Beyond the Hype: Crypto’s Next Chapter | Weekly Roundup

This episode dissects the current crypto market's ambiguous state, exploring the tension between macro uncertainty, resilient long-term holder behavior, and the evolving venture landscape for Crypto AI investors.

Market Uncertainty: Bull, Bear, or Something Else?

• The discussion kicks off acknowledging the current market ambiguity, contrasting with typical crypto cycles where bull or bear sentiment is usually clear. Michael Ippolito notes the odd feeling, distinct from clear market phases or inflection points.
• Vance Spencer offers a nuanced view, suggesting a split market: a few assets with cornered floats poised for a potential squeeze, while the vast majority lack buyers and are bleeding. He observes, "there's the other 95% of crypto assets which just have no marginal buyers and are and are slowly bleeding out."
• Despite recent tech stock volatility (like Nvidia's drop), crypto showed resilience, a notable divergence from past correlations. This hints at potential decoupling or internal market strength.
• Strategic Implication: Market fragmentation requires careful asset selection. Investors should analyze float dynamics and buyer interest, differentiating potential squeeze candidates from the broader market drift.

Macroeconomic Headwinds and Tech Earnings

• Michael Ippolito highlights the market's sensitivity to macro events, suggesting outcomes hinge on developments like US-China trade talks and tariffs within the next 30-60 days. Uncertainty keeps capital sidelined.
• Upcoming Q1 earnings reports from major tech companies ("Mag 7") are critical. While Q1 results might be stable, forward guidance on revenue, capex (Capital Expenditures – funds used by a company to acquire, upgrade, and maintain physical assets), and the impact of trade policies will be heavily scrutinized.
• These tech giants represent significant portfolio allocations, and any sign of slowing growth against high expectations could trigger broader market volatility, potentially impacting crypto.
• Strategic Implication: Crypto AI investors should closely monitor upcoming tech earnings guidance (especially AI-related capex) and geopolitical news (tariffs) as these could significantly influence market sentiment and risk appetite.

Crypto Business Planning Amidst Uncertainty

• Santi Santos emphasizes a "business as usual" approach for crypto founders, focusing on long-term fundamentals beyond short-term market swings. Key advice includes maintaining a 24-month runway, controlling costs, and prioritizing product development over excessive spending.
• He notes the improving long-term backdrop for crypto, citing potential stablecoin legislation and growing acceptance from traditional finance players (BlackRock, Robinhood, NuBank) as major positives.
• A critical point for founders now is defining a clear path to monetization. Santi draws parallels to early Facebook, acknowledging the "figure it out later" approach but stressing its increasing difficulty. "Understand your position in the stack: how are you going to actually monetize your user or your product?"
• Strategic Implication: Investors should favor projects with clear business models, sustainable unit economics, and prudent treasury management. The ability to articulate a monetization strategy is becoming crucial.

The Evolving Crypto Venture Landscape

• Michael Ippolito shares insights from conversations with LPs (Limited Partners – investors in venture capital funds). A key theme resonating with them is the capital efficiency of crypto protocols compared to traditional tech companies.
• Showcasing lower headcount and operational costs relative to revenue is proving effective. Protocols demonstrating this efficiency are attracting LP interest as a superior way to deploy capital.
• However, the overall venture funding environment is tightening. Less capital is available compared to previous years, funding is concentrating in fewer, established funds, and large growth-stage rounds are becoming scarce.
• Strategic Implication: Expect continued pressure on venture funding availability, especially for later-stage rounds. Early-stage projects must demonstrate extreme capital efficiency and a clear path to revenue to secure funding.

LP Perspectives and Capital Efficiency

• The discussion highlights how the availability of new crypto investment vehicles (like Bitcoin ETFs - Exchange-Traded Funds, baskets of securities tracking an underlying index or asset) is changing LP allocation strategies. LPs now have more direct ways to get exposure, particularly to major assets like Bitcoin.
• This forces venture funds to differentiate. Funds blurring lines between venture, liquid strategies, and simple Bitcoin holding within a single vehicle face more scrutiny. LPs are becoming more sophisticated in distinguishing between pure venture, hedge fund, and other crypto financial products.
• Michael Ippolito notes, "I think we're going to get product diversity... LPs [are] really starting to understand the difference between who is a core venture investor, who is a hedge fund investor..."
• Strategic Implication: Venture funds must clearly articulate their value proposition beyond simple asset exposure. LPs will increasingly favor specialized funds with distinct strategies (e.g., early-stage deep tech, DeFi-specific).

Tokenization, Private Markets, and Liquidity

• The conversation touches on allocator behavior regarding private markets. While some value the lack of daily mark-to-market volatility, the inherent illiquidity remains a significant drawback, especially during potential downturns.
• Vance Spencer points out that allocators are becoming more discerning, questioning valuations and business models, particularly outside the current AI hype cycle. Crypto ventures face tougher questions now compared to AI startups promising long-term breakthroughs.
• VCs are adapting by demanding higher ownership stakes (e.g., 10% of tokens) and questioning previously standard practices like large community allocations and airdrops.
• Strategic Implication: The potential illiquidity of private assets could bolster the case for tokenization long-term. However, investors should be aware of increasing VC demands impacting token distributions and potential founder dilution.

