Why This Bull Market Feels Like a Bear! Downtober Explained

This episode reveals a deep disconnect between crypto market prices and investor sentiment, exploring why this bull market feels like a bear and what the rise of gold and AI agents means for the future.

Market Sentiment vs. Reality: "Downtober" Explained

• Despite Bitcoin and Ether being up 2% on the week, the hosts note a pervasive negative sentiment, coining the term "Downtober." David attributes this feeling to new psychological thresholds, where Bitcoin below $114,000 and Ether below $4,000 now “feels bad.” Historically, October has been a strongly positive month for Bitcoin, with gains of 60% (2013), 50% (2017), and 40% (2021). This year's -5% performance in October starkly contrasts with past cycles, contributing to the bearish mood.
• The Hollow Middle Market: Analyst Luke Martin’s perspective is introduced to explain the disconnect. While Bitcoin is performing well, the broader altcoin market is suffering. Many tokens are still trading below their post-FTX crash levels from 2022.
• Investor Experience: This hollowing out of the mid-market means that unless an investor is holding only Bitcoin, their portfolio is likely down, fueling widespread negative sentiment. David notes, “The middle of the market is far more hollow than it has been in previous cycles... this is like the industry, the crypto industry.”
• Strategic Implication: The market is consolidating around high-quality, revenue-generating assets. Investors should be cautious about exposure to mid-cap altcoins that lack clear utility or revenue, as Bitcoin's strength is not lifting the entire market.

Three Potential Scenarios for the Current Crypto Cycle

• The conversation explores three competing theories about the current market cycle's trajectory, highlighting the uncertainty among top analysts.
• The Top is In: Michael Nato argues the cycle has already peaked, citing slowing volume and a lack of new buyer catalysts. His strategy is to hold a majority position in cash (70%).
• One Last Push: Ben Cowan suggests a final Q4 rally is possible, with a potential Bitcoin top in November or December, possibly followed by an "afterboom."
• The Extended Cycle: Raoul Pal’s super-bull thesis posits that the cycle will extend into 2026, driven by sustained global liquidity and impending Fed rate cuts.
• David's Synthesis: David suggests the market will likely incorporate elements from all three theories, moving towards a structure more like the S&P 500, with slower, steadier upward grinds rather than explosive, volatile cycles. He believes the era of “20x, 10x phenomenon fever” is moderating, which also means 70-80% crashes are less likely.

The Zen of Holding: Why Timing the Market is a Losing Game

• The hosts pivot to the difficulty of timing market cycles, advocating for a long-term holding strategy for high-conviction assets. Ryan points out the deeply ingrained “four-year cycle” belief in crypto culture, which may be becoming a self-altering prophecy.
• The Cost of Missing Out: A key statistic is highlighted: holding Bitcoin from 2017 to 2024 would have yielded an 847% return. However, missing just the 10 best trading days during that period would result in a 23% loss.
• Actionable Insight: For investors with long-term conviction, attempting to time market tops and bottoms is a high-risk strategy. The data suggests that simply holding through volatility is more effective, as crypto's most significant gains often occur in very short, unpredictable bursts. As Ryan puts it, “You can also just not play cycles... if you could just hold.”

The Macro Story: Gold's Surge and Its Implications for Crypto

• The discussion shifts to the broader macroeconomic landscape, focusing on gold's remarkable performance as the top major asset over the last 20 years, with an 11% annualized return.
• Central Bank Accumulation: A significant driver of gold's rise is aggressive buying from central banks, particularly China and Russia, who are diversifying away from U.S. Treasuries. For the first time since 1995, gold now exceeds Treasuries in foreign central bank reserves.
• The Crypto Catch-Up Trade: While Ryan expresses fascination with gold's run, he frames it as a precursor for a potential capital rotation into Bitcoin. A chart from Bitwise suggests that a mere 5% rotation from gold into Bitcoin could push Bitcoin's price to $250,000.
• Strategic Consideration: Gold's momentum reflects a global move toward debasement-resistant assets. Crypto investors should monitor this trend, as the narrative of “digital gold” could attract significant capital if traditional gold investors seek a higher-beta alternative.

Ethereum's Talent Drain: Dankrad Feist Joins Tempo

• A major ecosystem development is the departure of prominent Ethereum Foundation researcher Dankrad Feist, for whom Danksharding (a key component of Ethereum's scaling roadmap that significantly increases data availability for Layer 2s) is named. Feist has joined Tempo, a new Layer 1 project backed by Stripe and Paradigm.
• Motivations and Frustrations: David explains that Feist has been a vocal advocate for aggressively scaling Ethereum's base layer, a vision that has met resistance from the network's slower, consensus-driven development process. His move to Tempo is seen as a desire for “relentless execution.”
• Community Reaction: The move has sparked a debate. Some see it as a “corporate chain” raiding a public good, while others, like ConsenSys founder Joe Lubin, believe corporate chains cannot ultimately compete with Ethereum's credible neutrality.
• Implication for Ethereum: Feist's departure to a well-funded, EVM-compatible competitor highlights a critical challenge for Ethereum: retaining top-tier talent that may be frustrated with its development pace. While Tempo's success would validate the EVM (Ethereum Virtual Machine)—the runtime environment for smart contracts on Ethereum—it also represents a direct competitor for capital, users, and developer attention.

