Crypto’s Reality Check | Roundup

Crypto’s Reality Check | Roundup Transcript: Now in this bare market, I mean obviously it's going to hurt some people including myself, but many many teams and tokens will trend towards very very close to zero I think and it's going to be a massive wipeout of things that do not have any product market fit which I think is entirely healthy for the space and so I think it's a very very interesting time to be rethinking fundamentals you know from first principles etc like what applications make sense how do you get distribution on those applications how do you abstract crypto entirely so people don't even know they're using crypto These kinds of things I think have never mattered more.

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Hey everyone, quick disclaimer before we get into today's episode. Nothing said on Bell Curve is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only and the views expressed by anyone on the show are solely our opinions, not financial advice. Our guests and I may hold positions in the companies, funds, or projects discussed.

All right, everyone. Welcome back to another episode of Bell Curve. Z, how are we hanging in there, fellas? How's everyone doing? Sounded like the most defeated intro [laughter] crypto podcast, which is probably a good reflection of, you know, the market and at least crypto Twitter sentiment at the moment. Very rough slave last night. So, so yeah, few copies this morning. You know what? We've been here before. We've we've been here before.

It's uh we were actually so we were going to do an episode on buybacks for you guys today and we decided we're going to scrap that uh because it feels um it feels like the more pressing thing to talk about is what's happening in markets at this moment. And I thought maybe we could just do a uh just a state of the union on what is going on in crypto. Why are we seeing what we're seeing today?

And then you know everyone likes to compare this to previous moments in time but you know there's this I think everyone can Z actually I'm going to before we even get into this I'm going to give Z a lot of credit here. So ZV Z we got a lunch at ETH Denver last year. This was around the time when everyone the market was rallying. It was like we're still young in the tooth on this bull market blah blah. That was far and away the consensus take and Z uh Z's perspective was we're going to go through a multi-year churn period like bearish sentiment, intellectually bearish where many OGs leave.

Yeah. I mean, you didn't do it publicly, so you can't do your Twitter lapse, you know, in the same way. But I feel the need to give you credit because yeah, you're almost the only person that I spoke to at that time who had that perspective. So, you're you're at least getting it here.

Yeah. I think like maybe not publicly on X but I think I might have done it publicly professionally. Um, I knew sort of 2024 time period when ETFs were being announced. That was kind of the start of the bull rally and I knew how I had a limited amount of time to to raise a venture fund and you know managed to close that fund kind of when things were looking very good especially on the Bitcoin price chart and yeah now actively investing through this market which I think will be quite tough for the remainder of the year but um yeah I think there are a few people who called this I yeah crypto is just so sentimental and macro driven uh and some things in crypto don't make sense like four year cycles that just continue happening.

So yeah, there's a mix of things I think that sort of brought us here, but I think cool heads will be rewarded. So yeah, let's hope all of us are cool this year.

Okay, can I uh get your guys take here? Um, and maybe we can can I try to get is there a cohesive explanation for why the market is doing what it's doing at the current moment?

So there's actually a great chart um maybe we can find it on X later in between the divergence in the price of Bitcoin and the S&P and I think what has made this in particular maybe challenge although the S&P looks like it might be turning. Amazon sold off 10% um in aftermarket hours uh you know post their earnings call. So it's possible that AI is a little toppy here and catching a cold. I mean that's literally been what's propping up the entire stock market. So TPD there's there might be an element of that but what has been so painful about this is that um Bitcoin has been underperforming at a time when the S&P has been doing quite well and uh there is a you know one chart that's been making the rounds and I saw Kathy Wood talking about this on CNBC was that 1010 is the culprit here.

So this was the back on October 10th was this was the first real test for DeFi. Some 29 billion dollars of liquidations and it just wiped out the market structure. And I will say the uh you know I'll I'll give a shout out here to Chris Berninski who had a pretty amazing call on the um you know let's see pull this tweet up to just give him proper credit. Chris has always been really good on kind of like market timing uh or getting big kind of regime shifts.

