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CRYPTO 101
Ep. 717 Coinbase's Global Head of Research: Why Crypto Isn’t Following the Old Cycles
00:46:49
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- [00:01]
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- [01:46]
Podcast Host
All right, everyone, welcome back to the Crypto 101 podcast. Hope everyone is having a fantastic morning or evening. No matter where you're coming in from, you're certainly in the right place here today. And let me just say, I know every time we come in here we're like, man, we got a special guest. It's going to be exciting. You guys are going to like this episode, but today it's a really special one. In fact, we brought in one of the largest players in the crypto industry. It's a little exchange. You might have heard of them. No? All jokes aside, it's Coinbase. Coinbase, for people who don't know, they are one of the largest crypto companies in the world. They have over $500 billion in assets under management, over 100 million users worldwide. They're publicly traded on the New York Stock Exchange. And, man, we're glad to have you here. We got David Duan. He is Coinbase's global head of research. David, welcome to the show and we appreciate your time.
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David Duan
No, it's my pleasure to be here. Thanks.
- [02:41]
Podcast Host
Absolutely. Well, let's just get straight into it. I mean, let's talk about the markets, crypto and everything. Not just crypto, really. Everything here is moving at a million miles an hour. It feels like everywhere you look, there's a different catalyst. People are looking over at one direction and they're saying, oh, well, we see geopolitical, they're looking in another direction. They say, oh, well, we see energy. Then they're looking at the Federal Reserve, and then they're looking at, you know, different crypto bills that are trying to get passed. And then there's this and that. And of course, the markets are also responding to this as really anything that's associated with risk, whether it's small cap equities, large cap equities. You've seen metals moving a lot, which are typically more risk off. You've had energy going crazy. And of course, crypto is right at the center of this. And there's again, just so much going on here. And so people just have questions, and we're going to get into that some. As we go through today's episode, we're going to dive through what's happening in the markets, what you all are working on, what you all have been up to. And I think what you have here is some really interesting insight because you get to work with some of the biggest players in the industry. You get to talk to just about everyone. And I think one of the cool things about Coinbase is because you guys are one of the biggest players in crypto. You tend to be very innovative, but you also get to set the standard. And a lot of people like to follow in your footsteps and look toward what you're doing. So excited to have you on here. I guess let's just go, you know, high level. How did you get into all this stuff? You know, how does one get into a position where you are, you know, being the global head of research over at Coinbase?
- [04:20]
David Duan
Yeah, that's a great question. So I've been doing global markets research for the better part of 20 years, I would say. And prior to joining crypto, I was in traditional finance, so I worked for a few banks. When I first started, I was actually a Quant strategist over at Deutsche Bank. I did that for about seven years, and I pivoted over to macro. That meant I covered, like, monetary policy, fiscal policy, and I really specialize in emerging markets. Like, by the time I left, I was the head of Latin America research at HSBC and I was really interested in crypto since probably 2017. But it was always this incremental kind of move into the space. And I'll be honest, it wasn't Bitcoin that got me here. It was mainly Ethereum. Like, I was a computer science major way back when, so Ethereum made perfect sense to me. And then after understanding that and kind of getting to that, I think I backed into Bitcoin later. And then I finally understood Bitcoin as store value, what that represented, how investors could actually pursue it. And, yeah, I've been now with Coinbase for the better part of four years.
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Podcast Host
Yeah, and it's. It's wild how much the market has changed even in the last four or so years. Every single cycle it's something different. Right? Not only if you look at the top 100 coins, which I like to do. You know, I know coin market cap has this time machine tool, and you can go back and you can take a look at the top 100 coins by market cap on any given date. And, you know, I've been in crypto for a while as well, and I always like going back and looking and being like, what was it like in 2018 and then 2020 and then 2022 and now 2026? And a lot has happened. I think one of the big things recently is that over, I would say maybe the last year or so, there's been a huge shift in the way that crypto has been looked at. It was very harshly regulated. In recent years. A lot of that has eased up. There's been a lot of. Of new infrastructure passed or in the process of getting there that is enabling crypto to be a little bit more accessible and friendly and free. And I know we can't go into the. The specifics of it because a lot of the stuff around the Clarity act and other things are still in work. So I don't want to get you in trouble there, but I think people have looked at that and they said, well, a lot of stuff has fundamentally changed for the better here. It looks like these crypto lawsuits aren't there anymore. You see statistics growing, you see stablecoin growth, you see the growth in hyper liqu and a lot of these networks. You know, Ethereum for example, which, which you mentioned was the big cause that got you in. Ethereum doubled its prior cycles all time high in transactions while keeping gas fees under a cent. And most people look at that and they go, that's incredible. But then they look at the state of the market here and I think people are nervous because despite seeing a lot of that, they look at the state of the market now and it being down, you know, some coins, 40, 50, 60 plus percent. And I think that they're nervous that despite seeing that kind of growth, the markets are a little bit shaky at the moment. What is your view on what's happening here and what's going on?
