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- [00:00]
Tom
I'm just excited for, you know, the first dad to go steal another dad's, you know, bitcoin. I invest in that. So if you're working on that, you know, let us know.
- [00:07]
Aseev
A dad running a quantum computer as their strategy.
- [00:10]
Tarun
Honestly, that's pretty hilarious.
- [00:12]
Aseev
That would be pretty. That would actually be very bullish, Robert, maybe one of your dads. That sound bad. Tell them, get a quantum computer. Steal satoshi's coins. That's a narrative we can invest into, not a dividend.
- [00:22]
Tarun
It's a tale of two point.
- [00:23]
Aseev
Now your losses are on someone else's balance sheet.
- [00:26]
Tom
Generally speaking, airdrops are kind of pointless anyways.
- [00:28]
Aseev
I named trading firms who are very involved.
- [00:32]
Tarun
Ethos, the ultimate puzzle.
- [00:33]
Robert
Defi protocols are the antidote to this problem.
- [00:37]
Aseev
Hello, everybody. Welcome to Chopping Block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day. So, quick intros. First you got Tom the Defi maven and master of memes.
- [00:47]
Tom
Hello, everyone.
- [00:48]
Aseev
Next we got Robert the crypto connoisseur and czar of Superstate.
- [00:51]
Robert
Hey, everybody.
- [00:53]
Aseev
Next we've got Tarun, the Giga brain and Grand Poobah at Gauntlet.
- [00:56]
Tarun
Yo.
- [00:57]
Aseev
And joining us today, I'm Aseev, the head hype man at Dragonfly. We are early stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see shopping blocks at XYZ for more disclosures. So for those of you who are tuning in over audio, I am wearing an exceptionally bright shirt today because we decided that today we're going to try to cheer everybody up. Markets are not so cheery. Markets are doing mucho no bueno. It's been really ugly out there. Bitcoin has been flirting with being over or being under 90k. It's now regained the 90k level, but it's kind of holding on for dear life. We've seen a big reversal in the markets, this is true on the public side. So we've seen circle down, I think, minus 40% in the last 30 days. Coin is down, I think 23% in the last month. Galaxy down 28%. Gemini is down 58% since its ICO price in September, it's been IPO. IPO, IPO, sorry, sorry, IPO, sorry. Crypto has broken my brain a little bit. We've also seen a massive pullback across the DAT complex. So people are calling this a DAT pocalypse. We've seen now almost every single DAT is trading below Navigation. Very few exceptions. Even BM&R Bitmine, which is the largest ETH, second largest asset in the DAT universe, is also now trading below Nav, which has really put a kibosh on any buying from these DATs because of course for DATs to buy they have to issue new shares and nobody really wants to be diluting existing shareholders issuing shares below nav. So it's kind of a pause on the DAT complex and we've seen now so many DATs that have basically completely run out of steam in the public markets and it's still the case that almost all the trading volume is only in the top two DATs, micro strategy and Bit Mine. Micro Strategy seems to be around 1x now on any given day people are saying it's either below or above or right around. And then bmr. I think now it looks like there's pretty unanimity that BMNR is below NAV at this point. So give us your vibe. Vibes based view. How you, how are you feeling right now about the market, Robert, Why don't you tell us where you're at?
- [03:01]
Robert
So full disclosure, I've personally lost quite a bit of money in DATs, but that's not what people on the show want to hear about. And I try to be objective and not let that color my own view of the market or of DATs, et cetera. So there's a couple things to look at. One is how are they trading against mnav? It's a sad day when even strategy is trading at below mnav. It means that the biggest dog in town is struggling, therefore pretty much everyone else is. There are exceptions, but I think for the moment it's to state the extreme obvious, there's more supply of debt than there is demand for debt. When it was just strategy, there was more demand than there was supply. There was just one the pace at which they were raising money, it felt sustainable, et cetera. And so the things that I'm watching, you know, I'm looking at MNEV of all of these different DATs, there's sectors that are worse than others. You know, within an asset like ETH or SOL or Bitcoin, there's DS that are really struggling. The things I'm watching for, number one, M&A that starts to happen in that space. There's a widespread belief that survival of DS is going to come through consolidation. You know, it's hard for two $500 million debts to gain the attention of the market. But if two or three deaths combined, you know, and you took a couple $500 million debts and you formed a $2 billion debt. Suddenly it's more competitive, at least theory goes. And so there's a lot of chatter behind the scenes that there's going to be a wave of consolidation that could change the narrative. Second, I think we're going to see more experimentation with the capital structure. There have been, you know, a few preferred issuances of the smaller debts strategies. Always lean on preferred a lot. I think in the run up when there was just this like Cambrian explosion of debts, everybody was focused on like the simplest thing, which was raise crypto, sell shares through, sell common stock through ATM transactions, get as big as you can before you have to figure out something new. And now I think we're starting to see a lot more conversation, at least in the circles I'm in, about preferred, about debt, about the financing strategies that actually made MicroStrategy successful in the first place. And so I don't think the music's over for these ads. I think there's a lot of companies that have hundreds of millions of dollars of crypto, or in some cases billions of dollars of crypto and zero debt against it. And debt might be the thing that restarts the cycle for a couple of these debts. So I'm watching carefully for that. And then lastly is what happens if prices continue to decline. Do dads call chicken and start to sell spot to buy back their shares? There have been a couple examples of this already, but for the most part we don't have a widespread trend of DATs selling spot buying shares. And if you've been on the receiving end of these push books over the last, you know, six months, the basic premise behind all the debts was like, hey, over time, crypto per share is always going to go up when it's above 1xmnav, we sell shares to buy crypto. It's dilutive in a good way. We're accumulating more crypto per share if we're trading below mnav. We sell crypto, buy shares. It's accretive in the exact opposite way, which is we're burning more shares, then we get rid of crypto. So the idea was crypto per share is always going up. As a shareholder, if you have a long term focus, you should always be happy. That's going to be put to the test in a big way over the coming weeks.
- [06:15]
Aseev
So do you want the dads that you're invested in to be dumping their crypto and buying shares? Back.
