money, basically. So like if you try and get a loan while rates are moving against you, your monthly payment is going to be getting more and more expensive as the rates go up. That Fed Funds rate also feeds into the discount rate, which people use. to value assets like stocks and bonds. And cash flows are basically, this is oversimplifying it,

but cash flows are the numerator. And that rate that everyone talks about is in the denominator, the discount rate. And so the bigger the denominator gets, the smaller the product is going to be because you have a bigger number on the bottom. And so this is one of the many things right now causing asset prices to collapse.

The last thing I want to say is I think people overly fixate on rates and actually underappreciate liquidity. And so, like, there's the rate side of what central banks are doing, but there's also what they're doing with their balance sheets. And when central banks are buying assets, they're injecting liquidity into global markets. And if you look at the Fed right now, they're selling assets. They're selling bonds into the markets, which actually sucks liquidity out of the market. And, you know, there are arguments to be made around how dependent asset prices are in liquidity. And so when you're sucking liquidity out of a market, it's almost like a boa constrictor just tightening around assets and compressing them.

And so we're doubly fighting the Fed. We're fighting the Fed on rates right now and on liquidity. And it goes beyond just, you know, the U.S. Central Bank. So that's the present state, right? And then you have to ask yourself, like, when does this end? When does the Fed get more accommodative? and I'm just going to focus on the Fed because there's too much of the world to try and cover in one podcast. If you look at the Fed, my view is basically the Fed is much more political than people want to admit. We're going into midterms towards the end of this year. The Fed has to bring down inflation for midterms. So it's getting very tough.

It's comfortable. It's clearly signaled. It's comfortable placing pain on asset markets. And so it's going to carry through with that. At the same time, you have to think about your year over year. inflation comps. And actually towards the end of this year, the comparables, right? So like at the end of 2022, our comparables are going to be the end of 2021. And prices were actually already getting pretty high at the end of 2021. And so what that means is your year-over-year inflation numbers, such as CPI,

are going to start to mellow out. And so I think what you'll start to see is like inflation is going to, I think at this point and towards the back half of the year will surprise a bit. it to the downside. The Fed will have gotten max aggressive and then can lighten after midterms. And so I think this is what sets up the bottom to happen sometime in the back half of 2022. Again, we still have more- The bottom of the bare market for crypto assets and equities. Because it's basically that bottom will happen in like max Fed aggression, max liquidity withdrawal, max panic and everything I was just saying about like what I basically anticipate for Q4 is relief,

right? Inflation coming down. The Fed doesn't have to be as aggressive because we're through midterms and also inflation starting to come down. Hopefully by that point we have the eth merge kicking in and there start to be like new green shoot narratives that are moving into place for for crypto. And you also have a lot of builders building cool stuff in crypto right now. It doesn't happen in a quarter or even half a year, but you can start to see some of that within a year or two. And so that's where I'm pretty optimistic for 2023. It's going to be volatile because crypto is always volatile. And we could talk about how volatile 2019 was.

And there are ways I could be wrong here. But my working framework right now is that we see like max panic sometime in the back half of 2022. Okay. Yeah, Kobe, what were you going to say? Yeah, honestly, I'm not going to pretend to understand how the economy works or I barely even understand how the coins work if I'm being honest. Kobe's calling out that I'm just pretending. I mean, I genuinely, I genuinely don't know. And sometimes I think about like properly learning and then I realize, like, play video games or something.

But like I have, I've had these two competing ideas in my head where when I got into. to crypto was like almost 10 years ago now. I really felt maybe naively, maybe emotionally, who knows, but I really felt that this had to be the way the world would go for things to get fairer, for it to be more transparent for it, you know, people to have a lifeboat that is often accessible to very wealthy people, but not so much to people from lower or middle class. I had this thing that lasted maybe five, seven years, I don't know. And I really, really, really believed this had to be the way that the financial system would work in the future. And then, you know, as crypto happened, things get more and more stupid. And you start to doubt,

wait, like, are we just building, like, are we just building Ponzi schemes? The best performing asset over the last year was a picture of a monkey. So, what are we doing? But, like, that is, like, one of the ideas, like, that or the original feeling is still there. And I still see a lot of what I thought the original mission, or, of crypto was in things that are getting built. Like, you know, I know that a lot of defy-1 tokens are completely wrecked, like Maker and Arv and stuff. But their products are extremely cool,

building these, you know, open, permissionless, like internet bank type products. And I still see that as being fundamentally important to the world. But this other competing idea is that maybe the fictional internet coins, monkey pictures, dog coins, like meme stocks, etc, were actually just a symptom of broken economic policy that did have too much liquidity. There was too much money looking for a return. And therefore, all of these things went up because there was nowhere else to put money. Like if you were just sat in cash, you were being eroded by economic policy. And it's been like that way for how long?

like the equity's bull market is like a hundred years or something. So the economy sort of felt like a solved game in that like people were calling me like my uncle would call me and be like they're printing so much money. All assets are going up forever because they're just printing money. Like the denominator is worthless. And normally when those theories reach like critical mass, the alpha's sort of erased from them. But people have been saying this about the housing market forever. So maybe it's wrong. But I have these two competing ideas in my head. I don't know where I sit anymore. To be honest, I don't think it matters.