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David Duan
Yeah, I think the regulatory side that you pointed out is a huge issue. And you know, I think that there's always been this nebulous idea about where do fundamentals fall in line for crypto? Because as you said, activity is going up, like either total value locked or transaction activity, maybe even the dollar value of that activity has also increased, but yet it's not necessarily translating into the token value itself and it's not uniform across the crypto space. Right. I mean like you have things like hyper liquid where when the perpetual futures markets start to grow and like not, not just volumes, but the open interest on these things and granted they're really kind of pivoting towards real world assets at the moment with like you know, perhaps gold and silver and oil, even The S&P 500, you know, like, I feel like they are obviously trying to cater to what people want, not just in this space but more broadly into like how do people want to invest, how do people want to trade? Just, just stuff, you know, that's out there. So I do think that as regulatory clarity starts to creep in and you know, we saw the SEC come out with this taxonomy, for example, the more and more we'll have at least some ability to start saying, okay, hold on, like this is how we can actually put like some of that value structure from those fundamentals into the token value itself.
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Podcast Host
What has some of the change in regulation enabled you to do? Again, I'm not sure stop at any point if I don't want to get you in trouble here, but what has some of the new regulations enabled you to do that you maybe haven't been able to do before, you weren't able to do before? What does that look like?
- [09:16]
David Duan
Well, for institutions it's still pretty hard. If you're an institutional investor, for example, let's say you're a large macro hedge fund, I think that you're still reticent to like, do much besides do basis trading, for example, where you'd buy the spot and then you'd sell the futures and you're trying to capture that spread. And they're doing it a lot of times using ETF wrappers because even then there's like, well, we want to be inside a regulated vehicle. And you know, some of this is a legacy of the Gary Gensler era, but so many of those funds are like, listen, we saw what happened. We don't want to get a lawsuit from like the SEC at some point in the future. Let's, we don't know what's going to happen, like after this administration, for example. So really, like until we get clarity from lawmakers themselves, like, it's not going to be finalized for a lot of institutional investors, but you see that they want that exposure. You know, we ran a survey of institutional investors and we asked them like, hey, you know, Q4 volatility, were you at all, Are you still interested in the space? And like, they, you know, three quarters of them came back with, oh, yeah, no, we, we still want to increase our allocations of the space. So absolutely, I think they're interested in, they're just waiting for something to, so that they don't have to get themselves in trouble.
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Podcast Host
That institutional survey that you, that you put out, that's this institutional crypto survey. For the listeners out there, if you have not gone through this, it's fascinating. I think there's over 150 participants and you go through and there's all these awesome metrics and data and you get to see like what the institutions, what the big boys in the space are thinking and what they're doing in regards to crypto in real time. And you guys put this out every single year around the start of the year. I have some metrics on that and I want to go through it. But who are like some of the names that are involved in this thing? Because there's, there was a lot.
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David Duan
Yeah. And every year we go out, as you said, with this survey, and it's run with ey, Parthenon for anyone who doesn't know or anyone who does know that name. And, you know, we're really just trying to get into, like, are you still in this, what are the terms that you're still into it? And it covers 351 institutional decision makers. And this includes, you know, you know, your, your hedge funds, includes family offices, includes like mutual funds. And it tries to get to many parts of the world. So it's not just us, but in the Europe, it's in Asia as well. Your firm has to be worth more than, I believe, half a billion dollars under management in order to be. Consider the survey. And, you know, so we're really trying to like, get at, like, all right, what are like the, the key decision makers actually think about this stuff, and that's where, like, their allocations to digital assets, tokenization, stablecoins, all that stuff really matters.
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Podcast Host
That's a really important data point. Saying, Number one, over 350 of them is a ton. And you're saying they have to have a level of success or credibility to them. They have to be over around a half a billion. It's big because the average person, again, they always say, what are the whales doing? What's going on? And Coinbase has the unique platform where you're saying you have the credibility, you have the size, you're able to collect all of this in one place. And then what's crazy is that you just, you publish the information on it. So again, maybe we can link it down below in the show notes or we can link it somewhere beneath. But I think it's worth a read for everyone because it gives you this deep insight into what's really going on. So let's get into some of these metrics here, because there was a couple that really stood out to me and I want to make sure that all the listeners are aware of them. The first one was that nearly half, at 49% of respondents, have strengthened their emphasis on risk management, liquidity and position sizing in response to a lot of the market volatility that we've seen here. So that means that they've seen what's going on, they've seen the volatility, they've seen, you know, all the shenanigans. And they're saying, we actually want to strengthen a lot of these different areas in regards to this.