Um so he tweeted uh back uh back in October, so October 16th, increasingly convinced last Friday's massacre broke uh the crypto uh broke crypto for a while. Hard to quickly develop a sustained bid after such a meltdown. This cycle has been disappointing for most, which can paralyze action as people hope for bluer skies or former all-time highs. It's easy to get caught up in chart minutia, but when looking at Bitcoin and Ethereum in a line linear monthly, it reveals we're still in the elevated range. Um although showing cracks if you're thinking of taking profits, Micro Strategy is slipping. Gold is sending a warning as our credit markets and stocks will be the last to get the message.

So, it looks and he actually called out, I want to see how Bitcoin responds at 100, but will likely get interested in the market again when I see Bitcoin at 75K or lower. Uh unfortunately for everyone that's still on the opium train that also Chris also said he's not interested yet. Um so probably still paying pretty good prediction that is uh I mean it's only been a couple months but crypto moved first. You know stocks were kind of the last to move. If stocks turn here he's going to be looking very good indeed.

Um but yeah I think that uh it looks like we're in for a broader market turn I think in general. And yeah, this kind of idea of a four-year cycle for crypto, frankly, I was yeah, I did not think that the four-year cycle was going to continue to be a thing, but it looks very much like it is still a thing.

So, I guess I have some thoughts on like what's different this time and like why that's maybe um I don't know in uh playing a factor into why things start just like so so uh bearish at least in terms of sentiment. I think like after the previous bull markets then crashes like we had a lot of like unexplored or like not uh opportunity spaces that like where the potential has not really been fully realized right so like that was the promise of DeFi um after like 2018 2019 and stable coins um and then we had another bull market and those things did rip people did make lots of money um and it kind of established, you know, like a baseline of that activity that can grow into the future, right? So, it's like, okay, well, things will come back and then this stuff will grow even more.

Um, and then I think after like 2021, really, like since the last bare market, uh, those categories, I think payments and prediction markets, so like stable coins generally and prediction markets have ripped, right? DeFi like hasn't really done a ton. And I don't think we've even reached the all-time highs of like the 2021 sort of uh bull market era, right? And now it's like, okay, first of all, this last bull market wasn't even that great. It didn't really, you know, like alt season didn't even really happen, right? And so most of the winners were either like just Bitcoin or, you know, equities that are held offchain.

Um, and now we're looking at like the, you know, what's what's going to happen in the future. And like we are seeing like a ton of fundamental growth already out of stable coins that did not sort of reflect, you know, or didn't didn't um result in token prices being great, right? And we did have a ton of growth from Kali and Poly Market. Those don't have tokens either. Um and on top of this we've had like the biggest you know um breakthrough in technology at least you know since mobile maybe with AI and that's just draining attention talent and capital out of the system.

So it does feel a little bit different where it's like the talent, you know, outflows. Last time we're like getting rid of the charlatans, you know, and we're like kind of happy about it, like get those grifters out of our our space. And this time it's different. You know, you have like OGs that have had conviction for 10 years. They're, you know, at least going to explore new avenues, right? It's not like they've lost all conviction in crypto, but just AI is such a a talent draw.

So I think maybe one comment to make around this bare market, you know, that we're in right now. Who knows how prolonged it'll be, but when I think back to 2018, I was saying pre-podcast that I left crypto in 2018 after the 2017 cycle. That was a completely different kind of cycle where there was like a lot of money made very very fast. Um, I rode that wave and enjoyed it and then, you know, took the profit and left in 2018. And then back then there were questions asked around does crypto have PMF and I feel like right now we're asking the exact same question eight years later which is kind of crazy where in 2018 a lot of infra was built a a lot of tokens went live there were a lot of use cases that might make sense then it all crashed and it came falling down and a lot of people left the industry back in 2018 including myself.

I came back 12 months later. Uh I had no idea that I would come back to crypto and I just realized that I knew way too much about the tech and the space and I was saying to Mike before some of us including some of my friends more recently that have left crypto in the last year or two, they're already coming back. Okay, that AI is a massive draw card of course and most of my friends coming back who left crypto now are sort of at the intersection of crypto and AI but they have two choices. Do they either build in the AI space or do they build in the crypto and AI space? Well, crypto and AI is massive intersection. They have a lot of domain expertise in crypto. Probably they're, you know, upskilling in AI as we speak.

