Unchained - How Bitcoin Is Both a Risk Asset and a Hedge Against Debasement

Episode Date: April 5, 2026

Charles Schwab’s chief crypto strategist breaks down why traditional finance valuation frameworks, not narratives, are finally taking hold in digital assets. --- Multichain Advisors is an emerging technology growth firm that has helped create over $50 billion in enterprise value for 80+ clients. Services include TGE support, go-to-market strategy, BD, partnerships, capital markets advisory, PR, media placements, and KOL activations. Visit ⁠https://www.multichainadv.com/⁠ --- Charles Schwab recently hired Jim Ferraioli to build a dedicated crypto research team, a signal that institutions are moving beyond narrative-driven investing and are taking this asset class seriously.  In this episode, Steven Ehrlich sits down with Jim to explore how traditional finance valuation frameworks apply to crypto. They discuss Bitcoin’s role as a hedge against monetary debasement (not a safe haven), Jim’s cost-of-production model for valuing Bitcoin, and why Ethereum’s dominance in tokenization matters far more than short-term price action.  Most compellingly, Jim argues that today’s Bitcoin prices sit at historical support levels used by the most efficient miners, and that Ethereum’s position as the tokenization standard is nearly unshakeable. If you’ve been waiting for crypto analysis grounded in fundamentals rather than hype, this is the conversation to hear. Host: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Steven Ehrlich⁠, Head of Research, SharpLink Guest: ⁠⁠⁠⁠⁠⁠⁠⁠⁠Jim Ferraioli, Director of Digital Currencies Research and Strategy at Charles Schwab Links: Charles Schwab & Institutional Crypto Research Jim Ferraioli | Charles Schwab CoinDesk:  Liquidity Lifts Bitcoin, but 'Halving Cycle' Fears Could Limit Rally, Says Schwab Nasdaq:  Top 4 Reasons More Americans Are Investing in Crypto, According to Schwab Ethereum Tokenization & Real-World Assets Coindesk:  The Tokenization Boom: Why Ethereum Remains the Rails for RWA Tokenization Quantum Computing Risk CoinDesk:  Bitcoin Isn't Under Quantum Threat Yet, but Upgrading Could Take 5-10 Years How Bitcoin, Ethereum, and Solana Are Preparing for the Quantum Threat Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to our episode of Bits and Bips, The Interview. My name is Steve Ehrlich, head of research at Sharplink and also your host. We've got a lot to get to today, but before we begin, let's take a brief moment to hear from some of the sponsors who make the show possible. Multi-chain Advisors is an emerging technology growth firm that has helped create 50-plus billion in enterprise value for 80-plus clients over the past four years. They're the partner to help navigate markets. Build real traction today at multi-chain adv.com. Quick note before we get into today's episode. Bits and Bits Now has its dedicated theme. We're spinning off from the Unchained Feed and moving to a new podcast and YouTube

channel. So if you want to keep up with our weekly live streams and macro meets, crypto breakdowns, make sure to subscribe to Bits and Bips directly. We won't publish there until March, but subscribe today so you can be ready for launch. Be sure to subscribe to the new feeds at Unchained Crypto.com slash Bips and Bips. One quick disclosure before we begin. Nothing that you hear on the show is financial or investment advice. Everything is for informational purposes only. For full disclosures, please check out unchainedcrypto.com backslash fits in Debs.

Now, I'm very pleased to bring in my guest for today, Jim Ferrioli, the director of crypto strategy and research at Charles Schwab. So welcome, Jim. Hey, Steve, good to be here today. Yeah, great to have you too. You've got a really extensive background in the crypto space and traditional equities industries. So it's going to be a lot of use today. We're going to be discussing everything from how the Iran conflict and fears of heightened inflation are impacting crypto markets, what it means for things like the debasement trade and some of the implications for, I think,

some of the formulas and frameworks that you've put forward in recent weeks on how you and other traditional financial entities are valuing crypto assets. So it's time to get into. But before we do, I'd like to just give you a brief moment to introduce yourself to the audience. Sure. So I've been covering crypto at a large financial institution since 2020. My background is in equities formally. I joined Schwab in August of last year to build out a dedicated crypto research product for them. But I have a bit of a different perspective, you know, from a true.

traditional finance background in that I was an equity investor. I also worked on an equities trading desk briefly. And prior to that, I had some experience as a financial advisor. And so I really like to combine what's going on in the macro with what's going on with on chain positioning. And then ultimately, looking at the fundamentals of different blockchains. And so again, it kind of lends itself to that equity's background. A lot of people in the traditional finance space, they view it purely from a macro perspective. So maybe taking a traditional macro model and plugging in Bitcoin and Ether and seeing kind of where the pieces lie. So again, just having a bit of a different background there, it's a different perspective.

