#984 Alex Kruger On Identifying The Macro Bottom

Alex Kruger is an Economist and Trader. In this conversation, we discuss the macro environment, how the Feds actions are deciding the market, how Alex trades in this economic environment, converting to trading 100% Crypto, and what may happen to Bitcoin & Crypto in the coming months. ======================= LMAX Digital - the market-leading solution for institutional crypto trading & custodial services - offers clients a regulated, transparent and secure trading environment, together with the deepest pool of crypto liquidity. LMAX Digital is also a primary price discovery venue, streaming real-time market data to the industry’s leading analytics platforms. LMAX Digital - secure, liquid, trusted. Learn more at LMAXdigital.com/pomp ======================= The Pod Pro Cover by Eight Sleep is the most advanced solution on the market for thermoregulation. It pairs dynamic cooling and heating with biometric tracking. Go to https://www.eightsleep.com/Pomp to check out the Pod Pro Cover and save $150 at checkout. Eight Sleep currently ships within the USA, Canada, and the UK. ======================= The world's 2nd largest crypto exchange, OKEx, has dropped the "E" to become OKX, reflecting its evolution from a traditional crypto exchange to a comprehensive, cross-platform crypto services provider. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Explore DeFi, NFTs and play-to-earning gaming with the world's most powerful crypto exchange. Visit OKX.com to learn more. =======================

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Alex Krueger is an economist and trader. In this conversation, we talk about the Federal Reserve, inflation, interest rates, macro environment, various asset prices, market sell-offs, and of course Bitcoin and cryptocurrencies. I really enjoyed this conversation with Alex, and I hope that you enjoy it as well. Before we get into this episode though, I first want to talk about our sponsors. First up is LMAX Digital, the number one institutional crypto exchange. They offer clients the deepest pool of crypto liquidity on the planet, underscored by 100% uptime track record through volatility spikes. They leverage LMAX Group's liquidity relationships

• 0:44Anthony Pompliano?

  and ultra-low latency technology. LMAX Digital is the market-leading solution for institutional crypto trading and custodial services. If you've never heard of LMAX Digital, it's probably because you're not an institution. They have no retail, only institutions. They feature a central limit-order book streaming spot Bitcoin, Ether, Litecoin, and Bitcoin Cash, all paired with US Dollars, Euro, and Yen. LMAX Digital, they're secure, they're liquid, and they're trusted. Learn more at LMAXdigital.com/pomp. Again, LMAXdigital.com/pomp. This episode is brought to you by Eight Sleep. Eight Sleep is the single best product that I have purchased over the last three years. It completely changed my life. I'm not joking,

• 1:25Anthony Pompliano?

  pay attention. The Pod Pro cover, which goes over your mattress by Eight Sleep, is the most advanced solution on the market for thermal regulation. It pairs dynamic cooling and heating with biometric tracking. You can go to eightsleep.com/pomp to check out the Pod Pro cover, and you save $150 at checkout. They currently ship within the United States, Canada, and the UK. Now I told you, it changed my life. It helps me sleep deeper, helps me sleep longer, I feel much more refreshed, and I have better energy. You want to know how I have relentless energy every single day? Because I sleep on an Eight Sleep. Seriously, go check it out, eightsleep.com/pomp today. This episode is brought to you by OKX. OKEX has dropped the E to become OKX. Founded in 2017 with

• 2:10Anthony Pompliano?

  The mission to deliver a cutting edge crypto trading experience. OKX, the world's second largest crypto exchange by trading volume, has since expanded its scope alongside the wider industry, adding features from all corners of crypto. If EX is about exchange, X is about intersections. Cross-chain, cross-functional, cross-platform, an interoperable future that's not siloed into isolated platforms and blockchains. The name change and the new look and feel represent OKX's ongoing move towards decentralized finance. With OKX's decentralized platform and Web3 wallet, MetaX, you have full custody over your crypto. Connect MetaX in your browser or within the OKX app to explore DeFi, NFTs, and play to earning gaming

• 2:55Anthony Pompliano?

  at the world's most powerful crypto exchange. Whether you're just learning about crypto, you're a seasoned DeFi DJ, an NFT enthusiast, or a pro trader, you're all invited to a better future. Go check it out today and let me know what you think.

• 3:09Speaker 01

  Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only.

• 3:32Anthony Pompliano?

  All right, guys. Bang, bang. I've got Alex here with me. I'm super excited about this. Thank you so much for joining us. I figured a great place where we could just jump right into the conversation is, we lived through about 18 months, almost two years, of the Federal Reserve just pumping asset prices to the moon. And it seemed like everything from equities to real estate to crypto, everything just went up. And over the last, let's call it six months or so, since November, it feels like the Fed's in control and we're going the other direction now. And they're just pushing everything down. You've been talking a lot about this idea of a macro bottom. And I thought that maybe you could just explain what exactly is a macro bottom? And how do you think about the importance of a situation like that when asset prices are in somewhat of a free fall as they are now?