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David Duan
Yeah, absolutely. And let's be clear here. You mentioned a lot of, like, I love the term shenanigans that we've seen in the space. And, you know, if you've been in the space enough years, we all know what you're kind of talking about. I mean, I think the world knows what we're talking about these days. But it's funny because I talk to these CIOs, I talk to these fund managers, and the question that they're often present most times isn't, should we own crypto? Should we own digital assets? It's okay, we want to, like, we want exposure. But under what risk framework do we want to do that through which vehicles we want to do it with which counterparties? It's a very different conversation than the one we had three to five years ago. And I think that that's kind of what you'd expect when, when you see this asset class graduate from more of a small sleeve in people's portfolios to a strategic allocation that a lot of these large firms are taking. So I agree with you. I don't think that some of the recent drawdowns that we've seen have scared institutions away, but it has forced them to professionalize. You know, like half of those investors, as you said, you know, like volatility has made them tighten risk management. They want to tighten the liquidity buffers. They want to make sure that the position sizing is correct, but they aren't here running and fleeing for the exits.
- [14:44]
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- [16:18]
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- [16:49]
Podcast Host
Well, that's cool. No, you don't understand. It went perfectly. Real offer down to the penny. They're picking it up tomorrow. Nothing. So what's the problem? That is the problem.
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Podcast Host
I'm waiting for the catch.
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- [17:05]
David Duan
Wow, you need to relax.
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- [17:16]
David Duan
Pick up fees may apply.
- [17:17]
Podcast Host
You're spot on. I saw another study a little bit ago and I'm sure the numbers have changed since I looked at it, but it was saying out of the ETF holders, it was something like 5 to 10% had sold and you had around 90 ish percent which had stayed steady. And it was telling because not only are the institutional investors doubling down, but you have the people who are in these positions for the long term. They're not going anywhere. And I think that one of the things that people fail to understand is that if all these big asset managers and banks are allowing crypto trading and capabilities and all these other things, it's not a short term move for them. They have to hire new people, they have to create positions, they have to create infrastructure. Then they have to set up, you know, the whole liquidity side and it needs to be seamless and perfect. And then there's a whole security aspect to it, like there's a lot that goes into this. And then you have to get the regulatory approvals and everything else and make sure that you're compliant. There's a ton that goes into this. So this, this isn't some short term play. This is really a long term bet. And we've seen that in a reflection for what the institutions are saying and doing, but also what even I would say the average ETF holder is saying and doing. And you know, the next number here was that 73% of respondents from this institutional survey plan to increase their digital asset allocations throughout 2026. And then 74%, even more of them expect crypto prices to rise over the next 12 months. And so, again, not only do we see their response, but they're saying, hey, we are planning on increasing exposure for throughout this dip. They're confident about it. And then from this dip, they're saying, we expect prices to be able to rise higher from here.
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David Duan
That's absolutely right. You know, I think that right now we're in this transition phase where many of them have either experimented with or maybe they're still kind of in the experiment. Experimentation phase. Excuse me, but they're rapidly moving the execution. And I mean, this is just the truth of markets, right? Like, I think that, you know, things operate on a curve, and no one really wants to be that front of that curve like some of the brave pioneers will, because they're like, they see the opportunity and, you know, like, hopefully they get rewarded for it. But institutions tend to want to be in the middle part of that curve. So, like, they don't want to be the first ones to jump in. But once they see all of their other friends jumping in, then they start to get envious. They realize that there's gains to be had and they don't want to be left behind. So I think that these institutions aren't just testing the Rails anymore. They're not just testing wallets and saying, like, like, oh, do these primitives kind of work? They are rapidly in the phase of, hey, let's integrate stable coins into our treasury operations. Let's explore what tokenized funds can actually have to offer. Let's kind of look at what's going on with on chain market structure. So I think that previously when you'd have these conversations with them, they were like, oh, why do I want to tokenize assets? You know, whether they're bonds or equities or whatever. Like, you know, like, we don't believe in that stuff. Now you see, like, skeptics like J.B. j.P. Morgan, like Jamie diamond actually going down, like, oh, we've always been in tokenization. We want to do this stuff. This is like, let's like. Like, we never were, like, questioning the premise of this at all. We're such a different place.
- [20:31]
Podcast Host
It has to have been interesting from where you sit, seeing that change happen in real time, because you probably had some conversations with either individual people or the general companies or organizations or whatever it may be, and you've had conversations with them and it had to have been interesting. Watch that. Watching that change over the last four or five years, right?