- [06:21]
Robert
Yes, I do. Personally, I am unfortunately a holder of quite a few debts that I have not sold at a loss. I would strongly prefer as a shareholder that these debts do the sort of original debt playbook optics aside, and just say, hey, you know, we're trading at 50.5 mnav. We are going every day to sell crypto buy shares. This is limited by trading volume. The sad reality of the math of this is that only works if people are trading the stock. If interest is lost completely and there's no volume left, they can't even buy back their own shares. There's just no shares trading for them to buy back. And so as long as there's activity, they'll be okay. But I would strongly prefer as a shareholder some of these, that they actually do the debt off the shelf playbook, which is sell crypto buyback shares as much as they can per day and actually be accretive on a per share basis for the remaining shareholders.
- [07:18]
Aseev
In principle, they could also do a private placement, right. To buy back shares that way.
- [07:21]
Robert
Yeah, of course.
- [07:23]
Tom
I mean, I was going to say that is to me to be the trend though, right? Is like volume is all bitminer and strategy and then everything else is tiny, tiny, less than 5%. So I guess in some ways this is kind of actually the most expected outcome we could have expected, which is of course you're not going to be able to get free money forever. Of course there's going to be MNEF collapse and of course there's going to be concentration and a small number, maybe one per asset. So it's like, if anything, like no one should be surprised, like this is exactly what was kind of predicted and was kind of playing out. And now the question is like, what happens in kind of the next phase of the market? I think, like Robert said, I'd be curious to see what happens with the kind of M and A. And there's also kind of this other side which is like if you are starting to sell crypto to buy back your shares, like it, you know, in some ways it's like this kind of like religious ethos kind of, kind of thing of like, oh, you should never be doing that, you should never be selling, you know, bitcoin. And I think if you stick to that, like maybe you accrue some kind of premium like strategy. Otherwise it's like, oh, you're just another kind of corporate husk and why am I going to kind of put, put money with you?
- [08:23]
Aseev
True. What's your take?
- [08:24]
Tarun
I mean, it reminds me of the ICO boom. Like I think a lot about the ICOs that raised really large treasuries and then survived and then the ones who raised really large treasuries and then I don't know how they disappeared, but they disappeared, you know, like I think of like this successful ones in the sense that like they disappointed did really, they did good treasury management of like protocol labs, EOs et cetera, right? Where they raised large at on a percentage of Ethereum basis, kind of similar amounts in in some ways and were able to basically like stomach slash consolidate over time. In terms of selling crypto, I mean all of those people sold crypto, right? So like you could argue that Maker DAO number one users beyond seven siblings were probably all of these ICO DATs, ICO companies, foundations trying to like preserve their assets. And like the fact that I Freudian slipped DAT in there was not an accident. It's like it's kind of the same thing. And those guys sold, they sold in weird ways, right? They borrowed against their assets using Daisy minting Dai. They like.
- [09:39]
Aseev
Hold on. No, no, no, no. This is totally different, right? Because like when you buy like let's say Gollum, right? So Gollum raised a huge ICO sitting on gigantic piles of eth that they're just. It's kind of a treasury management thing with like a little protocol on the side, right? That's totally unlike a dad because adat like Golem token does not represent the treasury. You have no claim on the treasury if you hold Golem Token. Golem token really should be trading as a big pile of eth. If that were true, then it would be like a dat. But none of these tokens. I remember when like rfv, what was it? Real fuck. Kind of DOW corporate raiders who are trying to get resolve the token. Was it real financial value?
- [10:15]
Tom
I thought it was risk free value.
- [10:17]
Tarun
Yeah, yeah, yeah, yeah.
- [10:18]
Robert
Risk free value. I don't think there was an F bomb in the middle of the name.
- [10:21]
Aseev
Was there not?
- [10:22]
Tarun
No, we discussed this on the show like a year ago, more than a year ago. It's been too long.
- [10:28]
Aseev
Okay, okay, sorry. Maybe my brain just inserted that in there. Fine, fine, fine. But there was like there was like these sort of on chain corporators who were trying to turn these old protocols of giant treasuries into the equivalent of dats. And basically what they found was that. No, no, no, no, guys, come on. We own the multisig. You can't. Governance can't make us do anything. So screw you. This is not yours. This is the foundation. Yeah, these are foundation. These do not control these treasuries. So I don't think we've seen, like, DATs are actually just big buckets of crypto with some corporate governance on top. And my take is that it's like, look, live by financial engineering, you're telling.
- [11:07]
Tarun
Me ICO foundations weren't that different. Were different than that.
- [11:10]
Aseev
They were totally different. Because you don't have a claim on the ICO foundation. Yeah, there's no legal association. The $16 billion of Bitcoin.
- [11:18]
Tarun
I had to go to Aragon Court to get back my.
- [11:22]
Aseev
Yeah, yeah, exactly. Like all.
- [11:24]
Tarun
I haven't made that joke. I don't claim that since Tom made memes, you know, like the Aragon portrait, it's just been so many years.
- [11:30]
Tom
Evergreen.
- [11:31]
Tarun
Yeah, yeah.
- [11:33]
Aseev
But so the dats are a genuinely new phenomenon in that sense. Like, the closest thing I can think to a DAT was like, if you guys remember bitdao, bitdao was like the closest thing to a dat. And I think at that time, the world was not ready for them in the way that they're now ready for bitmind and all this other stuff. But since then, we don't really have this. In a way, DATs were always kind of mysterious relative to ETFs, because we had ETFs before we got DATs. And so the question of, okay, why would I hold a DAT over an etf? And the arguments that we've had some of these arguments on the show about, well, there are things you can do in a DAT that you can't do in an ETF. And there's also, of course, this volatility amplifier that DATs give you that ETFs don't have unless you have a levered ETF. ETF is just doing whatever Spot's doing. It's a pass through. Whereas the DAT has this volatility amplifier, which you've got both the underlying volatility and you've got the MNAV volatility. And that made it more interesting. It's like a spikier version of bitcoin. And who doesn't want that? And it's got a CMO which bitcoin doesn't have. So my take here is that obviously DAT M navs have come down as the market has come down, as retail interest has come down, as everything has decompressed. And the M NAS have also normalized to 1, which tells you that there's just no excess demand. I think, Robert, you put it great, which is that Demand and supply. As long as there was more demand than there was supply. That's what MNAV expansion is, is that we have more demand than we have MicroStrategy shares. So let's just keep shooting them out and people just keep buying them and we'll just keep doing that until the M navs finally do compress. Otherwise, this is an infinite bitcoin accumulating machine which financially cannot exist. Right. That obviously will. If you keep turning that crank, eventually the crank will stop turning. Otherwise you have a perpetual motion machine. All of the world's assets would be gobbled up into bitcoin in short order if the MVAVs don't eventually compress one.
