Does Bitcoin Win or Lose In The Great AI-Tech Shakeout?

There's nothing wrong with Bitcoin per se. Nothing has changed about the functioning of the network. What changed was risk-taking in markets.

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Hi everyone, welcome back. I'm here with Zack Pandle, the director of research at Grayscale Investments. And, unfortunately, he's a fan of the New York Giants and also the Green Bay Packers, two teams that haven't had success in a little while. He has to deal with me talking about my Eagles who are just one season removed from winning their second Super Bowl championship.

Zach, what do you think? What did you think of the ad?

Hey, Steve. Hey, everybody. Thanks for tuning in. Maybe I just have positivity bias, but I love the ad. I thought it was great. I was at a big party with friends and family, their kids, my kids, that sort of thing. Everybody kind of stopped to listen and started humming and singing along.

Not sure exactly what was going on, and then we were all surprised when it was Coinbase. So, I don't know how successful these things are. I'm not a marketing guy, but in terms of we're an attention-starved world and very hard to break through. At least in the event that I was at, it definitely broke through more so than anything else that came up on screen.

Got it. Okay. All right. So, let's get into it. You published an interesting report this week really talking about how Bitcoin has been treating more like tech than gold despite its sort of prevailing narrative as a form of digital gold. There's been plenty of times as you've pointed out that it tries to sort of thread the needle or straddle the lines between both, but right now it doesn't seem to be trading like gold at all. As opposed to trading up when tech goes up, it's going down with tech. So talk to me about what you saw and what you wrote.

Yeah, this is sort of the key observation and let me just talk about the facts first and the narrative piece second. I think that's maybe the more challenging part, but the facts are relatively straightforward. The price of Bitcoin went up with other frontier technology assets and it went down with those types of assets as well.

This is software companies, this is defense tech, this is quantum computing stocks. I think that's an important point to emphasize. The charts look very similar with quantum stocks and the price of Bitcoin.

What that tells me is there's not something wrong with Bitcoin per se. Nothing has changed about the functioning of the network and all the particulars and we can talk about all those things, but what changed was risk-taking in markets.

I think it was a pretty clear tell that the marginal investor that came into Bitcoin in the last couple of years probably was a growth portfolio of some time. We can talk about again the narratives, but I think growth investors see public blockchain technology as a secular growth industry with tailwinds, regulatory tailwinds, adoption tailwinds related to stable coins, tokenized assets, these sorts of things, and bought Bitcoin, bought Ether, for that reason to build it into a growth portfolio.

As those types of portfolios were derisking, that meant de-risking in crypto, selling crypto also. So, I think that that's transparently what's going on in the market and not something broken about crypto.

What it is is a challenge to the narrative. It's a challenge to the digital gold narrative at least over the short term. The price of gold, the price of silver were running earlier this year and I certainly consider myself a deep believer in this idea that macro imbalances are driving demand for scarce commodities and that crypto should be considered part of that thesis.

So it was sort of disappointing to people that own Bitcoin for that purpose as a dollar debasement type of thesis and didn't perform as you would have expected in that sort of scenario. So it's a challenge to the narrative. I don't think it's a challenge to the technology and I still believe in that thesis, that narrative in the long run, but those are the facts that I think is causing some debate for sure and puzzlement among many Bitcoin investors at the moment.

I'm curious like your thoughts because we talk a lot offline but we haven't had a chance to speak about this. All the rumors, maybe more than rumors, retail buying of gold in particular from the Chinese market. Because we track central bank buying and in fact some central banks have been deleveraging their gold because of the price appreciation has been so high that they have to sort of maintain certain portfolio allocations.

Are there any sort of market structure imbalances like that for lack of a better term to explain why certain precious metals are going up and Bitcoin's not? I mean Bitcoin is obviously banned in China even though I know there are ways for people to get it.

I think in this case it's more about the things that were causing the squeeze on the metals side rather than something problematic necessarily with crypto. Of course, in the crypto asset class, the exposure and the access are getting broader and broader. Grayscale an important piece of that story, introducing more ways to access crypto through ETFs and all this sort of thing. Your listeners very familiar with kind of grayscale the grayscale story in that in that regard.

What you did have was some squeeze happening in the metals markets. Some people are familiar with this, but if not, the backstory is that the US threatened tariffs on lots of different products, including potentially precious metals. That caused some precious metals to leave the London market, come to New York to avoid potential tariffs.