- [20:52]
David Duan
Oh, absolutely. And I mean, I'm talking about institutional investors, but this also goes for like the Fortune 500 companies. Yeah, all those, like small, medium sized enterprises, for example. Like there were a lot of skeptics out there. And you know, granted things change in part because, you know, now you can actually have crypto on your balance sheet. Like once upon a time you couldn't because you'd have to recognize it as an intangible asset. Meaning like you could only write it down. You can never write it up. Now those same kind of firms are like, oh, maybe we could look at stablecoins as a working capital tool. Maybe people can start getting paid in like in, in the stuff. Like we use like stablecoins as payroll. So it's like a massive shift from what we saw back in like 2019, 2020.
- [21:38]
Podcast Host
Well, we've come a long way, you know, fitting into this theme. I guess one of the final big takeaways was directly tied to the, to this, which is what in like industries or what verticals inside of crypto that they were the most interested in. And it looked like a couple prevailed, but the two main ones that stood out to me were stable coins and tokenization, both of which we've already mentioned. 86% of respondents already use or are interested in using stablecoins. That's a massive number. And then 64% of asset managers specifically are interested in tokenizing their own assets. And this is up from 40% just a year ago in 2025. So you see a 24 increase from 40% in 2025 to 64% of asset managers that are now interested in tokenizing their own assets in 2024. On both of those ends, huge infrastructure build out. And you see stablecoin supplies hitting all time highs, their activities hitting record highs. It's not just Ethereum. You're seeing it on Solana, you're seeing it everywhere. There's a clear desire for this. What is the big interest point for a lot of these groups to use this? What is the why behind them being so interested right now?
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David Duan
So I think a lot of the interest is coming from banks, that is the entities I used to work for. And some of it, I'll be honest, it's fud, because they don't want to be left behind. And so they realize that they need to, you know, try to be part of the 21st century economy, which will involve blockchain and tokens. But I think tokenization, for example, it's really about upgrading the market plumbing. So it's taking things like money market funds, treasuries, credit and giving them 24. 7 programmable settlement because they know that these rails work better than what exists today. And I mean, this really kind of gets into like, maybe some pretty pedantic things. I'm not going to say they're like super exciting things, by the way, like for people who don't work in this industry, you know, we're talking about stuff like, oh man, the loan to value ratios are currently around 50% because we're only able to settle at T +1, T +2. It takes like a whole day I. E. To like turn this stuff over. Now if we're talking about instantaneous settlement, you can actually get loan to value ratios of 75%, 80% and you're doing it at like the scale of like just hitting a button and then just being done. So you're not waiting 24 hours or 48 hours for this stuff to be settled anymore, which means that your churn rate is a lot higher. So all that, what does that mean? Because it really comes down to efficiency and it's not a super interesting topic because I think like, you know, when I jumped into the space, I was like, oh, I want to talk about the meaning stuff. You know, I want to talk about like, where's your knowledge, like proofs going to take us or what is like homomorphic encryption going to look like? All this kind of stuff. But really it does come down for a lot of these institutions to like that small micro stuff of like, oh, this means that the collateral that people hold it can actually be 80 and that like gets churned at a much faster rate. The efficiency gain that you actually have for this stuff is like two to three times what it currently is. So they know that this is kind of where it's going. And this is why you see headlines like NASDAQ and Nicee going like we want to go to 24, 7. All this stuff is going to be like tokenized and it's all going to be settled with stablecoins because this is what they need in order to just stay up to date with where on chain finance is going.
- [25:13]
Podcast Host
And you already started to see the transition of that. I know hyper liquid partnering with the S and P to create a 247 perpetual contract for the S&P 500. That's huge because I've tried to explain this to other people. If you don't understand the point of Tokenization in stablecoins. I think what it does is it allows people to have access and liquidity at any point in time and know with certainty that they can get in and out of these positions. That's, that's the huge benefit of blockchain tech is that there's no downtime, there's no maintenance, there's no this and that. It's 24 7, it's immutable, it's decentralized, its security is fantastic. And people can go and they can know, hey, if it's the weekend, I no longer have to go and buy and sell Bitcoin or get long and short Bitcoin because of geopolitical or macroeconomic events. You can now go and trade something like this. And I think the whole market is moving more towards that. It makes no sense that with the technology that we have today that you can't send anything anywhere in the world, no matter how much it costs, no matter which country it is, it makes no sense that it should take more than a few seconds and cost you more than a few cents. So that's what we're working towards. And I think that if you're enabling both people and institutions to do that, I mean, try to put a price tag on that, right? I always see different price tags and what people say the total addressable market is for something like that. And then gleaning into the tokenization side, it's try to put a, try to put a price tag on being able to tokenize and fractionalize and secure anything via technology. And then you're giving it increased liquidity, increased market exposure, expanding the addressable market, removing the barrier to entries. And that's what this is about. And so that's why you always see people throw these crazy predictions at it saying it's going to unlock this multi trillion dollar industry and opportunity. And you know, sometimes they undershoot, sometimes we overshoot. But I think it's right in saying that when you try to put a price tag on, on either of those, do you have the potential to create, you know, trillions of dollars in opportunity from something like that?