So, I I just think that even if people look like they're leaving right now, which they definitely are, personally, I believe a lot of them will come back in the next 12 24 months. And in general, as we've seen before in previous cycles, the market itself will come back and hope will be restored and there will be genuine use cases. There already is much more PMF than there was eight years ago, but I think there'll be even further PMF, but in the meantime, it's good to drown out the teams that don't have PMF and they kind of die out in this kind of bare market cycle. So, I think it's just healthy for crypto full stop and it'll be look a lot similar to the last two cycles, the next few years.

I'm trying to find this chart. The great So, I think one of the uh ways that at least I have been thinking about this is I think we're in an air pocket. And what I mean by that is when you look the the most the single most there been like three really influential um crypto articles that I've read over the years, but there's a really great one, the price cycle of innovation. And this is this was written by Eddie Lazarin and Christixen at A16Z. And it describes a cycle of pulling capital into crypto that I think is counterintuitive to most, which is that the price moves first.

So um price moves before uh anything else. And when the price goes up, it leads to media attention, new developers. You would think intuitively that something fundamental happens and that's why the price goes up, but that's not it. The price moves first. And so that's set up this dynamic of a market which is driven by speculative inflows. Um I will say also what has made that super proyical is that used to be anchored around Bitcoin supply dynamics and the happening. I think people have underweighted how shitty the supply dynamics are of alts.

Um and I I feel like a lot of thoughts on this. Uh but I think that people that that the the supply dynamic changed from supply getting cut to a massive overupp of tokens um in the form of issuance and rewards and incentives and all of this stuff. Um so I think there's like under an over supply um of the market that dynamic still exists. Um and I think people underweighted it. But now as there have been more there's been a greater number of years um and you've had more time and it's dispersed across a greater supply of different assets that we're this speculative cycle which brought new capital into crypto saying show me show me show like I was willing to believe this for a period of time but I'm just it's just been too long. There's been such a spotlight on it for such a period of time. stuff demonstrabably hasn't materialized.

And so I think that the air is being let out of that mechanism for moving capital into the market. At the same time, you actually have businesses which are starting to take off and grow, but there's an air gap in between these skyhigh crazy valuations and realistic valuations of upand cominging businesses. So that's what I think is happening is there's a gap and you can almost imagine um let's imagine a protocol there are several protocols like this but they might have like a really good business right but let's say they talked they did the dark arts right they they you know created these little armies of online bots that would just buy their their token and they got valued off of the speculative premium the monetary premium whatever it is your valuation doesn't make sense so your business fundamentals can improve at the same time that your token price is falling.

And I think that that's what's happening right now. And if you look at I was trying to find it. Amazon. Do you guys want to guess how long in between how long did it take for Amazon stock to reclaim its 2001 high?

Oh boy. I'm going to be way off, but I'll overshoot and say like 10 years or something like that.

I'll say maybe. Yeah, six.

It's 10 years.

10. Jeez. So that I think that's what's confusing people. They're like, I don't get it. The fundamentals are going up. The starting price was wrong. Like the starting price was wrong. That's it's just a simple This is really exciting because, you know, this is why I always I pushed back so hard and I hated these people on Twitter who were like, it's all about the mimetic value. Like I hope that now we can all agree to just call that [snorts] and it's not sustainable and it's silly and every good asset on earth isn't like that. I do think Bitcoin and gold are special snowflakes but if you want to build something realist like just saying hey we're going to meme this into is is not a thing. It's not a thing. We can just call that actually finally dead. And now there's like the long hard but exciting slog of like building something that creates value.

And yeah, I mean as a as a long crypto proponent, I've like spent eight years of my life in this industry. Um, and yeah, it stings a little to admit that I use AI 100x more than I use crypto on a daily basis. If I I want crypto to succeed, but it's outside of like my investments, I don't use it. So we the you the rubber's hit the road like I know that people have said that before it was too early but I mean 100% I had a call with someone last night talking about the market and you know I think just in short the job is not done you know it's all these years later you know I'm back home right now and none of my friends are using crypto like how can that be all those years later like I'm still in the space still none of my friends are using it clearly the time has never been better to get crypto in the hands of the any mainstream.