Bitcoin Market Analysis: Long-Term Holder Trends

• Santi Santos presents chart data indicating that long-term Bitcoin holders are currently in accumulation mode. Wallets holding 1,000-10,000 BTC are increasing, and wallets with long holding durations (over a year) are actively buying.
• Santi views this as a strong bullish signal: "The guys that really know and and where the real wealth is and the flows are they're they're right now buying."
• Despite potential short-term volatility (acknowledging a possible drop to $50k wouldn't be surprising), the long-term outlook remains positive, with Santi assigning a higher probability to Bitcoin reaching $150k than returning to $50k over two years.
• Strategic Implication: Accumulation by long-term, large Bitcoin holders suggests underlying conviction. This cohort's behavior is a key indicator for investors assessing market bottoms and long-term trends.

Altcoin Investment Strategy

• While acknowledging Bitcoin needs to lead, Vance Spencer identifies the "mid-tail" of altcoins as the most promising area for potential upside. This includes assets roughly in the $500M to $1.5B market cap range, and potentially up to $10-20B ("mid-majors").
• These assets often exhibit higher beta (a measure of volatility relative to the overall market) to Bitcoin. When Bitcoin moves up, these mid-cap altcoins tend to increase by a larger percentage.
• Michael Ippolito advises against trying to time the absolute bottom, suggesting the best buying opportunities often occur when an asset is 20-40% off its lows and shows a clear upward turn, while still keeping dry powder.
• Strategic Implication: Researching fundamentally sound mid-cap altcoins could offer amplified returns during market upswings, but requires careful selection and risk management due to higher volatility.

The Stablecoin Thesis: Growth and Investment Angles

• There's consensus on the massive growth potential of stablecoins, potentially reaching trillions in market cap. The discussion explores how investors can gain exposure to this trend.
• Michael Ippolito identifies the borrow/lend sector as a direct beneficiary. As stablecoin usage grows, demand for lending and borrowing these assets increases, benefiting protocols facilitating these activities.
• The revival of on-chain lending is highlighted, citing Maple Finance (rebranded Syrup) surpassing $1B in TVL (Total Value Locked – the overall value of crypto assets deposited in a DeFi protocol) and receiving significant allocations from institutions like Sky. This marks a shift from the failed CeFi (Centralized Finance) lenders of the previous cycle.
• Strategic Implication: DeFi lending protocols represent a key infrastructure play on the growth of stablecoins. Monitoring TVL growth and institutional adoption in platforms like Maple/Syrup offers insight into the sector's health.

DeFi Lending Market Revival

• Referencing data from Galaxy Research, the speakers note the dramatic shift in the crypto lending landscape. While the overall market is significantly smaller than its 2021 peak (down ~75%), DeFi (Decentralized Finance) protocols now dominate the existing market volume, surpassing CeFi.
• The collapse of major CeFi lenders like Genesis, BlockFi, and Celsius created a vacuum that DeFi protocols are filling, offering more transparent, on-chain solutions.
• Michael Ippolito emphasizes the power of this shift: "...doing it in DeFi native ways which is really interesting... much more powerful than even what you had with Genesis..."
• Strategic Implication: The structural shift towards DeFi lending appears durable. Investors should evaluate DeFi lending protocols based on their security, capital efficiency, and ability to attract institutional capital.

Stablecoin Issuers vs. Enabled Businesses

• The conversation differentiates ways to invest in the stablecoin theme: infrastructure (e.g., stablecoin-specific chains like Plasma), issuers (Tether, Circle, newer entrants like Ethena/USDe), and enabled businesses (companies leveraging stablecoins).
• Santi Santos suggests owning the customer relationship is key, pointing to platforms like NuBank and Robinhood that integrate stablecoins. Michael Ippolito echoes this, framing it as "Fintech + Stables = Better Fintech."
• While issuing stablecoins (like Tether) can be highly profitable, displacing incumbents is extremely difficult due to strong network effects (where a product becomes more valuable as more people use it). Investing in businesses *using* stablecoins (e.g., payments, insurance, trading) might be a more accessible strategy.
• Michael Ippolito argues that US-based issuers like Circle and PayPal (PYUSD) have missed the primary product-market fit: exporting US dollars to regions with high demand, an area Tether dominates.
• Strategic Implication: Consider investing in companies building applications *on top* of stablecoin infrastructure, as they may capture significant value by owning the user relationship, potentially offering better risk/reward than investing directly in issuers facing intense competition.