When you had speculative inflows into the ETFs, into other things, there wasn't necessarily enough inventory to meet that demand and you got really squeezy price action, this sort of parabolic move in silver and then a big retracement and it continues to fall today.

I think that that tells you that while there is clearly demand for scarce physical commodities related to the debasement trade and I think that that's something that continues for many years frankly we probably overshoot shot by a significant margin on speculative capital inflows and shortages in the London metals market and so we're we've gotten that back.

I think my own view would be precious metals trade kind of weak for the short term for those reasons. I think we overshoot shot. I think there's retail losses there. You know the correlation with stocks is now positive just just like Bitcoin. Everything is kind of de-risking it. Crypto often moves first.

It hit us obviously significantly over the last couple of months now affecting precious metals. I think these are some of the same market dynamics at play.

All right. So just have a couple minutes here but I want to look ahead a little bit. The FT actually had a really interesting headline. I think it was earlier this week. It was something along the lines of the rise of the everything but tech trade. Because there were these huge sell-offs from I guess fears about the big capex for the AI developers that I spoke about with John earlier and then the impact of what that could mean for like tax software companies and the like.

If we're in this world where people are selling off in tech and Bitcoin is now trading with tech going down, what do you see happening next?

That's a great question. I'd love to tackle this. Look, in markets, you very often see a shoot first, ask questions later type of dynamic. You worry about AI disruption and the first instinct is to retreat from all types of software stocks.

I think the next stage is going to be a more thoughtful differentiation between the things that seem most likely to be disrupted by AI. You know the legal and compliance barriers are lower in some sort of way and they're more readily disrupted and then things that are not obviously readily disrupted or maybe even complimentary to AI. They may be software, but it doesn't mean that they're disrupted by AI.

There's a lot of things going on in crypto, but I do want to emphasize that I think public blockchain technology is more like the latter than the former. It's not certainly not obvious to me why large language models are going to displace what public blockchain technology is doing. You know, creating trustless systems for finance is completely different than what AI models are doing.

I think there are some pressures from AI to crypto things like privacy you know is an important question and what what that means but by and large I think these technologies are complimentary that you know public blockchains probably will be part of the financial rails that AI Agents are using.

I think what we had was a shoot first ask questions later sort of dynamic both in software stocks and in other things you know quantum is hardware technology that fell you know public blockchain technology it own special thing all of that stuff sold off together I think you're going to see a differentiation trade looking ahead.

My guess is you know crypto we certainly have some challenges that we're working through but there's some potential positives we get the market structure bill passed if we see some you know wealth platforms onboarding Bitcoin and Ether you know we could find a sustainable bottom here and begin a recovery process. So that's my view. Differentiation trade is the next phase in following the selloff that we saw really across the board recently.

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What does that differentiate differentiation trade look like? I mean tech was sort of a canopy across AI was a canopy across all of tech, but clearly now we're seeing some segmentation here. How long might it take for some of those lines to be drawn? What are the different sides and and like how do you get Bitcoin to fit into the right narrative so that people sort of put it into the into the correct bucket when it comes to figuring out how assets should be correlated with each other?

The message that we are sending to our clients is that you should focus on the key fundamental trends, the mega trends in the crypto asset class. That's where you should be deploying capital. What are those things?

To me those are regulatory clarity driving adoption of stable coins and tokenized assets of a use case of public blockchains and then what we're calling maybe because it's easy to remember the three Psacy prediction markets and perpetual futures. To me those are the innovation trends within the crypto asset class. So we're encouraging investors to allocate capital to those places first.

The obvious beneficiaries of things like tokenization stable coins are the big smart contract platforms Ethereum Salana and other critical middleware technology like chain link you know the these are things that are likely to benefit from growing adoption in general and of course there's lots of other assets on privacy prediction markets perpetual futures Zcash hyperlquid you know your audience knows these stories these are assets that we are fond with so I think that there are important structural trends And you're supposed to allocate capital to the things that are most closely tied to those fundamentals.

Got it. What about Bitcoin needs to overcome to make sure that it is leading if it's if it's going to lead the asset class and some of these things are the quantum question and its correlation to gold.

If Bitcoin struggles to answer those questions over the short term, it's possible that the kind of asset that drove the asset class primarily to this point, you know, begins to lag. We will see. We will see how that goes. But it's possible that in a scenario where stable coins and tokenized assets are really the thing, the engine driving the crypto asset class forward, that could be a scenario where where where Bitcoin specifically lags some other assets. So these are the kind of open questions I think are still unanswered at the moment.