So I think that's what's the most exciting about this cycle is that for the first time ever we're seeing real applications trading prediction markets etc that are really starting to take off and I think we're really in the early innings of mainstream products and applications and that's what this entire cycle is going to be about.

I'll also make another point Mike around what you were saying around kind of mimemetics and currencies etc. I think the crypto market overall is crying out for products with product market fit. They want to see real products being built being rewarded. They don't want to see the next product which isn't has no demand, no product market fear and focuses on launching the token because right now if you launch a token, no one cares. Why? Because it's never been easy to launch a token. I can launch a token tomorrow like using any software I want really. So if you build this entire product which has no demand and then pay an exchange a million bucks to get it listed, well no one cares and so you're going to have a terrible time. And we've had we've seen that time and time again over the last cycle.

Now in this bare market I mean obviously it's going to hurt some people including myself but many many teams and tokens will trend towards very very close to zero I think and it's going to be a massive wipe out of things that do not have any product market fit which I think is entirely healthy for the space and so I think it's a very very interesting time to be rethinking fundamentals you know from first principles etc like what applications make sense how do you get distribution on those applications how do you abstract crypto entirely so people don't even know they're using crypto These kinds of things I think have never mattered more.

You know, Blockwork Works I think good example of a great team, great product that has great product market fit. You've been around across cycles like no doubt like these are the best businesses in crypto that I think now people will come back to continue building. My best friend who got me into crypto as well you know he's very technical and you know across AI quantum crypto etc. I had a dinner with him last week and said hey like with AI you know popping so much quantum coming crypto kind of going down what would you be doing right now? and he said look like there's still so much opportunity in the crypto application space.

So that's the biggest difference right now I think this cycle in terms of like optimism for what we can look forward to in the next few years regardless of market cycles. Uh I'm also showing here on on the chat thank you Mark for finding this. This is uh this is the tweet I was thinking of. This is the eight the 1010 divergence here. Um I and I agree. I think this is this is we've gone I think we have gone as far as the By the way I also I understand that in all asset classes there's always these ups and downs. You always need some amount of speculative money to come in. I I get that. But it can't be I think is what we're saying can't be in the driver's seat anymore. We shouldn't count on it being in the driver's seat. And that's the only uh that's the only thing that drives values.

And I I I'm curious. I'd love to get your guys' perspective. Like I have I have thoughts on this but um uh here here the trend in crypto from my perspective has been one of moderating volatility. So each successive bare market that I've been a part of is less intense than the previous. So for me my first one was 2018. It was desolate. It was like tumble weeds blowing through the proverbial digital town square. Just no one cared. You just couldn't get anyone on the phone. I mean no one no one cared about it. Everyone left. 2022 was pretty easy as far. I mean, I don't think many people thought the industry really died. If you were just following mainstream media, I mean, okay, SPF was bad and this is like a half-hearted narrative that it wasn't going to work, but I don't think anyone really believed it, especially with ETFs around the corner.

Where does this situate now? I mean one thing that and I think you can look at that the peak to trough price of assets too that mirrors that which is you know the peak to trough of the early you know 2011 and 2015 market cycles are so intense um and those bare markets were terrible but it's moderated as as the industry's gotten more mature and there's a bigger base of capital and believers and all this stuff. Do you think that trend continues? Uh do you think that this will be a more moderate um kind of temperate market? Do you think it could get worse as actually maybe more people are distracted? What do what do you guys what are we thinking?

Well, I feel like a lot of the like growth has gone to equities. Like basically just companies that don't have tokens, right? Um and a lot of like the majority of the ways that I interact with blockchains today are through apps that don't have tokens. And so like that's you keep staying on the private market without like a you know public token price that will keep things a lot you know less uh volatile I would say like and a lot of the growth I see in the future is not like teams that are you know like protocols with you know a token and a Dow and things like that. And so I think that just kind of be that's going to be like kind of the big difference is that it's going to be like harder to invest in the category. um and you know harder to like there will be a higher bar I think to actually attract capital and we're already seeing that um in the space.