- [27:26]
David Duan
Yeah, I completely agree. I think that for a lot of the institutional investors we speak to, you know, like there's a reason why right now they're using ETFs, for example, like I think the survey we said, you've already cited it. 81 prefer these registered vehicles. And it's not because, you know, these are the products that they're happy as to use. You know, they use them because they're regulated wrappers. They're, they have clear compliance obligations. They want to meet them. But there's a problem because you can't trade them on the weekends. You can't trade them when the market closes after 4:30. So you know, it creates a lot of inefficiencies for these institutional investors. I mean it's true across the board. It's true for me and you as well. But for many institutions that want to scale participation that, you know, really want to actually, you know, play like with more money, like you know, hedging themselves like because, you know, they, they can't trade the S and P. So they're doing it through bitcoin. Yeah, highly inefficient for them. They don't want to do that. So I think that everyone's kind of looking for that opportunity of like, well, how do we make this pivot? And I'm not saying it's going to be easy. I think that it's going to be stressful for a lot of market players. That's where things like AI agents probably come in. You know, they're probably going to be there to absorb the flow. But I think that right now, like there a lot of institutions that are dealing with, well, crap, you know, we, we want, do we sell on a Friday? Because we can't keep that position over the weekend. Like that's not ideal for them. I think that soon we're going to be seeing all that stuff change. I don't think we're necessarily prepared for that. By the way, I think that TRADFI is still very ill equipped to kind of meet that new world. But whether they want it or not, that's where we're going.
- [29:16]
Podcast Host
Yeah, we are certainly heading in that direction. You know, I'm curious what else beyond all of this stands out. Did we miss anything that might be important or going on or took part in the survey? Did we miss anything in relations to that?
- [29:32]
David Duan
I think we caught most of the stuff in the survey and thanks for that by the way. I think that there's a lot of like, lots of juice and the discussion, but so much of it is focused on tokenization stablecoins because that's where institutions right now are concentrated. It's funny, I was at a, you know, real world assets conference just a few weeks ago and you're probably familiar with this, but like a lot of conference participation has gone down because markets haven't been doing as well in crypto. But if you're going to those real world asset kind of Conferences, participation is going up, like more people are going to these attendances up crazy because they're, you know, they're institutions that really want to learn this stuff. But I'd say that like within the crypto space there's a lot of themes that people should be paying attention to. And yes, you know, some of that is prediction market, some of that's perps. But I think AI agents are also a huge one. You know, on chain we're investing in base and the tools that developers, enterprises build applications around like agentic AI payments, real world assets. Like that I think is going to be a massive theme over the next few years.
- [30:39]
Podcast Host
Well, let's talk more about that because what fascinated me here recently was that Jensen Huang, you know, from Nvidia, was just talking about AI agents. And obviously AI in general has been a huge talking point. That's nothing new. But Jensen was just talking about Bittensor, you know, Tau as some people like to call it on stage with Chamath. And they were going back and forth and they're talking about how strong and impressive some of the things that it's been able to achieve recently and some of like the subnets within it have been able to do. And I think that's a huge leap because it's, it's being talked about on the main stage. And agentic AI has had this moon like leap, right this, this moon step where it has seen a gigantic jump in what it's been able to do and its capabilities. And now everyone's looking at how we're going to use agents moving forward. Is it going to be for, you know, vacation planning? Is it going to be for personal management? Is it going to be for like all these little aspects of our life where you're just going to be able to sign, you know, I see people creating businesses with AI now. They say, hey, you know, I'm going to have 10 different agents, I'm going to have two for marketing, one for website building, you know, one for you know, emails and this and that and they assign them all these different positions. There's a million ways that you can go with it. Talk to me about what you're seeing from the AI and the agent side because I think there's a lot to unpack there.
- [32:12]
David Duan
Yeah, I thought it was super interesting what Jensen said at the GDC conference and hopefully people saw like the, the highlights from that. But that took place I think like last week, it was 3-16-19 and you know, like obviously like he hit on a couple of points with respect to like, you know, inference and reasoning those things as well. But agents was a very big theme at that conference. And, you know, I think the big takeaway from our research is that everyone has been focused on the AI itself. But the real story for crypto anyway is that crypto is acting as a financial plumbing for all these new AI agents. So AI agents, you know, probably people are familiar already, but there's like these little software bots that people like, use, and they need stuff, right, because agents themselves have an economy. They need to buy services, they need to pay for data, they may need to hire other robots to do other stuff, but, you know, they obviously can't just use a bank or a credit card because they're an AI agent. And, you know, crypto is really building the digital wallets, the instant payment rails to let them operate autonomously. So I think that what we're going to see is, you know, I call it the last mile problem for AI, because an, an AI agent can go in, it can design a new app, but it can't independently pay for cloud space. Right? You can't, you know, have a specialized sub agent unless you or I come in and say, like, you. You do it like agent, like, it's fine. But crypto, I think, would really step in there to solve that mismatch. It gives the software the ability to kind of hold the money, to make payments, to settle contracts instantaneously. And I think once you start seeing that, that then turns AI into a fully functional economic participant, which is why I think you're seeing headlines like meta buy, multiple book and things like that. Because we kind of know where this is going. You know, we look at these investment value pools and there are all these kind of like layers to them. But what are the foundational rails that AI agents are actually going to use? So for me, I think that that's probably where the biggest opportunity is. Like, as a market participant, like, I think that, you know, there's going to be a lot of infrastructure and a lot of that is going to be built via crypto.