But ultimately, that's what makes a market. There's lots of different ways to view any asset. And that's why there's always someone buying and someone selling different ways of looking at them. Yeah, terrific. And we always like different and interesting and diverse perspectives. and you kind of bring all of that. So let's get right into it.

A lot of your research is focused on trying to like build out fundamental models, finding those core drivers of value for assets. But as you've pointed out in a number of your reports, crypto is very much still a momentum play and a highly correlated one at that. So I'd like to just kind of begin by asking, what is your take of what you're seeing right now, where the price of Bitcoin and other assets are ping ponging with whatever's happening to the price of oil

and market sentiment based on. the last thing that President Trump said. How are you sort of approaching this particular period of time? Yeah. So I view the entire crypto asset class as a risk asset. There's a very narrow set of circumstances where it's a risk-free asset or a safe haven. And, you know, if you go back to spring of 2003 when you had several large financial institutions experienced bank runs, right, you saw a Bitcoin rally. That's the very narrow area where it's, you know, worked as a safe as a haven't, but traditionally it is a risk asset. When you have a risk off day in the market and you have equities selling off, more often than not, you're going to see the crypto market selling off.

And so I think that makes sense. Bitcoin's about down two percent today right now, following yesterday's press conference. And I think that makes sense. There's a lot of debate as to, you know, what drives Bitcoin. Is this thing a hedge against the basement, right? Is it just kind of non-profit, you know, profitless tech? And I think like you really got to separate what the short-term drivers are. And those are the things that are going to whip around the Bitcoin's price and the

crypto markets prices on a day-to-day basis from the long term. And I think that's a fair thing you can do for any asset class. And so treating it like any other asset class, it shouldn't have just one single driver. And so today is a risk off day in the market. You know, the SMP, Dow, and NASDAQ are all down. And, you know, so is the crypto market. We're seeing yields are up in response to higher oil prices. Again, so you're seeing the crypto market.

And I think that makes sense in this kind of perspective. Yeah, let's add a little bit deeper into Bitcoin. And I want to kind of expand it to discuss the broader the basement trade that I think we've been seeing over the last several months or so. There was, I guess, I don't know if respite is the right word, but a couple weeks ago, Bitcoin actually, quote unquote, like tried to seem to be playing that Save Haven role when we saw selloffs and gold. And also, ironically, I mean, some of the tech stocks, I think, went up after they were getting battered for a while after AI. But it had actually been outperforming gold for a little while. I'm interested in your thoughts. Like, when that happened, what did you make of it?

Was it simply a matter of gold being so overbought that there was naturally going to be a reversion to the mean? Or is the Bitcoin as a safe haven narrative, has that kind of been pushed to the side yet again because of the jury-remut of market? today. Yeah, great question. So again, I don't really see Bitcoin as broadly as a safe haven, really just in narrow circumstances. I do think it is a great hedge against monetary debasement. You know, Bitcoin was launched in 2009. It's trades at almost $70,000 today. If you look at the amount of debt, the U.S. has printed in that time. If you look at the amount of monetary inflation and the buying power of the dollar, it's done extraordinary. really well. Is it volatile in the short term? Absolutely. But I think it still has really maintained

its position as a hedge against monetary debasement. I think one of the issues is sometimes, you know, in any asset class, when a narrative takes hold, the narrative kind of diverges from the facts. And so for so long, Bitcoin was compared to a digital gold that people started kind of of putting it in the risk off trade basket where if everything's going down, investors are going to have a flight to safety in gold. And if Bitcoin's digital gold, it should benefit as a flight to safety asset. I don't think that's correct. If we think about why people consider Bitcoin as a digital gold, gold is a supply constrained asset. It is a hedge against monetary debase in that, right? The new supply of gold increases something like 1% a year.

For thousands of years, humans have been putting, you know, seen it as a store of value. And so Bitcoin, in that sense, is a digital gold in that it's a supply constrained asset. You can't force more Bitcoin out, right? It's programmed into the blockchain, how much will be released, when it will be released. And people have ascribed a value to it. And so that's the, you know, that's how I consider it a digital gold. Is it a safe haven? No, not right now.

