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- [00:00]
A
I think we're starting to see like a greater demand for transparency, for accountability and I do think like the stuff, like the market structure bill will just accelerate that.
- [00:18]
B
Hi, everyone. I'm back now with Joshua Lim, global co head of markets at Falcon X. Welcome, Josh.
- [00:24]
A
Thanks for having me. Great to be here.
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B
So, wow. We are in a position with these crypto markets where things aren't looking super pretty and bitcoin just fell below 74k and I was wondering if you think we're at the bottom or where you think we are right now in the crypto markets.
- [00:43]
A
Yeah, I mean, these levels are obviously distressing for anyone who's worked in the industry for quite some time, but also significant because these are levels that were only previously seen prior to the Trump election. So in many ways, like, we've given up a lot of progress on price, even though in terms of innovation and adoption and just the broader growth in the ecosystem. And think about all the developments that have happened over the last year, especially with Hyper Liquid. There's been very little to show from a price perspective. Even you could argue that we've kind of moved backwards, if from the perspective of many different altcoins and governance tokens that are staples of a lot of fundamental portfolios.
- [01:30]
B
And so what do you think is driving this downward price action?
- [01:36]
A
Yeah, and I think, you know, you're asking kind of what, what is the pro, you know, the, the sort of forecast from going forward from here. I think it's entirely going to be a function of how well risk assets can hold up. Right. If you look at across the board, other asset classes, everything is still near all time highs. Right. And a lot of that is because of the way the dollar is behaving. The dollar is weaker and that generally is a boon to other risk assets. That has not translated to bitcoin and to crypto generally. And we're so used to seeing the phenomenon of crypto trading alongside stocks or other risk proxies in a correlated way. Right. And so this very large divergence, and in particular, I think the most stark divergence is between Bitcoin and gold. That divergence is wreaking havoc, Right. With our whole industry and kind of how people are positioned. There's a chart that a lot of people are circulating which is basically a chart of global liquidity overlaid with risk assets. And then another one with bitcoin price. And Bitcoin is the only chart that's pointing downwards while everything else is up and to the left, up and to the right. So that's very unusual. I think if we dig into that and try to figure out what's the underlying cause. There's two things in my mind. One is obviously it's a flows driven market. Right now in bitcoin there's very little sort of fundamental catalyst to look forward to. A lot of the things that people wanted to happen last year already did, right? The kind of good things around policy and regulation and even, you know, the inflows that we saw into different equity vehicles that hold crypto, all those things have transpired, right? So now looking forward, it's really very much a flows driven market. And what we're seeing is like the flows which are dominated by a lot of central bank activity and sort of like sovereigns, building reserves, a lot of that is flowing into more established asset classes, in particular gold. Right. We've seen China add tens of, you know, let's say thousands of kilograms of gold to their reserve and none of that is really flowing into bitcoin. That's really the biggest difference in flows for, for our asset class. The other big thing, I think, and, and this is starting to get a lot of traction, right? Like if you go to tradfi meetups and things like that, people will talk about this as an overhang for the asset class. It's the quantum question and that narrative, even though I do think that it's a solvable problem for our industry. I mean the technology is of course adaptable and the community can rally around a new form of cryptography for crypto for bitcoin, that is an overhang. And that is a question that a lot of asset allocators and investment committees have to answer when they're deciding whether they want to invest in bitcoin versus gold.
- [04:37]
B
Yeah, yeah. And we had Vinny Lingham on the show at some point last few months and he was saying basically just that if it's like the central banks that are buying the gold, those people, they're not into bitcoin, they're into gold. So he said it's boomers that are driving this decision. You know, you probably have heard because. Well, I've asked this question a lot. A lot of people in the industry seemed to think that this cycle was going to be the one that showed that the typical having cycle is, is not, you know, functioning anymore and that this is the cycle when we'll break out of it. And so even over Christmas break and I think in January a little bit, I did see some people say that they still thought that later this year it would show that we really did break out of that four year having cycle. But what do you think, what do you expect to see from the crypto markets generally this year?