The Battle for Bitcoin's Soul: Core vs. Knots

• The conversation turns to a growing philosophical civil war within the Bitcoin community over the use of its block space.
• The Core Argument: The Bitcoin Core development team recently proposed an upgrade to expand the OP_RETURN data field by over 1,200x, effectively welcoming non-financial data like Ordinals. This side argues for neutral block space, auctioned to the highest bidder regardless of content.
• The Knots Counter-Argument: A rival client, Bitcoin Knots, led by developer Luke Dash Jr., is gaining traction (now ~30% of nodes). The Knots community advocates for filtering out all non-monetary transactions to preserve Bitcoin exclusively for financial use. Their rationale is that allowing arbitrary data could be an attack vector, forcing node operators in certain jurisdictions to shut down if illegal content is embedded on the chain.
• Diverging Philosophies: This debate reveals a fundamental divergence in vision for blockchain networks. While Ethereum is embracing maximal censorship resistance (e.g., with proposals like Fossil), a significant portion of the Bitcoin community is moving toward a more curated, application-specific model.

Coinbase's Strategic Moves: Echo Acquisition and DeFi Lobbying

• Coinbase made two significant moves: acquiring Cobie's token launch platform, Echo, for a reported $375 million and lobbying for favorable crypto legislation in Washington D.C.
• Building a Capital Formation Pipeline: The Echo acquisition, along with its earlier purchase of Liquify, allows Coinbase to create an end-to-end platform for crypto startups—from formation and compliance to public token sales and exchange listing. This positions Coinbase as a central hub for capital formation in the digital asset space.
• Protecting DeFi: CEO Brian Armstrong provided an update from D.C., stating that lawmakers are “90% on the same page” regarding a market structure bill. Crucially, he emphasized Coinbase's commitment to protecting decentralized protocols. Ryan contrasted this with SBF's previous lobbying efforts, stating, “We want to make sure that we're pushing to protect DeFi... centralized intermediaries in crypto like Coinbase should be regulated, not the protocols.”

Prediction Market Wars: Poly Market, Khi, and DraftKings

• The prediction market space saw a peculiar development where both Poly Market and its competitor, Khi, announced they were “the official prediction market for the NHL” on the same day.
• A Bidding War: The hosts speculate that the NHL opportunistically leveraged the rivalry between the two platforms, taking money from both to grant them the same “official” title.
• DeFi Mullet Strategy: In a more significant development, sports betting giant DraftKings is now using Poly Market as its back-end clearing house. This “DeFi mullet” strategy (traditional UI in the front, decentralized protocol in the back) allows DraftKings to offer prediction markets without needing a specific CFTC license, showcasing a powerful new model for integrating crypto infrastructure with legacy platforms.

The Fed's Crypto Pivot: Direct Access to Fedwire

• In a landmark statement, Federal Reserve Governor Christopher Waller announced plans to create “skinny accounts” that would give crypto and stablecoin companies direct access to Fedwire, the Federal Reserve's real-time gross settlement system.
• Disintermediating Banks: This move would allow firms like Coinbase to settle transactions directly with the Fed, bypassing the traditional banking intermediaries they currently rely on.
• Acknowledging Crypto's Integration: Waller explicitly stated that “distributed ledgers and crypto assets are no longer on the fringes but are increasingly woven into the fabric of the payment and financial system.” The Fed is also actively researching tokenization and the intersection of AI and payments.
• Strategic Importance: This is a major step toward integrating crypto infrastructure into the core of the U.S. financial system, providing regulatory clarity and operational efficiency for the industry's largest players.

AI Trading Competition: LLMs Battle on Hyperliquid

• The episode highlights an ongoing AI trading competition on the Alpha Arena website, where six large language models (LLMs) were each given $10,000 to trade on the decentralized exchange Hyperliquid.
• The Leaderboard: The two Chinese models, Qwen and Deepseek, are currently in the lead, with profits of over 56% and 26%, respectively. In contrast, models from major Silicon Valley firms are struggling, with Grok down 12% and ChatGPT and Gemini having lost nearly 80% of their initial capital.
• An Objective Benchmark for AI: This competition serves as a powerful, real-world benchmark for evaluating the practical intelligence and risk-management capabilities of different AI models. As David notes, “It is a very good benchmark... it's impossible to game it. You actually have to be good.”

The Dawn of AI Agents with Crypto Wallets

• The discussion concludes by exploring the tangible intersection of AI and crypto payments, specifically through Coinbase's work on X42, a protocol designed for machine-to-machine micropayments.
• AI with Agency: A demo showed an AI model (Claude) connected to a Coinbase MPC wallet. The AI could autonomously spend small amounts of crypto from its wallet to access various data services via the X42 protocol, thereby enhancing its own responses.
• Future Outlook: This represents the first concrete step toward a future where AI agents have economic agency, using crypto wallets to participate in a marketplace for data and computational services. This creates a powerful, native economic layer for the internet, fulfilling the original vision of embedding payments directly into the web's fabric.

This episode highlights a market maturing beyond simple four-year cycles, driven by macro shifts and technological convergence. For investors and researchers, the key is to focus on high-quality, revenue-generating assets and monitor the critical intersection of AI and crypto, where autonomous agents with digital wallets are becoming a reality.