And if you look at the, you know, the trailing correlations to credit spreads, you'll see that when credit spreads widen, most of the time Bitcoin sells off. And so it's a risk asset to me, but it can also be a store of value and a hedge against the basement. The two aren't exclusive. Stocks are a great store of value against debasement as well. They've been one of the best ways to protect the value, the buying power of your savings for a long time. And they're still risky. They sell off. But over time, they tend to go up.

And so, again, sometimes narratives get separated from reality. I don't think Bitcoin should be perceived as a safe haven, except maybe in the narrow circumstance of, you know, there's a run on banks. So there's a question about the global financial system. And then in that sense, it could, right? And this is why Bitcoin was launched in the depths of the financial crisis as an alternate currency with its own monetary system. That's not linked to traditional central banks. And so, again, in that narrow case, sure. But beyond that, it's probably a risk asset.

It's kind of interesting because obviously I've spoken with a lot of people about this topic. and you clearly have as well. Oftentimes people lump in the safe haven asset and sort of like the antidote or the basement trade in one bucket. You're clearly trying to delineate the two. I want to kind of just maybe go a little bit deeper into it. I mean, one question I have.

I mean, the U.S. debt is, I don't know, you might know the number off the top of your head. I mean, it's over $30 trillion. It's like $40 trillion. Yeah, yeah, something like that. And I mean, I don't know if it's doubled or gone up, like double digits. in the last 10 years or so.

But I mean, I know there were a couple of soft recent treasury auctions, but people still seem to be willing to buy U.S. debt. Ironically, in like tenuous economic environments that were sort of the culprit of. But it seems like a little bit of what you're trying to say is that Bitcoin maybe isn't like a traditional safe haven like gold during like maybe periods of acute market stress, but it's kind of like the doomsday safe haven. And I wonder like what are some of the market? that would signify were there.

I mean, bank runs theoretically, I guess, should be impossible if there's FDIC insurance. I know that technically isn't a safe, that's technically not something that can just save every bank. And in a world where like the U.S. theoretically should not default as long as Congress agrees to pay our debt obligations, how do we get to that situation where, I don't know it might be a bit of a long tail risk, but how do we get to that situation where Bitcoin as sort of like a doom, they safe haven really would be necessary. So I don't know if you necessarily have to get to that situation. I can use my imagination and come up with a lot of different scenarios to get there.

I don't want to, you know, necessarily put them out into the world. But I clearly wildly. That's what this is for. What I think about like when we're there for Bitcoin is I think over time, right, the supply of Bitcoin is going to continue to decline the new supply. and the adoption is going to continue to grow. And so eventually, you know, if you think about like the three core long-term drivers of Bitcoin, it's money supply growth, Bitcoin inflation, which we know, and adoption.

And so adoption is going to continuously be a smaller portion of that pie. And so if you just think about that, then in the future, Bitcoin just becomes a function of money supply growth, growth and Bitcoin supply growth. And so there's always going to be this permanent mismatch. And so I think you're there when Bitcoin really just starts to trade more like a stable asset over time that maybe grows at the pace of money supply. And it's not very volatile. And it's almost interesting in that type of an environment, a lot of people like to compare

crypto and Bitcoin to a stock or a commodity because it's volatile. But maybe when you are there, Bitcoin is then a stable asset that grows maybe like six percent a year because that's about what money supply has grown over the long term in the U.S. And so that's what I would say. When you are there, you don't necessarily have to see the world end, but it's just Bitcoin's become so adopted and it's so stable that it's just over time kind of this boring, stable asset. And it becomes more like a perpetual tip, almost, as opposed to a commodity.

Gotcha. Okay. I just want to sort of tie not on the discussion about the current economic landscape right now. I mean, textonics are still struggling. The market did not seem to digest President Trump's comments very well last night, although frankly that seems to change day by day. What else are you seeing? Are there one or two charts that you're paying attention in particular to? It could be crypto. It could, be a more traditional asset that's really kind of going to be a signal of what to expect in the coming days. You know, it's tough to say. I think broadly the crypto market is behaving like the crypto market, right? Everything that's not Bitcoin is just trading directionally in the same direction as Bitcoin, but, you know, higher volatility. And Bitcoin's actually, I think very interesting here because,

Over time, we know Bitcoin is a low correlation asset to other asset classes. If you look on a multi-year horizon, the highest correlation it has is to equities and it's like 0.3. That's very low. There's not much predictive power there. And so in the short term, it can get correlated. And over the past couple of years, it was very correlated specifically to stocks that were in the momentum basket. So like your AI stocks, your private credit stocks, which is sometimes when you see it compared

to the software sector or private credit, right? People are like, oh, it's a proxy for this. Over a three-year period, it was, you know, Bitcoin and a handful of stocks really carried the market while the rest of the market didn't really do that much. And so, again, in the short term, it was correlated. But it's pretty interesting now that its correlation to stocks is actually quite low. Its correlation to bonds is quite low. And its correlation to commodities is quite low.