- [13:23]
Tom
I'm sure Saylor would love that.
- [13:25]
Tarun
Okay, one, one kind of funny thing about this is there were more people complaining about the inevitable impossibility of these things when they were successful than when they're failing. Because like now everyone's like, ah, they're already failed. Whatever, they're we, we now all, we all have like the third world country bitcoin thing instead of owning ETF quality Bitcoin. And it's just funny to me because like, people have been saying this forever, since the beginning of MicroStrategy.
- [13:59]
Aseev
Yeah, yeah, but remember, MicroStrategy had basically two big MNAV lumps, right? So it had a cycle where it went MNAV way up to like, what was it, almost three in a previous cycle and came all the way back down to trading below nav. And then in this cycle went back up to roughly three and now is coming back to par, which tells you it's probably not the last time that this asset is going to trade above nav. My guess is that probably what you will see is that MNAs will float up again when demand starts outstripping supply and we'll see another cycle. But when you see markets being retail driven and when you see this imbalance of supply and demand, and when you see like, hey, I want a more volatile version of the underlying with a big giant CMO running around talking about how Bitcoin's going to take over the world, that's a more interesting asset to trade than just vanilla bitcoin. So I think the story for DATS is kind of an obvious one, is that these assets will eventually trade at one when the retail bid is gone. And these things are starting to normalize as these kind of financial assets that just keep selling more and more of their underlying stock until they go down to nav. I think it's also true the big ones are not going to be selling below Nav. They're not going to be diluting themselves and they're probably not going to be buying back shares. Right? So MicroStrategy is not going to buy back shares. I don't think bitmind's going to buy back shares. Small ones might a good chance they will because they don't feel like they have the entire asset on their shoulders. They don't feel like they have the reflexivity that MicroStrategy and Bitmind probably do, which we've talked about in the show, is that we thought that that was going to be the end game. I think probably for now, basically DATs are on timeout, they're going to stick around. The small ones are probably going to do some selling, but basically it's paused until we see retail start to come back in and then everyone's going to remember the dats again. But probably my guess for the next, you know, call it four or five, six months, we're not going to be talking about DATs pretty much at all while they're just kind of sitting on the sideline doing nothing. Now, the attention to that. Yeah, well, the way the thing though is that Bit Mine is still trading enormous volumes. MicroStrategy. Right, but MicroStrategy strategy is like five. Yeah. Bitmind is still over a billion dollars a day in volume that they're trading, which is massive given the fact that it's trading below nav. So there's something there that makes me think like, I don't have a good mental model for this because my mental model was that MicroStrategy, okay, there's a lot of big institutions that might have exposure to MicroStrategy. My thought was that Bit Mine is basically all retail. And so the fact that there's still a billion dollars of volume in this name a day tells me that there's something in my mental model that's not totally filled out yet about what's going on with bitmind in particular.
- [16:40]
Robert
Yeah, my take is bitmine and the largest debts, right. Anything over a billion has a good chance of continuing to go through the cycle. MicroStrategy.
- [16:50]
Aseev
A lot of people wrote it off.
- [16:51]
Robert
For dead when it was like below one mnav, right. If the bigger ones even were willing to execute on their playbook of buying back shares when they're too cheap, I think that cycle returns even faster. And I. I don't think people will be as offended as though Sailor would sell bitcoin. Sailor will never sell Bitcoin. That is like, so Tied into the meme. But if another dad is like strategic about it and says, hey, we're doing this in order to be like doing something good for the shareholders, that's why you should be a shareholder of our debt. This is why you invest in us in the first place. You know, we're always going to make, we're a crypto accumulating machine per share. It suddenly becomes a more attractive investment than just buying ether, buying bitcoin, buying soul buying whatever. If you buy the share and the amount of like tokens inside your share keep on going up like that, that's the whole underlying premise of that in the first place. That's what Sailor has done for years and years and years. And so I think when people go back to the basics and they say, and they can explain how they make crypto per share go up and that they're doing it and show the, like the success of that, I think that that game resumes. But I think this whole class, it's their, it's their rookie season, like they don't really know what they're doing. Sailor's the only one who's a veteran.
- [18:12]
Aseev
I mean, Tom Lee seems to have picked up pretty quickly, but besides that. Yeah, it seems like no one else.
- [18:17]
Tarun
Has, no one else has done preferred shares yet, right?
- [18:21]
Robert
There have been some small ones.
- [18:23]
Tarun
Oh yeah. Well, none of them have been successful.
- [18:26]
Aseev
I feel like MicroStrategy might own some.
- [18:28]
Tarun
Yeah, I was like, wait, I didn't even, I, you know, honestly, there's, there's so much brain damage from dots that I, I don't, I feel like I really don't know anything about them anymore.
- [18:37]
Aseev
Have you done a lot of DATs?
- [18:38]
Tarun
No.
- [18:40]
Aseev
No. You guys did a couple together? I remember, I remember seeing.
- [18:43]
Tarun
Yeah too.
- [18:45]
Aseev
Yeah.
- [18:46]
Robert
Honestly, Eth Zilla and a small forward.
- [18:52]
Tarun
Yeah, I, I, I gotta say though, like, I don't, I still don't understand the economics of these things. Like, but I kind of agree that there's a terminal state where they do succeed. Just not in, in, in a way you don't expect. Like the way Sailor was successful the first time by like figuring out that like tradfi, people who can't trade perps love convertible arbitrage as an equivalent gambling mechanism or mechanism of taking advantage of speculators. There's going to be some other weird financial engineering. I bet that keeps it going, just not right now.
- [19:29]
Aseev
I think it's also true that for a lot of these DATs, basically there was a pretty tight rotation from institutional capital to retail Capital and obviously a lot of the money was coming in through these, you know, basically the private sales that they were doing before actually launching the DATs. Whereas MicroStrategy was, you know, it's been around forever. Right. There's no insider in MicroStrategy to sell into you. All the DATs roughly did the same thing, which tells you that like the explanatory power is not in. Oh well, the dats just had all these insiders who were selling all their shares. Because if that was true, then MicroStrategy wouldn't be following the same curve as everything else. And you see the MNAV charts are all basically the same. Although MicroStrategy took longer to get there. It got there the same way that everything else did. But it's certainly true that if we see, let's say six months, macro environment's very different. You start to see retail coming back into the space and bidding more aggressively on these assets. If you see a second run up and Dats start to rebound and lift off of the 1 XM NAV again, there's not going to be this dynamic between the public private arbitrage anymore. And that might be a healthier market for DATs to be playing in next go around. Tom, anything you wanted to add to that?
