This episode unpacks the shifting crypto market dynamics, from memecoin resurgence to strategic M&A, offering critical insights for Crypto AI investors navigating the evolving landscape of digital asset valuation and institutional adoption.
Market Sentiment and Ethereum's Position
- Santi kicks off by noting the continued flurry of activity in the crypto space as summer approaches.
- Jason introduces the market discussion, highlighting Ethereum's (ETH) recent price surge from around $1,500-$1,700 to $2,500.
- Santi expresses a constructive view on the Ethereum ecosystem, praising its developer community and research, but remains cautious about ETH's $300 billion valuation. He questions the fundamental drivers of this valuation, stating, "what do you need to believe for this to be 300 billion? And I think that is the ultimately the question that I don't have a good answer to."
- Jason likens crypto valuations to high-growth tech stocks like OpenAI, suggesting they are based on future potential rather than current discounted cash flows. Santi, drawing on his experience, emphasizes the need for a reasonable understanding of user metrics and revenue models, even for startups, and struggles with ETH's value accrual mechanisms, particularly the L1/L2 dynamic.
- L1 (Layer 1): The base blockchain, like Ethereum or Bitcoin.
- L2 (Layer 2): A secondary framework or protocol built on top of an L1 to improve scalability and efficiency.
- Strategic Implication: Investors should critically assess the value accrual mechanisms of L1s like Ethereum, especially concerning L2 interactions and security budgets, as these factors heavily influence long-term sustainable valuation.
The Memecoin Cycle and Market Rebounds
- Jason discusses the emergence of platforms like Believe (formerly Clout), which facilitate token launches for founders, framing them as a new spin on memecoins, similar to Pump.Fun (memecoins) and Zora (creator coins).
- He observes that the current market cycle saw an immediate jump from Bitcoin gains to memecoins, bypassing intermediate steps like altcoins, leading to significant losses for many. Jason speculates that the current market resurgence might follow a more classic cycle: Bitcoin, then real revenue-generating altcoins, and perhaps memes later.
- Santi analyzes market rebounds by looking at what recovers fastest. He notes that memecoins as a category are up significantly (34% in the last seven days), outperforming other sectors, driven by the "flows game" where less capital is needed to move prices of lower-cap assets.
- Actionable Insight: While memecoins show rapid rebound potential due to lower liquidity, Crypto AI investors should be cautious. The underlying "flows game" dynamic means these are highly speculative, and a shift towards fundamentally driven projects might be on the horizon.
Investment Strategies and Market Psychology
- Jason shares an anecdote about a friend looking to invest house sale proceeds into Soul, memes, and revenue-generating projects like Radium, Jupiter, and Athena.
- Santi advises considering time horizon, risk tolerance, and return expectations. He suggests Bitcoin deserves a place in such a portfolio due to its established nature and utility (e.g., borrowing against it).
- Santi introduces the "Family Feud style of investing," emphasizing that in crypto, anticipating what the crowd will do (social consensus) is often more important than being "objectively right." He states, "Do you want to be right or do you want to make money?"
- He uses Ripple as an example: despite technical criticisms, its brand recognition makes it a go-to for expressing a DeFi payments trade for the average person. The ability to distill a project into a one-liner is crucial for capturing attention.
- DeFi (Decentralized Finance): Financial applications built on blockchain technology that operate without traditional intermediaries.
- Strategic Consideration: For Crypto AI projects, which can be complex, developing a clear, concise one-liner is vital for attracting investment and user adoption, tapping into the market's reliance on easily digestible narratives.
Bitcoin Dominance and Market Cycles
- Jason posits that Bitcoin dominance may have topped out around 65% (currently 63%), suggesting a potential shift of capital into altcoins.
- Santi generally agrees, noting that historically, Bitcoin leads relief rallies, and its stabilization provides "breathing room for other things to rip," causing dominance to fall.
- He highlights the persistent FOMO (Fear Of Missing Out) in crypto, where investors chase gains down the market cap ladder, from established assets to newer, riskier projects.