- [05:35]
A
So I do think that we're going to be in a prolonged range bound market. Right. And I think that you know, particularly coming out of the events of last year, like you know, the liquidations that happened in October of last year, like the whole industry has gone through a bit of a mini credit contraction type cycle, right. And we all experienced this like at the end of 22 with the sequence of like failures of large trading firms in the space market structure is a lot healthier this time around. Like there weren't, there aren't like gross overextensions of leverage or unsecured credit in crypto in this cycle. But what there was was just a, you know, a large buildup of open interest and activity in perps right across the landscape, not just on centralized exchanges, but on new venues like hyper liquid. And that is kind of what we're seeing play out right now is just a broad shrinkage in volumes across the board. On centralized exchanges there's a, there's a sort of less demand for speculation. Right. You can see that in, across a bunch of different metrics. If you look at implied volatility is on options, right. Or you look at how much futures trade above spot prices, those are all near kind of the lows that would indicate just a lack of retail interest in getting long crypto or being levered or having sort of like synthetic exposure to the asset class. And then combine that with sort of a little bit of a give back from the exuberance of the whole DAT era of last year. We're talking about the hundred plus vehicles that raise money, $50 billion plus. If you kind of add everything all up across the more well established vehicles, pouring money into Bitcoin and ETH and Seoul and then all the way down to much smaller ones like 100 to $500 million market cap raises. All of these did eventually allocate into crypto but are now all trading below net asset value on the shares. And so there is no more dry powder to come into the tokens themselves because the shares are below the net asset value, can't be sold into the market anymore to go buy more tokens. So yeah, that's kind of what we're seeing. It's a little bit of a, it's going to happen every time you, you get over your skis, you know, in the whole, in the sense that the market got a little Bit over leveraged and there was a little bit too much speculative fervor. But I think this is relatively healthy. Like we're just sort of consolidating down here. It does take a little bit of a mental shift where capital comes back into crypto and I would say out of speculative assets like stocks and commodities and, you know, the metals rally obviously pulled a lot of eyeballs away from crypto. Same thing with, you know, the hot sectors in the stock market like quantum stocks and rare earths and other, you know, defense and AI names. I think at some point all of that money will come back to crypto, but the question is obviously, when will it happen? I know a lot of people put that towards the end of this year. And like you said, that's sort of what most people have on their timelines. There's a lot of open questions right end of the year like the, the, the outcome of the midterm elections here in the US and you know, and a correlate corollary to that is obviously like what happens with the market structure, Bill. So, yeah, a lot of open questions.
- [09:17]
B
Yeah. Honestly, what you were saying there reminded me about how earlier in this year people kept talking about how fintech and crypto were converging. And it's very similar in the sense that now I'm just seeing that it feels like crypto is just part of, like the wider markets. And so before where it felt like money in crypto kind of stayed in crypto. Now it feels like, you know, there are investors that just see it as yet another option among many different asset classes. So in a moment, we're going to talk a little bit more about when we might see things coming back to crypto and kind of what factors would bring more volume back. But first we're going to take a quick word from the sponsors, make this show possible. The energy network is an intelligent, decentralized grid that coordinates smart devices to balance supply and demand. Energy dollar is the native token of the network from one of Europe's fastest growing energy storage startups. Follow Use Energy on X to find out more. If crypto taxes feel overwhelming, you are not alone. That's why Crypto Tax Girl, a team that's been helping crypto investors since 2017, is offering $100 off on one on one crypto tax help. To get $100 off your crypto tax services, go to cryptotaxgirl.com Unchained Again, that's crypto tax girl.com/ Unchained. Back to my conversation with Josh. I have seen a lot of commentary on Twitter that they've. People feel like, I don't know if it's necessarily like gold has peaked, but, you know, just when they look at different charts, they feel like this is the moment when they might see momentum coming back to bitcoin. And I wondered what you thought of that theory.