And so that's when I think is an interesting time. to really be looking at Bitcoin specifically. It's about three times as volatile as the SMP 500. Again, I consider it a risk asset. But if you think, right, you're going to have a broader macro-related sell-off, whether the market prices in a recession due to high oil, or whatever cause it is, you get a surge in unemployment.

Tech companies decide to stop their CAP-X spending and that sends the market, whatever it is, whatever it is, I suspect Bitcoin will likely fall with the market, but I don't know if it will kind of fall three times as far as the market in this type of scenario. And that's what's interesting because when you then get a kind of reacceleration in risk assets, I think that higher volatility will still work to the upside. So I think it's kind of an interesting risk reward here right now in that it's already down

about 50% from its highs. So a lot of like the bad news is priced in. A lot of the leverage has been wiped out. And so sure, it could go down lower, but it might also go down, you know, a similar amount as an equity would, right? And ultimately you would get the tradeoff that you have more upside once things turn around.

And so that's what I think is interesting. In terms of a particular chart that I'm looking at, I'm not looking at one specific thing. I broadly like to look at kind of risk assets, you know, kind of safe havens, commodities, things like that, credit spreads, just get a broad picture of kind of where the market is. And there's just really nothing that stands out to me that's a super correlated or a great predictor of what's going to happen with Bitcoin right now.

And I think Bitcoin also has kind of its own narrative going to it right now. We've just, obviously, we've gone through a deep barrenuble. market. People are calling it another crypto winter. And again, so it has its own narrative. Absent a narrative, any asset is just going to trade on what's going on in macro. So Bitcoin, well, it's not a good narrative at the moment. It has its own narrative. So it kind of has its own idiosyncratic risk. Got it. Okay. All right. Well, this is a great place to pause. And so we'll go to do that. Take a brief moment to hear from some of our other sponsors. And when we get back, we're going to dive a lot more deeply into sort of the way that you actually conduct or build

valuation frameworks for different digital assets. Multi-chain Advisors is an emerging technology growth firm that has helped create over $50 billion in enterprise value for more than 80 clients like Pith, MoonPay Commerce and Wormhole. They've worked with some of the largest and most impactful companies in the space. They're the partner you want when you're navigating markets and trying to break out from the noise. They help navigate TGE's, go-to-market BD and partnerships, Capital Markets Advisory, PR, media placements, KOLA activations, and more, driving execution from launch to scale. Their results are measurable. To learn more and start building real traction today,

visit multi-chain adv.com. Quick note before we continue with today's episode, Bits and Bips now has its own dedicated home. We're spinning off from Unchained and launching a standalone podcast and YouTube channel, on the Fed, macro, AI, and how it all collides with crypto. If you want to keep up with our weekly live streams and macro meets crypto breakdowns, make sure you're following Bits and Bips directly. We won't start publishing until March, but getting set up now means you'll be ready on day one. You can find the new Bits and Bips channels at UnchainedCripto.com slash Bits and Bips.

You can also find us by searching Bits and Bips on YouTube, Apple Podcasts, Spotify, or wherever you listen. All right, welcome back. So, Jim, you spent a lot of time over the last few months, kind of putting together various sort of relative value frameworks for sort of figuring out prices, good entry points for some of the largest digital assets out there. Could you just very high level for anyone who's unaware, explain to what relative value metrics are and how they apply to crypto? So a relative value metric is, you know, for example, a price to earnings ratio for a stock, right? You're two different companies. They might be two different things. And you're just saying on a relative basis, like, okay, is this company trading at a high premium relative to how much it actually earns compared to, you know, company B?