- [20:42]
Tom
No, I'm looking forward to a six month hiatus on DAT Talk. That sounds great.
- [20:47]
Aseev
All right, we'll see other news, I guess. Also in public markets there does seem to be a tailored two cities right now. So as VCs, I imagine you guys also see this, which is that token markets very depressed, everybody is kind of hurting. Token sales seem to be underperforming and all tokens seem to be really struggling in this market. At the same time, the equity raises seem actually to be kind of gangbusters right now. And so you just saw this news about Kraken raising at a $20 billion valuation led by Citadel, and they raised a total of 600 million with 200 million coming from Citsack Citadel securities at a $20 billion valuation. And I think they're on, what was it like 500 million in, in profit that they're making. So it's like a pretty, pretty hefty valuation that they're giving to Kraken. And I'm seeing the same thing. Like obviously there's a lot of chatter about the prediction markets raising money also at very attractive venture valuations. Seeing the same thing on some of the stuff in the stablecoin space is that there's a lot of, a lot of interest how Are you guys thinking about the venture space and the sort of the capital chasing these equity deals? While token project seem to be languishing right now.
- [21:58]
Robert
There'S an era for tokens and an era for equity. I think we are in the era for equity.
- [22:04]
Aseev
That's it, nothing more. It's like a three body problem.
- [22:07]
Tom
The sun is in the sky, it's token time and then the sun goes down and then it's equity time. The two are very balanced. Equity era.
- [22:16]
Aseev
No insight from our team today. Listen, we're VCs on here. Don't put this one. Aren't we the guys who are supposed to be explaining this?
- [22:25]
Tarun
I think there is kind of this very weird thing going on. Whereas like crypto historically has had, you know, if, if I look at the history of crypto venture, there's like certain periods where there is huge bursts of growth rounds like CD and later and then all of a sudden that window closes and there's like zero growth. It's, it's kind of like the opposite of the rest of tech where there's like in the rest of tech there's like early stage stuff. A is, B is kind of spaced kind of uniformly. I would say, like there's enough people who specialize in growth, enough people who specialize in early stage, enough people who specialize in the middle that in general all three are kind of constantly raising money. In crypto though, it's like the funds overlap a lot more. So there's a lot more of this like drift and trendiness where it's like oh, all of a sudden it's like everyone wants to do growth rounds only and like all the early stage gets dropped to zero and then all of a sudden everyone goes back to early stage and then everyone goes, you know. So I feel like the current market is basically treating tokens like their early stage and the entire market is focused on growth and pre IPO and ipo. And I don't think it's just that because like all the stuff you brought up in terms of token, in terms of private val market valuations, those are all things where it's like people are like, whether true or not, they're pricing in M and A and, and pre IPO equity, they're not pricing in early stage. And I actually like the early stage investment market has been quite depressed recently in the last few months. Like I don't think valuations have gone up anywhere near as much as these growth rounds. And so I would actually call this, this is like a microstructure Thing that's weird about crypto where like you have the same set of funds kind of doing the whole spectrum versus like specialists who don't leave a category like you have in, in a lot of tech. Now AI has changed that a bit because like the numbers have gone up so much that it kind of is inheriting some of these crypto issues where like, you know, you start to see people go into like these like billion dollar, like there's this billion dollar round today, like a billion dollars raised. And like I just saw like 20 vcs who I'm pretty sure have never invested in a series D. And so like AI is actually I feel like turning into crypto. But crypto has had this microstructure since I feel like 2017 where you kind of move back and forth between growth and in 2018 I feel like the growth rounds were like all the L1s, right. Like the private market L1s which were at large valuations. Whereas like right now it feels like we've moved into kind of growth rounds for these like pre IPO/M and A which you know, I think the M and A part had basically been negligible historically. Right. Like as a, from a venture investor standpoint, like in your valuation model, like did you really include what, what probability did you assign to M and A? Much lower than like the rest of tech for sure. And so I just view this as a sort of weird rebalancing where like the equity prices doing better even like you know, we're talking about the dats doing poorly, but the dats are much better than the altcoins. Right. Like in a sort of, in many terms.
- [25:40]
Aseev
So I think have altcoins. So I think they're like doubly bad.
- [25:45]
Tarun
Sure. I mean there was an embarrassing DAT that forgot to convert due to messing up a procedural vote for a hyper liquid DAT this week. So maybe they got lucky that they messed up the vote to do the conversion. I won't embarrass them given how embarrassing it is to like mess up such a boring procedural thing. But I guess that tells you something about crypto VCs trying to do public company offerings. Yeah, I think it, it, it, it really boils down to this microstructure difference. There's not like crypto growth firms and crypto early firms and they never overlap. Right. Like people do really meander a lot more.
- [26:19]
Aseev
I. But I do think so. If you look at a lot of these growthy rounds in crypto, it is, it is not like ASICS paradigm doing all them. It is definitely a different kind of investor that's now doing the super late stage stuff. Like you look at this Kraken round, it's Sitsec, Jane street, drw, Oppenheimer Tribe, these are not crypto, this is not crypto capital.
- [26:38]
Tarun
Okay, Tribe invested in FTX or like.
- [26:43]
Tom
Tempo is like Green Oaks and Thrive, right? Which are like very, very beefy late. So yes, there is like this crossover and I think there's sort of this like meme on like fintwit. It's like why did the price go up? It's like more buyers than sellers or why did the price go down? More sellers than buyers. I do think that actually does kind of explain a lot of this phenomenon that like yeah obviously there's a lot of this kind of capital that is looking for exposure to crypto in some way. This is how they're going to express it. I think also because we haven't really seen clarity on the token front like, like what is actually going to get people to buy tokens. It's not these players, right? They're not going to be dipping into like deep, deep page one or page two. There isn't sort of that wealth effect from Bitcoin going up anymore. So there's not sort of that spillover from retail. And so it's like yeah these are kind of, there's overlap but it is also somewhat disparate pools of capital that are buying these things.
