This episode unpacks the strange disconnect in crypto markets: while Bitcoin dominance hits multi-year highs, the real froth is in TradFi equities like Circle and Coinbase, signaling a potential new capital rotation and the hunt for the next big "meta."
Market Vibe Check & Bitcoin's Strength
- Bitcoin Price Action: Despite some ranging, the sentiment remains overwhelmingly bullish. Bitcoin is up 3% on the week to $107,500, a significant climb from $80,000 just three months prior.
- Bullish Tailwinds: Tom Schmidt notes that the market is primarily supported by positive tailwinds, with only a major shift in monetary policy or a macro-level calamity likely to derail the current trajectory.
- Unbelievable Headlines: Tom highlights the surreal nature of the current market, where once-unthinkable price levels are now the norm. He recalls a 2019 tweet from CZ joking about a future where people would complain about Bitcoin dropping to $100,000. Tom states, "How can you not be bullish? Like every week, you read a headline that would have been totally unbelievable five years ago, let alone 10 years ago."
The Bitcoin Dominance Story
- Record Highs: Bitcoin dominance has seen roughly eight straight weeks of green candles, pushing it to 66%. This signals that capital is flowing into Bitcoin more than any other crypto asset.
- Cyclical Nature: Tom views this as a cyclical phenomenon. He suggests that the "grave dancing" from Bitcoin maximalists often precedes a market shift where opportunities emerge in other sectors.
- The Inevitable Reversal: Both speakers agree that when Bitcoin dominance eventually reverses, the shift is typically rapid and violent, not a slow grind down. This reversal is usually triggered by the emergence of a powerful new market narrative, or "meta."
The Hunt for the Next "Meta"
- Historical Metas:
- The ICO Mania (2017): The Initial Coin Offering (ICO) meta, a fundraising method where projects sell their own tokens, drove Bitcoin dominance from 96% down to a low of 34%.
- The NFT Mania (2021): The non-fungible token craze was the primary driver of the last major altcoin cycle, surprising many who expected DeFi to be the catalyst.
- The Memecoin Mania (2024): While significant, the recent memecoin frenzy only caused a minor dip in Bitcoin dominance, from 61% to 55%, indicating it wasn't the cycle-defining meta many sought.
- The Next Catalyst: David and Tom speculate that the next meta will likely be something unexpected, just as NFTs were in 2021. Tom suggests a resurgence of ICOs could be a possibility, driven by an evolution in how projects approach capital formation.
The VC Fundraising Meta Shift
- Anti-Signal Raises: Massive, multi-hundred-million-dollar raises for early-stage projects are now often viewed as an "anti-signal" by retail investors, who have become wary of "token shops" and high-valuation VC deals.
- Retail Exposure to Venture Risk: With the rise of platforms allowing public participation in early-stage sales, retail investors are now being directly exposed to the high failure rate inherent in venture investing—a stark contrast to the perception that all VC-backed projects are guaranteed successes.
- A Push for Public Sales: Tom notes a trend toward projects raising less private capital and moving more quickly to public sales. "Maybe we don't need $200 million to make a new blockchain," he observes, pointing to a compression of capital needs that opens the door for earlier public participation.
TradFi's Crypto Frenzy: The Circle IPO
- "Mispriced" IPO: Circle's stock (CRCL) IPO'd at $31 and skyrocketed to a peak of $297, a nearly 10x increase. Tom calls it "the most mispriced IPO I've seen in maybe my entire career," noting the stark contrast between its struggle to find buyers in private markets and its immediate success as a public company.
- Forward-Looking Narrative: The rally is attributed to a forward-looking view of the stablecoin market. With regulatory clarity like the GSAC stablecoin bill potentially passing the Senate, investors see Circle as the premier regulated US-based issuer and one of the few ways to get public market exposure to this trend.
- Strategic Implication: The success of Circle's IPO is a major signal for other private crypto companies like Kraken, Chainalysis, and Fireblocks, who may now see a clear and highly favorable path to going public.
Coinbase and Robinhood Catch-Up Trade
- Coinbase's Surge: After initially lagging, Coinbase stock jumped 50% in just nine days, from $254 to $375, matching its launch price from the peak of the 2021 bull market. This suggests the market is now looking for other crypto proxies beyond just stablecoin issuers.
- Robinhood's Crypto Revenue: Robinhood's stock has also seen a phenomenal run, climbing from under $10 at the start of 2024 to over $83. Tom points out that a significant portion of its revenue (around 30-40%) comes from crypto trading, with Dogecoin being a top-traded asset, highlighting its unique retail user base.
- The Hood/Coin Ratio: A new metric, the "Hood/Coin ratio," is gaining traction as investors track the relative performance of these two publicly traded crypto giants, both of which now have market caps around $75 billion.
The Prediction Market Wars: Kalshi vs. Polymarket
- A Tale of Two Markets: Kalshi is a centralized, US-regulated entity, while Polymarket is a decentralized, crypto-native protocol operating globally. Tom draws a parallel to the Circle (onshore, regulated) vs. Tether (offshore, less restricted) dynamic.
- Aggressive Tactics: Tom, whose firm Dragonfly is an investor in Polymarket, strongly criticizes Kalshi's competitive behavior. He references a Pirate Wires report and screenshots suggesting Kalshi paid influencers to amplify news of an FBI raid on Polymarket's CEO.
- Tom's Critique: "Never forget that Kalshi is a team of little rats," Tom tweeted, arguing that their tactics go beyond healthy competition. He contrasts this with Polymarket's founder, who he says has built a transparent, on-chain product that embodies the spirit of DeFi.
Crypto as Mortgage Collateral
- A Major Policy Shift: This directive, if implemented, would represent a landmark step in legitimizing crypto as a store of value within the traditional financial system.
- The Collateral Disconnect: Tom points out the irony that crypto ETFs are currently marked with a 100% haircut by the DTCC, meaning they cannot be used as collateral for margin loans in brokerages. He finds it "extremely bizarre" that on-chain crypto might become eligible for mortgages before regulated ETFs are accepted for margin.
- Hurdles Remain: Even if Fannie and Freddie approve the change, individual banks would still need to get comfortable accepting crypto assets, which remains a significant hurdle. However, the move is seen as a crucial first step.
The Ethereum L1 "World Ledger" Debate
- A Subtle but Significant Shift: David argues the distinction is important. It draws a clear line between the foundational settlement layer (L1) and the broader ecosystem of Layer 2s (L2s) like Base and Arbitrum, which are customers of Ethereum's security but are distinct chains.
- Defining Ethereum: The debate centers on whether L2s should be considered "Ethereum" or separate entities. Focusing on the L1 as the core product is seen as critical for ensuring its own development and expanding its capacity as the ultimate global settlement layer.
Conclusion
This episode reveals a market at a crossroads, balancing Bitcoin's established dominance against the frantic search for the next explosive narrative. The powerful rallies in crypto-adjacent stocks like Circle and Coinbase suggest that significant institutional and retail capital is ready to deploy, making the identification of the next "meta" a critical task for investors and researchers.
