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- [00:00]
A
Typically the Fed will cut rates as the economy hits a recession and we have a contraction in prices right now. That doesn't feel like where we are. We are essentially at all time highs in the stock markets. Asset prices are making new all time highs such as cocoa, such as crypto, such as gold, soft commodities, coffees, very expensive, it's near all time highs, things like that. So it almost feels like maybe the Fed was too eager to cut rates and prevent any sort of hard landing, that we might actually be in a territory that this might have been a policy mistake.
- [00:41]
B
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- [01:54]
A
Thanks, Jen. Going well. Thanks for having me on.
- [01:57]
B
Awesome. Thanks for being here. We are heading towards the end of the year. What are you watching this morning?
- [02:03]
A
Yeah, absolutely. So I think one of the things that is very interesting in the macro world is gold. So obviously everyone's looking at Bitcoin. A lot of people are looking at Ethereum. When does Ethereum sort of have its recovery moment in relative performance versus Bitcoin? Solana has been a nice mover in the past 12 months. So in my mind there's kind of a couple themes. One theme is kind of the goal led theme in a sense that our budget deficits going to continue to grow? Is spending going to continue to drive inflation higher? Is the Fed going to continue to cut rates? That's kind of the macro theme. And then in the crypto specific theme, one of the big Things that we've been looking at is how does deregulation play in smart contract chains, Defi space everything where you can build a protocol that has been essentially stifled by regulation in the past four years. Now, if we get a rebirth of sort of those projects, how does that impact Ethereum, Solana, all those smart contract blockchains? And does that give the opportunity to gain some relative ground versus Bitcoin?
- [03:10]
B
I want to talk about that in just a second. You mentioned Bitcoin, Ether and Solana on yesterday's show. We unpacked some of bitwise's predictions for 2025 and that firm says that Bitcoin, Ether and Solana will hit new all time highs in 2025. I believe they said Bitcoin at 200,000, Ether at 7,000 and Solana at 750. What do you think of that prediction?
- [03:32]
A
Yeah, I mean, I think there's no reason for us to not keep hitting all time highs. There's nothing in this trend that's broken. There's a little bit of a psychological hurdle in the sense that $100,000 bitcoin sounds like a big number, but that isn't a trend changer. So everything in terms of the trends are still strong. So I could definitely see bitcoin rally another 50% in 2025. But what's really interesting to me is do we finally get the Ethereum moment to make new all time highs right now? You know, if, if Ethereum can get to the $5,000 level, that's, it's still about 33% away from that. So that's, that's a big move just to kind of get in the game, so to speak. And then Solana has such a small market cap in comparison to Ethereum and Bitcoin that if it just gets on an even level playing field, that's a 3x to 5x moment. So I think really those are kind of the higher beta bets that I would make. Whereas Bitcoin is sort of the safe, relatively speaking, in the crypto sector now that you could just park your money in the ETF and just kind of hold it there. I think we'll see that, but I think we'll see more steady inflows in Bitcoin and we hopefully will get a little bit of an alt rotation in everything that, that is Ethereum or Solana.
- [04:46]
B
What's going to give us that Ethereum moment? How are we going to get there?
- [04:50]
A
Yeah, so there's kind of two competing narratives that are hurting Ethereum right now. And one of them is changing. So the one that the first one is the regulation standpoint that we talked about a little bit earlier as deregulation comes in and people can build on top of Ethereum, that's really great for Ethereum because ethereum has the EIP 1559 that creates a burn of the supply. So the more transactions there are, the more that the supply can burn. Unfortunately, the other narrative that's affecting Ethereum a lot is L2S. So although everyone likes the EVM compiler and they love to create smart contracts and solidity or EVM compatible code that is bullish long term. But in the short term everyone's creating their own app chains, their L2s, to essentially process all the transactions and settle back to L1, which removes a lot of the transactions off of Ethereum, which removes that supply burn. And Ethereum has a little bit of a balancing game. We have an inflation rate that's offset by the supply burn, but if the supply burn isn't strong enough, then we flip into an inflationary asset. And I think that's really what's been hurting prices. So in my mind there's a long term play in the sense that everyone likes EVM and has built in EVM compatible ways. So I do think that's pretty strong. In the short term, I think the catalyst has to be regulation wide. We do see the world financial wallet starting to own Ethereum, which is a little bit of a show of where Trump's head's at. So maybe that's a catalyst, but I think right now deregulation is the only short term catalyst and EVM user base and developer base is the long term catalyst.
- [06:35]
B
At the top of the show you mentioned deregulation possibly having a positive impact on Defi. We could see Defi make a resurgence, I guess you could say, in 2025. Unpack that a little bit more for me. What do you think Defi might look like? Should we get the deregulation that's been promised under the new administration in the United States?
- [06:56]
A
Yeah, I think one of the big aspects is are US investors locked out? So forever it's, you know, all the Defi protocols, you go to the site and it's like, promise you're not a US investor. If you're a US investor, kind of go away. So there's all those regulations for US investors, consumer protections. I think if we get a little bit more of a friendly environment, you know, hopefully this is not on the table yet, but think this is the thinking, hopefully we could have some sort of avenue where there is sort of a sandbox for US investors to opt in to accept the risks but start to play around in these sandboxes. I think that that would be a really interesting aspect. But the more likely aspect that we're going to see is that as deregulation comes down, as sort of the debanking we've been hearing about goes away. VCs are going to be a lot more comfortable investing in projects, US based projects that are building on these blockchains to create new Gamify projects, Dexes, NFT projects, things like that, and things we haven't even thought of yet. So I think there's going to be an inflow of money for development.
- [08:04]
B
Is there one narrative or one aspect of the industry that you think is going to dominate DEFI next year?