- [27:30]
Aseev
Okay, here's my macro theory. I want to get your guys reaction to this. So the story historically has been that there's a four year cycle and that four year cycle is kind of self fulfilling and a lot of people are talking about hey is this maybe the end of the four year cycle? That's why things are going down. And the story has always been from the people who deny the four year cycle is that the cycles are different now because institutions are here and institutions do not follow the same cycles as retail historically has. Institutions are kind of a volatility dampener. When institutions show up, they don't leave so easily. These companies, these financial institutions that are going through these multi year integration cycles, they don't care if suddenly things are less hot or bitcoin went down 15%. That doesn't really affect their underlying thesis. So that story has been why, okay, there's a volatility dampening effect which may mute or cancel the four year cycle dynamic. So here's my theory is that what we're seeing in this, in this disparate effect across tokens and across late stage equity is the volatility dampener in effect. But the volatility dampener is not uniformly distributed. So tokens like altcoins are overwhelmingly dominated by retail. And retail 100% has obeyed the four year cycle. So everything that was retail driven, they're out. They believe in the four year cycle or they just ran out of money. Or obviously there's all this macro stuff about K shaped recovery and the low end consumer really getting hit and debt delinquencies going way up. So there's all sorts of reasons why. And of course the tariffs being one of the largest tax increases in the last 15 years, all of that together means that retail just doesn't have the money. So retail's gone, retail's not here, but the institutions are still here. But the institutions can't buy the same stuff that retail was buying. So they can have a volatility dampener on bitcoin, they can have a volatility dampener in the stock market. So coinbase stock is not down nearly as much as everything else. And they can have a volatility dampener in growth stage stocks because they can buy that stuff. But everything else, they can't quite express their bullishness on crypto in a way that grabs the long tail defi shitcoin and pulls it back up with the rest of the market. So that stuff is going to have to wait until retail comes back. But basically depending on where you're sitting in the crypto landscape really, it's not that all of crypto has been volatility dampened by institutions, but it's like there's these two sine waves superimposed on each other, which is the retail sine wave, which is big and like this, and then the institutional sine wave, which is much slower. But if you sit over here in DAT land, you're going to feel the retail sign wave really hard, or if you're in token land, you're going to feel that retail sign wave really hard. But if you're sitting on late stage equity, you're sitting in coinbase stock, you're like, oh cool, this is not nearly as bad as holding underlying tokens. And that's the effect of having institutions in the market. So that's my macro theory of what's going on and why it kind of squares the circle of four year cycle. Kind of, yes, but not for everyone. But also, yeah, institutions really did change the crypto market. Yes, they did. And we're not going back to bitcoin's going to go down to 30k before it finally fulfills the prophecy of the 4 year cycle and then it can go test new highs. I think that's gone because the fact that the institutions are actually genuinely here, they're just not here for everything.
- [30:41]
Robert
Yeah, I mean, I definitely think that we're sort of at the end of this four year cycle experience. I do think you're right that institutions are in a different cycle than retail. And I think the institutional cycle used to barely exist at all. Didn't exist.
- [30:56]
Tarun
Right.
- [30:56]
Robert
The only thing was the retail cycle and I think there was a lot of reasons why coincidentally it coincided with a four year cycle. But I think going out, the number one thing that matters is macro.
- [31:08]
Aseev
I think institutions are still pretty bullish, to be honest. I think although they might be a little bit surprised of what's going on on page two. What's all that crap that you guys were talking to me earlier that's now down 80% but for the most part they're like, okay, yeah, I see it. I see bitcoin taking over the world. I see it getting normalized. I see more and more people using it. I see the stablecoin story. I see everything you guys are telling me. Yeah, okay, shit. I guess it's happening. I guess Stripe's integrating, I guess Robinhood's integrating. I guess JP Morgan's talking about it. I think from an institutional perspective crypto is happening. Prices go up and down and like, yeah, okay, you know, whatever. World's crazy. It's obviously a particularly crazy time. But I don't think actually I see that much doubt from institutions. I see all the doubt coming from retail right now, which tells me that they're just on a different phase with respect to the market. And basically the institutions are going to have to hold this stuff up until retail changes their mind or reloads.
- [32:01]
Tarun
I mean, I just think retail money is only in AI stocks, let's be real.
- [32:06]
Aseev
I think that's true right now. But that's the thing is a lot of the AI money is not even retail. A lot of the AI money is also institution.
- [32:12]
Tarun
But. But the AI stock participation numbers you see from like trading brokerage apps is like crazy. It's like concentrated so much even in retail that it's like I kind of think crypto is competing with that attention wise in a way that I don't think the other cycles have had like final bosses. Like what? What were you going to do? Buy Fang? That's boring. There's no like pe. The fact that this guy I know who has a high school diploma doesn't know anything about semiconductors, but because I worked in hardware, he wanted to like, ask me all these questions. He's like, did you know the newest Blackwell chip only had like a 1 nanometer increase in or decrease in feature size? I'm like, how the fuck did you learn that, first off, you know, like. And it's like the number of degen like Nvidia trading stuff. Like, why the fuck are these people ever going to trade crypto at the same time they're doing that? Like, I just don't see it. I don't. I think there's like a fundamental switch in user preferences back to equities also that is like confounding all of these things.
- [33:17]
Aseev
That makes sense. Well, once upon a time that person was arguing about nakamoto coefficients. So I don't think it's that different.
- [33:24]
Tarun
This person bought a lot of ada.
- [33:27]
Aseev
Did they? Good for them. Ouroboros. Great.
- [33:30]
Tarun
So they, they made a lot of money in ADA and all their crypto money, they rotated out to Nvidia. So I was like, you know what this is like? And now is like telling me about chipsets and feature size. And like, I'm like, so when you talk about feature size, do you know what feature size is? He's like, no, no, no. I just like read it and ask ChatGPT to tell me what it was. I was like, okay, the cycle, the cycle is continuing. He's like, creating demand for these assets.