- Santi cautions that outperforming majors like Bitcoin and Ethereum over multiple cycles is very difficult, even for professional fund managers.
- Investor Takeaway: A potential peak in Bitcoin dominance could signal an "altcoin season." Crypto AI researchers and investors should monitor this trend, as increased risk appetite could flow into innovative but higher-risk AI-crypto projects.
Strategic Acquisitions: Robin Hood & Anchorage
- Anchorage Acquires Mountain Protocol:
- Jason discusses Anchorage's acquisition of Mountain Protocol, known for USDM, a regulated yield-bearing stablecoin.
- Contrary to initial thoughts, USDM will be wound down. The acquisition positions Anchorage, an OCC-chartered crypto bank, to help other institutions issue stablecoins, rather than issuing its own directly.
- OCC (Office of the Comptroller of the Currency): A U.S. federal agency that charters, regulates, and supervises national banks and federal savings associations.
- This move enhances Anchorage's service offerings beyond custody, competing with traditional players like State Street and BNY Mellon.
- Robin Hood Acquires WonderFi:
- Jason details Robin Hood's acquisition of WonderFi, a Canadian crypto platform, highlighting several strategic advantages:
- Regulatory Fastlane: WonderFi has full CRO (Investment Industry Regulatory Organization of Canada) approval and CIPF (Canadian Investor Protection Fund) insurance, allowing Robin Hood to bypass lengthy Canadian licensing processes.
- Instant Canadian Footprint: Gains 1.7 million KYC'd Canadian users and existing operational infrastructure.
- KYC (Know Your Customer): A standard due diligence process used by financial institutions to verify the identity of their clients.
- Regulatory Sandbox: Canada's clearer crypto regulations (in some aspects) offer Robin Hood a space to test new products like derivatives and staking.
- Product Layering: Enables Robin Hood to introduce its existing products (e.g., X1 credit card, zero-commission trading) to the Canadian market.
- Competitive Move: Prevents competitors (Canadian banks, other US exchanges) from acquiring WonderFi.
- Santi expresses enthusiasm for the increasing M&A (Mergers and Acquisitions) activity in crypto.
- Strategic Implication: The trend of acquiring licensed entities (like WonderFi) or specialized service providers (like Mountain Protocol) highlights the importance of regulatory compliance and diversified service offerings for growth in the crypto space. This could extend to AI-crypto, where acquiring teams with specialized AI expertise or unique datasets becomes a key strategy.
Future M&A Targets and "Crypto as a Service"
- Jason predicts that exchange license acquisitions will continue to be a major M&A trend globally, as obtaining new licenses has become difficult.
- He also identifies data companies as prime M&A targets, particularly smaller firms with specialized, high-quality data in niche areas (e.g., derivatives, staking) but lacking scale.
- The discussion touches on protocol-to-protocol M&A, citing Synthetix's proposed acquisition of Derivio (formerly Lyrab V2) as an example, though these are seen as less common.
- Jason notes that foundations and protocols sitting on large treasuries (e.g., Rootstock with 2,000 BTC) could become active acquirers, potentially targeting user aggregators like wallets (e.g., Argent) or struggling traditional fintechs.
- Santi highlights a JP Morgan note discussing Coinbase's potential to "white label" its services, introducing the term "Crypto as a Service (CaaS)." This positions Coinbase to provide infrastructure for traditional financial institutions entering crypto.
- CaaS (Crypto as a Service): A model where a company provides the underlying infrastructure and technology for other businesses to offer crypto-related products and services without building them from scratch.
- Actionable Insight for AI Researchers: The rise of "Crypto as a Service" could lower barriers for AI companies to integrate decentralized technologies. Researchers should explore how CaaS platforms might facilitate novel AI applications leveraging blockchain for data integrity, model provenance, or decentralized compute.
Public Company Treasuries and Activist Investing
- Jason points to Dean Eigenmann's comment about projects like Golem Network sitting on substantial ETH treasuries (100,000 ETH with a ~$270M FTV) without clear value distribution to token holders, suggesting they could be targets for activist investors.
