Merge vs. Macro with Travis Kling

Travis Kling is the founder of Ikigai Asset Management, and on today's State of the Nation, we're tackling the biggest trade of the year. While the global market fundamentals crumble, the Ethereum ecosystem looks primed to make history with a successful transition to Proof-of-Stake. What does this mean for crypto? How is a seasoned investor going to take advantage of a chaotic 2022? ------ 📣Rhino. Fi | Massive Mystery Airdrop https://bit.ly/3o9trRE ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: 🌱 LENS | ACCESS CODE: WAGMI https://bankless.cc/Lens 🚀 ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 🌉 JUNO | BRIDGE FIAT TO LAYER 2 https://bankless.cc/Juno ⚡️ ZKSYNC | THE LAYER 2 SCALING ENDGAME https://bankless.cc/zkSync ------ Resources: Travis Kling https://twitter.com/Travis_Kling Ikigai Asset Management https://www.ikigai.fund/ ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures

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

• 0:00Speaker 00

  You know, I think I feel a little bit like I just heard a long burst of machine gun fire and I'm like looking at myself like, you know, did I just get hit by anything?

• 0:14Ryan Sean Adams?

  Hey, Bankless Nation, we got an exciting state of the nation for you. An unstoppable force meets an immovable object. We've got two countervailing forces. We've got, on the one hand, the macro markets.

• 0:25David Hoffman?

  In the left corner, macro.

• 0:27Ryan Sean Adams?

  Looking pretty bad right now, all right? Macro is still not doing the things we'd like it to do. Looking pretty ugly out there. And yet, the backdrop, in the right corner, we have the merge, the Ethereum merge, which is uber bullish for ETH asset, for all of crypto.

• 0:42David Hoffman?

  Already starting to get priced in.

• 0:43Ryan Sean Adams?

  It's already starting to get priced in. And you can see that in the charts, kind of this conflict. Well, in today's episode, we will explore this dichotomy, the merge versus macro. We have Travis Kling on the podcast, who is a fund manager and also an expert on things macro. And he's been talking about the merge a lot lately. David, what are we gonna talk about today?

• 1:04David Hoffman?

  Yeah, Travis, just like you said, focus on macro, macro expert, but also like super aware of crypto and the crypto dynamics. He's also one of these, there's a growing number of these types of Bitcoiners that used to just be like solely focused in the Bitcoin ecosystem that have caught the bug of the merge. So like the deflationary narrative of Ether post-merge has like captured a few of these people.

• 1:30Ryan Sean Adams?

  The sound money piece?

• 1:31David Hoffman?

  The sound money piece, yeah, exactly. The ultra sound money piece, Ryan, of course. So I'm interested in hearing that story, but just it's super convenient that we have this macro expert who also understands crypto, who also understands the merge dynamics. And so if there's anyone who can tell us which one of these, which side of this tug of war is going to win, I think it's gonna be Travis.

• 1:50Ryan Sean Adams?

  Yeah, I know who I'm rooting for in this, too. Definitely over the right corner.

• 1:54David Hoffman?

  I think this is a really overall an interesting poll. We should put this poll, we'll put this poll out of the Bankless Twitter account as this episode airs.

• 2:01Ryan Sean Adams?

  Which is stronger, merge versus macro?

• 2:03David Hoffman?

  Which is stronger, the merge versus macro.

• 2:04Ryan Sean Adams?

  Place your votes.

• 2:07Ryan Sean Adams?

  David, we should also talk about rhino.fi. They are sponsoring this message from Bankless. And these guys used to be called Diversify, Decentralized Exchange. But they have really changed their product into something I am super excited about. I'm going to show a few things and maybe you could explain this to me. So what are we looking at? What is rhino.fi up to these days? Why did they change their name and what are they doing?

• 2:32David Hoffman?

  I think this is like such an appropriate pivot. So Diversify used to be this hyper scalable decentralized exchange on a Stark X Layer 2. So super performant and highly optimized, but lost the composability. And so Diversify has rebranded to rhino.fi, which is a little bit of a multi-chain, multi-layered aggregator of many different parts of the DeFi ecosystem. And they're really leaning into usability and UX and trying to just remove as many different complications of blockchain that they can. And so their liquidity is across many, many different Layer 2s. You can trade, you can swap, you can invest in liquidity pools, do basic stuff like send tokens on Layer 2s.

• 3:13David Hoffman?

  So it's a multi-layered, multi-chain dashboard, portal, war station, if you will, to do all of your DeFi things across all of the Layer 2s.

• 3:23Ryan Sean Adams?

  Yeah, that's, that's pretty awesome. I'm actually going to check that out. It feels like they've, they've taken the trade function that they've been so strong on and they just converted that into one app of many.

• 3:32David Hoffman?

  Right.

• 3:33Ryan Sean Adams?

  This is like a home screen for all of your DeFi activity. So make sure you go sign up for that and you can hear more about rhino.fi. We'll include a link in the show notes. And also, David, something about a mystery airdrop that's coming with a chance to win 5K, split between 50 wallets. So I like the sound of mystery airdrop and you can find out more about that on rhino.fi. Once again, link in the show notes. Also, we now have video of Bankless Podcasts in Spotify. So previously, video was only available on YouTube. Now they are available on Spotify as well. So if you want to go check out Bankless videos on Spotify, go to Spotify, search Bankless, and you can view them there. David, what is this? State of the nation today, my friend.

• 4:18David Hoffman?

  The state of the nation is cautiously optimistic, Ryan. I think that will resonate with very many people as we've watched ETH just rocket off of the floor. Like skipped over the 1300s, skipped over the 1400s, straight into the 1500s. And I think that's just, you know, the game of chicken is like, who's going to press the buy button first before the merge? That game has definitely started to play out and some people are definitely hitting the buy button ahead of the merge. I can't really think of any other explanation for that price action. We have like the clearest dates for the merge of all time. So you can, and you can see that being reflected in the charts, the merge being de-risked is actually going to happen in the face of a terrible, terrible macro setup.

• 5:00David Hoffman?

  We have, our last podcast with Luke was named the worst macro setup we've seen in 20 plus years. So we're going to go ahead and talk to Travis about that just in a second.

• 5:09Ryan Sean Adams?

  Guys, we're going to get right to the episode with Travis, but before we do, we want to thank the sponsors that made this episode possible.

• 5:16David Hoffman?

  Lens Protocol is an open source tech stack for building decentralized social media applications. It is the new era for social media. We all have toxic relationships with our web two apps. We want to break up with them, but we can't. These applications own our digital lives and all the relationships that we've made. We need to break through to a new paradigm of social networking applications that we control rather than them controlling us. Lens isn't a social media app. It's a protocol to let a thousand web three social apps bloom. Lens is a permissionless and transparent social graph that is owned by the user. In crypto, we say not your keys, not your crypto. And on Lens, we say not your keys, not your profile. With Lens, your followers go with you to whatever social media application you want to use. And instead of being trapped by an algorithm chosen by that app, Lens lets you choose the way you want to experience your social media.

• 5:59David Hoffman?

  Lens is the last social media handle that you'll ever need to create. So in order to get started, there's a secret code word in the show notes. Enter that code word in the Google form link and you'll be well on your way to entering the world of web three social. Rocketpool is your decentralized Ethereum staking protocol. You can stake your ETH in Rocketpool and get our ETH in return, allowing you to stake your ETH and use it in DeFi at the same time. You can get 4% on your ETH by staking it with Rocketpool, but you can get even more by running a node. Rocketpool is the only staking provider that allows anyone to permissionlessly join their network of validating Ethereum nodes. Setting up your Rocketpool node is easier than running a node solo, and you only need 16 ETH to get started. You get an extra 15% staking commission on the pooled ETH that uses your node to stake. You also get RPL token rewards on top.