- [33:55]
Aseev
So speaking of this, Speaking of this. So one of the things obviously that's run up a lot in retail stocks has been these quantum stocks. And we've, we've had a little bit of quantum mania going on in the stock market and has now found its way into crypto land. So Vitalik was of course at DevConnect in Buenos Aires, which is one of the big Ethereum conferences, and he was, he was asked on stage, among other things, he talked about the new Ethereum roadmap, which, whatever, who cares? This is not a crypto show. He most interestingly was asked about Quantum, and what he said was that he believes that Quantum is going to become a problem by 2028. I believe he was subtweeting Scott Aronson, who's of course a very well known quantum researcher, as a famous blog shtetl Optimized. And he claimed that there's been a series of breakthroughs lately on the hardware side that may make it very likely that we get the first real quantum implementation of shor's algorithm by 2028, by the next election. And this has kind of lit the Internet on fire. And now all of a sudden everybody's like, oh my God, we need an answer to Quantum. Quantum is coming. And get your ass ready because it's almost over. So there's all this talk about what's called Q Day. Q Day is basically the day that we have a first real serious quantum computer that can potentially threaten some of the modern cryptography that is used all of the existing blockchains, just as by way of background Bitcoin, E. Solana, everything that you know and care about pretty much in, almost, almost to its entirety, especially if it uses elliptic curve cryptography, it is vulnerable to a quantum computer of sufficient size. Now, that being said, worth just setting the ground today. Quantum computers today are extremely small. They can't really do anything. They cannot break anything. So people are talking about the future. There will have to be significant amounts of scaling in existing quantum computers that we have today for them to be seriously threatening to the cryptography that we use today in blockchains. And in addition to that, even what Vitalik was referring to, which I think was again substituting Scott Aaronson, Scott Aaronson was talking about using Shor's algorithm at all. Using Shor's algorithm to factor or to break a 256 bit ECC key. A 256 bit number is a lot bigger than a number. So getting Shor's algorithm versus getting Shor's algorithm to factor an ECC key, not factor, but to break discrete log for an ECC key is a much, much bigger problem. So Tarun, we are, we are right now the kind of bartenders asking you about quantum. What's your, what's your take on what's going on with the. All this kerfuffle about is trolls algorithm sooner than we thought it was going to be.
- [36:23]
Tarun
So let's kind of zoom out. So like quantum computing, right, has been compared to like, if I take these like technologies from the late 70s, early 80s that people have been like, it's coming in five years. It's coming in five years. The technologies you think of are like quantum computing, nuclear fusion, stuff like that, right? Like maybe SMR is like nuclear reactors, like small modular nuclear reactors, right? Those are sort of the three main big ones. Those are also the three ones that are all being hyped right now at the same time, which is a funny, funny thing. All three stocks for all three has gone crazy. Have gone crazy. So the interesting thing about Quantum computing is there actually have been a ton of device improvements. So like quantum computing is this thing where theoretically we know how to do everything. The hard part is actually keeping the device stable. And what I mean by stable is each time I do a computation, imagine that every time I used my computer and I did one task, it ruined the computer. It made the computer's lifetime go down by 10%. And so then it means yes, I could get a really high fidelity answer, but only once or twice or thrice, right, I could, I can't keep reusing it. And that's sort of an inherent thing in, in quantum entanglement. Like you're, you're sort of like inherently breaking the system, like destroying it a little bit when you use it for computation. And in the last five to eight years we've gotten a lot better at quantum error correction. And I think part of that has come from, I guess to, to probably no unsurprise, like from a lot of the industrial support from Google and Microsoft. Like arguably the Google and Microsoft Research labs funded all the research that all the startups will monetize. Unclear if Google or Microsoft will monetize it, but they have been funding this stuff for at least 20 years and that that's kind of what kept the non academic, pure academic devices alive. And the error correction means now we can scale and before we could maybe have tens of qubits coherent at one time, which means you could factor very small numbers, like two digit numbers, three digit numbers was the record. But now we're getting to a point where we can have hundreds maybe if you believe all of the claims by all these companies. Now obviously it's a little frothy so I'm not sure. I haven't used it. So I can't tell you that it's a thousand, but maybe a thousand qubits. So maybe we get to three, maybe four digit numbers. We're still very far away from the 2048 bit RSA which people expect to need like a million qubits. But I think Aronson's point is more that like at hundreds you can start actually for very small elliptic curves or small models of RSA actually implement this algorithm that breaks it. Now that doesn't mean it's going to happen tomorrow. So I think there was a little bit of like Vitalik probably didn't really think about like said something that was actually like this technical statement but the market maybe interpreted it as a oh my God, everything is doomer statement. And I was talking to someone who is who runs a large Bitcoin etf. And I asked them what is the hardest or most annoying question you get when you're like talking to advisors, family offices, whatever to like sell. And they were like, oh well, people asking me about whether Quantum is going to break the ETF and like all the assets in the ETF will be worth zero. And I was like, really? I was like, I would have thought that's like number 10 on the question list. But they were claiming it was like top three consistently. And so I think the small amount of quantum innovation led to a larger amount of quantum buzz in quantum computing stocks, which led to an even larger amount of buzz. And these quantum computer companies have no way of monetizing other than breaking crypto maybe. And so that kind of, you know, it's, it's like the domino meme, you know, like the little tiny thing like, yes, there is an improvement, not the improvement that will blow everything up tomorrow or even in five years to like, oh, okay, like everyone is worried about it. And so I think that's kind of what's happening. I think it's probably good to be fearful.
- [40:37]
Aseev
Yes, yes. So to caveat that a little bit though, so I posted about this yesterday, is that if you look at Metaculus, so Metaculus is like this non economic kind of prediction aggregator site. It's like polymarket but with Play Money. You can sort of think of it that way. Metaculus is the only prediction aggregator that I know of that actually is trying to make predictions about Quantum timelines. And if you look three years ago, I think the prediction for when they would factor the first RSA numbers using Quantum computer was 2052. As of six months ago. It has come all the way down to 2032 I think it is, which it's come down 20 years in just a span of two, three years, which means that we are ahead of pace of where we thought we were going to be now. 2032 is still seven years from now. It's a long time. And RSA is easier to break than ecdsa. But that tells you that there has actually been a material speed up in progress.
- [41:34]
Tarun
I'm not going to deny the progress. I would mainly say that the NIST standards are actually kind of, you know, they're not perfect. People obviously keep finding new breaks in them, but I do sort of feel like they are moving along for the post quantum cryptography side for like everyone. And there is kind of this thing of like if this is broken, this isn't just cryptocurrency. That is going to face the qualms of this. Like every system in the world has issues. So I think the bigger thing is just like getting the post quantum crypto standards kind of finalized. I actually was at this conference that the US and EU standards associations use host every year and for some reason this year they had like cryptocurrency and quantum computing section, which I guess I was the cryptocurrency researcher and the everyone else is a quantum computing researcher. But I got the feeling that like most of the post quantum key exchange stuff is kind of done most of kind of which lattice they're going to use is kind of chosen. So I think hopefully this just incentivizes people to actually do it. I think the other thing is there's a ton of crypto networks that have already implemented some post quantum support. So I think the first people in the world who are likely to have post quantum support everywhere are going to be cryptocurrency networks before. Can you imagine JP Morgan changing to a post quantum system? No fucking way. Like it's going to take them so long.