• 4:15Speaker 02

  Basically, the macro bottom is just the bottom. It's the idea of identifying the point where its prices don't fall anymore. Basically, in contrast with the local bottom, which is something you can trade and you can you can ride for maybe 1% or 10% or 30%, but you have absolutely no certainty that prices will not come back down. So when we're in such a massive correction as right now, a proper bear market, the idea of the macro bottom is the point where actually you put your chips back in and there is an extremely high likelihood that you're not worried about prices and your net worth falling

• 5:00Speaker 02

  any longer, basically. It's just that. And for me, the importance here is because we've fallen so much and there is so much fear in the market that it's important to try to identify where is the point where I can feel safe. Basically that.

• 5:25Anthony Pompliano?

  Got it. And so when you start to think about this idea of identifying the bottom, there's obviously a ton of people on the internet who run around and they yell bottom, bottom, bottom all the time, but usually it's not backed up with any sort of intelligent analysis and frankly, it's just people tweeting but not actually trading. You spend your time actually putting real skill in the game and making investment decisions based on your opinions. And so you put out this thread about why, like the intelligent analysis behind why you believe in this macro bottom thesis. And the first was around the Fed and some of the language that they're starting to talk about and a number of Fed officials. Describe a little bit about what you're seeing there with the language and kind of the talk

• 6:07Anthony Pompliano?

  track that the Fed's using now that signals, hey, we may be somewhere near a bottom.

• 6:12Speaker 02

  Yeah, sure. The point basically is that you can't really find the bottom in this market based, it's not about levels, it's not about Fibonacci, it's not about, I don't know, volume or whatever RSI indicator or anything. It's really about the Fed. And until the Fed doesn't pivot, until they don't change their current stance, there is a very high likelihood that prices keep on going down. That's basically the point. So for those of us who are trying to basically find the point in which to deploy, not just a small part of our of our capital to get into a trade in and out, we just want to actually get in and hold.

• 6:57Speaker 02

  Basically, the point where you go all in, that's the macro bottom. And for that, what we need is we need the Fed to change their stance. Changing their stance basically means them signaling that they've tightened a lot. And it's not something that we can't anticipate what is that's going to happen unless one has a view on at which, basically, how inflation is going to evolve in the coming months. Because the Fed has, and it's all about the Fed, right? It's the Fed and the driver seed. I would even say that the Fed right now, they drive about eighty percent of the price action in the market.

• 7:40Speaker 02

  And maybe a little bit less in the last couple of weeks because now the market is shifting a little bit more from the Fed towards recession fears. That's a separate topic. But back onto the Fed, they've said very clearly that they plan to keep on hiking and tightening until they see many months of inflation coming down. So it's about inflation. And I would love to know out there, someone who has a very good view on inflation and an excellent track record at forecasting inflation. I don't know, I don't think that person exists. If that person exists, I would love to meet him. But that's the issue is we don't know.

• 8:22Speaker 02

  And realistically, I mean, the point is not even the Fed knows. So how can we know when that's going to happen? So what we are doing out here is basically trying to fish when the Fed is going to pivot. And there is two ways to do it. One is by watching inflation numbers and the other one is by listening to the Fed. Yeah.

• 8:46Anthony Pompliano?

  And so the thought process, I think, in the market has been, or at least what they're pricing in, 10 interest rate hikes through the end of the year, 300 basis point interest rate by the end of the year. My belief, whether is correct or not, has been we'll never get 10 hikes, we'll never get to 300 basis points. And we're actually likely before the end of the year, pretty high confidence that we will not see rate hikes throughout, though at some point call off the dogs and they'll plateau on that. But actually, I probably have more confidence than most that we may get an interest rate decrease. They may cut rates before the end of the year, especially given that midterm elections are coming. And the only thing worse than high inflation going into a midterm election is actually

• 9:30Anthony Pompliano?

  a recession. And so they'll get some political pressure to kind of give the market a little bit of a, you know, positive feedback loop of saying, hey, this isn't going to be interest rates up forever. Here is, you know, something to give back to the market and get people excited again. Do you agree with that thesis? Do you disagree? Do you have any opinion?

• 9:47Speaker 02

  I disagree completely.

• 9:51Anthony Pompliano?

  Okay, let's hear.