• 6:44David Hoffman?

  So if you're bullish ETH staking, you can boost your yield by adding your node to the decentralized Rocketpool network, which currently has over 1,000 independent node operators. It's yield farming, but with Ethereum nodes. You can get started at rocketpool.net, and you can also join the Rocketpool community in their Discord. You can find me hanging out there sometimes in the chat, so I'll see you there. Arbitrum is an Ethereum Layer 2 scaling solution that is going to completely change how we use DeFi and NFTs. Some of the coolest new NFT collections have chosen Arbitrum as their home, while DeFi protocols continue to see increased liquidity and usage. You can now bridge straight into Arbitrum for more than 10 different exchanges, including Finance, FTX, Huobi, and Crypto.com. Once on Arbitrum, you'll enjoy fast transactions with cheap fees, allowing you to explore new frontiers of the crypto universe. New to Arbitrum, for a limited time,

• 7:28David Hoffman?

  you can get Arbitrum NFTs designed by the famous artists Ratwell and Sugoi for joining the Arbitrum Odyssey. The Odyssey is an eight-week-long event where you complete on-chain activities and receive a free NFT as a reward. Find out more by visiting the Discord at discord.gg/Arbitrum. You can also bridge your assets to Arbitrum at bridge.arbitrum.io and access all of Arbitrum's apps at portal.arbitrum.1 in order to experience DeFi and NFTs the way it was always meant to be: fast, cheap, secure, and fiction-free.

• 7:57Ryan Sean Adams?

  Bagless Nation, we are super excited to introduce you to Travis Kling. He's the founder and CIO, that is Chief Investment Officer of IKIGAI Asset Management. Also, recently launched a venture fund. We are here to talk about macro and the merge. Travis, how you doing, man?

• 8:13Speaker 00

  I'm doing well. Thanks for having me, guys. Looking forward to this.

• 8:16Ryan Sean Adams?

  It's great to have you. How are you feeling about things, first of all? Let's start there. Get your temperature checked. It's our first question for everyone, because we're in the depths of a bear market, so people are calling this. Are you feeling bearish? How are you feeling in general? What's your vibe?

• 8:30Speaker 00

  Um, you know, I think I feel a little bit like I just heard a long burst of machine gun fire and I'm like looking at myself like, you know, did I just get hit by anything? Um, and, and, and not to, not to make light of folks that lost a lot of money, uh, cause that, that certainly has happened over the last couple of months, but I've been, been doing this for a while now. Um.

• 8:55Ryan Sean Adams?

  So you, you're telling us you were in the bulletproof vest then?

• 8:58Speaker 00

  Not, not, not, not exactly a bulletproof vest, but, but I just think, um, you know, every couple of years, this ecosystem, this, this, this asset class does one of these things where it just wipes a bunch of people out and we just had one of those and historically those mark cyclical bottoms. Um, you know, history doesn't repeat, it rhymes. So there, there are nuances to this one, uh, relative to, to prior dumps, but, uh, you know, now's definitely not the time to, to get uber bared up and, and I'm not, you know, I think we're much closer to a cyclical bottom. Um, and, and, you know, we can argue about the specifics

• 9:43Speaker 00

  around price or, or time and the factors, uh, that, that go into that, which I'm sure we're going to talk about today, but, um, no, I mean, this too shall pass. This, uh, this technology still has a, a tremendous potential to make the world a better place and it's still my base case. This is going to be the best performing asset class over a, you know, three year, five year, 10 year, probably 20 year timeframe. So.

• 10:05Ryan Sean Adams?

  Yeah. I feel like, uh, as long as you don't have margin, right? Which hopefully like lessons were learned previous cycles, uh, and as long as you didn't lend anything to three hours capital, uh, you're probably doing okay. And maybe you're actually excited about this dip buying opportunity. If you have some, uh, powder dry and you have some like stable coins and, and dollar assets.

• 10:24Speaker 00

  Yeah. I mean, I mean, I can't believe this market gave me another shot on goal from 20 K BTC and 1K ETH, but that's where we are and, and that's a tremendous opportunity.

• 10:35Ryan Sean Adams?

  We went to triple digits. I didn't even think we'd see that again. I mean, I thought there was a possibility, but that's surprising on ETH.

• 10:42Speaker 00

  Yeah. Just never say, never say never in crypto. That's a, that's a, that's a good rule to make sure you stay alive and stay in the game.

• 10:50David Hoffman?

  In the first half of this episode, we want to get your measure on the macro markets, because everyone has a vantage point on the macro markets. And right now, in this state of overall confusion, just getting more and more perspectives as to where we are in this macro world is definitely super useful. But just keeping on with crypto just a little bit more, there's this debate going on in crypto Twitter of the bottom. The bottom hasn't felt like previous bottoms. It didn't really feel in the same way that other bottoms felt. And so some people are saying, "Oh, okay, that means the bottom's not in. We haven't felt max pain. We still need more liquidations. We're not totally done yet." We're just like, there was the first wave of liquidations, which was 3Rs capital, but then there's more coming. And that'll be the actual true bottom. And then there's other people who are like, "It doesn't have to repeat previous history,

• 11:35David Hoffman?

  even though that's what people says that it has to do." I'm wondering if you had a perspective on this. Is there more max pain ahead of us? Or are you in the camp that, "No, it doesn't have to repeat like every other cycle in history"?

• 11:48Speaker 00

  Yeah, it definitely doesn't have to do anything. Yeah, Bitcoin, just because it's been around the longest, speaking to that specifically, I mean, it can do things it's never done before. It has recently done things that it has never done before and certainly could continue to do things that it hasn't done before. I'm not married to any particular view. I think now's an outstanding time to be dollar-cost averaging into Bitcoin in a theorem. And that's not financial advice. None of this is financial advice. But you may not get the bottom dollar. We could go lower from here, or the low could already be in.

• 12:31Speaker 00

  But if you're just DCA-ing over the coming months here, I think you look back on that with any kind of medium to long-term timeframe, and I'm pretty highly confident that's going to look like an outstanding decision to have been made.

• 12:48David Hoffman?

  So, okay, so let's roll into the macro markets because that's the place that's giving me a bunch of confusion and I'm sure a bunch of confusion for the listeners as well. Because the market just kind of seems to be stuck between like bearish or bullish, as we've kind of already indicated. It's bearish because the Fed might overshoot and cause a recession or worse, but it also could be bullish because they're about to pivot and, you know, turn on the money printer. You could be bearish because risk on assets are bad to have in a recession, or you could still be bullish because even in a recession, where are people going to park all their money? Like you said, crypto is still going to be the best performing asset class of, you know, five, 10, 20 years. So, like, do you feel this tug of war between bearish or bullish on macro, or is it more clear for you?

• 13:30Speaker 00

  I think the setup is pretty clear. What's going to happen is not that clear. You know, "Don't fight the Fed" has been an adage that's been around for decades. It's all one trade, you know, it's been around for over two years, I think, at this point. And I think neither of those have been more true than they are today. And they both speak to the same backdrop, which is admittedly a pretty creepy backdrop, which is central bank actions in the current monetary regime have such an overwhelmingly

• 14:12Speaker 00

  powerful impact on all asset prices that everything else is pretty much just an afterthought. And another kind of adage that I've been saying for a few years now is that Bitcoin loves QE and detests QT, loves quantitative easing, detests quantitative tightening. And I think you can expand that out into the crypto ecosystem broadly. You know, and we're like experiencing the negative, you know, side of that. Every central bank on the planet pretty much is tightening right now and trying to work off the excesses that came about in response to the COVID crisis.