I'll just wait for additional information because I don't really understand how macroeconomic stuff works. And if I try, don't get it wrong. I'll see in my little corner, looking like playing with the coins, wait for things to get better. So I want to riff off of that some more because there's some really interesting points raised in there. Because I think potentially the most painful scenario, at least for me as a high growth investor, is just a period of like meandering low growth mid-inflation. And, you know, if you study what happened to Japan after the late 1980s bubble, which the powers that be in Japan purposefully collapsed that bubble and then changed

monetary and fiscal policy. But if you study, you know, Japan following that, it's been a very low. growth environment and like a pretty dead on exciting market on the whole. Now, there's a bunch of things that make the world as a whole unit very different from Japan, right? Like, Japan struggles with like its demographics and there's some cultural components. And like they did go through an insane bubble if you look at like the asset valuations in the late 80s, which was still much more severe than the bubble of 2021. That's like a for me worst case scenario, actually. Because what I'd prefer is like major flush, pandemonium, chaos, but then I kind of as a, like,

in bare markets, I'm basically a distressed asset buyer. Like, placeholder buys in bear markets and sells and bowl markets, and it's quite easy. If you really, like, zoom out. It's not that I enjoy Max Payne. I also get wrecked. But, like, Max Payne is huge opportunity, especially if then it recovers to the upside pretty quickly. And so that's where, like, for me personally,

as a high-growth investor, this kind of meandering low inflation environment would suck, and that could persist for a few years. That's kind of my worst-case scenario. All right. So in a moment, we're going to just look at kind of where the crypto markets are and how they're changing. We'll talk about kind of this last will run and then where a crypto is going in the future. But first, a quick word from the sponsors who make this show possible. Finance is changing. Strategies are changing. Holding is changing. Beefy Finance, the multi-chain yield optimizer allows you to maximize passive income while you sleep. Simply deposit your crypto into B-Fee's secure industry-leading auto-companting vaults to put your funds to work.

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Back to my conversation with Chris and Kobe. So this is from Conversations with Kathy Wood, who runs Arkandest. and Kathy's making a super interesting point that people aren't listening enough to right now. And I know some people are mad, but I think Kathy's a phenomenal investor. Kathy's making this point that like, and this is on the equity side. But if you look at growth equities like the fangs and you look at their valuations now versus you look at their valuations in 2000, everyone's kind of reverting to the knee-jerk reaction from 2000. but in 2000, those companies did not have the fundamentals and growths and revenues that they have in 2022.

And so they're actually like phenomenally cheap. This is on growth equities like things. They're phenomenally cheap right now for what their future growth is. And to say that they're not going to recover, you're making a bet that like the digital is not going to continue to take over in our lives. And then crypto is like the highest beta or like the most volatile version of that that bet. right and so this is where even though i mentioned that that scenario that would be painful for me personally of just low growth and mid inflation i really my gut tells me like we go back into a high growth environment um these things are like a lot of these growth equities are much more

sound than people think people are going into value stocks right now that are kind of a trap because they're getting disintermediated by the growth names and so people are like investing according to old ways to get through bare markets, but I think it's going to wreck some people further when we emerge from this. And the last thing I want to say is, like, capitalism is designed to grow capital. And that's why the market is up only in a way,

like tipping my hat to Kobe and whatever. I think I have conflicts with the idea of up only. It makes me laugh and cry at the same time. Because on a long enough time scale, it's true, but it's super volatile in the up-only kind of capitalism is designed to grow capital idea. Yeah. So let's look a little bit at kind of at the cycles within crypto,

because I would say, and you guys can disagree with me, this last crypto bull run was a little bit different from previous bull runs, where previously, you know, I think a lot of people sort of got used to this idea that somewhere in the ballpark of like 18 months after the previous Bitcoin having, we would see a bubble, at least in the Bitcoin price, that kind of sort of panned out, but not really in the same way. And I wondered, you know, why you thought that was. I think the big, the major assets were just much, much, much bigger this time. Like Bitcoin was market cap at the top was huge. Ethereum also

was much bigger. And I guess as the assets grow, the volatility might just continue to decrease. So you maybe can't send Bitcoin like 20x in a year anymore because of the capital required to do so would just be so large. But I also think a lot of people had lived through those cycles and sort of had this attitude of, well, actually, if I'm going to spend my time shilling something to like as a career, like if I'm going to like shill crypto and Bitcoin and Ethereum, like as my career and to all my friends and I'm going to talk about crypto, the time. I may as well pick the one where I have like decent upside. And I think a lot of people did that. So you saw big exchanges aligning themselves with a particular coin where they could

have higher upside than just generally crypto. You had a lot of ex-bitcoin people who would only talk about Bitcoin for the last sort of seven years or so start their own blockchain. They sort of came back, like tuned in to see what everyone was doing again after the bear market. and I was like, okay, these people have all just started their own coins. Okay, cool. I think that some people even sort of like actively acknowledged and said that, which was just like, if I'm going to spend all my time, like talking about a thing, I may as well own a significant part of it.

And I think that really changed the incentive structure quite a lot, where prior ball markets, everyone was sort of focusing on what Bitcoin would do. And everything else tangential to Bitcoin was acknowledged as like, euphoria and froth and inviable and probably a little bit silly. So light coin was always the next most viable project

that existed. And then Ethereum came along and Ethereum cycle was a bit weird because people didn't really know how to how to value it because it made maybe a little bit more sense than a lot of the other like Bitcoin clone type alt coins.

