This episode dissects Bitcoin's parabolic surge to $120,000, exploring whether this is a debasement-driven super cycle or a froth-fueled rally on the verge of a sharp correction.
Bitcoin's Rally and the Altcoin Debate
- Avi's Skepticism: Avi argues against a broad altcoin rally, pointing out that many projects like Cardano and Polkadot are backed by teams with large token holdings ready to sell into any significant price increase.
- Market Psychology: He references the psychological phenomenon where a market that has experienced trauma (like the 2022 crash) will see participants aggressively take profits on the next major rally, capping potential upside.
- Shorting Strategy: Avi suggests a strategy of identifying altcoins with a consistently negative Sharpe Ratio—a measure of risk-adjusted return, where a negative value indicates steady selling pressure. He proposes these will be prime candidates to short against Bitcoin once they experience a brief, sentiment-driven pump. “The most negative ones I think are going to be a great sale versus Bitcoin after they...do, you know, I think it'll everything will rip for a while, but I think those will be good shorts versus BTC.”
Strategic Rebalancing and Market Drivers
- Selective Rotation: He identifies opportunities to rotate small portions of a Bitcoin position into promising assets like Hype or Syrup, which have temporarily lagged.
- The Macro Driver: Avi attributes the rally to one primary factor: easy money. He presents a chart comparing Bitcoin's price to the M2 Money Supply (a broad measure of currency in circulation), arguing that Bitcoin's surge is a direct, albeit lagged, reaction to monetary debasement.
- The Debasement Hedge: This theory positions Bitcoin as the premier hedge against currency devaluation, explaining its outperformance even as other markets like equities and gold show less momentum. Avi notes that the M2 chart suggests a potential "straight shot to 150k."
The Rise of "Treasury Companies"
- Corporate Buying: The hosts note continued purchases from companies like Metal Planet and MicroStrategy, which now holds 600,000 BTC.
- Levered Bets: Avi points to Bitmine Immersion Technologies (BMNR), an Ethereum-focused treasury company, as a levered, public-market bet on ETH.
- Biotech Shells: A fascinating trend is identified where defunct biotech companies, which often exist as publicly traded shells after a drug trial fails, are being repurposed as crypto treasury vehicles. Sonnet BioTherapeutics is cited as an example, having tripled after announcing a merger to acquire crypto assets.
The Inevitable Unwind: A Future Risk
- The Escalator and the Elevator: Jonah uses the classic commodities market analogy: "escalator up, elevator down." The steady buying from these companies creates a slow, upward grind, but a coordinated rush for the exit will cause a catastrophic drop.
- Signs of Contagion: He believes the unwind will likely be triggered by a broader macro event that restricts these companies' access to credit, rather than a crypto-specific crash.
- Global Phenomenon: The trend is not isolated to the US. Jonah shares an anecdote about a private equity contact in France creating a MicroStrategy-like entity for the French stock market, highlighting the global nature of this strategy.
Lessons from the GBTC Arbitrage Collapse
- The GBTC Trade: Before spot ETFs, GBTC was a primary way to get Bitcoin exposure in traditional accounts and often traded at a significant premium to its net asset value. Investors would deposit BTC, wait six months, and sell the shares for a profit.
- The Unwind: The trade became overcrowded, leading the premium to flip to a discount, which was accelerated by over-leveraged players like Three Arrows Capital. This caused a cascade of losses.
- Modern Parallel: Avi theorizes that as more treasury companies are created, the premium they trade at should decrease, as investors have more options. This could lead to a similar convergence and potential unwind if the market becomes saturated.
Exit Strategies and Key Metrics
- Jonah's Primary Metric: MVRV Z-Score: Jonah relies on the MVRV Z-Score, a metric comparing Bitcoin's market value to its realized value to identify over- or undervaluation. Historically, a Z-score above 4 or 5 has signaled a market top.
- MVRV Z-Score is a Bitcoin valuation metric that assesses if the asset is overvalued or undervalued relative to its "fair value." It compares the Market Value (current price) to the Realized Value (the average price at which each coin last moved on-chain).
- Critique of On-Chain Data: Avi raises a crucial point: the institutionalization of crypto and large-scale wallet management by exchanges like Coinbase may be distorting traditional on-chain metrics. Internal reshuffling of coins can be misread as fresh market transactions, potentially making metrics like MVRV less reliable.
- Avi's Technical Indicator: Avi shares his preference for long-term Bollinger Bands, which visualize price volatility. He notes that when Bitcoin's price reaches the upper red bands on his chart—currently projected between $137k and $158k—he plans to take profits.
The Big Picture: Bitcoin vs. Gold
- Avi's Maturation Thesis: Avi's long-term thesis was that Bitcoin could mature at 10-25% of gold's market cap. With Bitcoin's market cap at $2.4 trillion (around 11% of gold's), he is grappling with whether to stick to his target or update his model.
- Jonah's Counterargument: Jonah pushes back, arguing that gold's market cap is a moving target (it was $10 trillion not long ago) and that a consensus is forming in the Bitcoiner community that Bitcoin will eventually "flip" gold due to its superior properties as digital, portable value.
- A Probabilistic Approach: Jonah suggests a probability-weighted analysis: a small chance Bitcoin flips the dollar, a larger chance it flips gold, and a base case where it remains a fraction of gold's value. By this logic, Bitcoin's expected value is likely still well above current levels.
Mindsets in a Super Cycle: Contrarian vs. Trend-Follower
- Avi the Contrarian: Admits his contrarian impulse to sell when greed is high has not served him well recently. He compares the current moment to being contrarian on Facebook after "The Social Network" movie came out—the mainstream adoption phase had just begun.
- Jonah the Trend-Follower: Draws on his experience as a commodities trader, where 80% of profits in a super cycle often come in the final 20% of the move. He sees parallels between Bitcoin's adoption and other historic trends like Facebook and the 2000-2008 commodities boom. "This is the mainstream adoption phase. This is like trying to be contrarian about Facebook after the social network movie came out."
- A Final Metric to Watch: Jonah concludes that a reliable, hard-to-fake on-chain metric to monitor is coin flows to exchanges. A significant movement of coins from long-term holders (like Satoshi's wallets) to exchanges would be a clear signal to de-risk.
Conclusion
This episode highlights the tension between riding a powerful, macro-driven Bitcoin rally and maintaining the discipline to exit. Investors should monitor the treasury company phenomenon for signs of systemic risk and use a blend of metrics like MVRV Z-Score and exchange flows to prepare for an eventual market top.