And so that's the idea of relative value. We're not necessarily tying it into a, um, an enterprise value for cryptocurrency. We're just saying point in time, hey, this is more expensive, this is less expensive. And so again, it goes back to having a background in equities and how I think about the space. So you move on from the macro, you move on from what's kind of on-chain positioning,

and the next thing you get to is like, okay, well, should I own Bitcoin? Should I own maybe Ether or Soul or XRP, Right? Just thinking these are kind of four of the largest kind of most commonly held cryptocurrencies. Aside from, you know, maybe why you're owning them, you know, once you've made the decision of like the exposure you want to get, how do you determine if something's expensive or cheap? And it's funny because the crypto market should be the most fundamentally driven market on Earth. Because every single thing that happens is available on a public ledger that anyone can see at any time. and it's probably the most inefficient market anywhere, because it trades broadly on momentum and people's feelings.

And so looking at kind of the different use cases for different types of blockchains, I came up with a way to kind of quantify, like when is this expensive, when it's cheap. And so starting with Bitcoin as the largest and oldest, Bitcoin was originally created really as a payment network with its own native currency, but over time, it's really been adopted as a store of value. And so we look at the fundamentals of Bitcoin. There's a monetary value associated with producing Bitcoin, right? That goes back to the proof of work blockchain.

And so we know that there's costs related to energy and mining equipment, and over time, they can rise and fall. And in general, they tend to go up over time, you know, when markets are selling off, whether there's weather, you know, the marginal cost comes down. And so what I look at, there's two different metrics. There's efficient miners. Those are the ones that have the best equipment,

the lowest cost sources of energy, and then the inefficient miners. Inefficient miners maybe have a little bit older equipment, maybe a little bit higher energy costs associated with mining. And so I like to look at the efficient miners as their cost of production. And you can see that Bitcoin's historically kind of followed a pattern where it'll trade up to peaks, you know, multiples off this cost of production. But typically when it sells off, it settles around the inefficient minor cost of production.

Now in deep bear markets, it can get down to your efficient minor cost of production. And that's what happened back in February, Bitcoin intradite hit $60,000, which was right around where efficient miners were producing Bitcoin at. And so, you know, in your deepest bare market scenarios, like that might be a better bottom. But again, thinking about it from an equities perspective, you never necessarily, you know, if it's maybe a stock trades between a 10 and a 20 price earnings ratio, that doesn't necessarily mean it's always going to get to 10 times. Sometimes it'll get to 12, 13 after derating. And that's still, if you think there's enough catalyst, you think there's a reason to own it, or if it's just the type of a compounder that it's an industry leader and you kind of want to be like a core holding in your portfolio, well, hey, 12, 13 times is cheap relative to a 10 to 20 range.

And so I think that's good. And so again, that's why I think using the inefficient miners is better because on a maybe one, two-year basis, you're more likely to get down to that level versus once every couple years, maybe you get to kind of the visual planner. Interesting. And so that's a framework there. It's a store value. It can get overextended in the short term.

And so that kind of helps put those things into perspective. Okay. Again, not financial advice point of view. Natural question everyone will have is, where is that metric today? I don't know if you have it at your fingertips to just give us a sense. I would imagine it's very near the inefficient miner. It's below. It's still pretty close.

So efficient miners cost of production, it's gone up to about $65,000. And so it's actually trading at something like 0.75 inefficient miners production and really at the efficient miners cost or production. And so, again, you look at kind of historical bare markets. They've typically bottomed out at this level. They've typically bottomed out near the 200 week moving average, which back in February was about $60,000. I think it was slightly below. And the other thing I look for in kind of these like cycle chain, you know, these like cycle,

where you are in the cycle type questions is what are the miners actually doing? And the reason the cost of production falls is because miners with less efficient equipment are temporarily shutting down. And so the difficulty adjustment gets lower and lower and lower. And typically at bottoms, once that troughs and is adjusted higher again, again, that's another sign historically that the bottom's been in. And that did happen. And so again, like it makes me relatively comfortable saying that this is a pretty good area. If you want to open a new Bitcoin position, the worst may be behind us. I mean, it doesn't, Bitcoin could still go lower here, but just relative to maybe over the past couple years,

we're at a place that's historically been a solid level of support. Interesting. I want to move on to some other assets, but at some point in the future, maybe I'd love to hear how a lot of miners, especially the efficient ones, they're transitioning into the HBC world and how it can impact everything. But I'm sure that's a much bigger question. Let's talk about ETH. You have a different type of relative value metric there. I think it was sort of your, I guess your approximation of like sort of like the Buffett

coefficient. Yeah. I'd love to. Yeah. Please go ahead. Yeah. So in equities, the Buffet indicator is when you divide the market cap of the S&P 500 relative to the GDP of a country to measure, you know, how value, you know, how expensive are, you know, the top 500.

hundred companies relative to the actual economic output. And so when I think of smart contract platforms like blockchain, like Ethereum or Solana, I think of these as decentralized microeconomies. And normally you wouldn't kind of do competitive analysis against, you know, two economies like that. You would just kind of look and say like, okay, you know, country A is growing, expected to grow its economy this much this year. Country B is expected to grow the economy this much.