So you had a weird swing in 2017 where people would trade Ethereum and they would trade Bitcoin and the ETHBTC chart is very, very volatile. It's just a lot of up and down. And this time around people really, really, really focused on these like sort of micro-ecosystems. So you had people who instead of onboarding through Bitcoin or onboarding through Ethereum and then playing alternative assets and rotating back to the major coins, these niche assets had enough liquidity. They had enough volume that you could treat them as your sort of major. your home ecosystem. So these alternative layer ones had really full Bitcoin-esque, previous

Bitcoin-esque cycles, whereas Bitcoin and Ethereum had much more muted cycles. At the same time, there was a lot of VC stuff. So alternative crypto assets were dissimilar to the ICO era all of a sudden, where the ICO era was a very retail-oriented investing environment. where everyone got in on the same terms. Like, ICOs had tons and tons and tons of problems, and most of the products didn't materialize, and the majority of them were scams and et cetera, et cetera. But as a funding model,

it was much fairer to what happens to today for a non-professional investor because you were able to buy on the same terms as everybody else as a retail participant, and you were able to get a lot of the tokens flow onto the market at the same time. Whereas now the model sort of reverted to this insider type structure where a team will sell coins to professional investors, which are locked up for a long time, and then do another round and blah, blah, blah. And all of a sudden, 30% of the coin is owned by investors that are locked for four years.

And all of retail has to phomo into this like 1% float. And then they have to deal with like gradual unlocks. So that made the investing and trading environment there. It was novel. It was for the first time that this had really happened in crypto. It was more hostile to retail. So I think those people focused on things that were a little more simple, and it led to this sort of fractured and different bull market,

which will hugely impact the bear market, but I'll talk about that in a little bit. Well, one question for you. So I saw you wrote about what you call meta runs or meta games in crypto. And you were saying that the metagame for the 2021 cycle was Ethereum Killers. So are you referring to all that when you're talking about the VCs pouring in money and all that? Yeah. So the Ethereum Killers was like it was the same sort of trade as Ethereum was in 2017,

where Ethereum sort of was like a little planet. and the planet was growing because more people were coming to live on the planet and they were building stuff on the planet, right? So like the planet's economy got better and the planet's base currency was worth more because more people were using it for stuff. Really what was happening was people were raising money in Ethereum, so people had to buy Ethereum to buy these speculative investments

through ICOs in 2017. Whereas this time around, A, Ethereum was very expensive for people, so it cost a lot if you wanted to go live on this planet. So people picked other planets, like Avalanche or Solana or Luna or Phantom or Nia or, God, who knows, there's one called Harmony. I don't think it ever worked. But they would go to those planets instead and they had a sort of similar trade. So that felt like the one with the most historic comparative reference where if the planet grows

and other things are built on the planet and you have fundraisers done there, defy launched there, NFTs launched there, then that base asset will grow. but because these planets became more complex than 2017, 2017, it was like the only thing that happened on the planet was fundraising. That was it. You could go and you could buy an ICO token and then you could lose money or make money and you moved on. Whereas in 2020, 2021, 2022, you had different things happening.

You had fundraisers. You had GameFi. You had NFTs. You had defy projects. You had farming. You had all of these things. And the capital would sort of rotate around those things. without the same desire to sort of move in and move out.

There were a lot of different things happening. Liquidity could just sort of flow around the system, which, again, I think changed the ball market quite a lot too. Yeah, I wondered if it was NFTs that changed it. But Chris, what are your thoughts? Well, there's so much there. I want to start first with kind of the tragic irony of what regulation did to crypto coming out of 17,

because Kobe's totally right that, yeah, 17 was crazy and irresponsible in some ways, but I think that was really the best year to be a retail participant in crypto. Not to crush people now. There's still lots of opportunity now. But like that free market environment, if you are on it, was as open access, I think, as crypto will ever get. And it's tragic to me that as regulation comes in, it's doing the very thing.

it is trying to protect against. The regulators will be like, we're here to protect the little guy, but actually all the rules that come in benefit VCs like me. And so I see it very clearly. Kobe sees it too, and it's, I don't know,

it's just like the folly of man. It's actually pretty depressing for me because I'd say my goal for getting into crypto is very similar to Kobe's just to see all the ways in which we are, straying from the original path is frustrating. But then specifically as it pertains to that bull market, I really think of all the assets. And this aligns with what Kobe was saying. But I think of assets just along risk spectrum. And BTC is lowest risk. ETH is next. And then you

go out on this like longer tail of risk. And when things first launch, they're at the far right tail of risk, like furthest tail, but as they survive and grow and grow and grow, they migrate and become more like ETH and BTC. And when ETH launched right in 15, it was far right tail risk. And then so when you look at the first bull market that a lot of like tail risk crypto assets go through, that's typically where you're going to get the thousand X, at least historically. So that was like, you know, BTC early on. Like even, and I'm talking like trough of bear to peak. of bull. So like if I look at 17, right, trough of bear for, for, um, Eith into the peak of 17 was really a thousand X. Because he, you know, the crowd sell was 30 cents, traded like sub a

dollar entering like late 15 into 16. And I think of like 15, 16, 17 as one cycle. And Eith went from, just call it roughly a dollar to 1,500. So that was 1,000x for Eith. And then BTC was one cycle progressed. It was no longer in its thousand X. stage. So BTC went from 200 in 14 and 15 to 20K. So that was 100x. And then you look at 21. Again, BTC is a cycle progressed. Right. So it's not even going for the 100x that it got in 17. If you look at 21, BTC was roughly a 20x. Call it 3K to 60K. Yeah, it was 70K. So it was like 23x. And then ETH was more in that 100x realm. ETH was only 60x from a bottom of 80 to about 5,000. but then it was the new like say most successful far right risk assets that got the thousand X and soul was probably the poster child of that and and so then now the question becomes okay