- [08:11]
A
Well, it's a little bit of a biased questions because I'm a huge options guy. This is really kind of my take in the option. My take in the crypto space is crypto derivatives and crypto options. I definitely think that crypto derivatives in terms of perpetuals and futures, we've seen huge, massive successes with DYDX and other venues like that, gmx, things like that. I think the crypto option space is going to hopefully finally take on some legs. I think that's one of the most interesting aspects of trading vehicles for people in Defi is DEFI options paired with Defi perpetuals. And there's quite a few projects out there that are doing really great work. Derive is one of them. AVO is another one of them. I think we'll see how that plays out and if they grow a lot of their user base.
- [09:02]
B
I want to zoom out a little bit now and talk about things from a broader perspective. We have the last Fed meeting of the year coming up. Most are expecting a 25 basis point rate cut. What's your perspective there? What are you expecting to see and how do we move into January?
- [09:19]
A
Yeah, that's a really good question. So if we look at the CME Fed Watch tool, which essentially extracts out probabilities from just positioning in the markets on the Fed cut right now it's about 80% probability that we get another 25 basis point fed cut. One of the things that I find very interesting that I want to point out is that we had an initial out of the gate huge 50 basis point rate cut. But the way that rates reacted post that cut is that they actually went higher. So you know, the Fed controls a very short end of the curve, but they don't have control over the long end so much. And so we could see that the long end, 10 year, 20 year, 30 year, actually moved up higher as the Fed cut rates. And that's the market signal signaling that, that the essential inflationary pressures are not necessarily done yet. Typically the Fed will cut rates as the economy hits a recession and we have a contraction in prices right now. That doesn't feel like where we are. We, we are essentially at all time highs in the stock markets. Asset prices are making new all time highs, such as cocoa, such as crypto, such as gold, soft commodities, coffees, very expensive, it's near all time highs, things like that. So it almost feels like maybe the Fed was too eager to cut rates and prevent any sort of hard landing, that we might actually be in a territory that just might have been a policy mistake. Yesterday we just had the CPI number. The CPI number came in at 2.7 year over year, which is a slight uptick from what we were expecting. And it's an obviously higher level than a 2.0 that the Fed is targeting. So we're kind of getting this interesting environment that CPI is ticking up again. We're cutting rates into that and then obviously all the assets are very strong and we're cutting rates into that. And then we just had one of the largest US budget deficits for November come out as well, which is inflationary.
- [11:18]
B
Continue to make sense of that for me. How does, are there ripple effects from this policy mistake, as you say, that bleed into 2025? What are you expecting to see?
- [11:28]
A
Yeah, ultimately like there's, there's a little bit of an open question in economics, you know, what entrenches inflation expectations into the consumer and once they get entrenched, you know, how do you deal with that? And my thinking is that if we actually continue down this path, we can get a consumer that expects inflation and therefore it's almost like a self fulfilling prophecy. Combine that with the enthusiasm for the markets, call it animal spirits, and all those things will essentially make commodities go higher, make asset prices go higher, and fixed income will be the main thing that suffers. And by def, by default, governments who rely on fixed income to finance their budgets. So there's a little bit of that trap out there in the market. For crypto investors, it's almost the best environment possible. Crypto investors, fixed assets, fixed supply, and essentially a fiat debasement bet, which is gold is also the fiat debasement bet. And I think we see both of those things move higher in tandem.
- [12:31]
B
Tell me a little bit more about that how do we expect to see crypto markets perform next year given what you've just said?
- [12:37]
A
Yep. I think obviously, you know, we mentioned this a little bit earlier in terms of price targets. I think, you know, a 50% move, another 50% move in Bitcoin is over next 12 months is totally doable. Obviously the volatility of Bitcoin is 74% annualized right now. So that's less than one standard deviation move higher if we look at it that way. And then I think there's a little bit of an altcoin rotation. The psychology of investing in altcoins for a lot of retail investors is that they feel that they've missed out on bitcoin. What's the next best thing? What is something that hasn't moved yet? What is something that's cheaper? And so we're going to get a little bit of that type of altcoin rotation. We'll get a little bit of the meme culture continuing to move markets higher. And as I mentioned, as I previously mentioned, we'll get the defi space likely a benefactor of deregulation.
- [13:29]
B
Yeah, I think many of the people have come on this show agree with you that we're going to see meme coins continue to rally during 2025. We're going to see a brand new alt season. I got to ask you before we wrap up here, is there a dark horse, is there an alt you're watching that you think could be the dark horse that could outperform next year?
- [13:49]
A
I don't. I'm not sure about that. But I have the inverse for you. I think the inverse signal is xrp. I think everyone I've been in the crypto space for quite a long time. Everyone that I know in crypto space is not a huge XRP fan. And I think the move that we've had is a very like, jumpy move. So typically when we think of trends, we think of price discovery along the way as prices move higher. This move that we've seen in ripple from $0.50 2, $2.50, a 5x move, happened very quickly and I think the market is unsure if this is 2017 all over again, where Ripple really kind of rallied at the end of the bull market or if this is something else that's going on and if there's a justifiable reason. So I think there's other altcoins that are more interesting. I wouldn't necessarily put my feet there, but it's something that I'm watching in terms of almost a a a reverse signal.
- [14:43]
B
There is a whole XRP army out there who are very passionate about xrp, Greg. I will tell you that they're going.
- [14:51]
A
To come after me.
- [14:52]
B
Greg, thank you so much for joining Markets Daily Today and I hope you have a great rest of the year.
- [14:58]
A
Thank you so much Jen.
- [14:59]
B
And thank you to our audience who is listening to Markets Daily on the Coindesk Podcast Network. If you don't already subscribe, it's available on all podcast platforms. If you prefer to watch, we are on YouTube and koidesk. Com. I hope you have a great day and we'll see you tomorrow.