- [11:06]
A
Yeah, I mean, you know, it's. I guess we're in a year of just several years of unprecedented things happening back to back. But I think we all live through, you know, one of the most dramatic moves in what is supposed to be a store value like gold and silver, these sort of precious metals that are sometimes an uncorrelated part of people's portfolios. And yet, you know, we. We had pretty drastic moves. 30% plus move in silver, 15% plus in gold. Right. I think these are good indicators that we had reached a bit of a blow off top. And obviously today you see gold is up substantially again. And that's in the face of equities and crypto continuing to be weak. So it is its own asset class and its own league. Right now the types of people trading gold are perhaps just trading it idiosyncratically relative to everything else. And so it is actually kind of amazing, right. What it does show is just how much like, the retail impulse is driving asset classes these days. The last time we kind of saw stuff like this was with GameStop, right? And the sort of the power of the retail investor moving asset prices. But that, that was obviously a much smaller asset class. Like that was in the order of tens of billions of market cap versus gold being tens of trillions. Right? So it is amazing. It is amazing. It's something I never thought I would see, but it is. And it also, I think, should remind all of us that those types of moves used to happen a lot in bitcoin too, right? Sort of like 20% nowadays, it's very hard to imagine bitcoin moving up because it feels like a very heavy asset class. But yeah, I think once the sort of retail mindset comes back and focuses on bitcoin, you'll see stuff like that again. And alts. Alts too, right? Like, alts are relatively forgotten at this point. People aren't even trading positive catalysts as triggers for buying the tokens. Right. So you could see, like, there was a fairly interesting announcement actually around, like, Worldcoin. They announced a partnership with OpenAI that was already kind of speculated a while back. But just to see that put in place and to see maybe some application for an interesting Technology that's very much, you know, crypto inspired. Right. Had very little impact on the token. I think the token ripped maybe 20% or so, but immediately gave back its gains. There's a lot of stories like that. It's like these very micro rotations. It just goes to show a lot of that money that's coming from one token to another in crypto is just recycled crypto native capital. There's very fresh retail money that's coming in to bid asset prices.
- [14:04]
B
All right. So another big part of the market that everybody was talking about last year was the debts. And they obviously were kind of a driver of some of the hype around certain tokens. And at the moment a lot of them are underwater, including some of the big name ones. Obviously strategy was the original, the OG debt and Bitmine is another one that people are talking about being underwater. And I wondered, first of all, what you thought was going to happen to that sector and then if you thought that whatever happens there could have a wider impact on the crypto markets.
- [14:41]
A
Sure. So I think what everyone has landed on with the dats is that it is entirely a game of attention. Right. So when there's only one dat, like with MicroStrategy for most of its existence, it could attract retail inflows and it could have this amazing sort of reflexivity around rallies in Bitcoin. And it being the only sort of equity alternative access vehicle almost into crypto at the time, it gave it a lot of this sort of upside convexity. Right. Like Bitcoin would go up, it would go up more because of this NAV premium and expansion. What we see now is like with the proliferation of hundreds of these vehicles and actually a lot of money coming into them from traditional investors as, you know, the sort of primary raises. And then ultimately in the secondary markets, a lot of retail investors also, most of those investors are down on the trade, right. Because a lot of them were buying above nav. If they were buying in the secondary market and in the primary markets, even they were buying when the market was relatively hot. But unlocking into a market that's relatively weak because most of these had three month or so registration periods for the shares. So that's kind of where the market is today. Right. It's almost like a lot of buyers or would be investors in these products have been burned somewhat and attention is so diluted across a bunch of different names that it's hard for any one name to really break out and stand out and attract fresh inflows in a meaningful way. At Least inflows to offset the sort of like selling outflows of those primary investors. So yeah, I mean, I think it's not inevitable that a lot of these will trade below now forever. Right. I think what will happen is that there's going to be strong winners. And we've already seen like each category kind of has one dominant player that, you know, you probably know and I probably know like they're, they've already gotten maybe like a huge lead in terms of aum, maybe their management teams are pretty well regarded and notable and always on the.
- [16:59]
B
But the ones that come to mind for me are Strategy and bitmind, which are the ones that I named and they're underwater, so I don't know.
- [17:05]
A
But yeah, I mean, Agreed, agreed. But some of those names are still performing relatively well relative to peers even in their vertical. Right. So it sets up situations where you have maybe a stronger currency to acquire other currencies in the market. It also sets up situations where some players have better economies of scale, like they can run larger operations more efficiently in terms of staking or mining or what have you, and also just efficiencies in terms of raising investor awareness for, for their, for their stock.
- [17:42]
B
Okay, so. So you don't see them having a wider impact on the crypto markets, I think.
- [17:47]
A
Right. I mean, we have seen a few of the dads engage in activities where they're buying back shares or maybe even pivoting the business towards like real world assets or other forms of operating businesses. I don't think that's generally right now. There hasn't been like a sustained trend where a lot of these vehicles are selling tokens. I think we'd get a lot of lead time before that would like before that really materializes. We would basically see filings where investors would be seeking to be activists and to be involved in sort of like the management of these companies, the boards, the sort of like the strategies around accumulation or even buybacks. So we haven't seen an enormous amount of activity there. But I expect just given that these are very easy to understand vehicles and Wall street investors are very smart and can figure out if there's value to unlock that there probably will be at some point.