• 9:52Speaker 02

  I have to say, by the way, it's a thesis that a lot of smart money and a lot of smart people out there have, people that respect greatly. But I disagree with the thesis because inflation is extremely high. And it's so high that we are arrived to a point where basically nothing else matters. Because if inflation doesn't come down, inflation expectations get unanchored, they de-anchored, which means basically people start expecting inflation to sustain in time. And we get into an inflationary spiral where everybody starts demanding higher wages and companies start increasing prices in anticipation of higher wages. And

• 10:35Speaker 02

  basically, it never ends. So when we get to these extreme circumstances,

• 10:41Speaker 02

  The Fed's sole role becomes bringing inflation down. It's not about maximum employment and having stable inflation. It's solely about inflation. So what you're saying, I think, is very feasible. I really hope it happens if inflation comes down fast enough. That's the key thing. And there is something else, which is basically unfortunately, the Fed hasn't specified what fast enough is. That's kind of tricky. It's not that you see it coming low and beating certain numbers and you go like, oh, we're safe. They hadn't said it.

• 11:21Speaker 02

  Some have said that they're basically expecting 3%, sorry, high 3% in a year, some 4, some 4.5. But they're not really telling you, there's no consensus view of what to, of how much the inflation has come down for them to turn. According to my estimates, it's basically, I think that if we hit about 4% by year end, which basically means year-on-year inflation coming down about 33 to 25 basis points on average every month from here till then, then the Fed is fine, then the Fed can basically take the foot off the gas.

• 12:04Speaker 02

  And we will go basically from 50 basis point hikes to 25 or no hikes. And when that happens, then we go up. That's what we want to see. Then we get EC markets again.

• 12:19Anthony Pompliano?

  So another thing.

• 12:20Speaker 02

  Sorry, I wanted to say on elections. This is actually a very interesting topic because a lot of people talk about how the Fed is going to go soft around elections. And I have a personal view that it's subjective, it's 100% debatable, but my view is that.

• 12:43Speaker 02

  Elections really rarely matter for the Fed. It's it's in only very extreme circumstances, basically, when you have Trump around that they matter, unless they don't matter, and specifically this year where basically you have a repad the GOP that's going to win both houses highly likely, and you have Biden that's going to be by himself, and odds of Biden being reelected are very low, and Powell is already reconfirmed. So I don't think elections are going to matter for the Fed. I think they matter, but for a different reason.

• 13:19Anthony Pompliano?

  Yeah, that's a fascinating way to kind of clarify how important the elections are. Another thing that you've pointed out is that the equities, public equity market, it's been on an absolute losing streak that has been pretty much unseen in almost 100 years, I think since 1932. Describe a little bit more and explain this.

• 13:38Speaker 02

  It's how to explain this? It's painful. It's it's it's quite a spectacle. I mean, we've had, what is it now? It's seven weeks in a row of just seven weeks of red candles, price just down and down and down. You have absolutely no pullback, so they're very, very brief. And it's, yeah, it's, I don't know what else can I say? It's quite, it's quite unique. And it's also very different than than usual, like usual crashes, because usual crashes, when you crash this hard, you have volatility going way higher. Like in, I forgot exactly what the number was, but say in 2020, we got the bigs going

• 14:20Speaker 02

  to, I think, 85 or something like that. Given the crash, the market crash, I would expect that the bigs, which is basically the implied volatility on S and P options, one month options, basically, to be to be in the 40s or the 50s, and and price to move way more sharply, having two-way two-way price action, like, like, basically, like in March 2020, which was very, it was like this, you know, it was very violent two-way. This is just a very, it's like a drip, it's like, you know, you know, like acid in your face if you're long.

• 14:59Anthony Pompliano?

  It is pretty incredible to just watch the slow bleed, right? Especially if investors are new and their kind of quote, quote, bear market experience was the 2020, you know, go down the elevator, come right back up even faster. It feels like this is incredibly painful. That leads me to this idea of sentiment and sentiment is very bad. Some of that's because of the slow bleed. Some of that is in quantifiable metrics like fear and greed indexes, et cetera. How do you think about sentiment and the actual measurement of it as part of your investment kind of process?

• 15:38Speaker 02

  I usually go with price, actually. I tend to ignore all indicators. I, in this thread you mentioned, I posted the Bank of America, Bull Bear, Fear and Greed indicator, because it's something that smart money watches a lot. It's like, it's one of those that everybody's watching. If it were not because of that, and it were not because it's really an extreme measure, basically on one and a half reading, which is something you barely ever get. I would not be looking at that for sentiment. And I would be mostly focused on volume and the extent. It's kind of like a matter of feeling.

• 16:19Speaker 02

  Like, say, in crypto, my measure of sentiment is actually funding rates. Different measures of funding rates from basically short term or perpetuals or futures. Then you can look at options as well, but it's mostly funding rates. I'm not looking at the same indicator that you actually have that is available for crypto.

• 16:44Anthony Pompliano?