soul and a lot of these other ones but i'll just use soul because i think it's a nice like btc eth soul so now soul's getting sold down horribly but that doesn't mean it dies right that means like you wash a lot of stuff out actually what's what's funny is like what people are doing to Seoul right now is what the MAC the BTC Maxis did to Heath in 18 and 19. And now it's it's kind of the ETH maxis. And I get categorized as an ETH maxi and I love ETH, but I'm not an ETH maxi. It's the ETH maxis doing to Seoul what the BTC Maxis did to ETH. And so the hazing cycle continues. But then, you know, you have to ask yourself, you know, if Seoul gets to something like $20, is there a 50 to 100 X on the table? That would be Seoul at 1,000 to 2000.

And if so, then it is just repeating what ETH has done and BTC did before it. And there are different economic models here and considerations you have to make. And BTC and ETH are very different. But like ETH and Seoul are converging on like similar economic models, like the capacity constraints and those things are quite different. And so there's a lot of debate around the value of the block space of the two chains. But a very simple heuristic I use now is like, soul is on the heels of ETH.

And so then you can start to like just zoom out and look at broad patterns and say, okay, what can you expect soul or you can pick your favorite, you know, Alt L1? What can you expect soul to do in the next expansionary phase based on what we have seen ETH do in prior cycles. And so when you say that, I mean, because they sort of compete, but you're saying like, you expect that ETH will just be a model and that we don't have to think about it being zero sum and like only one will succeed or anything like that. Yeah, I think of it a bit like what you've seen play out in public cloud, where there's like

a handful of major players. There's like Microsoft Public Cloud, Google Public Cloud, Amazon Public Cloud. more like specialty, say application-specific public cloud providers, but I think you'll get a handful of really big winning smart contract protocols. BTC is independent and kind of its own thing as digital gold and like in some ways much more integrated into the traditional financial system as a new macro asset. So you leave that to the side, but then you say, okay, what are going to be the winning permissionless public cloud providers. That's one way you could really think of a lot of this infrastructure is it's like

community owned and operated digital services or public clouds. And so then it's like, okay, definitely think eth is here to stay. What else is here to stay and why? And like we spend a lot of time focusing on the developer ecosystems. Because like right now like everything is bleeding red, right? But if you keep an eye on where developers are building, asses off and still raising good capital, they're all creating cool things, which will rise in the next cycle and will bring in another 10x of users. And so, like, you can't just look at, like,

what's happening to users or prices right now in this point in time and be like, these things are losing, because then I actually think you lose perspective on the opportunity. If you try and zoom in instead to the fundamentals of what really matters and what will lay the foundation for the next expansion period. And just out of curiosity, did placeholder invest in Seoul or no? No, we've never been involved in their private rounds. So people don't really know this, but placeholders got two hats. We're a venture arm where we're very hands-on with our teams.

and we are specifically focused on things that are going to better distribute data wealth and power. And really, each of the partners, myself, Joel and Brad, we look at, when you take on an entrepreneur, you want to really be committed to that person. And it can be a three, five, 10 year relationship. And so you really want to make sure you're ideologically aligned and you want to work on that problem and solution. We also have a public markets practice. I can't talk too much about the funds because we are in RIA. But what I can say is we are looking at things outside of ETH, and we will disclose it on our website at a certain point.

Because even though ETH is here to stay, it will not be the only one. There's already like incredible escape velocity amongst some high quality layer once more contract protocols. It's interesting. I don't think I knew that it's more like the Block Tower model, I guess. I would say block tower sits on the public, like if you were to look at the two of us, it's like block power, block tower is weighted more towards the public markets and we're weighted weighted more towards VC, but we do have this dual practice. We in number of deals are a lot more by VC, but actually in capital, we're pretty even weighted because we can build very large positions in things that we have high conviction in, in the public markets, that is. So Kobe, I wanted to ask you because you also wrote this post. And obviously, you're a co-founder of Lido, but you wrote recently that you feel like we're seeing the end of staking. So can you elaborate on that?

Yeah, I don't work on Lido anymore, by the way. So if you're a regulator, please don't sue me for anything. But I'm not going to say anything about Lido that I don't know anything what's going on with Lido these days. I just follow it as a normal person. But yeah, I wrote a post because I think it was about ApeCoin, if you like, are living a happy life with lots of hobbies and you don't follow the depths of crypto. You might not know what Apecoin is. So the popular monkey picture NFT flagship NFT of this cycle, they perpetuated an ecosystem wealth

effect by dropping additional NFTs to their community or doing additional sales. And if you owned one of their NFTs, you could participate for sure. You didn't have to, like, just paint in the gas wars or whatever. And they did this a few times. They did the dogs, and then the, like, mutant deformed version of the flagship ape.

And then they created a coin, which is, I guess the intention is to be the currency of their metaverse or something. Ape coin was owned, you know, like 20% by the Yuga Labs founders, 30% by 35% by the ape coin Dow, a little bit by investors.