• 14:55Speaker 00

  And all asset classes just have a really hard time with that. Now, commodities have performed exceptionally well because of, you know, some specific reasons around the Ukraine conflict, but it was, you know, the fourth worst...

• 15:10Speaker 00

  First half for the S and P 500 in the last hundred years, one of the worst starts for the bond market ever. And crypto got tagged there. And, you know, to be honest, it would have been nice if crypto had been able to decouple from that. But if you told me on January 1 of this year, that the S and P was going to have its fourth worst start in the last hundred years, and then you asked me, like, what's crypto going to do? I mean, I definitely would have told you crypto is going to get smoked. And there's some question to ask yourself about what a reasonable expectation of value accrual for any crypto

• 15:54Speaker 00

  is during a central bank tightening cycle. But if you just look at tech stocks, for example, I mean, Apple, you know, which is about as good of a store of value, I think, as you can imagine, you know, Apple's down, was down 30% off the top. Tons of other tech stocks are down 50, 70 plus percent off the top. So it's not just crypto that has performed poorly. And then, you know, I think on top of that, that macro tightening cycle, you had some really bad micro, you know, crypto specific type of stuff going on over the last few months, and it's been kind of a double whammy. And now, I think the setup,

• 16:37Speaker 00

  which seems to be, you know, I think, pretty well understood, is that the Fed is aggressively tightening to fight inflation. They just hiked 75 bps, which, you know, they hadn't done in decades. They're going to go 75 dips at least again here next week. And they're trying to, in my view, they're trying to cram as many rate hikes as they can now before we either just slam into a recession, or some part of the global financial market breaks to a degree that they're forced to respond to that. And that's not a great,

• 17:22Speaker 00

  that's not a great setup, but asset prices are a lot about expectations and positioning and rate of change. And the expectations are very bearish. The positioning is very bearish. Probably seen a lot of, you know, percent of, you know, equity allocation versus cash is like all time. You know, all these different positioning for, for, for traditional, um, for traditional asset classes. All these positioning metrics are completely wiped out. People are very, very bearish. Um, and you don't need much rate of change. I think because of where positioning is to get things moving pretty aggressively off the bottom.

• 18:08Speaker 00

  And, and it's, it's, it's a little, you know, nerve wracking or uncertain right now. Because even though I think that setup that I just described, I think is like reasonably well understood. And there's some amount of consensus around it. Where it goes from here, there's still a high degree of, of, of uncertainty and disagreement around. About how long is inflation, um, going to stick around? What's going to be the pace of slowing inflation? Uh, specifically around energy prices and food prices and, and shelter prices. Uh, there's definitely disagreement there, but, um, uh, and then, and then I think that the, the thing that makes it,

• 18:52Speaker 00

  you know, particularly nerve wracking is that this idea of like the Fed tightening until something breaks, which is a term that gets thrown around a lot. Well, you know, what that actually means is that when something breaks, it means that like shit really hits the fan and prices go down a lot quickly. And my base case would be that, you know, crypto would perform, you know, quite poorly in that environment. Um, along with equities and, and, and bonds and, you know, a bunch of other stuff. Uh, you know, a lot of currencies around, you know, that'd be a very dollar strengthening type of, type of situation. And so, you know, and then it could be over really soon and that would mark the bottom. But, uh, you know, you could be in for some, some very acute pain in the near term. And so, so the.

• 19:37Speaker 00

  You know, I, I, I, I think with this like wind sprinting of the Fed back to a neutral rate and you basically get there this month with 75 dips tightening before the economy falls off of a cliff, which it looks like it's already starting to, or before something breaks in financial markets, it, it, you know, that puts them in a position to slow tightening at the September meeting and potentially pause before year end, which should be supportive for risk assets, supportive for crypto. And, uh, and then now the Fed funds futures market is pricing in rate cuts by the spring of 2023. The euro dollar futures curve is pricing

• 20:20Speaker 00

  in cuts in early 2023. So you're already talking about some of the deepest, most liquid markets on planet earth that are implying that the Fed's, you know, getting quite close to being done here. And so I think that's what I mean by at the beginning of this conversation of like, be careful about getting too bearish at the bottom here because I think it looks like we're probably closer to, to the end of this than, than the beginning. And then I think the cat's out of the bag in terms of, of, of financial markets believing that uh, nothing on planet earth is going to move faster off the bottom than crypto when the Fed moves into that slowing or pausing environment. And I, I don't think that there's never been

• 21:04Speaker 00

  wider agreement uh, on that fact than there is right now. And that's just nothing like 2018 or 2019 bear markets when the really large majority of the world's capital like had no idea what to think about any of this stuff.

• 21:20Ryan Sean Adams?

  Nothing's going to move faster off the bottom than crypto. Um, I mean, we tend to agree with you, Travis. And I want to run some thoughts by you too, as we're trying to triangulate. All of this macro stuff, David, myself, and I think the bankless community and all of the experts we talked to, you know, you know, that line you said earlier of don't fight the Fed. What's ironic to me is like, isn't that what Bitcoin is doing? Isn't that the purpose of Bitcoin? Isn't that the purpose of crypto is actually to fight the Fed? It's actually a bet that the Fed is going to keep the money printer hiring, humming. It's actually a bet that quantitative easing cannot be stopped ever. And we might get cycles of quantitative tightening, but we're going to go back to quantitative easing. So we've

• 22:04Ryan Sean Adams?

  had some people on the podcast recently, Lynn Alden, Luke Gromon. I've read some posts recently by Arthur Hayes, too. I don't know if you caught his post that he put out last week. But the basic thesis is that even while the Fed might be raising interest rates, they're going to be put in a position where they're going to have to start the money printer printing again, some sort of quantitative easing or something else. Maybe this time, the money printing will go to purchase the bonds of US allies like the euro or like Japanese bonds, for instance. And it could be the case that the Fed might be saying on the one side, yeah, we're tightening our policy interest rates. With the other

• 22:49Ryan Sean Adams?

  hand, they might be purchasing bonds and like starting up, firing up the money printer and adding more to the US Treasury balance sheet, essentially. And so like, to me, where I've kind of come to in this macro journey and trying to triangulate among all of these macro experts is like, a bet against crypto is kind of a bet that the Fed will stop printing money, right? It's like, if you think the Fed is going to print money this decade, you have no choice but to be bullish on crypto. And just because they're not doing that right now, this is just a temporary pause in a long cycle. Some would say, if you

• 23:32Ryan Sean Adams?

  look at through history, maybe an inevitable cycle of a long-term debt cycle that needs to be unwound. And so the only way out of this is to actually print money this decade. And therefore, you have to be decade-long bullish on crypto as an asset. How do some of these things align with the setup, as you posed it, and kind of your thinking here?