- [43:08]
Aseev
And they're going to have Cloudflare though already. Don't they already have post quantum stuff implemented?
- [43:13]
Tarun
They have some, but like everything is not like, like their whole stack has to actually migrate. And like people are trying to basically patch most mission critical, then slightly less and slightly less. But there could be stuff that like people haven't fully audited that is affected by kind of like weaker cryptography, weaker signing keys and stuff like that. And that was actually what these guys were talking about. It was like, it's actually really hard to know what software is being used within like these gigantic companies. Whereas in cryptocurrency networks it's much easier because everyone kind of like has to agree on the same signature scheme ahead of time. So you fix it in one place, you fixed it everywhere. And so there was sort of this upshot that it may turn out that crypto networks maybe run as private L2s or whatever are likely going to be safer than some of some older encrypted databases because no one knows how to patch every part of their signature munging versus blockchain. So there was sort of this weird thing of like blockchains actually have it a little bit easier, even though everyone is like more afraid for them versus like the rest of the economy has tons of SaaS that they have no clue how to audit.
- [44:26]
Tom
Yeah, I was going to say, you said, oh, this is this bounty, basically there's always the meme that this bounty in crypto for quantum. But I'm like, in the grand scheme of things, it's not that much money. I mean, even if in some insanely optimistic scheme you could steal all the world's bitcoin, it's only north of a trillion dollars. You know, it's not even, you know, one open AI And I'm like. It feels in some ways actually like one of the, like, less attractive ways to, like, you know, monetize this in 2025.
- [44:55]
Robert
It's a great James Bond villain plot.
- [44:58]
Aseev
Okay.
- [44:59]
Robert
Like, the best one.
- [45:03]
Aseev
Yeah. I mean, you definitely can't get all of bitcoin, right? You can get satoshi coins for sure. Or probably. Unless they, like, black hole them. And yeah, you're right. It's like, it's billions of dollars. But, like, you know, how much is how much an R and D has gone into these things? And also, like, who would fence them for you? Like, how would you say? Like. Because probably people would be like, whoever got these, like, stole them for sure.
- [45:26]
Tarun
I. I mean, it would be the Louvre heist.
- [45:29]
Aseev
Except hopefully the Louvre, you can't down the jewels, right? That's the whole idea, is that you, like, you know, Although I think it's.
- [45:35]
Tarun
Hilarious those guys got caught because they went to a soccer game. Or like, a bunch of them got caught because they just like.
- [45:40]
Aseev
But you can't melt down satoshi's bitcoin. That's the whole bitcoin. That's how bitcoin works is. I, like, I can see. Oh, this came straight from. This is like two hops from satoshi's coins. Like, what the. I'm not buying these.
- [45:52]
Tarun
Do you think mixers will ban satoshi's address?
- [45:56]
Aseev
That's an interesting question.
- [45:57]
Tarun
Right? Like, I don't. I actually have no clue. Maybe they already do because, like, there's actually kind of a good reason to do it because it would be like. It would. It would. Maybe you would.
- [46:05]
Aseev
Yeah. Maybe it's like a soft ban, right? Like, maybe crypto is just like, yeah, we could formally black hole as tokens or is bitcoin. But that is kind of against the spirit. Let's just informally black hole it and all the mixers, all the wallets, let's all just agree to brick on anything that Satoshi's coins.
- [46:22]
Tarun
So what's your view of the post quantum world? You know, those, like, if X happened, this would be the future meme. What is kind of your.
- [46:31]
Aseev
I mean, look. So here's my view of what happens is that I think and we've been talking to some companies that have been pitching these kind of of post quantum things.
- [46:39]
Tarun
I've gotten probably like, yeah, you mean Alex Pruden.
- [46:43]
Aseev
Alex Pruden's working on one, There's a bunch of other people working on them. And the post quantum I will build a post quantum thing. I've been pretty skeptical of these so far because I do think the reality is that doing a post quantum transition, actually ironically, bitcoin's probably the easiest to do a post quantum transition for. Doing a post quantum transition for Ethereum or Solana is a fucking nightmare. Because EC recover is everywhere in these code bases. There's like multisigs, there's keys, there's stuff hard coded in different places. You have to go through the smart contract codes.
- [47:15]
Tarun
This is why all these enterprise people are like, we are not going to fix any of our enterprise.
- [47:22]
Aseev
At least in an enterprise you can just be like, look, I have the authority to change this.
- [47:26]
Tarun
Yeah. Their problem is they don't know where all the. What, sure, fine.
- [47:30]
Aseev
Maybe it's harder to find the code where this code path is being tested. In crypto it's like, who has the right to change this? There's all these old contracts people use that just have an ecrecover in them somewhere and it's like they threw away the key. But okay, well that key can get broken and undone and do you know where all those things are? Are we going to change all the contracts manually? So it's extremely complex problem to migrate a stateful chain to a post quantum world. So I think it's going to be really painful. But I think the reality is that the chains have to do it. The chains have to do it. Bitcoin has to do it. Ethereum has to do it. I don't think you can be like, I created a post quantum bitcoin. Forget about bitcoin, just use mine. Because bitcoin will never get their shit together. I think the reality is that I sort of think of it a little bit like. A little bit like debt to GDP ratio is that for a long time you can kind of just do nothing. You kind of say, well, let's just keep borrowing, let's keep borrowing, let's keep borrowing. But eventually it always comes due and you always have to undergo austerity or raise the taxes or whatever it is. Right? It's just the mathematical. Just like the laws of gravity demand that you eventually do it. And the same thing is true for the blockchains. The blockchains will not just sleepwalk into getting owned by a quantum computer. They will all eventually wake up and have a code red. But right now none of them will because there's just too much dysfunction, there's too much arguing, there's too much like, ah, we'll worry about it later. Right now we just need to make the price go up. So I think that's what's going to happen. It's not going to be like some startup shows up and like usurps their spot and just says, okay, I'm the post quantum Ethereum, so I think that's how it has to happen. That being said, the reality is that whether or not Quantum is on time, ahead of time or behind time, Quantum will show up. Almost certainly. Almost everybody agrees that Quantum will eventually happen. And when Quantum happens, it's called Q Day. When Q Day eventually arrives, there will be a parade of news before Q Day, right? You will see more and more announcements of oh my God, this is getting closer, it's getting closer. It's going to be like Y2K where it's almost like edging, where more and more stories and more and more fear mongering and more and more just panic starts to set in. And I think you will see a lot of these crypto quantum things and whether or not they're actually going to be the way that we do a quantum transition, these things are going to pump like crazy because there's going to be so much just palpable fear about what might happen if Q day comes. And turns out our quantum stuff is not ready yet. So I think it's going to be really weird and kind of exhausting experience when we are actually going through that quantum transition. I think it's going to be very Y2K. Like is honestly my view and I think the day after Q day or like the week of the month where it's like, oh, what's going to happen? Is somebody going to make billions of dollars from all these quantum companies?