Some of it went to charity. Who knows? But it was mostly insider owned, and then some was airdropped to people that owned the board 8 NFTs. And then, you know, the airdrop goes, it's worth $10, $20 billion. I don't remember how much this coin is worth in total. And then one of the people on the ape coin board,

God, this is what I mean, crypto's so stupid now and out. These are the things I've got to like literally know about, the ape coin board, the metaverse currency. Come on. But anyway. one of the investors on the ape coin board did this proposal,

which was like, oh, we should have staking for ape coin. Like people want to stake their ape coin, so we should do staking. And the staking proposal was just like, we'll pay you if you state your clients. Like it doesn't practically do anything. There is no like work done. It is like sort of co-opted the name staking. So it looks like what a proof of stake blockchain. does in order to secure the chain where you're paid coins for posting collateral and promising

to do good work. But the ape coin version of staking was just nothing. We'll pay you if you don't sell your coins is basically the version of stake, the version of staking they were going for. I think it's just problematic for a few reasons. First of all, it is just paying people for not selling. And you get paid in the currency that you're also not selling. So it's just diluting the overall supply. If everyone was staking, you own the same amount of, you own the same percentage of the network, but more coins, but the coin is probably worth less. Then you've incurred tax obligations for nothing. I don't know. It seems silly. But I also think it's bad that the, like, the term staking has just been changed to mean something different. Like, originally it did actually mean

something important to make a system viable. And staking, which is, being paid for not selling your coins doesn't really do anything within a system. I mean, it maybe influences the price in a positive way. And I think repurposing these like cryptocurrency terms that did mean something into something that only impacts the price is sort of a symptom of like how new entrants see the space or how big like non-believing actors see how they can extract like money from the space, right? And I think regulators are just going to come have a field day with that.

If like you ask a regular person what is staking and they don't know if there's any risk, they don't know if you can lose coins by staking, they don't know what it does. It could be risk free. It might not be risk free. Like that sort of confusion, I think regulators like don't want that that confusion within like retail participants. They want things to be clear for, everyone to understand.

So I just think a lot of these things are quite bad. And when they're propagated by like the big funds or the big builders, which the ape coin board is just like huge investors and funds and builders in the space, you have to question whether there's like adversarial incentives here.

Like what is the purpose for this proposal? Really, if the people who are proposing it have their coins locked and the proposal's only impact will encourage some people not to sell. Is it supposed to prop up the price until their coins unlock? Because there's no other viable real reason for it. It's not doing anything. But yeah, like I think proof of stake, proof of work, big debate, each have their own place in the world. This new form of staking, which is just like, I don't know, it feels more like fraud because it doesn't. do anything. It encourages people not to sell. I think that is one of the, my least favorite things

that we've come up with as a community in the last couple of years. All right. So, Chris, I happen to notice a tweet that you made on November 8th last year in which you said, easy to become entitled in this environment. For those who haven't seen a bear, things are not always so free-flowing. Being grateful for things you're getting now creates the goodwill to carry you through a bear. Okay, so you tweeted this on what looking back, I can see, was Bitcoin's all-time high, and Ethereum's was like the day before. And I know that you talk a lot about how you value these assets. You use terms like simple moving average or exponential moving average. How do you kind of make this analysis and how do you think you were able to call that top? So I wouldn't say that on that day, I was like, this is the top. I'm going to tweet this.

this thing to mark the top, right? We're all human and we look through, you know, at best, very hazy crystal balls. The way I work in judging bottoms and tops is really sentiment-driven. And it's trying to like zoom out and hold myself stable and then just observe what the people around me are doing. You start to get very similar markers of tops and bottom. that you see both digitally and physically. And so late last year, I started to get pretty cautious. I had joked much earlier in the year that the algorithm said December 2021 would be the top. And that's another thing that I can come back to.

But specifically, Q4 last year, it just felt disgusting. If I'm honest, it was like everything was hyped, everything was promotional, everyone was foaming at the mouth. It was not even thinly veiled anymore that it was all about the money. And that just doesn't sustain, right? It's like this hotball of money that's growing, growing, growing, folding over on itself but has no substance. And so you could just feel that we were near the end. Another big marker for me is like,

when I start hearing crypto conversations all over the place in real life, okay, like, you know, this is not normal. Like I even remember in 2017, like I'd go to different bodegas in New York city. I'd be standing line waiting for my morning bagel and like the guys behind me are talking about Heath and I'm just like, okay, like, again, we got to be near the top here. And similarly, we'll be near the bottom when like no one wants to talk about crypto and crypto Twitter's pretty silent and people are pretty depressed and, you know, whatever, those will be the markers. The other thing I just want to say briefly is like, the way I work with like looking at these markets and these patterns is

to assume that humans aren't that different and that our patterns roughly repeat. Pete. And so I see a lot of people who want to like make the new call about how things are going to be different. And there's a whole book called this time is different, which is ironically about how this time is basically never different. And so, you know, crypto has this four year cadence around BTC. And I think that will start to like soften as the having events are less impactful when you actually look at the real economics of minors. But like, thus far that has been the cadence. And so that's why I was like, okay, algorithms. says December 2020 top, like December was the top of 13, December was the top of 17, like pretty decent odds, December could be the top of 2021, right? It's not rocket science. And then it's really like prove to me, and I'm always asking myself, why will this time be different? It's not that I'm not going through that exercise. But the starting point is to assume that the patterns are roughly the same because we as humans don't change that much. And so that's where I'm using the same heuristic to navigate the current bear market.

So I wanted to ask both of you this question. Both of you have been through multiple bull and bear markets. What mistakes have you made in past cycles that you have learned from? And if you could impart those lessons to the listeners, I'm sure they'd be grateful. I don't know who has more mistakes. They've made every possible one. for me, like I've done it 10 years. I made every possible mistake. I didn't really even ever do it professionally.