- FTV (Fully Diluted Valuation): The total value of a crypto project if all possible tokens were in circulation.
- NAV (Net Asset Value): The value of an entity's assets minus the value of its liabilities.
- Santi notes Golem is trading close to its NAV, implying the market assigns little value to its ongoing operations. He questions the incentives for such teams, suggesting they might operate like "dormant hedge funds."
- The discussion shifts to the strategy of taking public companies and injecting crypto assets into their treasuries, often via reverse mergers into shell companies (e.g., David Bailey's Bitcoin Native merging with Kindly MD). These companies often trade at a premium to their net asset value.
- Santi expresses caution about the sustainability of this premium, drawing parallels to the past GBTC premium.
- Strategic Consideration: The management of large treasuries by crypto projects (including AI-focused ones) will come under increasing scrutiny. Investors should assess how these treasuries are being utilized to generate value beyond simple staking, and whether governance models allow for effective capital deployment or shareholder activism.
eToro IPO and Coinbase S&P 500 Inclusion
- Jason congratulates Yoni Assia, founder of eToro, on their successful IPO after nearly 20 years. eToro, now trading at around a $6 billion valuation, derives nearly 50% of its revenue from crypto trading.
- IPO (Initial Public Offering): The first time that the stock of a private company is offered to the public.
- He emphasizes that more publicly traded crypto-related companies provide better pricing benchmarks for late-stage private companies and can help unfreeze the IPO and late-stage venture markets.
- Santi highlights the massive significance of Coinbase being added to the S&P 500. This forces institutional fund managers who track the index to buy Coinbase stock, increasing its visibility and legitimacy.
- S&P 500: A stock market index tracking the performance of 500 large companies listed on stock exchanges in the United States.
- Santi speculates on when the next crypto-native company might join the S&P 500, suggesting it will take a few years as more need to IPO first (e.g., Kraken, Circle).
- He also ponders how many S&P 500 companies will start deriving revenue from crypto, particularly stablecoins.
- Market Insight: The inclusion of Coinbase in the S&P 500 and successful IPOs like eToro's signal growing mainstream acceptance and financial integration of crypto. This can create a more favorable environment for Crypto AI companies seeking funding and partnerships with traditional entities.
Talent Migration and Gaming Narrative Resurgence
- Jason notes a trend of senior executives leaving traditional finance for crypto. Examples include Andrew Peel (Morgan Stanley), Tony McLaughlin (Citi), Caroline Butler (BNY Mellon), and Jay Biancamano (State Street).
- Santi brings up MapleStory, a 20-year-old game with 180 million registered users and $3 billion in gross revenue, launching on Avalanche. He sees this as a sign that the "GameFi" (Game Finance) narrative is not dead but evolving, with established games integrating crypto elements.
- Santi emphasizes, "It's not a crypto game. It's just a fun game with crypto elements... Lead with a good product and then like have crypto kind of like embedded in there."
- Trend to Watch: The influx of traditional finance talent into crypto can accelerate professionalization and innovation. For Crypto AI, this could mean more sophisticated financial products and institutional-grade infrastructure. The MapleStory example suggests a mature approach to integrating crypto in gaming, focusing on enhancing user experience rather than crypto-first models, a lesson applicable to AI applications.
Content Recommendations
- Santi recommends "The Surrender Experiment" by Michael A. Singer, a book about surrendering to life's flow, which he found surprisingly refreshing and impactful.
- Jason recommends two episodes from the "My First Million" podcast: one with Blake Scholl (founder of Boom Supersonic) and another with James Currier (founder of NFX) discussing network effects. He quotes Steve Jobs via Mark Andreessen: "The world is a very malleable place...the world will often reconfigure itself around you much more quickly and easily than you would have thought."
This episode underscores a crypto market maturing through strategic M&A, institutional inroads like Coinbase's S&P 500 inclusion, and a re-evaluation of value beyond hype. Crypto AI investors should monitor these trends, particularly the "Crypto as a Service" model and sophisticated treasury management, for emerging opportunities and sustainable growth indicators.