- [34:32]
Podcast Host
You know, it almost feels like we're living in a movie sometimes. This is the kind of stuff that you'd see in a sci fi movie growing up. And I'm not even that old, you know, you're not that old, but like, even, like, I think anyone probably over the age of 20 could say, hey, when you were growing up, you probably saw these AI agent like things in movies and in TV shows. And we're getting so close to that being a reality. And just even some of the chat bots, which are probably like the most basic forms of AI, like even watching those grow, have been super interesting. And so I think crypto has this unique opportunity because of its underlying technology, because of blockchain, that it can do different kinds of things and I think take a new perspective on a lot of this. Getting back into the research side, what other kind of investment research do you do on like a weekly or a monthly basis? We talked a lot about this report and what institutions are looking at beyond that side. I guess what else is going on?
- [35:37]
David Duan
Yeah, so I put out a weekly newsletter, I put out a monthly outlook, I put out ad hoc reports. I even go into like technicals and positioning for investors. And you know, this is all on the Coinbase institutional research website. I also send it out to like Coinbase One subscribers. So if you're in the US and you're Coinbase One subscriber, you should be getting these emails. But really I'm trying to focus on like, well, what's driving the crypto markets themselves? Like, you know, like, are we just inside a cycle right now and this is just par for the course, or is this macro driven? Are there crypto themes that we think are relevant to, kind of pay attention to? And that's where things like AI agents kind of fits in. For example, I mean, more recently, I think that it's very uncomfortable. Some people believe that this just looks like a very normal part of the cycle because the price action itself feels very noisy. But the long term story hasn't changed and I would agree with that to some extent. But you know, we're very headline driven at the moment. A lot of this has to do. Well, you know, what's going on with macro? Is President Trump going to announce, you know, a ground invasion in Iraq for, I'm sorry, in Iran, for example, like, are there going to be more oil shocks? Is the Fed going to change their interest rate expectations? Like we just saw Chairman Powell and the Fed actually just take out a very more dovish tone to things. You know, I think that crypto can't be isolated from all of that. I think it's still relevant now. Some of that has been kind of front run to some extent. Like we saw due to the event of 10 10, market structure kind of broke down for crypto. But right now, because so many people who wanted to sell crypto already sold, we are looking like a much more resilient asset class right now than equities or fixed income or precious metals even. So I Think that this is kind of how I think about it. How do we think about crypto in a broader portfolio? I don't think that it just kind of operates like uncorrelated to other assets anymore, but of course it oscillates a lot.
- [37:39]
Podcast Host
Yeah.
- [37:39]
David Duan
So are we just a liquidity device or is this something more? Is there something that's going on on the surface? Like we're talking about, you know, Ethereum activity, for example? It's a huge one that I don't think a ton of people are paying attention to right now, but I think that it's sometimes, you know, overlooked because we're kind of trading alongside, you know, the rest of the macro regime.
- [38:03]
Commercial Voice
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- [38:30]
David Duan
Liberty. Liberty.
- [38:31]
Podcast Host
Liberty.
- [38:32]
David Duan
Liberty.
- [38:33]
Podcast Host
It would seem like crypto goes through these periods where it's more correlated sometimes and then it's less correlated others. I think during really big and significant events, you tend to see all risk on assets get tied together. Kind of like what we're seeing a little bit right now. I think that makes sense. But that's how it's always been. Right. We were recently asked a question about this saying, hey, guys, why is bitcoin so correlated to NASDAQ's price action recently? And it's. Well, because when there's significant events like this, you tend to see people move, they move together regardless of the asset class. Right. You know, whether it's, you know, small cap equities, large cap equities, bitcoin, whatever it is, you know, if something is more risk gone, more of like an investment vehicle than in scary times, people want to conserve cash and money goes away from those. And times where things are, you know, a little bit more safe and people are a little bit more comfortable, then money can flow into those a little bit easier. And I think that's what we're seeing right now. And we go through waves of this. Just like the markets go up and down in waves too. You know, this is nothing new in that no matter where you are, guys at future Points in time. Guess what? You know, there's probably going to be worse price action than this. The markets go up, they go down. It's normal. Sometimes it's more volatile, sometimes it's less volatile. But these kind of things happen. And you know, we had a really good run, especially for bitcoin. And I think where people maybe get the most frustrated is with some of these alts. But what they fail to understand is that we've gone from having in prior cycles a couple of thousand altcoins, maybe tens of thousands of altcoins. Now you go on to coin market cap and there's over 40 million that are just listed on CoinMarketCap alone as like. And I'm sure if you count all the meme coins and stuff on Solana that there's probably way more than that. But there's been a huge influx in the number of altcoins and, and I think to some degree that has saturated or maybe fractionalized liquidity from a, away from probably some good projects that could have taken it.