• 23:54Speaker 00

  Uh, I agree with a lot of that. Um, I've never, you will never find me publicly, publicly anywhere saying that Bitcoin was like a CPI inflation hedge. It's a monetary inflation hedge. A monetary inflation hedge. It's a non-sovereign hard cap supply, global immutable decentralized digital store of value. I've rattled that off like 5,000 times at this point. And it's a hedge against central, you know, you know, it's a hedge against irresponsibility from central banks and governments globally. And, you know, another way of saying that is that it loves QE and to test QT. We're in a QT cycle right now, but, uh, I, you know,

• 24:38Speaker 00

  I, I have a high degree of confidence that, that that is very temporary. The market's telling you that it's temporary, uh, and that it's closer to being done than, than beginning. And, uh, that goes back to my point about, you know, gonna move the fastest off, off the bottom. And it's that, I think it speaks to, to Paul Tudor Jones's moniker for Bitcoin being the fastest horse. And again, you can extrapolate that out, I think, to, to, to other pockets of, of the crypto market, that in a world where central banks are racing against one another to see who can devalue their currency the fastest, uh,

• 25:21Speaker 00

  what are they devaluing against? And, uh, crypto, you know, I just, I, I just think it's pretty clear to me that, that, um, crypto acts really well over a medium, long-term time horizon as a, a hedge against that. It's like, it's, it's an asset class and a technology that like scoops, uh, an excess amount of that monetary supply inflation relative to other asset classes. And you can, you can measure this by, you know, looking at like M2 money supply versus like, you know, the S and P 500, or NASDAQ, or real

• 26:01Speaker 00

  estate, or commodities, or Ferraris, or Rolexes, or, uh, rare whiskeys, or like you can just, you know, pick an asset class, trading cards, you can just pick an asset class. And I and and you know, I just think crypto and you know, this this pullback notwithstanding, but over a more medium term timeframe, I think it just looks like crypto uh is going to to scoop an excess share of that monetary supply inflation. Now, to to your point about JGBs and and and European debt, I I don't have much of a view there. I think it's it's it's it's possible. I think there's certainly the potential for uh there to be so much stress

• 26:46Speaker 00

  in the yen or JGBs or the euro or European debt where uh those stress levels get to a point there that the Fed does have to react in in some way. Uh I don't know exactly what that looks like. That would be on my list of things in terms of like shit breaking, like, you know, euros on that list, JGBs, yen's on that list, right? Like, uh overnight short-term funding rates is on that list, treasury volatility is on that risk, credit spreads is on that list. Uh those are those are the like skeletons in the closet that you that you want you want to look out for. Um overall, when I look at what the Fed can

• 27:29Speaker 00

  do, what they're incentivized to do, what they have done historically, all of that points to them kicking the can down the road. They're incentivized to kick the can down the road. They can kick the can down the road. Um they they've kicked the can down the road for a long time before. Um and I I get it. You know, a lot of people have been talking about the early 1980s, talking about Volcker, you know, like Jay Powell invokes the name of of Paul Volcker, like it's, you know, George Washington or something like that.

• 28:08Speaker 00

  And I get that, but like, look at debt to GDP, where currently, look at uh uh uh deficits to GDP, look at uh the market value of financial assets to GDP, and those three charts tell you that uh we are in an incomparable period of time. This is not the early nineteen eighties. Um, and like, I just, people talk about, I know people talk about the forties. I I don't, I just, I'm not so sure you can look too too deeply into that long ago. One, because of technology, but two, just because this like,

• 28:47Speaker 00

  don't fight the Fed, like, it's just, it that has a stranglehold on this market to a degree that I think has never been present previously. So you you you take all of that, and and I I I like, I don't think this is like the end, like, we're not, I don't think this is like the end. It it it may be the beginning of the end, but I'm not even sure it's like the beginning of the end. I think it just looks like an, there's a pretty good chance, I think it's just like another uh can kick. And by the time these things actually come to a head, debt to GDP, deficit to GDP, financial assets to GDP, all this this this money printing that that uh have gotten us in this problem, it's not going to be boomers' problems.

• 29:32Speaker 00

  It's going to be our problem. They're gonna be, they're gonna be dead and gone and and and out the pasture. Um, and, but I also don't think that it's like, that's not like twenty twenty two's business, or tw- twenty three or twenty four. I'm not entirely sure it's this decades business. So, um, yeah, I would be a little cognizant of being like, Chicken Little, the sky's falling, you know, right this second. On, for that really big, for the really big arc, yeah.

• 30:02David Hoffman?

  I think that the conversation of what is Bitcoin has been explored with more scrutiny ever since this like big crash. And people, you know, the, the simple term that like gave rise to the 2020 through 2021 bull market was that Bitcoin was a hedge against inflation. Because of course it was, it was the most obvious. We have, you have the hard cap versus the money printer. These things could not be juxtaposed any, any clearer. But then post this big 2022 crash, people have really just really, really questioned that narrative. And now people are starting to reframe these things. As in, the common question was, why is Bitcoin going down when the Fed is fighting inflation when it was supposed to be an inflation hedge?

• 30:46David Hoffman?

  Which in my mind is, it's actually pretty simple. When, you know, the Federal Reserve is fighting inflation, they are simultaneously in fighting inflation hedges. And, and so like my mind has shifted towards Bitcoin isn't an inflation hedge. It is something that has exposure to the anticipation of inflation. Like it predicts inflation. And that's why you saw the bull, the Bitcoin bull market started at the depths of COVID and run all the way up to the point where the Fed started at like raising interest rates off of zero. And that, and that, and they did that because like inflation actually did show up in the market, but Bitcoin started responding well before inflation actually appeared. And so it wasn't, it's not actually an inflation hedge.

• 31:28David Hoffman?

  It's, it's just this thing that anticipates inflation coming and therefore people buy Bitcoin. But then there's also like takes on Bitcoin that it's a liquidity sponge, as in it will go up in number the more liquidity there is. I'm, I'm wondering if you've gone through this introspection period, Travis, and what's come out on the other side as to like what Bitcoin actually is in this modern world?

• 31:48Speaker 00

  Yeah, I, I do agree that Bitcoin has taken the narrative around it, the, the investment case around it has taken a bit of a hit. I, I agree with that. The, you know, it, it, it didn't act as an inflation hedge, but again, I'd never claimed it was going to, but. But other people did.

• 32:14David Hoffman?

  It was the meme, yeah.

• 32:15Speaker 00

  Yeah, um, uncorrelated asset, that did not work. I mean, that thing like, gee, I mean, it's just been, it was ticking with tech stocks on the way down, right? And it's, the correlation is, is still there. It's not as high as it was, um, a couple of months ago. Um, and I, I, I, I think the other thing that's, that's potentially problematic for the investment case for Bitcoin is it's not, it's not entirely clear that it's going to, at least it hasn't really happened so far of like, within the crypto ecosystem, sucking all of this capital out of everything else in a price decline.

• 32:58Speaker 00

  Because if I look at BTC dominance right now, and I understand Bitcoin dominance has some, it's, it's a flawed metric because it has stable coins in there, but, um, Bitcoin hasn't outperformed by like all, all that much relative to a number of other crypto assets in this, in this price decline. And as we move up off of the bottom or, you know, whatever this bottoming process looks like. I mean, you can just see what BTC has done just over the last like couple of weeks off the bottom, for, for example. And so, you know, I think all, all of that puts, you know, I think the Bitcoin value proposition, the investment case in a bit of a tight spot here.

• 33:40Speaker 00

  Um, I, I, I don't think Bitcoin maximalists are doing themselves any favors in terms of the way that they're communicating with the market. Um, they, uh, you know, at least right now, I think you're probably doing more harm than good with some of the, the messaging or some of the, the quote unquote, marketing of Bitcoin that's going on. Uh, that is a bit problematic, I think. Over, over a very long, you know, over like a this decade type of timeframe and into the next.