  When you start thinking about Bitcoin and cryptocurrencies, given this macro backdrop, are you surprised that it's gone down so much? Are you surprised that it hasn't gone down more? Like, what's your general read? If I told you, hey, equities are going to sell off for seven, eight, you know, 10 weeks, and there's going to be all this pain in the public equity market, and Bitcoin goes down, I don't know, 55, 60%, and the other coins do what they've done? Like, would you be surprised in either direction?

• 17:13Speaker 02

  Not at all. Correlation is really high and it just makes sense. It's not surprised at all. Bitcoin has been a risk asset.

• 17:23Speaker 02

  Basically, a high beta risk asset, highly correlated with risk assets since March 2020. And since then, it became one, and that correlation has been getting higher and higher. And since, literally, December this year, it started basically trading like equities, like tech. And I think to break that correlation, what the market needs is flows. Flows, basically, inflows or outflows, break those correlations. Specifically, that correlation actually has only broken twice in the last, in 2022. One was on March 3rd, two days before the Fed. And the other day was actually yesterday.

• 18:07Speaker 02

  You could say it's the same as today, but not really. So it's quite striking that it trades hand in hand. Another thing I'd like to say here is, if you look at basically correlation and how things been evolving, Bitcoin and basically the crash that happened because of Luna, Bitcoin will be trading 10 to 15% higher right now if it were not because of Luna. And Ethereum 20% higher. And I think we will be seeing different price action. What I see right now is actually something that, it makes me half sad and half very concerned, seeing that the market trades like it's like dead. It's not moving. So it's trading more like, more like 2018, where there was very little liquidity

• 18:52Speaker 02

  and basically you had these bars all the time, because basically any big order would just make it, flash it up or down. We stopped seeing bars for a long time. Now we are not seeing the bars, so we have that kind of anemic price action. Which on the other hand, makes me think that as soon as we have just a little aggressive buying from, say, Bitcoin OGs, some Bitcoin whales, we could see one of these scandals where you have Bitcoin up in like 7, 8% in a matter of like 60 minutes.

• 19:24Anthony Pompliano?

  Yeah. It's fascinating to think about that illiquidity in the market. And I think part of it is there's a metric that I look at, a lot of other people pay attention to, which is how many of Bitcoin have not moved in the last 12 months? So right now it's, you know, over 65%, over 12 million coins. What level of importance do you put on on-chain metrics like that? So you talked a little bit about like the trading volume, but what do you look at? Or are there any things that you find important with the actual on-chain metrics in the Bitcoin or crypto world?

• 19:56Speaker 02

  For on-chain, I like to try to identify inflows, oversized inflows into exchanges in real time. It's really hard. I've only actually, to be honest, I only actually managed to do it once in a way that helped me significantly perform. Aside of flows, the thing about flows is that it's very hard because you never know if it's actually people sending Bitcoin or ETH or whatever into an exchange to damp or they're trying to hedge, or they're actually trying to make people panic. There's so many ways you can interpret that. On the other hand, on other on-chain data, excuse me, I haven't found any statistical

• 20:41Speaker 02

  significance, actually. I've run some tests and I haven't, I haven't found any way it helps me in the market. So I think it tends to be something that it's very useful to tell us what happened, but it's not useful to tell us what's going to happen. And I'm 100% open to be wrong on this. In fact, if somebody can prove me wrong and show me would be amazing because he would make me be a better trader, you know?

• 21:11Anthony Pompliano?

  Yeah.

• 21:11Speaker 02

  The answer is, in short, it's like I'm not looking at the on-chain data. It's something I read, but no.

• 21:17Anthony Pompliano?

  Yeah. When you think about, going back to the Fed for a second, one of the things that I think you have pretty strong beliefs on, and I tend to agree with, is they're going to continue to do what they're going to do until inflation comes down.

• 21:31Anthony Pompliano?

  Is there a world where you could see them increasing their target inflation rate? So rather than the 2%, like is there a world where they would actually say, you know what? Screw it. Now our target is 3% or something like that?

• 21:44Speaker 02

  It's a great question that in fact I was I was just talking about it with some guys today. And I have to admit, it's an idea that I entertained for three weeks this year and it cost me a lot of money.

• 21:59Speaker 02

  No, I don't think it's possible. I really don't think so.

• 22:01Anthony Pompliano?

  Why not?

• 22:01Speaker 02

  I think something that can happen because they would it would be going against their goals of keeping inflation inflation at 2% on the on the long run and inflation expectations anchored around that 2%. Once you start loosening your your targets, especially in this environment, they would lose credit. Let's put it this way, it's not that they would lose, is there is a high likelihood they would lose credibility and get inflation to get out of control. So that's why I don't think they would do it. But what something I think they could do, which is along the same lines and it would be not as bullish, but

• 22:43Speaker 02

  almost, well, no, let's say half as bullish, is basically changing their backwards looking inflation target that they have in place right now. This is something the Fed implemented in 2020 before was just 2%, now it's a backwards looking measure. So the backwards looking measure means that basically it's not just about inflation coming down to 2%. It's about the average of X amount of time to come down to 2%, which means that basically because of the last year and a half, say, say, we get 2% in 2024, as the Fed is saying. That would mean that in the prior few years, inflation in 2021, in 2020, I think it was 4%, 4.1%, something like that.