So but yeah Z curious to hear your thoughts.

Yeah just to riff off that last point Miles um certainly in the VC sort of market right now it's never been harder to raise a seed round. VCs are demanding extreme traction at seed stage which I again think is incredibly healthy. Awesome. like let's get as much PMF as possible into these preede companies. If they don't get PMF then unfortunately they might not survive. It's not like the golden days of crypto where you co-arket with a few other infrastructure companies and then you know it's on X and it gets a bunch of funding and then the retail comes in and then this VC invested and Binance lists it and like because there's no value creation there. It's just like complete facade of like nothing actually of value is being created. It's just smoking mirrors.

And so I think now that isn't happening anymore. And so and to be honest on the VC side most VCs are looking for like real products and we're already seeing that like as crypto is being abstracted. What I'm seeing a lot in private markets right now from you know previous crypto OGVCs a lot of like kind of fintechy apps are being sort of funded right now which touch crypto and potentially AI as well. I'm seeing a lot of other VCs kind of like do a bit of both like crypto and AI. Like I think in general it's good to be flexible right now as founders and as investors, but in terms of the overall kind of landscape uh what Mike was mentioning, I do think 2026 will be tough, really really tough actually for like pretty much everyone.

Um I'm very bullish on crypto long-term. So I don't think this is the end. And I I I think if I was a founder, I'd be more excited than ever to think super hard about what can be done, what's worked, what hasn't worked, where is it clearly a market, like where is it clearly value? really think hard, test the demand, and also with AI, it's never been easier for product managers to like build this stuff super fast and like actually hit that demand. So like awesome again like that this is like a great time in terms of for founders. So even though it might get super super tough, there's enough capital and long-term thinking I think in the space where like the good things will get funded.

And actually to be honest, I I said this a year ago to to an investor, but I said in 2026, I think will be one of the best years ever to be investing in crypto. I think like you can maybe think about it in terms of the 2018 bare market where like if you got a few things right back then, some of the best performing funds of all time, wouldn't be surprised if we went through the same thing here. I think it's going to get really tough, but I think if you again cool heads like think hard about long term what actually matters like you'll be in a good spot both retail and institutional investors and founders.

I agree with that. It is a good time to be basically use a like a micro fund that's investing around the edges. Um because we are seeing like significantly less of those classic like smart contract app teams coming in. But to be fair like vast majority of them that did launch over the last couple years weren't that differentiated. It was just kind of like a slightly better version of this or like unis swap without the me or like something like that, right? Um, and I am seeing more like teams doing really experimental stuff. Um, and they can iterate faster. Like they can build this so much faster. They can iterate faster. They can pivot faster. Um, all because of like AI tools obviously. Uh, and I think that's like that's great. Um, and so that's, you know, those are the teams that I'm actually like looking out for much more these days than like your classic sort of blue chip, I don't know, pedigreed but building a DeFi thing.

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Here's the other thing. People are tired. like so many people that have been around for a long I will say like they aren't publicly saying this but a lot of people this cycle and I I actually one thing that was different going into this cycle for me I remember I was at a wedding this was not an OG thing I was at a wedding in like 2023 2024 when we were starting to get back to all-time highs and but like kind of a tertiary buddy of mine was sitting next to like hey you think this is a good time to And I was like, "Wow, that is so different from how people have talked about this in the past, right? Usually when you're getting back to all time, I vividly remember like in in 2020, it was like, "Oh it is on." I remember watching, you know, breaking the all time and I was like, "Oh my god, I got to put my whole life savings into this." And I just I don't I think that feeling is gone.

Um, and I think a lot of people that have either been building businesses or investing in funds in this space are tired and they'll not they're not going to say, "Hey, man, I'm tired." But you can see on Twitter, um, there have been a number of high-profile founders who've handed over the reigns to someone else. There are very high-profile investors who are leaving their funds and saying there's more interesting stuff elsewhere. What what I would encourage what I would encourage people is um these moments tend to feel emotional. Um I also know that people listening to these podcasts might be like just tell me what's going to happen. Nobody knows. Nobody knows what's going to happen. Um so but just as like a guide, you know, having gone through this a couple times, I think just not making decisions when there's peak emotion.