• 34:16Speaker 00

  Bitcoin, for the last, I'd say like 18 months or so, Bitcoin is pristine collateral, has still been the investment case that makes the most sense to me over this like decade plus long period of time. And that's just going to take a long time. And treasuries are the collateral foundation for the global financial system right now. This is a, this is a debt laden global financial system. And so, you know, the US dollar is the world reserve currency, but treasuries are the collateral foundation for planet earth. And treasuries as an investment instrument, when, as a collateral instrument, I think when you look out over a this decade,

• 34:59Speaker 00

  next decade type of timeframe, they are challenged. And so the world, you know, is probably looking around to see, okay, well, like, what else are we going to go to? And people have been having a lot of these conversations lately as well, too, just in response with the, with the, with the Russian sanctions and, you know, what does it actually mean to own gold or own FX reserves in a bank? And, you know, do you really own those things free and clear? That, you know, that whole conversation. And I think Bitcoin is well positioned to, over the course of, of

• 35:37Speaker 00

  this decade and into the next, start to chip away at, at being pristine collateral. There's a lot of price volatility. That's going to need to calm down some. But, you know, there's been a lot of price volatility in treasuries over the last six or nine months as well, too. So it's, it's, it's worth looking at it within that, within that backdrop. So I guess I would, I would summarize all of that to say that there is a, you know, there is a bit of a, of a narrative challenge around, around Bitcoin right now to a, to a higher degree than.

• 36:18Speaker 00

  Has ever been present in the in the five years that I've been looking at this.

• 36:21Ryan Sean Adams?

  Do you know Travis, the way I would kind of summarize this is I think there's been a simple misunderstanding in the difference between the words inflation hedge and debasement hedge. And I would say something like Bitcoin, and I put Ether in that category too, is not a hedge on inflation, never was. It's a hedge on debasement. And that is what's happening with quantitative easing. So we're getting increased money supply at the base level. This is the money printer, go brr, meme. And anyway, that's a case that like, the idea of debasement is not something that everyday US dollar users see, but that is the operating force behind the scenes. But while we're on kind of the macro bear case, right?

• 37:04Ryan Sean Adams?

  And how that might turn around, because there are some big headwinds on the macro side of things. Like, things still look bad. I think you're also probably predicting a recession ahead, as are we, as are most peoples. We'll see some of that. But then we also see some self-inflicted wounds in the crypto industry as well. And you were alluding to some of those. I wonder if we could just talk about that briefly before we get into the merge, because I think that is part of the context for why crypto is down so bad. And I'm going to share this tweet that you put out recently. This was when crazy stuff was happening in crypto, as it is, but when it just started

• 37:45Ryan Sean Adams?

  breaking on June 30th, you said, "I've been doing these things for 46 straight months, and I've never seen one like this before." And this is a newsletter I think you put out for probably investors in your fund, June Highlights. And it's full of these bullet points with all sorts of chaos. Celsius going bust, Three Hours Capital doing a Madoff-style, likely committed crimes, knock-on effects severely damaging most large crypto companies. We've got Voyager insolvent, we've got BlockFi down bad, on and on and on it goes. Can I ask you, did this one catch you by surprise? What do you think of this self-inflicted wound the crypto industry has kind of given itself?

• 38:31Speaker 00

  Uh, I think we, I think anybody that's heavily involved in this market knew there was risk around centralized borrow lending platforms. Um, I'm not sure if I ever talked about that publicly, but I do a monthly private Zoom call for all of our LPs. And in, in, in that context, I'd been talking about this for like 18 months and I always, I always, I, I, I refer to it as shadow leverage and, and it's shadow leverage because it's opaque, right? And you, you knew that there was some amount of under collateralized or uncollateralized lending that was happening

• 39:12Speaker 00

  in centralized borrow lending platforms, but you didn't know to what degree. You didn't know, you know, what the overall makeup of that, of that lending book looked like for any given, uh, eco, you know, for any given centralized borrow lending platform. But you knew that there was some under collateralized and uncollateralized lending that was going on. And we had some scares around that in the March 2020 crash. Uh, the ecosystem was a lot smaller back then. Um, but you had some scares. You had a couple of small blowups or, or guys get into stress. But if you look at the price chart, the price went up so aggressively off of the

• 39:55Speaker 00

  bottom that a lot of people ended up getting bailed out because, you know, your collateral value was rising in value and, and, um, you know, we went through a little bit of this in the May 2021 price crash, had a little bit of stress there, made it out okay. But this whole shadow leverage concept and, and it's like a daisy chain because the other thing that for people that were, I think deeply involved in this market is you, you, you kind of knew that there wasn't a really, there wasn't really good communication about like firm A that borrows under collateralized from borrow lending company number one. And then like, well, what did they do with borrow lending company number two and borrow lending company

• 40:40Speaker 00

  number three? And it's like a daisy chain, basically, right? And this is something that people had talked about, you know, whether it's behind closed doors or publicly, people have been talking about this for a while. And we, like I said, we almost got bit a couple times and then we got really bit, right? You got, you got really bit and you just had this big. You know, shadow leverage, daisy chain unwind. And it started with Terra Luna. It metastasized into Celsius. It crescendoed into this, like I said, Madoff style blow up of Three Arrows Capital that like, you know, a bunch of these court documents and stuff are coming out now and they're just like

• 41:21Speaker 00

  straight out of a movie, right? Like literally like strange, crazier than fiction type of stuff. And

• 41:28Ryan Sean Adams?

  This is like Wolf of Wall Street stuff. I mean, the movie

• 41:30Speaker 00

  Yeah, I mean, just crazy, crazy stuff. And then knocking on to blow up or significantly damage virtually every borrow lending business in crypto and multiple exchanges and hundreds of projects and funds. And so we got bit, we got bit pretty bad there. Now, you know, I will say like, to sort of like, you know, pitch the name of this podcast a little bit, DeFi did pretty, you know, DeFi did pretty damn good through all of this. And, and the, um, the sort of like purpose and the, the value proposition for DeFi, you know, I think was relatively on display during all of this carnage. Um, but

• 42:16Speaker 00

  there's no such thing as, oh, is under collateralized or uncollateralized lending in DeFi. Uh, and if there wasn't any of that that happened with centralized borrow lending platforms, then you would have talked about a totally different type of setup. It was the under and the un that, that caused how nasty the knock on effect got. And, uh, you know, I guess, I, you know, I guess I would just say, you know, things generally work the way they were supposed to. Even Terra, Terra Luna, to be honest with you, worked, worked the way it was supposed to.

• 42:53Speaker 00

  And this shadow leverage, daisy chain unwind certainly had DeFi leverage that was closely intertwined with it. But DeFi was not the cause of that, of that unwind. And it was the inherent opacity of those centralized borrow lending platforms that enabled that under and un collateralized lending that caused that blow up. Um, and you know, I think you could imagine a world where

• 43:27Speaker 00

  Crypto, or dare I say, the entire world. You can imagine a world where borrowed lending happened, all of borrowed lending happened transparently in DeFi, and all borrowing was over collateralized. And if you hit your liquidation level due to price declines, your collateral was liquidated to save the lender. And this is actually, you know, that's like the foundational principle for centralized perpetual swaps, like perps on centralized exchanges, that's how they work.

• 43:59Speaker 00

  Now, there's exchange counterparty risk, some amount of that with perps, but, you know, I think you, sort of with DeFi, you sub out exchange counterparty risk for like, maybe like smart contract risk, for example. And I don't know, it might be wishful thinking to assume that the opacity of these centralized borrowed lending platforms is going to go away forever. You know, these things have a tendency to move in pendulums, and right now, the pendulum's over here in the fear section, and, you know, it, over the history of humanity, just has this tendency to swing back the other way. And another tweet I had a while ago, when I was thinking about all this stuff, is like, if you looked at the win-loss record of greed, you know, it's just a pretty stunning win-loss record.