• 23:27Speaker 02

  2021, say 7%, this year is going to be, say, 4% year on year, right? Which means basically the average gets higher. So it's not like 4, 7, 4, 2 and 20, sorry, 4. This year, say, 2 and a half in 23, 2 in 24. Yeah, if you're just looking, if you're looking at the average of the past, you're not yet at two. So if the Fed changes that and makes a public statement about that change, that would be extremely bullish. It's something, if you see that happen, just go out there and go in. We're going up, you know, like 10% like this.

• 24:10Anthony Pompliano?

  Yep. One of the people that I've recently talked to is a guy named Brent Johnson. I don't know if you're familiar with him or not. He runs Santiago Capital, and he's been talking about this idea of the dollar milkshake theory, which really is just the Fed prints money, it causes other central banks around the world to print more money, and all of the demand gets sucked backed up into the US economy, and therefore the dollar strengthens on a relative basis to foreign currencies. Is that something that you subscribe to as like a macro theme right now? Or are there other ways that you view the relationship maybe between various central banks?

• 24:47Speaker 02

  No, it's not. I'm not aware of the, I mean, I heard the name. I've never looked into it. But the way I look at the dollar, actually, it's more about interest rate differentials. So it's less about balance of payments and more about monetary policy. So I'm looking at that on one hand. And on the other, I tend to not pay much attention to the dollar itself, the dollar index, because if you think about it, the dollar index is 57.6, to be precise, percent of the euro. So it's, you're literally letting the euro dollar influence your view on Bitcoin, which to me doesn't make much sense. I see the dollar more as a derivative

• 25:31Speaker 02

  of things that really matter, which are basically interest rates and across different timeframes.

• 25:38Anthony Pompliano?

  When you look at interest rates, one of the things that's played out over the last couple of days, which I find fascinating is for the last couple of weeks, maybe even months, Federal Reserve's been saying, hey, we're going to tighten, we're going to tighten kind of all this tough, tough talk and that they're going to raise interest rates. From there, the ECB said, well, we're going to break from the Fed. We're going to keep our negative interest rates and we're not going to kind of follow suit. That changed over, I don't know, maybe the last couple of days, frankly. And now the ECB is saying, hey, we're going to go from negative interest rates back to a 0% interest rate and maybe even positive. So we're going to now go ahead and capitulate to our strategy, follow the Fed. How do you think about that situation? Is it overblown? Or is there a great importance that you assign to something like that?

• 26:22Speaker 02

  No, because they're not going to change by much if they change their stance. That's on one hand. On the other hand, the fact is, it's the Fed in the driver's seat. It's not, it's not the ECB, it's not the BOJ. The Bank of China would matter a lot, but the ECB barely matters. And 25 basis points more, 25 basis points less for risk assets, US risk assets and Bitcoin, which is what I care about. It doesn't make much of a difference.

• 26:54Anthony Pompliano?

  Yeah.

• 26:55Speaker 02

  So it's, the point, what I'm trying to say is like, there's so much information out there. I'd rather focus on the things that actually move price significantly of things that I'm trading and things I have exposure to and not, not other things. Like, for example, when, when, when COVID seems to be a thing that moved the market, I just push it aside. I'm not looking at COVID anymore.

• 27:18Anthony Pompliano?

  Yeah. It's a, it's a fascinating way to kind of view the world. Another thing that you've talked about that I found just really interesting was this idea of the midterm elections will be bullish, but not because of the Fed. And you tweeted and said midterms will likely be bullish as odds are very high Republicans will win both the House and the Senate. Equity markets historically love a Democratic president and a Republican Congress combo. Talk a little bit more about this and how much weight or importance do you put on that specific historical analysis?

• 27:51Speaker 02

  I think it's a minor, a minor variable. Again, it's like, let's say right now it's 70% the Fed, 20% inflationary fears, recessionary fears, and 10% is something else.

• 28:07Speaker 02

  Uh, in, in the midterms, we'd fall into that something else one month before the midterms. And in the meantime, they are completely relevant. But basically, once we get there, um, it's a basically, it's a historical statistic that the, uh, stock market has a tendency to, uh, sharply overperform when you have a democratic president with either a congress that is split or is republican. It's a very sharp overperformance. So, uh, I think that when we get there, especially in a scenario in a, in a, in a market where

• 28:48Speaker 02

  basically everything is trashed and we are all depressed or most of us are, uh, depressed and, and downbeat and basically going out there and looking for, give me something. Market, please give me something. This could be very big in that sense. That could be the something that, that gets things going and, and gets people optimistic again.