So like the fact it was like a hobby, but the majority of the first part made it be much more prone to mistakes, I guess. And I've seen crypto sort of like a survival game because like over the past decade, I've seen opportunities for hundreds of, hundreds of opportunities for regular people to turn. small investments into life-altering fortunes, like, you know, enormous amounts of money. But I've also seen hundreds of opportunities for regular people to turn their investments into nothing, and the amount of people that kept life-altering fortunes is significantly smaller than the amount of people that had them at any moment in time. And I think a lot of people will,

you know, resonate with that, given the state of the last few months or this year or something. If you see it as a game of survival, then you have to figure out, okay, what can kill you and what can be the things that are like knock you out of the game. And the idea is you don't get knocked out of the game because crypto has a lot of promises left to fulfill. And if it is going to take the role in society that some of us believe it will, then there's a lot of upside left. So just being exposed to that is like the goal of the game. You just want to maintain an increasing amount if possible, but at least, a stable amount of crypto exposure. So like what can kill you?

And then there's like, you know, self-custody assets. You can leave stuff on exchanges and exchanges can run away. If you do self-custody asset, you can lose the key. You can lose the password for the key. You also end up brute-forcing your key. I made like a password dictionary to brute-force old keys because I forgot what the specific password was once or I typed it wrong when I signed up. I poorly risk-managed investments when I got to the point where I was like I was a,

I'm over believing in something and not really understanding the landscape properly. But one thing that my main takeaway from all this stuff, I stole from Ledger, my podcast co-host, he calls it the Hawkerks method, which I think is a Harry Potter reference, where if you have to survive, then you just need to split your soul into however many places that the evil guy in Harry Potter did it. Because if you leave some stuff on an exchange and I exchange rugs or that exchange dies, and it was everything, then you're out of the game. You can't win if you're not betting,

and if you lose all your money, you can't bet again. So you need to spread across your exchange. You need to spread across self-custody types. You need to spread your investments out. If you go all in a lunar ecosystem, for example, you might think you're diversified because you own lunar, you own stable coins, you own a dex, you own blah, blah, blah, blah, blah. But if the whole ecosystem blows up,

then you weren't really diversified at all. So I think it's just about like figuring out what can kill you and then figuring out how you need to like split your soul across entire crypto universe in order to survive no matter what. And then the final thing is like managing your own emotions in this like marathon of like investing I think is increasingly difficult. I've seen people that were very, very, very stable five years ago and the toll of crypto starting to get in them and now they're going insane. So figuring out how you can be happy and self-sustaining through that entire time, you're not mentally attaching yourself to net worth peaks and thinking about what could have been if you'd acted differently in the past. And instead just trying to live a happy life, have a have of a hobbies, have a way to turn off and really manage to treat this

like not the be all and end all of the world, I think really, really, really helps because you can make decisions with a clear mind. But yeah, I've done everything wrong. Absolutely everything. Mount Gox to, I don't want to think about it. And he's still a legend.

Well, really good advice around the Horcrocks method and, you know, diversifying your life. I just jotted some of these down if I go through the years of like professionally focusing on crypto. So like 2014, I didn't buy enough Bitcoin, you know, like just didn't put in enough cash.

And then 2015, when ETH launched, I noticed this correlation, basically negative correlation between BTC and ETH, and I thought I could be a good trader. Because at the time, like, the markets were still quite small. And like, if BTC would pump, it actually draw some liquidity from ETH and ETH would go down a bit. And then it like, see saw back and forth. And so I was thinking, like, oh, I can like, you know, stack BTC and ETH. and just really created a huge tax headache for myself that was like marginally worth it. Way over-traded in 2015.

2016, it was kind of all for not. You probably remember this, Laura, but I went through this catastrophic hack where I got sim swapped. And then all my accounts got drained and I tweeted on Twitter. I'm getting hacked. And it's actually Eamon Goensir, now the founder of Avalanche, who saved me and helped me, like, build out my perimeter. But like, I basically lost all my eth, not.

all my BTC. It took me a long time to get back to that stack of ETH because ETH had been so cheap up until that point. And then that was, I think, December of 16, that happened to me. And then 17, ETH just started running. And I was still working at ARC. And ARC was still very much a startup. And it's not like I was making tons of cash. So that was super painful. By the end of 17, I had published crypto assets and started a placeholder. And I would say, I was too cocky. That was like my big mistake of 17. And that like led to emotional downfall in 18. I wonder if Doquan is going to listen to this episode. Anyway, I plowed cash into stuff too early in 18. And I had some assets on an institutional scale where like I was like, and I tweeted this kind of warning some people earlier of like,

you cannot prop up a market that is moving against you. It will crush you. And if you're arrogant enough to think that you can, like, you're going to learn this lesson. And I definitely learned it in 18, where I was basically just, you know, provided a massive amount of exit liquidity to a bunch of people and, you know, wore it on the chin for a few years. 2019 got horribly whiplashed after being exit liquidity for people in 18 because 19, I think VTC went from like 3K to 14K. It was like 3K January. I think we went back and retest did that. But then like April we started taking off. And I believe the range was like BTC 3K to 14K and ETH like, you know, 80 to like three or four or 500. And then like round tripped, right. And so like

I thought I was having FOMO that like the bear was done. And you know, as a as a at scale money allocator, I can't miss. Right. I have to like be disciplined and preserve my capital, but I also can't miss. So I got caught up in some FOMO and whiplash in 19. And so that was six years of heavy mistakes that I think finally like 20, 21 and 22, I'm doing better. I'm sure I'm going to get humbled in some way like Crypto always humbles you. But yeah, I mean, like Kobe basically made every mistake in the book. You know who I want to get on the show to do the same exact rundown is Arthur Hayes. Yeah.