• 44:40Speaker 00

  So it might be wishful thinking to just assume that the opacity of the centralized borrowed lending market is about to go away forever. These things have a tendency to move in pendulums, and right now, we're over here on the greed pendulum, or on the fear pendulum, but greed has like an incredible win-loss record. And so it's probably a pretty good chance that eventually, you know, things, leverage in crypto was tightened for a time, that's already happened significantly, but that eventually it's going to widen back out, that's just kind of the nature of these things. And like, I don't know, do I believe that years or decades from now, we will achieve the transparency that an entirely DeFi financial world promises? Maybe, I mean, it could happen.

• 45:24Speaker 00

  It would certainly be good for humanity, because it'd prevent these sorts of things from happening again, that have been happening for literally thousands of years. And I, you know, I don't know, I would like to work on making that a reality, but first we got to stop tripping over our own two feet, I think.

• 45:43David Hoffman?

  All right, yeah. The general take on DeFi is that it's held up so well because of the over-collateralization, which is, of course, true. That extra 50% collateral that Maker Dow requires, or 20%, 25% that Compound and Ave requires is just a huge extra buffer versus an under-collateralizer or no collateral loan. But I think it's really worth the extra emphasis that it's also the complete lack of transparency that is what allowed contagion with Three O's Capital. Because we couldn't see them going to Voyager and getting a $700 million uncollateralized loan, and also gambling with other DAOs, treasuries, and getting a loan, another bajillion-dollar loan from here. That lack of transparency is where so much of this contagion happened.

• 46:28David Hoffman?

  And if a number of these lending entities were more cooperative, which they wouldn't be because they're competitive, they're competition with each other, if they were more cooperative, they would have been able to call each other up and being like, "Hey, do you have a billion-dollar outstanding loan with Three O's Capital?" Because they just asked us for one. And then, all of a sudden, we would have a little bit more clue as to the shenanigans that Three O's Capital was up to.

• 46:53Speaker 00

  Yeah.

• 46:54David Hoffman?

  And so I do really think that transparency aspect of DeFi is actually the more interesting part, rather than the over-collateralization. Any takes on that?

• 47:05Speaker 00

  No, I completely agree with that. And I don't know if that means that there's going to permanently be more communication amongst centralized bar lending platforms. That would be nice. Yeah, I'm not exactly sure how that's going to shake out. Like I said, I think these things have a tendency to move in pendulums, and we're in a fear pendulum right now. But it's like, you know, the Fed's going to cut rates and start juicing QE again not too long, and Bitcoin's going to be knocking on the door of 100,000, and ETH is going to be knocking on the door of 10,000, and there's probably going to be centralized bar lending desks that start leaking out under-collateralized and uncollateralized lending again, and then, you know...

• 47:48Speaker 00

  You know, I don't know. Like I said, there's like a couple thousand years of human history that would, that would, uh, you know, tell you to not bet against that. So.

• 47:58Ryan Sean Adams?

  I, I feel like every 10 years crypto gets Mount Gox. And so like a new generation gets Mount Gox, right? Not your keys, not your crypto. And so it wasn't an exchange, but this time it was a centralized.

• 48:10David Hoffman?

  There's more money.

• 48:10Ryan Sean Adams?

  Provider gave up our crypto and then we got Matt Goxed. And we'll probably learn that lesson. This generation will be good. We'll be good. Another 10 years go by.

• 48:19David Hoffman?

  One per cycle.

• 48:20Ryan Sean Adams?

  Another three arrows capital, another, you know, Mount Gox and we'll learn it again. This is history. This is humanity.

• 48:26David Hoffman?

  Travis, uh, in speaking of knocking on the door, we are knocking on the door of the merge. It's just a few weeks away. Give it five, six, seven weeks away. So.

• 48:35Speaker 00

  What a transition. What a transition.

• 48:38David Hoffman?

  Yeah. You like that one? Uh, so we definitely want to get your take on, uh, just like again, the, the tug of war between the macro bearishness versus the merge bullishness. And I actually do think, I'm going to tease this, the, the hyper, hyper bull case is that macro actually flips bullish around the same time as the merge. Uh, and so there's actually a world where the, this tug of war does not actually tug against each other. It actually is two, two forces going in the same direction. The hyper bull case for the Ethereum merge. But first, before we get to that very exciting conversation that you definitely want to stick around for, uh, we want to talk about some of these fantastic sponsors that help you go bankless. Juno is bringing crypto friendly banking straight into your checking account.

• 49:21David Hoffman?

  With Juno, you can send money from your Juno checking account straight onto a layer two, like Polygon, Optimism, Arbitrum, and they have ZK Sync and Starknet support on their way. You can skip the ACH wait times. You can skip all the gas fees and go straight from your checking account to an Ethereum layer two in seconds. Inside Juno, you can buy and sell crypto with $0 fees and your Juno checking account comes with a metal mastercard that gives you up to 5% cash back on your spending. Juno is also giving you $10 cash back on your first crypto deposit and $100 when you set up a direct deposit. This ad just writes itself. So go sign up at juno.finance/bankless. ZK Sync is an Ethereum layer two network that is pushing. The frontier of high-performance blockchains that don't compromise on security or decentralization.

• 50:03David Hoffman?

  ZK Sync has combined the power of zero-knowledge rollups in the Ethereum virtual machine, enabling developers to build the greatest Web3 projects possible, ones we haven't even seen yet. Crypto needs its killer applications to onboard the world, but crypto-killer apps need ZK Sync as a platform to build on first. It's generally accepted that zero-knowledge rollups are the conclusion of crypto-blockchain scaling technology, and ZK Sync is leading the charge into the final frontier of crypto-economics. So if you're a developer who wants to build your app on a future-proof foundation, which gives your users the best UX possible, check out ZK Sync's website at zksync.io. And yes, there's also going to be a token, so give them a follow on Twitter too, @ZKSync. The Brave browser is the user-first browser for the Web3 internet, with over 60 million monthly active users. And inside the Brave browser, you'll find the Brave Wallet,

• 50:49David Hoffman?

  the secure, multi-trained crypto wallet built right into the browser. Web3 is freedom from big tech and Wall Street. More control and better privacy, but there's a weak point in Web3: your crypto wallet. And most crypto wallets are browser extensions, which can easily be spoofed. But the Brave Wallet is different. No extensions are required, which gives Brave browser an extra level of security versus other wallets. Brave Wallet is your secure passport for the possibilities of Web3, and supports multiple chains, including Ethereum and Solana. You can even buy crypto directly inside the wallet with Ramp. And of course, you can store, send, and swap your crypto assets, manage your NFTs, and connect to other wallets and DeFi apps. So whether you're new to crypto or you're a seasoned pro, it's time to ditch those risky extensions and it's time to switch to the Brave Wallet. Download Brave at brave.com/banklist and click the wallet icon to get started.

• 51:33David Hoffman?

  All right, Banklist Nation, we are back with the part of the podcast that you guys all want to hear. Travis, you recently stated the ETH merge is the most significant event-driven catalyst that we have ever seen in crypto. Can you unpack this statement for us a little? Why is the merge so significant to you?

• 51:48Speaker 00

  Yeah, sure. I was, before I jumped on here, I listen to your guys' podcasts reasonably often, but I don't catch every episode. And I was sort of scrolling through your past guests, and I think I'm probably like, you know, not nearly the best person to talk about macro, and definitely not even close to the best person to talk about the ETH merge relative to other guests. I'm, I've got a middle-of-the-road on both of them, but I do spend a lot of time...