But these are micro economies. And again, all the data is available so you can see. And so I look at the sum of all fees generated across the theory of network and the Solana network. And so this is looking at applications that are built on layer two. So it's not just the base network as well. And if you sum up the trailing one year fees, that's an equivalent of GDP, right? GDP is the total output of all goods and services produced. And so whether you're using some sort of application for trading or lending or just I'm transferring someone, some ether, whatever it be, I'm creating fees to do this.

And so the sum of that is my GDP for a decentralized economy. And then you can look at the market cap of ether at any time and see, is this expensive or cheap relative to where the rest it historically has been. And so I think that's a great way to quantify whether one smart contract platform is maybe more attractive than the other. Now, right now there's no one who's really doing forward estimates as to like, oh, we think, you know, this type of activity is going to grow this much next year or this much is going to, you know, whatever. But over time, I think that's something reasonable that you would expect people to start pricing in forward expectations of economic activity on these platforms. And then you'd probably start looking, you know, as your denominator or forward estimates of GDP. I think right now just using point in time trailing metrics is the best way to do it. But that's the best way to kind of, in my opinion, value like, is this attractive or not?

And what I've found is, you know, Bitcoin doesn't necessarily always reach a peak before these other alt coins do. But when you get these old coins to the top of their range, I mean, that can be a good sign to maybe if you're, a more active investor, reduce your exposure and add somewhere else or maybe shift back to Bitcoin or just take some off the top for a gain. So I think those are very helpful because they've actually traded in some reliable ranges over the past couple years. Now, history is kind of short on all this and things could change. But that's generally how I think about both, you know, Ethereum and Solana and really any smart

contract platform. Yeah. It's interesting you did this. I mean, I published a story in Forbes a couple of years ago. It probably was my best read besides the Sam Bank of Free cover, but definitely my most controversial. It was $20 billion crypto zombies. I published it in 2023 in the springtime. I remember that article.

And I did something similar to what you had. I mean, try to come up with a few valuation metric X frameworks to put out, eliminate the noise. like we didn't count a number of active wallets because that can be so easily gamed we didn't look at like transfer volume this frankly that had a lot to do with just moving assets between exchanges and platforms we looked at like active developers we looked at tvl which i know something that you pay attention to and then we basically created a metric i mean sort of like a like a price to sales equivalent almost like what you did market cap the fees and like looked at ones like xrp i mean some of these numbers were i mean the numbers in an

offshore don't mean much but some the numbers are just like astronomical especially in in relation to some of the other, even like a tech equity like Invidia or something at that that might have like a price to fee ratio at the time of 36 and XOP was 61,000. But like Ethereum, I mean, the number would seem really high. Salana, the number would still seem really high. But those weren't zombies because there was clearly activity happening there. So it's, I get the relative value aspect of it and trying to figure out like where they are in these cycles because of the momentum.

But I'm curious, like how you also just account for the fact that these. are momentum plays. And if you had to sort of put into buckets, like 90% momentum, 10% value, or, like, how would you fit with that? And I wonder, too, like, at some point, like, when do we have to assume that some of these tokens are mature enough that they really, like, it should really be almost like 90% value and 10% momentum? I mean, there's blockchings out there.

I mean, some of the ones I call down in the article, Tezos or Algarand or, I mean, XRP was a big one. Now they're transitioning to smart contracts. I've been around for almost 10 plus years at this point. And when I heard back from some of those teams, they would say, well, we're still early. Or our fees are super low on purpose to drive growth. But at some point, you kind of need to get that growth. So like how do you respond when you get questions like that?

Yeah. So just quickly, and this is it the biggest issue with the crypto market is like protocols don't die. They're always just kind of like floating around forever, even if. no one uses them. That's literally why I called them zombies in the story. Yeah. And so what I think about is beyond, if you think about fundamental investing, you want a valuation, you want a way to empirically compare these things.

And you brought up a point that some of these price to sale metrics or market cap to GDPs, right? They're super high. And you would really, if there was a stock, you would never consider something like, oh, there's trades in a range like that. But that's relative value. Because if you think of stocks, there can be a stock that trades, you know, it's a good stock. It's, you know, maybe a garpy growth company that trades between 20 and 40 times earnings.