- [18:48]
B
All right, so one other big news event that happened recently that had a big impact on the markets was the naming of Kevin Warsh as the Fed chair. And I wondered what you thought of that pick and what effect you thought it would have on the markets once he takes that position, and in particular what effect it would have on crypto.
- [19:09]
A
Yeah, so the surface reading of that was that WARSH is generally viewed to be more hawkish, more conservative when it comes to the balance sheet of the Fed, the initial, and obviously a bull for the dollar. Right. So I think the general thought was this would be a challenge and a headwind for risk assets and for crypto in particular, I think we saw a little bit of that, like this sort of knee jerk reaction that bitcoin faced when actually it's kind of through reading poly market odds. Right. A lot of people are kind of following those odds throughout the evening. And yeah, that sort of was correlated to actually price action in Bitcoin and other risk assets. I think that movement has somewhat accelerated over the weekend into today and that's kind of what we're seeing today. It's just like a lack of buying sponsorship in bitcoin. In other crypto assets, there's sort of still this overhang from the WARSH nomination, but also just generally concerns that even other risk assets are starting to move lower. You know, you saw maybe a couple of triggers in the last couple of days. You saw kind of some weaker earnings on some of these names that have come out and reported. You saw maybe some concerns around OpenAI and Nvidia and the investments that are happening in the AI space. And all of these are trickling down into equities first and then, and then obviously crypto.
- [20:44]
B
All right, so in a moment we're going to talk a little bit about some more futuristic parts of the crypto markets. But first we're going to take a quick word from the sponsors who make this show possible. The world is about to see one of the largest infrastructure shifts of the century. New technologies are using more energy than ever before. But our legacy grids can't supply the demand and we are barreling towards a global bottleneck. So Fuse is rebuilding it. The energy network is an intelligent, decentralized grid that coordinates smart devices to balance supply and demand. The network harmonizes existing infrastructure, increases grid capacity and unlocks low cost clean energy. Energy dollar is the native token of the network. The more electricity the world needs, the higher the demand. For the energy network. The value of energy dollars may fluctuate. From one of Europe's fastest growing energy startups. Follow Use Energy on X to find out more. If you're looking for help with crypto taxes, Crypto Tax girl is offering $100 off for Unchained listeners. They provide personalized crypto tax reports and returns and spots before April 15th are limited. Go to cryptotaxgirl.com Unchained to save $100. Once again, the link is cryptotaxgirl.com Unchained. There's another bit of news that people have been talking about a lot which is super interesting, which is to see that at the same time that volume is leaving the crypto markets, we have recently saw that hyperliquid was enjoying a lot of volume based on perps around metals. I think equities is a part of that. So talk a little bit about what you think the significance of that is.
- [22:43]
A
Yeah, hype itself. The token and the volumes on its platform have been a rare bright spot for crypto over the last couple of months. We have. It's actually become one of the most actively traded assets for our client base. It is a, almost like a safe haven hiding spot for a lot of liquid crypto funds who are mandated to have fundamental views on crypto tokens and must hold them in the portfolio. It's actually been a relatively strong performer as well. Right. You've, you've seen a rally almost 50% from the low 20s all the way up to, you know, even the mid to high 30s in the last couple of days on the back of what you're describing, which is the growth in HIP3 volumes. And I think your audience probably knows HIV3 was set up to permit sort of the permissionless creation of new perp markets. And most of the new creators have focused on real world assets like equities and commodities. And I in particular, in the last couple of weeks, with all of the volatility in the precious metals market, we've seen enormous growth in silver and gold perps that, you know, that is surprising as, as you can imagine for a crypto native platform to see non crypto assets really leading the tables in terms of volumes and open interest. But that's driven a lot of activity on hyper liquid in, in the order of, I think 3 to 4 billion dollars per day of HIP3 related volumes. And it's also driving meaningful revenue. Right. Because there are fees associated with trading these markets and they accrue to the protocol and the protocol is actually paying them to token holders in the form of buybacks of the token. So I believe it's on the order of like $4 million of revenue per day is being generated on the heightened volumes. So if you survey the whole crypto landscape and you try to figure out where revenue is accruing, hyper liquid is up there. It's like a top three in terms of revenue and the other two are stablecoins. Right. Tether and circle. So we know that there are areas in crypto where there are real use cases, there's real utility, people are still building meaningful products that are useful to consumers. One is stablecoins. And almost diametrically opposite to that in sort of very volatile speculative realm, is things like Hyper Liquid. I would also put things like polymarket and Kalshi into that bucket where people are using them to trade and to take positions, but they're generating real value for their shareholders.