• 52:12David Hoffman?

  But you can do both. But you can do both.

• 52:15Speaker 00

  And I, yeah.

• 52:16Ryan Sean Adams?

  And also, Travis, I want to kind of hear your story at some point through this, because you have not always been bullish on ETH as an asset or the merge. And I want to hear, like, maybe even stepping back. How you came to the tweet, the ETH merge is the most significant event-driven catalyst that we've ever seen in crypto.

• 52:35Speaker 00

  Yeah, and I guess it's, I am, I am very active in these markets on a day-to-day basis and have been for years. So I guess maybe that, uh, maybe, maybe puts me in a different category than, than, than some of your guests. But, um, uh, yeah, so we launched the, we launched Ikigai December of 18, depths of the bear market. The large majority of what we have done since then is systematic, models-driven exposure to Bitcoin with the purpose of outperforming, just holding Bitcoin on a risk-adjusted basis through

• 53:16Speaker 00

  cycle. So like we, you know, build proprietary statistical models, you know, we, you know, try and kind of, you know, catch the meat of the big up moves and avoid the meat of the big down moves. Uh, you don't have to do that perfectly. Lord knows we don't do it perfectly. If you can do it reasonably well, as the months turn into quarters, you can kind of start compounding your outperformance versus just holding Bitcoin. That's, that's the large majority of what we've done over the last few years. Um, we started getting away from that, um, last year. And, uh, in terms of how our portfolio allocation of the hedge fund looked, uh, you know, one thing that happened is we bought a little

• 54:00Speaker 00

  bit of Solana and it turned into a lot of bit of Solana because the price went up a lot. To a lesser extent, we bought a little bit of FTT and it turned into a lot of FTT because the price went up a lot. And our, our kind of systematic BTC portfolio allocation just started shifting some because of, of some of those movements. So in, in, in the summer of 2021,

• 54:20Speaker 00

  I started thinking about just the optionality of the different types of activity that were going on on Layer One Smart Contract platforms. There wasn't a lot of activity to speak of before DeFi Summer in 2020. And then now you had this like very tangible use case, an entire new sector with many, many billions of dollars of TVL that was locked up. And then in summer, summer 2021, when NFTs took off, now all of a sudden you had two use cases. So you could, you could own Ethereum and you got DeFi and you also got NFTs, which to me felt like owning Google stock and getting

• 55:04Speaker 00

  search and YouTube or owning Facebook and getting WhatsApp and Instagram. And, you know, I actually, you know, I think tech stocks, the big ones are, you know, pretty good stores of value if you just look at their charts over a long period of time, the ones that have dominant market share positions. And I think, and I think that, that you, you ended up with a, a, just a lot of like pattern matching there. And, and that, um, that just started to change my view on how I was thinking about value accrual for smart contracts in general. And, uh, you know, I think that this, this

• 55:49Speaker 00

  and, and, and, and so, so, so I think, and sorry, and then, so that was NFTs and then gaming came along. Metaverse stuff came along. And Facebook changed their name to Meta right around the time that, um, a lot of this stuff was, was, you know, getting increased traction in the crypto ecosystem. And so you, you know, you started to have some tangibility on these different emerging crypto sectors that you, we've never had in, in, in crypto previously. And I think, I, I think that just kind of changed my view on, you know, how the market was going to potentially think about value accrual for these, uh, for these smart contract platforms.

• 56:34Ryan Sean Adams?

  So Travis, that's what changed your mind on the value accrual is really seeing that utility that you hadn't previously seen. In 2018, Ethereum smart contracts largely had one use case, and that was the ICO. My God, look what happened to ICOs. Coin offerings and tokens, one thing, but now we're seeing utility like DeFi and NFTs. Let me ask you specifically about the merge. Why do you think that is a specific catalyst for Ethereum?

• 57:06Ryan Sean Adams?

  Does this blend some of the best that you've seen with the utility of smart contract platforms with the steady monetary policy of something like Bitcoin? And I'm not saying it's exactly like Bitcoin, because it's not. It's its own separate thing. But 2018 Ethereum did not have the monetary policy assurances of 2022 post-merge Ethereum. Tell us more about this merge catalyst. Why is that exciting? Why is it the biggest catalyst we've ever seen in crypto?

• 57:39Speaker 00

  To me, it's the digestibility of it. It's the digestibility of the merge. Ethereum is becoming yield generating and deflationary and "ESG friendly." And we can have an entire separate conversation about ESG, but I think we all know that it's a behemoth factor in the markets currently and in all markets. And the mess that Bitcoin found itself in with Elon doing the about-face in May of 2020, all the ESG stuff going on with Bitcoin,

• 58:21Speaker 00

  again, totally separate conversation about the legitimacy of those arguments that maybe we can just put that to the side for now. But ESG is something people really focus on. So it's just the digestibility of it, coupled with

• 58:34Speaker 00

  Uh, the, the willingness and ability for large pools of institutional capital to buy ETH in size. And that's just never been present previously. Like, like forever, for, you know, the large majority of, of, of the history of crypto, the vast majority of large pools of institutional capital wouldn't touch crypto at all. And then around 2020, specifically on the back of, I think, Paul Tudor Jones, you had institutional capital that was willing to start nibbling at Bitcoin to a degree that had, you know, a higher degree than had ever been present.

• 59:13Speaker 00

  But now, from people that I talk to and from my understandings of what that institutional capital landscape looks like, there's just a willingness and ability to buy, to, to buy ETH that, that has never been, been present previously. And so it sets up for, um, like I said, it's like the largest, the largest catalyst in, in, in crypto history. And to your point, you know, and I'll, I'll, I'll, I'll give the, the bear and the bull case here for ETH. There is a potential for macro to be so shitty that the, the merge catalyst is like delayed or sort of wasted, um, because macro is just, it's a very bad environment, right?

• 59:57Speaker 00

  Like if the repo market is blowing up plus or minus a month from when the merge happens, like it just may not work all that well. But I, the, the flip side of that is that, you know, if the Fed teases a slowdown at Jackson Hole at the end of August and then slows down in, at the end of September, with an indication that they're going to go on pause by year end. And then if, and then the, you know, the market is pricing in rate cuts early next year, which they already are, and traditional asset class fund managers are staring down

• 1:00:38Speaker 00

  the barrel of, you know, three or four months left in the year, and they've had quite a shitty year because everything's gotten smoked. Uh, you know, the potential to sort of save your year by getting long some ETH, like that's just a, you know, that's a pretty compelling setup in my view, just from like a market structure perspective. And, sorry, and then one more thing that I'll say, because most of that, I went on, on, on, on Jason and, and Santiago's, uh, Empire Podcast a couple of months ago, and most of this stuff I, I, that I just said, I said on that podcast, but, you know, ETH got cut in half over that period of time, uh, you know, since then and, and now, uh, so you're talking about a price level that just a couple of weeks ago, you know, people would have, you know,

• 1:01:21Speaker 00

  would have thought never would have happened, or would have, would have dreamed about. So the, the positioning around ETH is meaningfully more attractive in terms of, there's just a lot less money that's, that's, uh, that's currently long it. So, and I mean, you're seeing, I mean, it's, it's gone up 50% in a straight line over the last like week or whatever, right? So you're starting to see a little bit of that. As soon as, I mean, I think it came out of the, I guess the, was it the last core devs call that they, they, that, that September 19th date, I think got, got thrown out with a degree. And I mean, that was, I mean, put that tweet on a chart and ETH went up 50% in a straight line since that, so.