And it's a great company. And then you might compare that to another stock that trades at 10 to 20 earnings because it's maybe a little slower growth that's been around a long time. You know, but you wouldn't say like, oh, my, oh, my, this company trading at 20 to 40 times is so expensive because it's at 20 times, right? That's the low end of its range. And so I think like what even when you do this with cryptocurrencies, even if you get large numbers, which for some of them like we're quite large, again, it's a way of kind of anchoring your perspective about where it is today first where it's been throughout history. And that's the important thing. Because the other thing you have to consider and you you went there was like, what is the fundamental debate about this asset? And that's huge in every other asset, right?

If you're a fixed income investor, you're debating with other investors about what you think growth rates are going to be or inflation rates are going to be. If you're an equity investor, you're, you know, like what's the earnings going to be, what are margins going to be? Are they launching a new product? And so you have that. And XRP was a great one because it was originally launched in 2012 as a competitor. It was supposed to be like a commercial Bitcoin, you know, where you could transfer money quickly. it was a store of value, it was decentralized, even though it's not all that decentralized. And now they're changing to this, oh, we're a stable coin, or a smart contract platform.

And A, in equities, investors hate that. You get these deep value guys that come in and they want to do turn around and have an active stake in it. But generally people like clear cut, like this is what's happening. And so that's one of the things that's starting to impact. And one of the assets that the debate has actually had a really big impact on has been Ether. For several years now, there's been the debate about whether it can scale. Layer 2s were introduced to kind of address that. There's been network upgrades to address that.

But then Solana came along as a competitor that can do fast transactions. It's very scalable. And so if you look at the price action during the latest crypto bull market, Ether lagged everything else. And it wasn't until last summer when you had Ether Treasury companies starting to form that, the price actually started really reacting. And so again, you can look at valuation as a tool, but valuation is not predictive, and it shouldn't be predictive.

It's only part of the picture. And so I think Ether is actually a great case where fundamentals are starting to matter more. Again, it needed a new narrative to make it to kind of, breathe some life into it. And I think, you know, I personally, I think Ether is, or Ethereum Rather, is very well positioned to kind of take the smart contract network. I mean, market share, they're already the largest in terms of total value locked. They're the industry standard. They're the first ever. If you're launching an application or you're tokenizing assets or you want to accept tokenized assets, you want to always have the biggest network. I mean, that's like launching an app.

You want to be on the iPhone, right? Or you want to be on the, if you're launching a software, you want to be on the biggest cloud network providers. And so there's no reason why it shouldn't be the same for cryptocurrencies. But that's specifically one where fundamentals are clearly starting to have more of an impact. It's the investor debates are having more of an impact on it. And so I think that's important. The market, though, it is, it's all momentum driven, right?

So even if you do a deep dive into the fundamentals for Ethereum or Solana or any smart contract platform, once the rest of the crypto market cap goes down, those things go down too. And ultimately, I think the issue there is historically and really still today, all the usage is still tied to where the crypto market cap is. As the broader market cap is going up, you typically get more money. money put into stable coins, right? Because that's usually seen as the primary, you know, you convert your fiat to stables and then at some point you convert that to a volatile cryptocurrency. If you look at Ethereum specifically, it's like 50% of the fees generated last year were

from stable coin usage. And then about 20% was from liquid staking and 20% lending. And again, those are products that's use cases tied to the crypto market cap. The larger the market cap is, the more. more likely you are to want to stake your ETH and be able to then use liquid staking, so you have kind of access to it. But then again, the higher the market cap, the more likely you're to want to lend on it instead of selling.

And then the final chunk of that is trading. And so again, it's a speculative market. Things are going well. You want to be in there trading different cryptocurrencies. And so it hasn't like, it's just inexplicably tied to wherever the crypto market cap is right now. But tokenization is the interesting thing because it changes that. It's any financial institution can tokenize assets. They can put it on a smart contract platform.

And that shouldn't matter about what the rest of the crypto market is doing. And so I think we're at an interesting point where as tokenization grows, and every single financial institution on the planet right now is figuring out how they can tokenize some sort of their business, either because they think there's ability to maybe reduce friction or they just want to be able to accept those assets, right? The crypto market cap's growing. You want to meet your customers where they are. If you are customers that are transacting on these things, your goal is to capture assets.