• 29:07Anthony Pompliano?

  Yeah. What, what does your portfolio look like right now? When, when you think about the current environment, how are you allocating capital? Is it all in, uh, risk assets? Are you all in cash? What, what's the mix?

• 29:18Speaker 02

  Right now is 70% ETH and the remainder is cash and most of it is short term.

• 29:25Anthony Pompliano?

  Your entire portfolio, 70% is in Ether and 30% is in cash?

• 29:32Speaker 02

  I think ETH has, uh, basically, um, a very high likelihood to outperform Bitcoin because of the merge, uh, in the coming months, uh, months plural, um, like say from here until the, until year end on one hand. Uh, on the other hand, I think anything that is Alcoins in this market is, is gambling, especially there's a lot of, uh, people that are trying to exit the market, uh, a lot of, uh, fear, which means that, uh, anything that is, uh, relatively liquid, uh, you can suffer basically like, uh, I mean, this is going to be an extreme case, but you look at what happened with Cope today. Cope is a, a small, uh, DeFi project, a Solana DeFi project that basically today, like

• 30:17Speaker 02

  a year ago was trading eight, today was trading, uh, I don't know, 70 cents or something like that, uh, in the sense, uh, and, uh, the team just basically went out there and dumped 10% of their supply and, uh, crashed the price by 70%. So when you are in, when you, when we are in, in, in altcoins, in, in liquid assets, and it's all binary, you know, it's like, things get more and more and more liquid, it's like a spectrum, the more liquid, the harder probability that we suffer something that we can't really hedge against, we can't really trade it, it's just people with more information than us that can destroy our pieces completely. So I'm quite concerned about being on outs

• 31:01Speaker 02

  at, at present, and I think ETH offers a great, great way to trade a risk at the moment. Why 70%? Because basically I'm trading for a reversal, that's why. It's, it's mostly, most of that is not a position that I'm holding, is a trade, so basically I have stops. So if things go bad, unfortunately, I'll be getting out of that position, a part of that position at a loss.

• 31:30Anthony Pompliano?

  So what do you put in terms of odds that the merge happens before year end? Because I, let me explain this way. I think the ETH community would say very high odds, I think the Bitcoin community would say very low odds, and that's just the nature of tribalism, etc. Like, how do you think about what the actual odds are that that occurs this year?

• 31:50Speaker 02

  I think it's about 90%. The ETH community is talking about August, I think it's more realistic, they have a tendency of always being late. So I think October to November, and, and something that happened, and, and basically things getting delayed again, it makes sense. So that's why I'm saying somewhere between August, sorry, October and November. I think that makes sense, and I, I put the likelihood of it being really, this year, extremely high. The thing I'm concerned about is, is two things. One is, I mean, I think if, I hope it doesn't happen, but it, I think it's very real that, let's say, 30%, 50%, 60%,

• 32:31Speaker 02

  I don't know the probability, but there's a real scenario where basically we go through a repeat of 2018, basically, Q4, and crypto just collapses.

• 32:43Speaker 02

  Hope doesn't happen, can happen. So in that scenario, the merge is going to be absolutely relevant. Nobody's going to care about it. On one hand, on the other hand, if basically we're in a proper four or bear market and this continues, activity in Ethereum blockchain is going to be very low. So the yield that we're going to get on ETH is going to be considerably lower and it's not going to be as attractive. So it's kind of like a feedback loop, no?

• 33:16Anthony Pompliano?

  When you think about investing today, you're a trader and everything you just described, you're analyzing the crypto market. How much time do you spend in crypto versus in like traditional macro type assets?

• 33:32Speaker 02

  It used to be 50/50 until March 2020. And more specifically, since April 2020, it became 100% crypto.

• 33:46Anthony Pompliano?

  Really? So you don't even-

• 33:47Speaker 02

  I was happy to be able to ignore mostly stocks. Because honestly, to, you know, like having to listen to Powell and to the Fed and to all this economic data with the level of detail I'm doing right now, it's not really enjoyable. It's just something the market is forcing me to do. So 2020, 2021, we could basically keep that on the sidelines. And now unfortunately, we're trading risk, we're trading equities. So it's right now, even though I'm focused strictly on crypto, the macro is driving crypto and equities are driving crypto.

• 34:30Speaker 02

  So it's kind of hard to say what the split is because it's, I'm trading one thing, but I'm following the other.

• 34:36Anthony Pompliano?

  When you think about the crypto ecosystem, how many assets have enough volume? And you think traders around the world actually could trade. So they don't give a shit about the long-term, you know, kind of viability or whatever. They're just traders. They're just looking for volatility and volume. Is that a universe of 5, 50, 5,000? Like, how big is that universe that's actually tradable assets?