• 1:01:59David Hoffman?

  Right. Yeah. The market definitely seems to be, uh, de-risking, uh, the possibility that the merge will not happen. And, and generally speaking of ETH positioning, I, I mean, I, I think that we're all in agreement that the, the merge is a huge catalyst, catalyst for just price accrual inside of the crypto industry. But also there's this juxtaposition with the, the macro markets as well. Uh, and one of my favorite tweeter, Twitter accounts out there, uh, at Ryan Shot Adams says, uh, Ethereum is about to become the world's only deflationary monetary asset at a time of historic monetary inflation. What a contrast.

• 1:02:36Speaker 00

  Yep.

• 1:02:36David Hoffman?

  And I'm wondering, What do you make of this juxtaposition? Is this something that is like, you know, the secret handshake of everyone inside of crypto Twitter? And just crypto in general, that we kind of know this juxtaposition? Or do you think this this contrast of like ether, the deflationary asset during a time of super high sovereign debt? Do you think that that contrast will land on people outside of crypto?

• 1:02:59Speaker 00

  I do, I do, I do think it will outside of crypto. Within crypto, you know, a lot of people got smoked over the last two months. And part of the ETH BTC underperformance was, you know, over the last couple of months was that it was like the only thing that people were still long. You know, for all the reasons that we just talked about.

• 1:03:20Speaker 00

  And people were fire selling stuff or in some cases, you know, in a good amount of cases, getting liquidated. You know, liquidation is happening into a zero bid environment, basically.

• 1:03:32Speaker 00

  But you clawed a lot of that back already, you know, incredibly rapidly. And, you know, I just think the entry point for institutional capital just looks a lot more attractive here. If you can get some of these macro tailwinds, like, you know, if, if, if, if, if the Fed is wind sprinting towards a recession and potentially some kind of, of, you know, market crash type of scenario. Institutional capital, I think, is going to have pretty limited interest in getting, getting long ETH in with that kind of backdrop. But if you can get some, you know, a path to a slowdown in tightening

• 1:04:17Speaker 00

  or specifically, you know, the biggest upside risk in, in my view for macro is some kind of, some kind of credible treaty situation in the Ukraine conflict. And I, I don't mean to, to make light of that at all, because there's, you know, you know, tons of people that are dying. And I mean, it's just, you know, it's a really horrific thing. So I don't mean to talk about it just in the context of financial markets. But, but that's the context of what we're talking about here. But if you can get some kind of Uh, credible treaty there. That's gonna, that's gonna have the setup of like, um, commodity prices down. They've already come down. They've already come off a lot off the high, but like commodity prices down.

• 1:05:00Speaker 00

  Uh, uh, tightening expectations down, inflation expectations down, equities up, crypto up. And that would be the backdrop for, uh, you know, I think crypto broadly and ETH specifically to run tremendously hard if all of that kind of lines up and you end up, you end up threading the needle there. You know, I'm not saying it's definitely gonna happen, but I think that is, that is the setup.

• 1:05:27Ryan Sean Adams?

  So Travis, uh, let's, um, let's kind of close this out with our boxing match here of like macro versus the merge here, right? And so in the left corner, we've got, we've got macro, things looking kind of ugly. Let's say that persists because as much as, you know, we'd all like to paint the happy picture of, hey, you know, things are going to get better on the macro front. Uh, and maybe the Fed will, will turn some things around and start money printing and thread the needle. That might not happen, right? We might be set up for like a, a longer winter and maybe that's kind of the base case. So on, in the left corner, we have that macro looking ugly. But then in the right corner, we have the most significant event-driven catalyst that we've ever seen in crypto,

• 1:06:11Ryan Sean Adams?

  which is the merge and ETH goes deflationary, becomes an internet bond, has all of those tailwinds of an ESG narrative and deflationary asset in the backdrop of all the sovereign debt bubble that we're seeing all around us. Who wins this boxing match, right? Does like ETH number go up if macro is really bad, but like the merge is really good? Or like, does it still get knocked out by the Fed? I mean, that's the rule that we've been told. Don't fight the Fed. And here's the ETH merge in a boxing match with Jerome Powell. Who's gonna win?

• 1:06:45Speaker 00

  Yeah. I would not want to be, like, if you knew, let's say you knew the repo market was gonna blow up in September. I would not want to be long anything. Cash. You'd want to be in all cash. It just the, the, the RR of, of that, uh, Would not be compelling to me to be long. Um, but again, I'm like, I don't want to come too much from a traitor's, I don't know. I don't know. It's like a very traitory way to answer that question. A lot of people don't think about their own exposure like that. You, you probably shouldn't because it's a really, really hard job.

• 1:07:21Speaker 00

  But if the macro is, is bad or, you know, getting even worse. I, I do think that ETH is gonna kind of struggle uh to outperform and, and the merge catalyst is going to struggle to be realized just from a price performance perspective. Um, because of that, of that macro overhang. Um, but there's the, you know, like I said, a- asset prices are about expectations and positioning and rate of change.

• 1:07:51Ryan Sean Adams?

  Very good. Here's what I'm getting in summary. So like if macro goes well, man, we are off to the races. Okay. The merge plus macro, moon, like heads up, get ready for it. Faces will melt. Uh, if macro stays the same and the merge happens, ETH is maybe looking kind of bullish.

• 1:08:11Speaker 00

  Still pretty good. Yeah.

• 1:08:12Ryan Sean Adams?

  Maybe the worst news has been priced in. If macro gets hit hard, if it comes out of that, that uh left corner swinging, it punches ETH in the face, it'll punch every single asset in the plate, in, in the face, then look out below. We're still probably, despite the merge, headed for triple digit ETH. Once again, getting dunked in the, yes, then eventually we're probably going up. Um, Travis, thanks, thanks for that. Thanks for walking us through that. I remember reading some of your stuff from 2017 when you first falling down the crypto rabbit hole. And definitely the token economics side was, was the part I recall that really grabbed you. So that's cool to return to your, to your roots here.

• 1:08:51Ryan Sean Adams?

  And um, I, I will say one thing, you, you got the formula down, which is like, you want to raise in 2021 that year and then deploy in 2022, right? So uh, that's a good, good timing on that part, my friend as well. Travis, thanks so much for joining us. I feel like we've got some great insight into macro in the backdrop of the merge and it sounds like we're going to witness the boxing match in real terms over the, over the months to come. So looking forward to, to being there on that. Risks and disclaimers. As Travis said, none of this was financial advice. It never is on Bankless. Crypto is risky. Ether is risky. The merge is risky. Macro is risky. Life is freaking risky, okay? But with DeFi specifically, you could lose what you put in, but we are headed

• 1:09:36Ryan Sean Adams?

  west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.

• 1:09:43David Hoffman?

  Hey, we hope you enjoyed the video. If you did, head over to Bankless HQ right now to develop your crypto investing skills and learn how to free yourself from banks and gain your financial independence. We recommend joining our daily newsletter, podcasts and community as a Bankless premium subscriber to get the most out of your Bankless experience. You'll get access to our market analysis, our alpha leaks and exclusive content and even the Bankless token for airdrops, raffles and unlocks. If you're interested in crypto, the Bankless community is where you want to be. Click the link in the description to become a Bankless premium subscriber today. Also, don't forget to subscribe to the channel for in-depth interviews with industry leaders, Ask Me Anythings and weekly rollups where we summarize the week

• 1:10:27David Hoffman?

  in crypto and other fantastic content. Thanks everyone for watching and being on the journey as we build out the Bankless nation.