- [40:38]
David Duan
So, yeah, I think that things are starting to refocus on just a handful of alts. I do think that, you know, you need to see bitcoin recover as a precondition for a lot of those alts to kind of come back. But that's not the uniform story across the board. We've seen that hyperliquid stands out, for example, or bit tensor because of the AI theme or other things. But you know, like, it's no accident that, you know, there's a survey run by bank of America among global fund managers. And the cash levels, as you've kind of noted, they went up from 3.4% in February up to 4.3% in March. And that was like in a matter of like two weeks between, like when they, they did that survey. I mean, it doesn't sound like a lot, but a 1 percentage point jump in two weeks is massive. And we know why, right? It's because of the, you know, the, the conflict in Iran. It's because oil prices are going higher. But I think there's one thing to look at the correlation between bitcoin and stocks, but it's another to look at the risk adjusted performance of bitcoin and stocks. And you know, if you're looking at the risk adjusted performance, by which I mean that you look at the current level relative to the average price of the last, say three months, for example, and then measured it across like standard deviations, we're like a three to four standard deviation move. Lower in equities, whereas bitcoin through all of this has been like barely one. And why is that? Well, it's because we had our own kind of like four standard deviation move like a few months ago and a lot of people were like, oh, did we front and run the move? Well, how could we? Like we didn't know that there was going to be this conflict that was going to occur. But it just, there were a lot of four sellers in there and I think we're still trying to unpack well what happened during those events because there were a lot of market makers. Sure, there's all deleveraging, but also within the bitcoin community there was a lot of discussions around the V30 versus BIP110. There was concerns around a potential soft fork, for example. So those things might have fed into the price action. Maybe that hit OGs as well. But this is the kind of stuff that, you know, you're trying to parse when you look at these markets because everyone kind of look at and be like, this is choppy price action. But is it actually systemic stress or is it something that we're going to recover from? And I think that's going to be the big question in the months to come.
- [43:00]
Podcast Host
That seems to be the big question. And I've seen people phrase it two different ways and they ask the question, and I'll ask this to you, of what seems to be our path towards a resolution, what seems to be our path back to success and reversal and all that good stuff. Is it catalyst driven or is it just time driven? Meaning that it's just going to take some time. You know, I think the time driven people like to point towards the cycles, the four year cycles and they'll say, well, it's just going to be a matter of time until we get out. Whereas the catalyst people are saying, no, there is specific things that can happen that will trigger this. Where would you say you stand on like how crypto's turnaround could happen?
- [43:45]
David Duan
It's not going to be a satisfying answer, but it's probably going to be a little bit of both. Like I don't think that we really operate in cycles anymore. I, you know, discourage people from kind of saying like this is all about four year cycles. How can it be, you know, like we've only by the way, had only a handful of these. I think it's like three or four of these, depending on how you count it, depending on whether you're attributed to the bitcoin having other things, you know, any Statistics expert will tell you, like that's not enough.
- [44:14]
Podcast Host
That is not enough data.
- [44:16]
David Duan
It's not enough data. But you know, it's still very seductive from a psychological perspective. I get it, it's happened numerous times before. But the demand side of the equation looks very different from what we had in 2022 and 2017. And like, you know, like going back because you know, we have the ETFs now, we have dads, we have all these other things. So I do think that for the space it's still going to be very utility driven. I think that's going to be the catalyst as people, you know, pivot towards tokenization and stable coins. Or we're going to see them kind of say like, well maybe like eth or whatever L one needs to kind of pick up because we're using those Rails and those rails have value, that block space has value. Or is Bitcoin becoming more valuable because its narrative is going to pivot as more people use it as a store of value in sovereign kind of holdings? You know, like it took a long time for gold even to kind of get to this point. And I don't think people realize that like gold once upon a time was not considered a tier one asset under Basel rules. Under Basel 3, it only became a tier one asset. I think back in 2019. The US only recognized it in 2025. So you know, if you, if you are a sovereignty, a central bank or whomever and you had gold in your portfolio, you couldn't recognize gold at the full value. Today you can. And I think we're going to see those intermediary steps for Bitcoin as well. So I think that that's the stuff I'm thinking about when I say it's going to be time driven. Like I think increasingly people are going to say, okay, hold on a tick. This actually is a variable valuable asset that we want to have inside our portfolios and recognize it as a sovereign asset that can be utilized in balance of payments. But we're not there yet. I think it's going to take time for many entities to accept that, but we're getting there incrementally.