- [50:08]
Tarun
Haseeb is going to never wear a black shirt again. You're only going to get yellow shirt Haseeb, like you have today.
- [50:14]
Aseev
Honestly, I think what happens is that all these quantum things are going to draw down, they're going to gap down like crazy when people realize like, oh, nobody's stealing Satoshi's coins.
- [50:23]
Tarun
But the funny thing is like the people I, I know who are the most worried are always the people who love fudding crypto. Like the people always like, oh, like crypto's fake. I don't know why. What's real about it. But then they're always like, oh, like this post quantum thing, I'm going to totally, totally buy this post quantum coin. So like there is like some market fervor for these things. And the thing is, it goes back to many crypto cycles. Do you remember when like Adam Bach would just like constantly pillory Vitalik because he like wrote something about like, like raising money for post quantum Bitcoin? In like 2014 and then 2017, there are a million ICOs that were like, quantum resistant. Whatever. The irony though is that like all the quantum resistant cryptography I think is really hardened in the last eight years to the point that like, it's close to production. And I, that is what makes me less worried, to be honest. It's like, it's not like there's an, it's like we don't know a way to get around it, right? We do know a way. We just don't know how to like engineer it efficiently, which is a much better problem to be in.
- [51:28]
Aseev
There is engineering efficiency. But there's also like, look, there's a lot of years to go under anybody's prognosis until we get an actual scaled quantum computer. And in that time, very likely that somebody finds attacks against the existing cryptosystems we have, because they're all fucking new. All this stuff is new. And normally in cryptography land, you do not consider a cryptosystem robust. That's been around for seven, eight years, especially if it's only been in production for two years. That thing is experimental. Now in cryptocurrency land, we started using Starks and Snarks and all these BLS signatures and VRFs and all these other fancy stuff because we're just like, yeah, this is cool and probably works. And if not, only the researchers who worked on it will be able to figure that out anyway. So we have a much higher risk appetite for cryptography than most of the rest of the world and certainly for cryptographers themselves. But quantum is probably the first thing that's going to force us to swallow something that really is not necessarily as battle tested as we might like. But we need asymmetric cryptography. And the only way you can get that is by using one of these new post quantum schemes that we've come up with. But the fact that they keep breaking, we keep finding breaks for them, like the NIST candidates, it's like a graveyard. We keep finding ways to break these things.
- [52:44]
Tarun
It's true. I mean, on the other hand, that's Been funding a lot of research, as I learned from. At this conference. Everyone there was like, their badge of honor was like, I wrote a paper in the last five years that broke one of the NIST candidates.
- [52:57]
Aseev
Yeah. Which tells you a lot's going to change. And that's also one of the reasons why I'm skeptical is that anybody who's like, I'm building post quantum stuff right now, in three years, we might just be like, yeah, that was a total dead end. Totally. We got to go in a different direction because we broke that stuff, or it turns out it's way weaker than we thought it was going to be. Yeah. Cryptography moves fast, and I think that's part of the reason why the protocols themselves are being a bit slow to the draw. I think some of that is inertia. Some of that is just like, okay, it's kind of so scary that we don't know how we're going to do it. Some of it is also wisdom is that, yeah, look, quantum is not two years away, not three years away. And so we've got some time, because very likely the answer we come up with now is going to look different by the time Qday actually does arrive, especially if it takes 15 years to get quantum, which is certainly within the realm of possibility. Cool. I think that's all we got for today. Any last words you want to share with our ailing community that everybody's hurting out there? Tough market.
- [53:55]
Tarun
Not financial advice, but according to Haseeb, buy all the quantum coins, whatever. Quantum coins.
- [53:59]
Aseev
I did not say that.
- [54:00]
Tarun
Excuse me.
- [54:01]
Aseev
What did I say? Buy all the quantum coins. I said, going into Q Day, there's going to be a crazy rally and then a dump. So if you know when Q day is trade, that's. You got more alpha than I do. Tom. What do you. What do you. What do you got for the people?
- [54:15]
Tom
I'm just excited for the first DAT to go. Steal another dats, you know, bitcoin. I'd invest in that. So if you're working on that, let us know.
- [54:22]
Aseev
A dat running a quantum computer, Honestly, that's pretty. That would actually be very bullish. Robert. Maybe one of your DATs, that's down bad. Tell them, get a quantum computer. Steal satoshi's coins. That's a narrative we can invest into.
- [54:35]
Robert
I mean, or they could just announce that they're pivoting their business into quantum.
- [54:39]
Aseev
Computing, and that could also do.
- [54:43]
Robert
Well, try to ride the next wave.
- [54:45]
Aseev
Not that's a good idea. Yeah, yeah, just. No, you should. You should buy quantum computers and then issue more shares. And, like, do you do a like.
- [54:54]
Tarun
If you're a dad looking for a new chairman, Robert is volunteering.
- [54:59]
Aseev
No qubits per. Qubits per share.
- [55:02]
Tarun
Qubits per share.
- [55:03]
Robert
Oh, just name it.
- [55:04]
Aseev
Qubit.
- [55:05]
Robert
Yeah, that's the new qubit.
- [55:07]
Aseev
They hoard qubit. All right. I think people are even more depressed after hearing us talk about this. With that, we will sign off. Thanks, everybody. See you all next week.