What's Driving Bitcoin Higher?

This episode delves into the mechanics behind Bitcoin's recent rally past $95k, dissecting massive ETF inflows and the rise of 'MSTR-style' leveraged Bitcoin plays—a strategy carrying both immense potential and systemic risk for the market.

Bitcoin Price Action & Market Outperformance

• The discussion kicks off celebrating Bitcoin reaching $95,000, a significant jump from $85,000 discussed previously. Avi highlights Bitcoin's radical outperformance of equity markets, even during equity downturns, as a strong bullish signal that shouldn't be faded.
• Jonah agrees the outperformance looks consistent now, not like a temporary deviation poised to mean-revert. He anticipates Bitcoin continuing to push higher, potentially gaining ground during selloffs as investors seek diversification.
• However, Jonah tempers expectations, suggesting a steady grind higher rather than a sudden, face-ripping rally. "I don't think it's going to rip people's faces off. I think it might just be more of a general kind of outperformance type type scenario."

ETF Inflows Analysis: Real Demand vs. Arbitrage

• Avi points to massive ETF inflows ($3 billion last week, $600 million yesterday) and on-chain data (exchange withdrawals, whale buying) as bullish fundamentals.
• The conversation explores whether these inflows represent genuine buying or arbitrage plays exploiting the CME basis (the difference between Bitcoin futures prices on the Chicago Mercantile Exchange and the spot price). Arbitrageurs might buy the ETF and short futures to capture this basis risk-free.
• Analysis suggests the inflows are largely real demand. CME open interest only rose ~$1 billion, while crypto-native exchange open interest (Binance, Bybit, etc.) slightly decreased, indicating the ~$3 billion ETF inflow wasn't primarily driven by basis traders, especially since basis was relatively low (~5%) during the inflow period. Avi concludes, "I think these ETF inflows are real like you said. I don't think it's just arbitrageurs."
• Strategic Implication: Sticky, non-arbitrage ETF inflows suggest sustained buying pressure and potentially broader institutional adoption, underpinning the current price strength.

Geopolitical Factors & Bitcoin's Role

• Avi connects the inflows to the broader macro environment, arguing Bitcoin is proving itself as a macro hedge amidst global fracturing (tariffs, US-China tensions).
• He emphasizes Bitcoin's value as a cross-border asset existing outside state control, offering stability when the "rules of the economic game" are changing rapidly under figures like Trump. "It's kind of nice to own an asset that exists outside the confines of a state," Avi notes, highlighting its predictable, unchangeable protocol rules compared to fluctuating national economic policies.
• Strategic Implication: Increasing geopolitical uncertainty and potential shifts in global economic alliances could serve as a long-term tailwind for non-sovereign assets like Bitcoin.

The MSTR Strategy Explained

• The discussion shifts to MicroStrategy (MSTR) and its strategy of issuing stock or debt to acquire more Bitcoin, often leveraging the premium its stock trades at relative to its Bitcoin holdings. Avi explains how competitors are now emerging globally (e.g., Metaplanet in Japan, Cantor Fitzgerald raising $3B for a similar vehicle) to replicate this model.
• Avi describes the "MSTR game" as exploiting demand for non-recourse leverage on Bitcoin (leverage where the lender can only seize the collateral, not other assets, though this becomes complex with corporate structures). Competitors aim to capture some of the demand driving MSTR's premium.
• Strategic Implication: The proliferation of MSTR-like vehicles creates significant, potentially price-insensitive demand for Bitcoin, acting as a structural tailwind.

Concerns and Risks of MSTR Clones

• Jonah expresses significant concern, viewing these copycat vehicles, especially those without an underlying operating business like MSTR originally had, as potentially risky and "Ponzi-ish." He worries about the unwind scenario.
• He draws parallels to the Grayscale Bitcoin Trust (GBTC) premium, which worked well until it imploded. "This is a big one... This is the first thing that I think actually worries me and needs to be monitored," Jonah states, highlighting the systemic risk if these leveraged vehicles face liquidation cascades during a downturn.
• Avi notes the perverse incentive: it's easiest to raise capital for these vehicles when Bitcoin is already high, leading to buying tops. He mentions Sailor's average cost basis approaching $70k.
• Actionable Insight: Investors should monitor the premiums and leverage levels of these MSTR-clone vehicles. Excessive premiums could signal market froth and present opportunities for hedging (e.g., buying puts struck near potential liquidation levels).

Potential Evolution of the MSTR Strategy

• Jonah speculates on a more bullish evolution: what if established, cash-flow-positive non-US corporations (like his BAE Systems hypothetical) or even sovereigns adopt a similar strategy? Using operational cash flow to service debt taken out to buy Bitcoin for treasury or transactional purposes would be a major catalyst.
• Avi counters that the market often "attracts losers" – companies adopting crypto strategies as a Hail Mary. However, he frames Sailor's approach as a "classic squeezy type play," akin to attempts to corner commodity markets.
• Strategic Implication: While current MSTR clones carry risk, adoption of Bitcoin treasury strategies by stable, profitable corporations or sovereigns would represent a paradigm shift and significant validation.