- [25:26]
B
Yeah. And then with the HIP4, we might see HyperLiquid also competing with Polymarket and Kalshi. But to me, when I look at that, and I also see, I'm sure you saw on Twitter, there was a comparison about volumes on Binance versus on Hyper Liquid. And it sort of looks like that we're almost at some kind of inflection point where DEFI is really competing head to head with centralized exchanges or on the cusp of doing so. And I wondered if you could talk about what you think those structural changes will be in the market for crypto this year.
- [25:59]
A
Yeah, I do think that this has been a widely debated topic with the trader community, especially people who are avid followers of market structure and how that's evolved in crypto over the years. It does kind of feel like the question of what will happen to what had been the largest part of crypto, which is the offshore, kind of less regulated, centralized exchange market. Some of the biggest companies in our space are in that category and they are certainly amongst the most influential and most politically important, maybe the largest spenders of, of of lobbying dollars as well. The question has always been like, what what does that look like in the long run? And I think with the rise of Hyper Liquid and also, you know, even sort of reading the drafts of the market structure bill, like you can kind of have some idea that maybe a lot of those volumes that were concentrated there will get dispersed into other parts of crypto and one part will be more regulated venues and more tradfi alternatives to crypto native venues. So I'm talking about things like the ETFs themselves, like IBIT. You could see, you know, IBIT open interest is oftentimes now exceeding deribit open interest on the options. So that's already sort of starting to displace what we would consider like our own native marketplaces that were created by crypto native people. And then on the other side, as always, Hyper Liquid and lighter and all these other venues, we're starting to see people migrate that way because it is more transparent in Some ways it's more predictable. Even though a lot of people argue these are also centralized exchanges but the, the rule set and actually kind of the degree of transparency that you can get. It also does depend on like the managements of these companies. Right, like, and the protocols themselves. Like there are certain folks that are managing these, these protocols and have a great deal of trust built up with the community and can speak very candidly about, you know, the developments on their platform and what they're trying to do. And I think that says a lot. Right. I think we're starting to see a greater demand for transparency, for accountability and I do think the stuff like the market structure bill will just accelerate that.
- [28:33]
B
Okay, so last quick question because I know we're basically at time, but I'm sure you saw all this activity around openclaw and multiple book and all this stuff going on with these AI agents. Plus at the same time we have the Ethereum foundation kind of, you know, finally implementing the CRC 8004. We have the X 402 standard. I wonder, you know, if you're looking at that and you have an, if you have any ideas on how this agentic commerce or agentic activity with crypto will affect the markets this year and if there's any particular tokens that you feel like might benefit from that.
- [29:07]
A
Yeah, I sort of caught the tail of your last, your last segment. I don't have any particular meme coins to promote there. I mean I think it's going to be net beneficial for Internet native, you know, value transfer mechanisms which cryptos that category. I do think it'll probably benefit stablecoins the most. That's what is most widely used. I do think that, you know, it does open up the door, I would say for new layer ones that can support maybe more privacy oriented transactions. And you've seen that as a sort of mini trend this year, right. With the rise of zcash and some other long dormant privacy coins like Dash and Monero. I do think that that will be a key part if this becomes like a full fledged agentic AI driven economy where small micropayments in stablecoins that are more anonymized and also more untraceable will be important. And like always, I think the regulation is always a little bit behind on this type of stuff. So we'll have to see kind of how it shakes out in terms of allowing for these types of things. But we've already started hearing how to build these types of privacy enabled chains with compliance to KYC and aml. And that's, I think, the most interesting area to build in.
- [30:35]
B
All right, Josh. Well, I'm so glad that we got to chat with you today. The listeners should know we pulled together this episode last minute because we knew everybody would want to know what's going on in the markets. And Josh, Yes. It was always or as always, it was such a pleasure to chat with you.
- [30:50]
A
Same. Great chat.
- [30:51]
B
And thanks, everyone, for joining this live stream. And we will catch you tomorrow.