Yeah. I mean, yeah. He was very early and at scale, you know, like, because early crypto was very different from now. Like, we don't go through as many exchange failures. We now go through smart contract failures and like just different, different kinds of risk these days. Yeah. All right.

So we're going to try to end on a somewhat positive note. Why don't you guys talk about what it is that you think the next innovations will be that will come out of. this kind of like build cycle and potentially be catalyst to the next full market? Well, I don't know the answer, honestly. I have completely no idea. And sort of throughout history, I have never known until I've seen it. You know, if I try and post-rationalize, I can go back in my head to like 2013 and be like, yeah, I totally saw the future of Arv and I saw uniswap and all these things. But really I didn't. I just, you know, I wanted there to be a

financial system that worked in the same way Bitcoin worked. And I didn't really know what that looked like. And sure, maybe that looks like some parts of decentralized finance and, you know, some parts of decentralized finance and not practically decentralized. So I think we've got a long way to go. I've never really been able to predict what the emerging, um, trends of crypto are going to be. When I see them, I think a lot of the secrets of crypto and like the, how you predict the future, I think they're like hidden in plain sight. And really it's just like using everything as people build it, use it, give it a go,

see if it's useful to you, see if you can understand how the product works are why people would want it. And then if you think that that's good and it's useful to you, then you like buy a lot of it. So Bitcoin was like that. Ethereum at first I was excited for, and then it became like an illegal fundraising platform in 2017, and I was a little bit like,

is this all we can do? And then by early defy, I got to use those products, and I was like, okay, these things are actually kind of cool. And now I like, I'll buy a lot of these things. And if these things are being built on Ethereum, then Ethereum is also realizing a different vision to being like a philonious Kickstarter. So like, I don't know.

Honestly, no idea. I'm not the person that you should ask. I feel like I'm much better at seeing things as they are and therefore, like, making decisions based on reality, but I'm very bad at predicting which way reality is going to go in the future without evidence. So sorry, it's a non-answer. It's okay. Chris?

Non-answer is probably the safest or most sound answer. As I'm just looking at what teams are raising to build, overarchingly, I would say the caliber of entrepreneur is moving up another peg here. And I'm very excited. And that's not just VC talk, but like I'm quite excited for two, three, four years out what's going to emerge because we really are getting some very quality web two talent mixing with crypto native talent. and so it'll have the crypto back end, but the Web 2 experience in Sheen. Getting more specific with what Kobe just mentioned about defy, from ICOs in 17 into defy that got built, I think the same thing's going to happen to NFTs. So 2021 for NFTs was what 2017 was for defy.

So ICO was the OG static defy in a way. It was just fundraising. It was static. there wasn't that much that you could do with it, but speculate. But then it raised all this capital that allowed defy to emerge. And you had early things emerging in 17, right, with 0x. And I think Maker launched at the end of 17 with dye. And you had the very earliest OG guys by the end of 17.

But really it was like 18, 19, 20 that defy bloomed programmatically. And I think you'll see the same thing with NFTs as they get a lot more interesting, programmatic, like rich nuances in user experiences, whether it be in gameplay or community organization or even funding, interesting creative works. So I'm excited to see NFTs move past, you know, PFPs and peer speculation. I think you'll start to see with defy, you'll start to see delineation between like punk and permissionless defy, which basically puts up the middle finger to regulators versus like white collar regulated sealed off. defy and then that will allow a lot more institutions to come in. Turning to Bitcoin, Bitcoin's going

to get more programmatic. Bitcoin is not going away. I don't think Bitcoin is going to suffer failures because of its incentive model. I did the really early research at ARC in 2015 on Bitcoin's transaction fee once the block rewards go away. This has been a problem forever for Bitcoin. People are talking about it a lot right now, but I do believe Bitcoin is going to find ways to solve it. And Bitcoin's brand is the strongest brand in all of crypto. It is near globally recognized. And ways to make it programmatic are emerging, be they lightning or stacks or whatever. And people have said that's just never going to happen. And when people start to say that is when it happens. Specific to ETH, ETH is going to continue to scale. ETH is going to happen. Layer two's

going to happen. A few of the L2s will be big winners. Hopefully the user experience of going between ETH and L2s or between L2s really improves here. We definitely need it to. And then I guess I'll end with the up and coming smart contract platforms. You know, some of the winners there are going to chase what ETH did in 2021. So that was ETH getting to probably, I think it was around $500 billion network value. And so then you just need to look at the supply of those things, the market structure and say, okay, if this thing's going to chase that, you know, what will the prices of those?

things be. And I think you're going to start to see like a lot of sector specific segmentation where the use case of the entrepreneur building the DAP fits the underlying smart contract protocol. And so it's like we know what Ethereum is and stands for it's like the most OG, the most decentralized, the most kind of funky and creative. Cosmos is like the most thin pieces loosely joined. You have Solana as like consensus at the speed of light and like more financially oriented. Then you have storage-based systems like file coin or R-Weef, which are like focusing on their own types of things. I think people have forgotten about polka dot and Kusama, but they shouldn't. And so like really looking at like why builders are going to choose a smart contract protocol,

I think will then inform what is going to happen with those smart contract protocols when the next expansion is upon us. But it's not a good idea to like point fingers and laugh whenever everything is going down because some of these things will rise again. I like that I said nothing and then you just picked everything. You listed every crypto asset in existence. You're like, Pocodot's coming back, because Samas coming back, don't forget about this one. It is every single asset in existence.