Tether's Dominance and Regulatory Landscape

• The conversation touches on Tether (USDT), its profitability, and its resilience against regulatory shutdown, partly attributed to its sheer size ("too big to fail"). Avi recounts a past anecdote suggesting regulators were wary of the consumer harm a sudden shutdown could cause.
• Jonah mentions Plasma as a promising Layer 2 solution for Tether, potentially offering faster, cheaper, and more legitimate rails than Tron.
• Jonah frames crypto's rise, including Tether's success, as a DDoS attack (Distributed Denial-of-Service, overwhelming a system with traffic) on legacy financial infrastructure, bypassing traditional regulatory hurdles through decentralized proliferation.
• Actionable Insight: Tether remains a critical piece of crypto infrastructure. Its continued stability and potential upgrades (like Plasma integration) are vital for market liquidity and the growth of areas like RWA settlement.

Monero Analysis: The Privacy Coin Thesis

• The discussion turns to Monero (XMR), a privacy coin designed to obscure transaction details. Avi contrasts it with Bitcoin's transparent ledger, suggesting Monero fulfills the original "Swiss bank in your pocket" promise that Bitcoin has moved away from. "Monero is what people thought Bitcoin was in 2016," Avi remarks.
• They note Monero's longevity (since 2014), relatively low volatility (indicating fewer speculators), and consistent demand, despite limited exchange listings. Its $5 billion market cap seems low for the primary private digital currency.
• Concerns are raised about the recent price spike potentially being linked to a large Bitcoin heist ($330M) being laundered through Monero, making the current entry point potentially risky. The difficulty of converting large Monero sums back to fiat easily is also noted.
• Actionable Insight: Monero represents a unique, albeit controversial, asset class. It's a potential hedge against surveillance or instability but carries regulatory risk and event-driven volatility. Investors might consider small, long-term allocations, potentially adding on dips rather than chasing pumps.

Bitcoin Market Outlook & Trading Strategy

• Looking ahead, Avi believes $100k Bitcoin is likely in short order but doesn't expect a straight shot to $120k. He suggests taking profits on leveraged positions like out-of-the-money calls bought earlier.
• Jonah concurs, suggesting the market might consolidate. He proposes a strategy of being long spot Bitcoin while shorting near-term calls (e.g., 105k strike) to collect theta (time decay premium) if a rapid ascent isn't expected.
• Both agree the market is headline-driven, currently digesting gains and waiting for the next major catalyst, likely related to political developments (e.g., Trump pronouncements).
• Actionable Insight: With Bitcoin near $95k-$100k, consider reducing leverage. Strategies like covered calls could be employed to generate yield during potential consolidation while maintaining core spot exposure.

Impact of Earnings Season & Tariffs

• The upcoming earnings season is expected to be dominated by CEO commentary on the negative impacts of potential tariffs ("wine season," as Jonah puts it). Companies are likely to lower guidance and express concerns about uncertainty, supply chains, and consumer demand.
• This corporate lobbying via earnings calls might pressure policymakers but introduces near-term market uncertainty.
• Strategic Implication: Macro headwinds like tariffs could dampen equity market sentiment, potentially reinforcing Bitcoin's role as a portfolio diversifier, even if overall risk appetite temporarily decreases.

Pendle Deep Dive: Valuation, Use Case, and RWAs

• The focus shifts to Pendle (PENDLE), a protocol for yield tokenization (separating a yield-bearing asset into its principal and yield components for trading). Avi notes its strong fundamentals: ~$1M weekly revenue, ~22 PE ratio (based on ~$1B FDV), and fee distribution to VE Pendle stakers.
• While the concept of splitting principal and yield is unintuitive compared to traditional bonds, Pendle's growth is undeniable. Jonah highlights its origins in speculating on volatile DeFi yields and its current utility.
• A key feature praised by Jonah is its multi-chain dashboard, offering a unified view of yield positions across 11 chains, solving a major pain point for DeFi users tracking scattered assets. "The idea of having like a one-stop shop with a dashboard... I think that is a good product that the market it kind of lacks."
• Actionable Insight: Pendle presents a compelling case based on strong revenue growth, reasonable valuation, effective tokenomics, and a useful product addressing DeFi complexity. It warrants deeper research, particularly for investors bullish on yield markets and RWAs.

The Rise of Real-World Assets (RWAs)

• The discussion broadens to RWAs (Real-World Assets) being tokenized on-chain. Avi mentions researching Maple Finance, whose Total Value Locked (TVL) has surged. Both speakers see RWAs as a major emerging narrative.
• Jonah expresses strong conviction: "RWAs are coming, man. Don't sleep on this... next big trade... 5 to 10x type trade." They see the infrastructure (stablecoins, L1s, gateways) maturing to support this.
• Strategic Implication: The RWA sector is identified as a key investment theme for the coming cycle. Investors and researchers should actively explore protocols enabling RWA tokenization and trading, like Pendle and Maple Finance.

Concluding Thoughts

Bitcoin's rally is fueled by strong ETF inflows and macro tailwinds, but the rise of highly leveraged MSTR-style vehicles introduces significant systemic risk. Meanwhile, the maturation of DeFi infrastructure, highlighted by protocols like Pendle, sets the stage for the potentially transformative RWA narrative. Investors should monitor leverage risks closely while researching opportunities in the burgeoning RWA space.