longer form thoughts on crypto. Lots of bearishness.
I remain bullish. Why:
- If Trump is elected, all bets are off - SEC runs on a skeleton staff, Gensler is fired, he intervenes in the Fed to cut rates. Odds are at least 50% Trump wins. Any concern about Trump’s stance towards crypto should be dismissed by his NFT sales and appreciation galas for NFT holders (haha).
- Concerns about Biden admin and crypto have been de-risked. ETF is likely going to be approved. Blackrock (and even VanEck) would be radio silent about it otherwise.
- CZ would not have agreed to come to the US to face trial if he had not cut a deal (conceptually about the sentence). He is not SBF. He would not have bull tweeted while he was awaiting sentencing if it were to be dire.
- Furthermore, the CIA and FBI would not have been onboarded onto Tether recently nor would the DOJ have thanked Tether for collaborating with investigations on its website if it were about to get raided or were running a Ponzi scheme. Crypto natives likely underestimate the extent to which Tether keeps institutions from buying crypto assets.
- There is 34B or more of unrealized call option PNL sitting in Stonks (specifically NVDA,TSLA and SPY options yolos) from the Fed Pivot. This is speculative $ itching in brokerage accounts - which is already rotating into highly speculative asset. Stocks like Carvana are up 80%+ in the last month. This removes any concern I had about demand for the spot Bitcoin ETF when it launches. Putting this in perspective - $34b of dry powder is about 7x the cumulative purchases of MSTR.
- There is a reflexive dynamic with Coinbase’s debt. If Coinbase were to default it is unclear what would happen to customer deposits. Coinbase 2026 bonds have traded from a low of 52 to 88 currently - implying a default probability of only .24%. Concerns about Coinbase removing its customer deposits to expunge debt are now a long shot, which should encourage deposits.
- Other reflexive debt dynamics are at play removing forced sellers from the market. Microstrategy debt, and those of Bitcoin miners has staged a similarly outrageous rally. MSTR debt has rallied from 30 cents on the dollar to 83 cents on the dollar. El Salvador has staged a monstrous rally from 28 cents to 94 cents on its 2025 bonds. The people who could have had egg on their face from buying / legalizing Bitcoin, have made a lot of money. This will encourage others to do so.
- Accounting changes no longer require corporates to mark crypto asset purchases on balance sheet at the low of the quarter. This previously discouraged crypto buys as it would depress earnings per share which is typically a factor in management compensation.
- Rampant gold demand. On a y-t-d basis, central banks have bought net 800t of Gold, 14% higher than the same period last year. Central bank gold demand is near decade highs. Unfortunately Russia owns $150b of Gold reserves, which it began accumulating after being partially de-dollarized for its actions in Crimea in 2014. Any claim that crypto finances terrorism is small in comparison to gold’s role in financing Russia’s invasion of Ukraine, which is viewed by many Central Banks as an explicit terrorist action. This is the misunderstood bull case of Crypto here - which is that Coinbase and Blackrock will serve as references for sovereigns to conduct spot purchases.
- Social proof. The success of projects like Celestia- led by Bain Capital, as well as PTJ and Stan Druckenmiller talking bullishly about Bitcoin are what you need to get large institutions and central banks excited about the asset. It’s no longer crypto natives with huge gains - which is important for getting comfort with the space’s more toxic traits.
- Revitalization of the “metaverse” story with the Apple Vision Pro.
- At the end of the day ETH supply has not grown since September of 2022, even with lots of competition and not much usage. This allows for a real digital scarcity argument to be made, in an environmentally friendly backdrop – which is also necessary for getting many institutions involved.
- Increasing possibility of distributed compute, storage, or artificial intelligence applications using blockchains. New technologies such as modular blockchains, or ZK roll ups which will be widely deployed later next year
- We’re in an uptrend. Crazy, I know. But crypto trends.
In short, you have massive technical validation of the space, regulatory hammers removed, reflexive debt dynamics unwound, and gluts of speculative capital on the sidelines. We live in a tech enabled world - where public equity market caps are driven by software, internet and AI. This world supports a $13 trillion gold market capitalization which does not interface with the new economy. I think Crypto is a $5 trillion + asset class over next 2 years and prefer to position myself long with opportunistic shorts in mega caps that aren’t delivering on their roadmaps.
I personally think moving AI onto blockchains - especially L1s is the most appealing risk reward expression of this thesis. Good luck.