• 35:01Speaker 02

  Institutional, I would say we are talking about two.

• 35:07Speaker 02

  It's usually just Bitcoin and ETH. And every now and then Solana has enough volume, or other ones have enough volume and basically they get liquid. But if you look about it, I mean, being a very large fan in this market is actually pretty tough because they can't get out of many of these positions. Bitcoin and ETH is different. It's just Bitcoin and ETH.

• 35:33Anthony Pompliano?

  Yeah, it's pretty incredible. Just how much volume is concentrated in those two names? One of my last questions for you, I guess, is when you think about these markets, Bitcoin, crypto, how much of it is all one trade? With equities, the Fed, and like, it doesn't matter if you're looking at macro traditional assets or you're looking at crypto, you got to understand what the Fed's doing. As long as the Fed is doing a certain action, you pretty much know what all these assets are going to do with high correlation to each other. Versus you think there will be some sort of decoupling? And there will be some, you know, maybe alpha or whatever that can be determined based on the industry or asset that you select?

• 36:16Speaker 02

  Right now, it's between 70 to 90%. Depends on the timeframe, but it's between 70 to 90% risk assets, which is mostly stocks. I mean, on the traditional finance side, everything moves together, right? Or usually does. So sometimes it's rates driving. Very rarely that sometimes it's the dollar driving or dollar CNH or, you know, tech or some value to growth or growth to value or rotation. But it's, yeah, it's 70 to 90% right now is risk assets. So traditional finance stocks. The remainder is crypto specific.

• 37:02Speaker 02

  And in that area, I mean, it's really, it's about, for example, sometimes like yesterday, Bitcoin can do whatever it wants. And also you have to be looking at the levels, where to get out, where to hedge, where you may have stop runs. Even if Bitcoin is following or going hand in hand with the NASDAQ, the place where to put a trade is going to be very Bitcoin specific, because you can look at the chart and you can estimate based on the basically where the liquidations stop runs are going to be happening. Based on charts or basically there's some tools as well that can help traders identify where there's

• 37:47Speaker 02

  a higher likelihood of a stop run. A stop run basically is like discontinuity in prices, like you're going down, down, down, and then you hit a point, stops get triggered and you flash. So you don't want to get in or you don't want to get out until it flashes. That's the idea.

• 38:08Anthony Pompliano?

  It's pretty incredible when you start to really kind of think through the dynamics at play here. My last question for you is, when you think of risk in this market, you're 100% focused on kind of crypto market, you're incredibly experienced, you have a whole bunch of data points that you're looking at, how do you underwrite the risk and where do you see the highest risk in the market as you're allocating capital?

• 38:34Speaker 02

  The highest risk in what regard?

• 38:38Anthony Pompliano?

  Either in terms of the crypto market itself, so things like the Luna situation, whether there's other risks that you have identified that you're paying attention to, or in the macro environment, where you think that things could actually get worse and cause further problems?

• 38:54Speaker 02

  On the macro environment, there's three main things. One is China, the other one is Russia, and the other one is inflation, right? Um, inflation, that's, that's what we're watching inflation data when it kicks in, in the US is basically if it comes in really high, uh, just, just sell everything because it's gonna get very bad. Um, on, on the Russia side, I'm, I'm basically hoping to for, I mean, I, the likelihood is so low, but it's still there of, uh, some sort of peace agreement. And, uh, if that at any point it happens, uh, similar to what I was saying about the, um, the backwards looking, uh, inflation, uh, for the Fed, uh, if that happens, uh,

• 39:38Speaker 02

  we fly. Uh, I think on the Russia side is that side. To be honest, something crazy happened this year, like February, I was thinking about where am I gonna hide if there is a nuke? Uh, that's how crazy things go. I get, I don't know if you, you went through that. Did you?

• 39:57Anthony Pompliano?

  I literally, uh, never thought I would, but I Googled what happens in a nuclear attack and what, what are the things that you can do? Uh, and when I Googled it, I literally said to myself, I cannot believe I'm typing this into my phone, but, uh, but, but it definitely did it.

• 40:13Speaker 02

  Yeah, that's, that's crazy. So, well, yeah, I'm not thinking about that anymore. That, that lasts like, like for three weeks or two weeks. Um, and on the crypto side, uh, there's nothing really specific at this present that, that worries me. I mean, I don't think there's, there's something too negative that can happen on the regulatory side. Uh, in fact, I think the industry at this point, uh, welcomes deep down regulation. Uh, it would help greatly, for example, to get a, the infamous, uh, Bitcoin, uh, spot ETF approved. Um, so basically on, on, on the crypto side is, there's two big main sources of risk. Uh, one is the regulatory side that I'm not concerned about. The other

• 40:55Speaker 02

  one is Peder. Uh, Peder as well. I, I, I've done so much work on Peder. I'm, I'm not worried. Uh, but I do think that, uh, they do a very poor job in, uh, disclosing, uh, uh, their balance sheet and they should do a better job. And the market is and should continue punishing them by simply shifting away from Peder into USDC. And, um, USDC is safe. I think it's, it's very safe. So yeah, I don't have any, any, any big scarecrows right now that I'm looking at on the crypto side. If you do, actually, I'd love to know if you have any view there.

