This episode dissects the collision of bullish macro signals, like impending rate cuts, with crypto-native complexities such as the controversial rise of Decentralized Autonomous Trusts (DATs) and the uncertain future of DePIN.
Market Pullback: Navigating Volatility After ETH's All-Time High
- The discussion begins with an analysis of the recent market downturn, particularly Ethereum's sharp rejection after touching a new all-time high near $5,000. Avi notes the 5% down candle in a single hour was a clear signal of significant sell pressure, or "supply," at those levels. Both hosts agree that while the momentum has slowed for ETH and Bitcoin, the bull market is far from over.
- The hosts reflect on their previous calls, including successful predictions on ETH, Aerodrome, and Chainlink, emphasizing their consistent advice to secure profits during volatile upward moves.
- Avi points out that the market is currently in "no man's land," suggesting he would not be buying at current levels ($4,500 for ETH) but would consider re-entering around $4,100.
- Jonah shares his recent trading activity, admitting he "spooked myself out of the position too soon" after selling ETH at $4,350 and rebuying higher at $4,800, illustrating the difficulty of trading in the current environment.
- A key indicator for the hosts is sentiment. They argue that the real market top will occur when a sell-off is met with widespread "buy the dip" enthusiasm, not the current fear and declarations that "it's over."
Avi on taking profits: "What we kept saying over and over is that you got to be taking profits... up 20%, up 50%, up 100%. You need to be pitching out."
The Macro Driver: Why Rate Cuts Could Fuel the Next Leg Up
- The conversation shifts to the powerful macroeconomic forces at play, which Jonah identifies as the primary driver of the recent rally. He argues that Federal Reserve Chair Jerome Powell's dovish speech at the Jackson Hole economic symposium signaled a major policy shift towards cutting interest rates, a development he views as "massively bullish" for risk assets like crypto.
- Jackson Hole Symposium: An annual conference hosted by the Federal Reserve Bank of Kansas City, where central bankers, finance ministers, and academics discuss major economic issues. A dovish tone here implies a greater willingness to lower interest rates to stimulate the economy.
- Jonah’s core thesis is that impending rate cuts will unlock trillions of dollars currently sitting in safe assets like T-bills (short-term government debt) and push that capital into riskier investments, including Bitcoin and the broader crypto market.
- He dismisses the market impact of a single whale selling a large block of Bitcoin over the weekend as a "one-off" event that is "utterly irrelevant" to the larger macro trend.
- Jonah’s strategic takeaway is to avoid trying to time the market perfectly and instead "sit and ride the volatility" because the macro tailwinds are too strong to bet against.
Jonah on the power of rate cuts: "There is no amount of cryptonative capital that can frontrun the inflows into Bitcoin which will result from that rate cut."
Crypto's Idiosyncratic Flows vs. Macro Dominance
- While agreeing on the bullish macro backdrop, Avi offers a more nuanced perspective on its direct influence. He argues that for long-term investors, focusing on the precise timing of Fed actions is less important than identifying major policy shifts. He emphasizes that crypto possesses its own "idiosyncratic flows"—internal capital movements that can operate independently of traditional markets.
- Avi contends that macro analysis is most useful for short-term trading (day or week) or for betting on massive, multi-year inflection points, but not for predicting medium-term price action.
- He shares an anecdote from his previous firm where a partner's strong macro convictions were often "unhelpful" for trading crypto because the asset class has unique drivers, such as the ability of DATs to raise and deploy capital regardless of minor dips in the Nasdaq.
- Strategic Implication: This highlights a dual focus for investors. While the macro environment provides a powerful tailwind, understanding crypto-native capital formation (like new fundraising vehicles or protocol-specific trends) is crucial for identifying alpha.
Deconstructing DATs: Innovative Structure or Exit Liquidity?
- The discussion turns to a prime example of an idiosyncratic flow: the rise of Decentralized Autonomous Trusts (DATs), which are investment vehicles designed to hold and manage specific crypto assets. The hosts analyze the new billion-dollar Solana fund being raised by Galaxy, Jump, and Multicoin.
- Avi expresses strong skepticism, particularly towards DATs that allow insiders to deposit their locked tokens in exchange for liquidity. He bluntly calls these structures "scammy," arguing they are designed to use new investors as exit liquidity for early backers.
- He contrasts this with what he sees as a more legitimate model from Berachain, which reportedly requires contributors of locked tokens to match their deposit with a 2-to-1 ratio of fresh cash, ensuring new capital enters the ecosystem.
- Jonah offers a more charitable view, suggesting some DATs could function as innovative "TradFi sister businesses." These entities could use a project's native token to perform revenue-generating activities that the core crypto project cannot due to regulatory constraints, such as market making or offering other financial products. This represents a form of regulatory arbitrage.
Avi on extractive DAT models: "Obviously these lock solana deals are like in my personal opinion really dumb because they're... using you to exit on."
Solana's Identity Crisis and the Failure of DePIN
- The conversation on Solana's DATs leads to a broader critique of its market positioning. The hosts question Solana's current strategy, noting it has been "pigeonholed" as a memecoin chain and is losing the public relations battle to Base, which has successfully cultivated an image of legitimacy while also hosting a vibrant memecoin ecosystem.
- This segues into a discussion on the failures of DePIN (Decentralized Physical Infrastructure Networks)—a sector where Solana was once seen as a leader. DePIN uses token incentives to bootstrap real-world infrastructure like wireless networks or mapping services.
- Jonah shares a personal and painful story of his belief in Helium, a flagship DePIN project. He explains its ultimate failure stemmed from a flawed tokenomic model: the project continuously printed its HNT token to reward network participants without ever creating a sustainable "token sink" or value accrual mechanism.
- Actionable Insight: The failure of first-generation DePIN projects like Helium serves as a critical case study. Researchers and investors should be highly skeptical of projects that rely solely on inflationary token rewards for bootstrapping without a clear path to generating revenue that can be used for buybacks or other value-accrual mechanisms.
The Bootstrapping Conundrum: Why Crypto Struggles with Real-World Networks
- Expanding on the DePIN failure, the hosts analyze why token-based bootstrapping works for crypto-native applications like the derivatives exchange Hyperliquid but fails for real-world networks aiming to compete with giants like Uber or Amazon.
- Hyperliquid succeeded because, as an exchange, it could generate significant revenue quickly and use those earnings to buy back its token, rewarding early users and creating a sustainable economic loop.
- In contrast, building physical networks requires burning billions of dollars over many years to achieve scale and network effects—a process traditionally funded by venture capital. Crypto's token models are ill-suited to sustain this prolonged period of unprofitability.
- Jonah concludes that marketplace technologies in the physical world must "lose a bunch of money for a long time to establish a market," a financial reality that token emissions alone cannot overcome.
Jonah on the business model challenge: "The only reason why Hyperliquid would work was because an exchange is just scales so fast... for these real world networks... you have to just lose a bunch of money for a long time."
Conclusion
This episode reveals a market driven by bullish macro forces but fraught with crypto-native risks. Investors must differentiate between sustainable models, like revenue-generating protocols, and flawed structures, such as emission-heavy DePIN and extractive DATs, to successfully navigate what may be the final stages of this cycle.