While you were talking, though, I did think a little bit about what I think needs to happen in the future, not necessarily what I think is going to happen, but I think it is important for the future of crypto. And I think it's like fixing trust assumptions whether they're not necessary. So I think you mentioned, you know, it's not exchanges that get hacked anymore. It's actually smart contracts. And the biggest smart contract hacks recently have all been bridges. And like, you know, there was the Ronin bridge.

There was wormhole, et cetera. So I think you will see like client, optimistic relay bridges, ZK bridges, state proof bridges, whatever, whatever we end up on. If you can get ZK bridges, like viable in production. really are raising where there are trust assumptions in the network and replacing those pieces of fragility, I think will be important. And I think we also probably need to see real world assets onboarding because crypto is sort of this sort of tangential ecosystem where you built all this defy stuff. But the only thing you can really do with it is leverage trade crypto assets or like yield farm and stuff. But a lot of the products that have been built are actually. quite useful if you somehow connect to reality and have, you know, real world on crypto rails.

So like those are two things that I am like looking for signs of life within. In ball markets, a lot of people figure out user needs and they sticky tape or bandage up a solution. And then in bare markets, people have years to build a proper solution to those problems. I think that'll make me quite optimistic if we can work on some of those things. However, you said you wanted to end on a high note. I don't want to end on a high note because this episode was about bear market. And I do want to draw a parallel between what I think might happen soon and what happened with Luna because you saw Luna, you know, it was worth $100 and it started crashing.

And it just went in a straight line downward, right? I don't know if anyone's ever seen something in crypto do that before, but it just kept going down. It suddenly felt cheap at $10, and then moments later is worth $1, and then moments later it was worth $0.10, and then fractions of cents, it was just a straight line to zero.

But after a day or two of that selling, and the price was extremely low all of a sudden, versus what people had mentally acclimatize, to over the previous six months, all of a sudden, I went and looked on coin gecko, and I looked at the market cap, and I was like, okay, so it's worth, the prices at zero, and it's still worth $5 billion. Like, how does that make sense? And I think that this is the first bear market where people are going to have that

realization over and over and over and over. It's the first one where they've mentally acclimatized to prices, where seed investors are still up 100x or 200x or 1,000x, and things can go down 99%, and then 99%, and then 99%, and then 99%, and then 99% again, and still be overvalued at the end of it, because the fully diluted valuations of these projects that are unlocking over the next four years will mean complete decimation of their prices and still a valuation that is unrealistic when compared to,

what they have built compared to their metrics, et cetera. And as liquidity is pulled out the system, as Chris was saying earlier, the people holding these coins that unlock, these tokens that unlock, have every incentive to gather that liquidity into their, you know, hibernation pot for the future, to offset other losses to, you know, pay back LPs or raise capital for the future. And it's the first time this has happened in crypto, this like SAC sponsored low-flow investor-locked coins professional investor model. And I think it's really going to f***le over. Sorry, I don't know if I'm allowed to swear on this podcast. I think that's a really good tone from Kobe to temper, say, some of my enthusiasm.

What I would say is, like, people really have to pay attention to market structure. And so Kobe's talking about fully diluted valuations, you know, paying attention to how insiders are unlocking and what their price. points are because you could have something that's down 90%, but seed investors could still be up, as he was saying, you know, 50 or 100x and they will continue to sell. What I use, so I very much pay attention to market structure, but what I use to keep me saying is again looking at past patterns, right? So like ETH Defi in the 1819 bear, bottomed, you know, for the blue chips, like Zero X and Maker were in the 100 to 200 million fully diluted range. Right. And so then if you have Solana D5 projects at 20 billion, you know, that's where you could have some of those

crazy scenarios and where you do want to pay attention to what those fully diluted evaluations are. Similarly, I think ETH bottomed in 1819 around 10 billion. I think some of these still quality smart contract protocols will go lower than that. But it's kind of like, okay, go back and look at where things bottomed in 1819 on a fully diluted basis, where support came in. know that some of these bottoms will be even more horrible because of how much insiders have been allocated to. But like people have to contextualize valuations, I think, to have any grip on where bottom will be here. And we will bottom around when BTC and Eath bottom. But if BTC and Eath keep testing

that bottom, the long tail will just keep bleeding lower. Okay. You guys, this has been so fun. Where can people learn more about each of you and your work? Twitter.com slash Kobe. But like prepared to be offended. It's not. not nice there. You'd be pleased to know, Kobe, in a placeholder LP call, someone asked me, who's the best person to follow on Twitter or most crypto-native? And I said you, but I did say, like, you have to be prepared to be offended as well. You can also find me on Twitter. I'm Siburnisky, and placeholder's website is placeholder.com. Perfect. Thank you both so much. It has been such a pleasure having you both on Unchained. Thank you. Thanks, Laura. Thanks so much for joining us

today. To learn more about Chris, Kobe, and the bear market, check out the show notes for this episode. Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Ness, Mark Murdoch, Shishak, and CLK transcription. Thanks for listening.