So you have exposure to them. And so as that grows, it's actually interesting because now there's a different narrative. There are different fundamentals that are not just tied to the broader crypto market cap. So it's a really, I think, interesting time for smart contract platforms. That's actually very interesting. I mean, sort of a use case that is not tied to just momentum, but something that's completely like acraneous to all of it. So it's pretty interesting.

I guess two quick follow-ups, then we have to start wrapping up. Do you have any, I mean, tokenization is growing, but it's still just a drop in the bucket of like the broader global capital markets. Do you have a sense on how big it might get, how soon, and which blockchains do you think are poised to benefit the most or win sort of like the tokenization race wars? Yeah, I think, as I said before, Ethereum is the industry standard. It has the leading market share. If you want to launch tokenized assets with the broadest kind of access, you're going to be on the Ethereum network. That's my perspective.

Now, there are the private blockchains, and I understand why some firms are using them, right? You may not want all your financial transactions broadcast to the world. And so I think those will certainly do well. They'll have their use cases. But I really think that Ethereum is the best positioned here. Solana, you know, there have been some issuances on Solana. It's positioned well for maybe payments where you want like rapid, large-scale transactions. But ultimately, it goes back to kind of industry analysis and competitive dynamics.

And if you're going to tokenize something, you're going to want to be on the biggest network. Or if you're going to accept tokenized assets, you want exposure to the biggest network. And so Ethereum has the lion's share of real world assets excluding stable coins. And once you include stable coins, it's so far ahead. There's like $350 billion in tokenized assets total, including stable coins. It's just the next largest competitor, I think, is like $80 billion or something. So if you're going to want to be in that space, you want to be either on Ethereum or accepting assets that are on Ethereum. Gotcha.

Okay. One more, and then we've got to wrap. I've been getting this question a lot. I'm sure you have to, the quantum risk. What are your thoughts? What do you say when you get inquiries? So this is like the crypto bear market, the doom and gloom comes out. The crypto buggy man.

Yeah, I'm I really, I'm not that concerned for a number of reasons. First, crypto, sorry, coin specifically to hack Bitcoin. There's going to be a lot of more legacy financial institutions that are at risk before it. I follow some well-known cryptographers who have been involved in since the early days of Bitcoin. I won't name names. I'm not an expert on cryptography, but they are. And they seem to be of the mindset that it's less of an issue. Where I stand on it, I do think the network will, when it's needed, the network will upgrade.

There's this debate as like what about kind of some of these older wallets that are not accessible. This is the way, if I take the ferry to New York City right now and $100 falls out of my pocket, I lost it. I don't get it back. I don't get to go to someone and say I lost my $100. So if the rest of the network upgrades and there's maybe wallets that are no longer accessible that can't be upgraded and you lose them, it's unfortunate, but it's lost money. And so I really think when it comes time, the network will upgrade itself. The developers involved in this, you can look at all the other blockchains and see what they're doing. And this is all open source information.

If someone comes up with a good idea, you can just take it and implement it. Sure, it'll take some time. But I think it's really less of a risk. It's just Bitcoin's gone through a big bare market. And so anyone's going to come at the can and kind of shoot arrows at the thesis right now. There wasn't a lot of talk of quantum risk when Bitcoin was at $126,000. It's pervasive at $60,000. And so I think it's just a sign of the times of where we are in a bare market.

I don't see it as much of a risk in the short term. In the long term, though, this is undisputable. Every single encryption throughout history has been cracked at some point. And so at some point it will happen. It's just how will the network upgrade and deal with it? So I really don't see this as an existential crisis at all. I appreciate you saying that because when I get asked that question too, I almost get the same answer verbatim.

I'm not a cryptographer, even though I know a lot of people who are and are much smarter than me on issues. But frankly, my livelihood, your livelihood are tied to crypto-marking. So surely it would be bad for us if all crypto got hacked and blockchains became useless. But frankly, if you break the encryption that protects crypto, there's much bigger problems in the world, like weapons systems and banks and all sorts of things that would need to be fixed first. So I appreciate you saying that. All right.

Well, Jim, we have to wrap here, but really enjoyed it. We'll have to have you back. So that's it for today's episode of Bits and Bips, the interview. But stay tuned because I'll be back next week with another episode. But don't go anywhere because next up, Lara Shin interviews Omer Goldberg of Chaos Labs about the $285 million hack of Drift Protocol, one of the largest hacks in Defi history about how the hack was weeks in the making and why everyone is so mad at Circle.

Plus, could it have been North Korea? Stick around to find out after this break.