What To Own This Cycle?

This episode reveals that the current crypto market is an "institutional cycle," where traditional capital, not crypto-natives, dictates which assets win.

Market Volatility: A Necessary Cleanse

• The hosts begin by dissecting the recent market dump, dismissing the panic on Crypto Twitter as "amateur hour." Jonah argues that the downturn was a healthy reset, flushing out over-leveraged retail traders who entered at the recent highs. This new wave of participants, he notes, often reacts emotionally to daily price charts without a deeper thesis.
• Avi agrees, pointing to specific on-chain data that signaled an over-heated market.
  • Open Interest (OI): The total value of outstanding derivative contracts. A buildup in OI without a corresponding price increase, as seen before the dump, often precedes a correction.
  • Funding Rates: Payments exchanged between long and short traders in perpetual futures markets. Consistently high rates indicated excessive long leverage.
  Avi emphasizes this was not a structural market shift but a necessary breather. He states, "I think you just needed to flush out a little bit of the leverage and exuberance that was in the markets."

Bitcoin ETF Flows: A Shifting Signal

• The conversation turns to the significant outflows from Bitcoin ETFs, totaling nearly $1 billion over two days. The hosts analyze why this data is no longer the reliable leading indicator it once was.
  • Initially, ETF inflows represented new, sticky capital entering the ecosystem.
  • Now, Avi suggests, the flows are dominated by "traded capital," meaning active traders are moving in and out, making the data a reflection of daily price action rather than a predictor of future moves.
  • Jonah adds that some of this activity is likely related to the basis trade, an arbitrage strategy where traders buy the spot ETF and short futures to capture the price difference, making the ETF flows a lagging indicator.

The ETH Trade: Beta, Alpha, and Institutional Demand

• The discussion shifts to Ethereum, which has shown surprising strength. Jonah questions if ETH is just trading as "high beta Bitcoin"—meaning it simply amplifies Bitcoin's moves. Avi offers a more nuanced view, arguing that ETH has an alpha component driven by specific, powerful tailwinds.
  • Treasury Companies: A new phenomenon where public or private entities are being established primarily to acquire and hold ETH, creating a structural source of demand.
  • Short Squeeze Narrative: Avi highlights the massive short interest on the CME for ETH futures. While he acknowledges most of this is likely from delta-neutral traders (traders hedging their positions to be immune to price direction), the narrative of a potential short squeeze is powerful enough to drive buying pressure in a meme-driven market.
  • Jonah, convinced by the argument, decides to take a leveraged long position on ETH during the podcast, viewing it as a compelling short-to-medium-term trade.

The "Institutional Cycle" Thesis

• Avi introduces a powerful framework for the current market, quoting a recent conversation with Santi Siri: "This is an institutional cycle." This means the assets performing best are those that appeal to traditional institutions, not necessarily those with the strongest crypto-native fundamentals.
  • Key Institutional Assets: The primary targets for this new wave of capital are Bitcoin, Ethereum, and potentially Ripple (XRP) due to their age, market cap, and name recognition.
  • This cycle is not being won by crypto-natives; instead, the big winners are Bitcoin and publicly traded crypto companies that institutions can easily access.
  • Strategic Implication: Investors should consider overweighting a portfolio with these "institutional assets" until the flow of traditional capital subsides.

A Tangent on Exchanges: Kraken vs. Coinbase

• The hosts briefly detour to discuss their preferred trading venues, offering insights for US-based users.
  • Both Jonah and Avi prefer Kraken Pro for its professional interface, which they feel treats users with more intelligence than Coinbase's simplified UI.
  • Jonah values Kraken's clear asset segregation (e.g., separate listings for USDT and USDC) and its less restrictive withdrawal policies compared to Coinbase.
  • Avi states, "I also use Kraken, but that's mainly because I just hate the Coinbase interface."
  • They acknowledge that Coinbase is often unavoidable for bridging assets to its native Layer 2, Base.

Hyperliquid and the Fading Narrative

• The conversation touches on Hyperliquid, a decentralized perpetuals exchange that was recently a hot topic. Its fading presence on the timeline illustrates the market's current focus.
  • Hyperliquid: A decentralized exchange for trading perpetual swaps (futures contracts with no expiration date), known for its tokenomics where trading fees are used to buy and burn its native token.
  • Jonah notes that while the exchange's fundamental value proposition (token burn from trading volume) remains intact, the market has moved on to "things that are fun and meme."
  • Actionable Insight: This highlights a key market dynamic: strong fundamentals are not enough to maintain momentum when market attention shifts to more meme-able narratives.

Crypto Stocks as the New Meme Stocks

• The hosts analyze the explosive, volatile price action of publicly traded crypto companies like Galaxy Digital and Coinbase, arguing they are being traded like meme stocks.
  • Avi points to Coinbase's 72% rally followed by a 30% drop as clear evidence of speculative fervor, disconnected from the company's underlying financials.
  • Jonah identifies Galaxy Digital as having the most potential to become a "random meme stock" like GameStop, driven by a combination of factors:
    • A great, meme-able name ("send it to the freaking galaxy.")
    • A charismatic, public-facing leader in Mike Novogratz.
    • A narrative combining both crypto and AI.
    • A fundamental case being made by respected analysts, similar to Roaring Kitty's role in the GameStop saga.

The Ripple (XRP) Play: Fake It 'Til You Make It

• Despite Jonah's view of XRP as a "scam," Avi presents a compelling bull case based on a "fake it 'til you make it" strategy.
  • Ripple has used proceeds from token sales to build a massive war chest.
  • It is now using this capital to acquire legitimate businesses (like prime brokerage Hidden Road), transforming itself into a real financial technology company.
  • Strategic Implication: If Ripple Labs goes public, as is widely expected, it could act as a "treasury company" and trigger a massive rally in the XRP token, regardless of its original utility. Avi states, "If Ripple goes public, Ripple Labs goes public, Ripple Coin is going to the freaking moon."

The Altcoin Playbook: From Protocol to Conglomerate

• Jonah expands on the Ripple strategy, proposing it as a potential playbook for other "dinosaur coins" with large treasuries but lagging adoption, such as Near or Polkadot.
  • These protocols could use their billion-dollar treasuries to buy real-world, cash-flow-positive businesses, like a tequila company or a manufacturing firm.
  • This pivot would transform them from pure crypto protocols into diversified holding companies, creating a new, unexpected source of value.
  • Actionable Insight for Researchers: This presents a novel framework for valuing L1s—not just on their technical merit, but on the potential for their treasury to be deployed into value-accretive, off-chain acquisitions.

Navigating the Treacherous Market

• In their concluding thoughts, the hosts stress the importance of a clear strategy in the current environment.
  • High Opportunity Cost: Holding the wrong altcoin can be devastating. Jonah highlights how an investor in XRP would have lost 35% while Bitcoin gained 5% over the same period.
  • Macro Tailwinds: Despite the chop, the macro setup remains bullish, with impending rate cuts and a pro-crypto political shift in Washington. Getting bearish now due to short-term volatility seems "so stupid."
  • Avi's Trading Philosophy: He advocates for a more selective approach: "You take small swings where you think you have a little bit of edge and then you take big swings where you have a lot of edge."

This cycle is defined by institutional narratives, not crypto-native fundamentals. Investors and researchers must focus on assets appealing to this new capital—like Bitcoin, ETH, and select crypto stocks—while being acutely aware of the high opportunity cost of betting on assets that fail to capture institutional or meme-driven attention.