- [46:12]
Podcast Host
Yeah. And what's been so interesting is that from, from our side, we get almost the same answer to that question no matter how many times we ask it. Whenever we ask it to anyone that's more institutional, they give us the same answer of saying it's probably not having related the whole four year cycle having theory. It's just there's not a lot of Data and they're not huge fans of it. They're not like, oh, this is the silliest thing ever. But they would side more towards catalysts. And whenever we ask the retail side, we have a really big like community over here that is mainly retail and they are very hardcore about the idea of the four year cycle. And so we'll bring this up on our little private, on the private calls that we have. And people, not everyone, you know, some people get frustrated when we say, you know, from the conversations we have, nobody's really talking about the four year cycle. So it's, it's, it's interesting and I'm not sure why that is, but there seems to be a big disconnect and between institutions leaning away from the four year cycle and retail being ride or die for the four year cycle, maybe you have an answer, but I haven't really been able to come up with a good one yet. So we constantly have like a little back and forth with different members in our community and I see where they're coming from and there's certainly some data to point over there, but I think there's a lot of data that kind of points us away from the idea of a four year cycle. And again, if you're anyone that is data driven or if you have a background in data and analytics, you would know that three to four sets is like an incredibly underwhelming amount of data to be able to say that anything is consistent in any kind of trend.
- [47:51]
David Duan
Oh yeah. Now my statistics professor in college would have like, you know, like died in his, like turned over in his coffin if he heard that we're just using three data points to turn anything. I think it was like a minimum of 40 for him and it was like drilled into my head of like every time, like it needs to be that. But you know, this is life, this is real life. And there's like, you know, like these cycles take a long time to kind of manifest and so it's, it's hard. Whereas the psychological kind of influence of the stuff, I, I think that that's more pressing and that's equally important. By the way, I don't discourage that. Like I, I think that you know, like, you know, do we see things sell off every time like September comes along or like is October a thing? Obviously October wasn't a thing last year. Right. And that we have more cadence on that. But I would say that many people look at the four year cycle from the lens of the bitcoin having and that's not Wrong per se, because once upon a time the key non discretionary seller in this market were Bitcoin miners. They still are to some extent, but they also get liquidity from, you know, like lenders who once upon a time didn't exist in this space. Now like you have like some from very large institutions who are willing to kind of offer those loans. They are able to kind of diversify themselves by using AI or they have energy sharing agreements. So I mean it's, it's a different world even from the supply side of the equation, much less the demand side. Like, like I said, institutions are in the space as ETFs are in the space. People can access this next to their brokerage account now. So I think that's why for me the four year cycle isn't quite as strong. But also if you kind of like pinpoint when those bitcoin havings occurred as well, I mean they didn't happen immediately, you know, like the, the price performance started to kind of go up. But was it three months after? Was it six months after? Was it nine months? It's actually pretty variable when we did the study of it. And really, unless you're telling me that like, like clockwork, every three months after the bitcoin having, like things are going to go up, like how, how do I price that? You know, as an institution I can't, like, I can't price that risk. So it doesn't help me all that much.
- [50:06]
Podcast Host
Yeah, no, it's a good point. It really is. And there's so much that goes into all of this. But I think, you know, ultimately we're going to find out here, we're going to get more answers for the listeners out there who want to follow what you're doing. They want to see some more of these reports. Where can they follow and get involved?
- [50:24]
David Duan
Yeah, you can follow me on Twitter aveduong. So just my first name, last name, I also have it on the institutional research website. So the best thing to do is just, you know, type it into your preferred search thing and type in Coinbase. Institutional Research should pop up, you know, you might get it a week late because it goes to our institutional clients and our Coinbase One subscribers first. So, you know, if you want to get it on time, then please sign up for Coinbase One.
- [50:54]
Podcast Host
Absolutely. Well, David, we appreciate your time. Killer conversation. We appreciate all of your insight, we appreciate what you do for the industry because it's hard work and the industry needs this and we love talking to people like yourself and I know that all the listeners out there do as well. So David, once again, thank you for joining us. This was Coinbase is Global Head of Research and we appreciate your time.
- [51:18]
David Duan
This is great. Thank you so much.
- [51:31]
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Commercial Voice
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- [53:28]
David Duan
Liberty Liberty Liberty Liberty.