• 41:34Anthony Pompliano?

  I, I think it's, um, uh, the biggest risk is the unknown unknowns. And, uh, I, I, I think that in crypto specifically, uh, that's always been true. But now, um, there's a lot of things in the market where, uh, back in 2016, 2017, even 18, 19, maybe even the beginning of 2020, frankly, uh, you could be quote unquote in crypto and you could understand what's happening with Bitcoin, what's happening with Ethereum, what was happening with a couple other, you know, segments of the market. And that could be one person and you could pretty much have your head wrapped around it. Today, I don't think that's possible. I don't think it's, it's possible, um, given the specialization and the fragmentation, kind of vertical integration

• 42:16Anthony Pompliano?

  of all this stuff, uh, to understand what's happening in the Bitcoin world. You've got Bitcoin, you've got Lightning, you've got Terra, you've got side chain, you know, I mean, just like such an entire depth of a market. Then you got all the smart contract platforms. No longer is it just Ethereum. Now it's Ethereum, Solana, Binance Smart Chain, Avalanche, you know, Polkadot, like just go through all that. Then you get into like NFT type stuff and there's a whole, you know, Cambrian explosion there. And so, uh, I think now what people are going to have to start doing is saying to themselves, either we have to go build a big team and like everyone take, you know, a different part of the sector, uh, or I'm going to pick my lane. I'm going to focus on that and I'm going to do my best to understand what is the relationship between what I'm focused on and any other part of the industry. So the Luna Terra situation with, with Bitcoin, great example of, it's actually really important to understand they're buying

• 43:00Anthony Pompliano?

  up all this Bitcoin, uh, cause it could have a positive or negative impact on Bitcoins. If you focus on Bitcoin, you sure as hell better understand what's going on over there rather than just operate within this vacuum and say, I'm not looking at anything else regardless of what happens, right? Cause, cause obviously that ended up having a very material impact. You feel like that's fair?

• 43:17Speaker 02

  Yeah, absolutely. A hundred percent. And yeah, unknown unknowns. I like that.

• 43:21Anthony Pompliano?

  Yeah. And, and like the, the part is like, it's kind of a shitty answer, right? Cause like, it's unknown.

• 43:26Speaker 02

  It's the answer. That's the answer. Like, uh, accepting a few, just a few bright minds out there two months ago, uh, or three months ago, nobody was not even remotely concerned about Luna costing, uh, what it costs, you know?

• 43:42Speaker 02

  That bringing actually all of crypto down with it.

• 43:45Anthony Pompliano?

  I tend to think that's right. Where can we send people to find you on the internet? Like, where's the best place for them to to reach out to you or keep up to date with the information you're putting out?

• 43:55Speaker 02

  Just Twitter, just my Twitter account, KrugerMacro, twitter.com/krugermacro. That's the only place I'm at, yeah.

• 44:06Anthony Pompliano?

  Listen, I appreciate you taking the time to to do this. I learned a ton from your tweets. And talking to you is even more fun, so we'll definitely have to do this again in the future. My last question, actually, one of our sponsors is Eight Sleep. What's your sleep schedule? You're constantly paying attention to markets and crypto is 24/7. What's your sleep schedule?

• 44:28Speaker 02

  It's embarrassing. Yeah, it's very volatile. I have literally alarms that wake me up at any point in the night. In the last, yeah, it is very slow. I mean, like, I'm in the West Coast right now, so it's very hard because I need to be no later than 9:30 in the morning Eastern, so 6:30 for me.

• 44:54Speaker 02

  Very sharp. And ideally, I want to be by 6:30 Eastern, so that's 3:30 in the morning for me. So it makes things complicated, but yeah.

• 45:04Anthony Pompliano?

  I think you're doing a fantastic job. You keep it up. Awesome, Alex. Listen, thank you so much for doing this. We'll definitely do it again in the future. And just keep tweeting, man. You're educating a lot of people, and I'm one of them, and I'm enjoying it. So thank you so much.

• 45:17Speaker 02

  Awesome, pump. Thank you very much, pump.

• 45:19Anthony Pompliano?

  Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you subscribe on Apple, Spotify, or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to pompscryptocourse.com. We've developed a curriculum with the top teams across the industry. It's a three-week intensive training program with over 50 events packed into that three-week time period. Go to pompscryptocourse.com to learn more, and I'll meet you guys for the next episode.