Stablecoin Stickiness and Chain Dynamics (Focus on Solana)

• The discussion explores how "sticky" stablecoins are to the blockchains they reside on. Vance Spencer analyzes different chains: Tron's stickiness comes from established retail/exchange integrations, Ethereum's from deep capital markets for DeFi, and Solana's appears more linked to cyclical activity like memecoins.
• Despite a significant drop (80%) in memecoin-related revenue on Solana following the "Trump token" launch frenzy, data suggests stablecoin balances on the chain have remained relatively high or even grown.
• This observation, coupled with Standard Chartered's report calling Solana stables "stickier than expected," hints that stablecoins on Solana might be finding uses beyond pure memecoin speculation, potentially embedding into other DeFi or payment activities.
• Strategic Implication: Monitor stablecoin flows on different L1s (Layer 1 blockchains – base networks like Bitcoin, Ethereum, Solana). Solana's ability to retain stablecoins post-memecoin hype could indicate diversification of its on-chain economy, a positive long-term signal.

Layer 1 Valuations and Revenue Sustainability

• Vance Spencer questions the valuation methodologies for major L1s, emphasizing the need to focus on fundamental drivers like sustainable revenue and net income, which is harder to justify at high market caps.
• Santi Santos critiques the reliance on speculative activity (like memecoins on Solana) for L1 revenue. He stresses the importance of diversifying on-chain activity towards more sustainable sources (e.g., tokenized assets, real-world applications) over time. "Over time what you want to see is as a percentage of the pie speculation going down... you want to have other types of activity."
• The persistence of older L1s (XRP, Cardano) in the top rankings despite limited fundamental traction highlights the power of community and narrative, but the discussion leans towards future valuations being more closely tied to demonstrable, sustainable economic activity.
• Strategic Implication: Scrutinize the *source* and *sustainability* of L1 revenue streams. L1s diversifying beyond speculative activity towards utility that generates durable fees are better positioned for long-term value accrual.

The Need for Crypto Data Standards and Transparency

• A major pain point identified is the lack of standardized accounting and data transparency in crypto, ironically for an open-source space. Issues include discrepancies in reported vs. actual circulating supply, opaque token allocation tracking, and inconsistent definitions of metrics like revenue.
• Vance shares an anecdote about finding a significant revenue understatement ($50M/year) in a public dashboard due to a bug, highlighting the unreliability of existing data sources.
• The speakers call for GAAP-like (Generally Accepted Accounting Principles) standards for crypto protocols to define revenue, costs, and token issuance consistently, enabling better fundamental analysis and comparison. Michael Ippolito suggests moving towards Price-to-Earnings (P/E) ratios.
• Strategic Implication: Investors cannot rely solely on public dashboards or team disclosures. Deep, independent on-chain analysis and verification are crucial. The lack of standards creates both risks and potential alpha opportunities for those who can uncover data inaccuracies.

Challenges in the Token Listing Process

• The discussion sheds light on the opaque and often problematic practices surrounding centralized exchange listings, termed the "token industrial supply chain."
• Aggressive demands from some exchanges (fees, token allocations) and the pervasive use of NDAs create an environment where teams and investors are incentivized *not* to disclose unfavorable terms, hindering transparency. Michael Ippolito describes some policies as "egregious."
• This lack of transparency benefits incumbents and disadvantages newer projects and investors. The speakers suggest this could structurally benefit DEXs (Decentralized Exchanges) where listing is permissionless and more transparent.
• Strategic Implication: Be aware of the hidden costs and potential inequities in centralized exchange listing processes. Factor the difficulty and cost of CEX listings into investment theses and consider the advantages of DEX-first or DEX-primary liquidity strategies.

Improving Disclosure: A Path Forward?

• The conversation advocates for improved disclosure standards, potentially through industry self-regulation (an SRO - Self-Regulatory Organization, like FINRA in traditional finance) or simply protocols adopting best practices voluntarily.
• Key areas for disclosure include: financials (standardized reporting), the relationship between labs/foundations, market maker agreements, and team token holdings/vesting schedules (potentially using 10b5-1 plans – pre-scheduled trading plans for insiders).
• Michael Ippolito argues that increased transparency directly benefits protocols by attracting more sophisticated, long-term liquid buyers: "Share more information disclose more and I bet you will have a lot more people who are interested in buying your token."
• Santi Santos suggests protocols hire dedicated Investor Relations (IR) personnel to manage communications and disclosures professionally, similar to public companies.
• Strategic Implication: Favor projects committed to high standards of transparency and disclosure. This trend is likely to accelerate, potentially creating a divide between forthcoming newer protocols and legacy projects with opaque structures.

Reflective and Strategic Conclusion

The crypto market navigates uncertainty, yet underlying fundamentals like stablecoin adoption and DeFi lending show resilience. Increasing focus on capital efficiency, sustainable revenue, and transparent disclosures will define the next phase. Investors should prioritize protocols demonstrating these qualities while monitoring macro shifts and regulatory progress.