Um whenever assets sell off as much as they have, like probably just stop yourself from forming any thoughts at all. Um just because people are leaving does not necessarily mean it's bearish. Um but also it's important to be realistic and steal yourself for the next year or two, right? Like it's all at the same time I think there's been a lot of around like genius and clarity mean my tokens have to go up and demonstrabably that's not true. Like that does not that is not what that means. Um, so I think yeah, it's it's important to form your own opinions on this stuff and trust. Nothing has changed in crypto. Everything looks better than it ever has. But um, yeah, I think protecting your own emotional, you know, cocoon here is important.

Yeah, I think one thing that helps me um, so I'm in Australia right now. I'm at home. I'm quite far removed from everything in the crypto space. um taking a step back I think in times like these can be very very beneficial I think for everyone and actually what I've been doing a lot more of is kind of researching and writing more for the first time in quite some time and thinking a bit more about sort of where everything is going and I think taking a step back not worrying too much about the market like okay short token prices are going down but it's a really good time to just sit back think hard about sort of where you've been so far where you want to go what your goals are uh Is it in crypto or not? Like it might not be and that's totally fine. Maybe it is in crypto and you want to go even harder.

And I think pre-podcast we spoke about, you know, maybe a lot of people in crypto, especially, you know, when we all entered sort of 2017, etc. back then it was all about like, wow, like there's so much money in this space. I'm really going to make it from like as a 21-year-old. Now it's kind of like you're aging and you're like, bloody hell, I'm not really sure if I am really going to make it. [laughter] And maybe I was wrong like all those years ago. So yeah, I think in general all of us are get not just getting tired, we're also getting older and it's different and like we want to make real impact and so if you do want to make real impact, it is a good time to think about how you make that real impact because there's still opportunity.

Can I make another observation on the different zeitgeist um in between then and now? Then because nothing was built, everything [clears throat] was theoretical and it was so grandiose. Like if you were listening to a crypto podcast, you would be listening to Isisle of Yap and you know they'd be like this is how money works and like businesses are just lists and and like they would connect, right? All of this this highlevel stuff and it was like everything's going to be on a ledger and imagine if and it was so theoretical but expansive and I think that's what was so intoxicating about it. That's what got so many people in and like really and now um now we've seen more data points and we've swung in totally the opposite direction. So now the prevailing thought is that blockchains are asset ledgers and that it's not going to be good for anything. Maybe maybe that's true.

I mean any number of things could be true here. One that could be true and we just way over extrapolated the promise of this whole asset class. That could be true that blockchains are mostly asset ledgers and we're drastically underestimating how big that market is. It could also just not be accurate and we could be really o swinging entirely to the other end of the p end of the pendulum and now that we have one data point, we're overextrapulating that data point. So, I I think it's just important to point out that every once in a while there are these like zeitgeists and these ideas that look like they're becoming highly consensus based on a couple years of data. And I would just encourage folks to not not even that it might not be right, just break out from that style of think. You know, we we we just don't have enough information to conclude that yet.

And I would I would also point out that at various different times of this industry, the consensus perspective and these same people who are saying now it's only asset ledgers have said wildly different things. And I think if I was a betting man, I would say they'll say different things tomorrow when we have more data points. So I also want, you know, for for for folks who are feel I'm really speaking to people who feel, you know, defeated at the moment, I suppose, to like just, you know, not feel that way. We shouldn't have counted on so many meme coins. I think maybe. [laughter] But um, no, I totally agree, Mike. I think for all three of us, maybe it's our third bare cycle. And going back to that tweet, Mike, around Chris saying the last line said this bull cycle was different. I think this bear cycle will be different as well. I think that's a really good point.

I I don't know if it's going to mean that we're gonna it's going to be even harder bear and we go really to the bottom and everyone's like really leaving and it gets dire or if it's more mellow bear, but it's probably one of the two. I can't see this bear being the same as previous bears where it's kind of like a crash 6 months and then goes back up again. I think it'll either get really really bad or it'll be really mellow. Um, right now it's looking