This episode unpacks the current crypto market's fervent optimism, contrasting Bitcoin's long-term potential against the speculative froth of altcoins and IPOs, offering a strategic lens for investors and researchers navigating this evolving landscape.
Bitcoin's Enduring Outperformance and Mainstream Acceptance
- The episode kicks off with a discussion on the extremely eventful week in crypto, noting the Pump.fun and Plasma ICOs, stablecoin integrations, and the Circle IPO's significant initial surge. Bitcoin's resurgence near all-time highs fuels a sentiment that this cycle might genuinely be a "super cycle," marking crypto's full mainstream adoption.
- Jonah highlights a pivotal shift in public perception: "even amongst the people who were the biggest skeptics long ago, investing in Bitcoin... is no longer a question of like will it will it get adopted by society or not? ...There's no debate anymore. It's caught on."
- He expresses a strong conviction that Bitcoin will outperform all major traditional investment classes over the next 5-10 years.
- Bitcoin (BTC): The first and most well-known decentralized digital currency, often referred to as digital gold.
- Jonah, with his market experience, points out common pitfalls for average investors:
- Underexposure to Bitcoin.
- Overexposure, particularly by feeling the need to work directly in crypto to invest.
- Panic selling during market fear, often indicated by the Greed and Fear Index (a tool that measures market sentiment).
- Holding the wrong altcoins (cryptocurrencies other than Bitcoin) instead of Bitcoin for the long term.
- Strategic Implication: For investors and researchers, this underscores the importance of a foundational Bitcoin position and a disciplined, long-term perspective, avoiding emotional reactions to market volatility.
Navigating Overexposure and Altcoin Risks
- Avi concurs with Jonah's points, emphasizing that overexposure is a significant risk, often driven by the desire for rapid wealth accumulation. Investors with smaller capital might turn to altcoins or leverage (using borrowed capital to increase potential returns, and risks) to chase higher multiples.
- He suggests a strategy: "find those underappreciated 10 bagggers... And then once you once you hit them and they massively outperform them, just roll them back into Bitcoin."
- A 10-bagger is an investment that increases in value tenfold from its original purchase price.
- Avi mentions Hyperliquid and Syrup as examples of projects with potential for significant returns.
- He cautions against "fatigue" from chasing every new, minor development, advocating for picking a few strong projects and holding them, especially when market tailwinds (conditions or situations that help something increase or succeed) are strong.
- Actionable Insight: Researchers should focus on identifying altcoins with strong fundamentals and genuine utility, while investors should consider a strategy of taking profits from successful altcoin investments back into more established assets like Bitcoin.
The Perils of Overtrading and Evolving Market Dynamics
- Jonah strongly advises against overtrading, sharing an anecdote about an acquaintance during the 2017 ICO (Initial Coin Offering) craze—a fundraising method where new projects sell their crypto tokens. This individual constantly flipped "shitcoins" (a derogatory term for altcoins with no discernible value or purpose) across numerous exchanges like the now-defunct Poloniex.
- Jonah notes the psychological trap: "when the entire space is 100xing and you've 2xed your money, you can still pretend that what you're doing is working because you've 2xed your money."
- He admits his smartest recent move was buying Hyperliquid and largely avoiding active trading due to a sense that the market is poised for further significant gains.
- Avi observes a shift in the market: "I'm trying to adapt to the new world where the things that make money outperform and the things that don't make money don't actually particularly do well... it's like a genuinely new market environment."
- He acknowledges that while inefficiencies and trading opportunities still exist, they are harder to capitalize on than in 2021 and require more skill. Crucially, there are now "actual things that you can park your money in... good assets that I think will exist in five years."
- Strategic Implication: The market is maturing. Investors and researchers should prioritize projects with sustainable value and be wary of the high-frequency trading strategies that were profitable in previous, less mature market phases.
Lessons from Crypto's Past: The FTX Example
- Jonah, holding an FTX 3rd-anniversary water bottle, uses the defunct exchange as a cautionary tale. He suggests that if the FTX team hadn't engaged in excessive, high-risk activities ("overtraded their way to ruin and did a bunch of illegal stuff, too"), they might have preserved an incredibly valuable business.
- The core lessons he draws are: avoid extreme behaviors, don't overtrade, and trade selectively on clear opportunities (e.g., buying dips on irrational news, shorting clear scams).
- He suggests raising the threshold for what's considered an appropriate return and lengthening investment timeframes, as crypto "is starting to grow up weirdly."
- Actionable Insight: This serves as a stark reminder for investors to prioritize sustainable business models and ethical practices in the projects they support, and for researchers to analyze governance and risk management carefully.
The Circle IPO Frenzy: Hype vs. Fundamentals
- The discussion shifts to the Circle IPO (Initial Public Offering), where a company's shares are offered to the public for the first time. The stock experienced a dramatic pump, which Avi interprets as a sign of immense investor appetite for crypto-related assets.
- Avi believes this reflects a "whole new class of investor that wants to get access to this market," seeking exposure to narratives like the growth of stablecoins (cryptocurrencies pegged to stable assets like the US dollar).
- Jonah, while acknowledging he's not an equity analyst, expresses skepticism about Circle's underlying business, citing its thin EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margins – 18 million net income on 1.6 billion revenue.
- He attributes these low margins to Circle paying significant sums to platforms like Coinbase for prominent placement of USDC (USD Coin), their stablecoin, and incentivizing market makers (firms that provide liquidity by placing buy and sell orders) to mint USDC.
- Jonah mentions being under an NDA (Non-Disclosure Agreement) from his time at a market maker, preventing him from sharing specific contract details.
- He also points out the risk of declining revenues if interest rates fall, as stablecoin issuers earn yield on their reserves. "This is not like Apple selling iPhones. This is just hoping that whoever Jerome Powell's successor is... is not going to cut interest rates to zero."
- Strategic Implication: The Circle IPO highlights a potential disconnect between market hype driven by demand for crypto exposure and the fundamental financial health of the underlying companies. Investors should critically assess business models, especially for stablecoin issuers reliant on interest income and costly partnerships.
Institutional Interest and Retail Behavior in the Circle IPO
- Avi notes that retail sentiment on platforms like Reddit's Wall Street Bets was influenced by BlackRock (a major global investment management corporation) taking a 10% stake in the Circle IPO. "Well, if BlackRock really likes it, like we we we we got to get in."
- Jonah concedes that BlackRock's participation is a bullish signal for crypto's legitimacy and regulatory safety, perhaps positioning USDC as the "white shoe firm coin" versus Tether's more controversial image.
- Despite this, Jonah remains unconvinced about Circle as a company due to its fundamentals.
- Actionable Insight: While institutional involvement can be a positive indicator, researchers should still conduct independent due diligence. The "BlackRock effect" can drive short-term price action but doesn't guarantee long-term viability if fundamentals are weak.
Robinhood's Crypto Ambitions and Market Positioning
- Avi expresses continued bullishness on Robinhood, citing its efforts to expand coin offerings, improve its wallet, and integrate more deeply with crypto functionalities. He believes they can capture significant crypto volume.
- Jonah discusses Robinhood's user base, particularly its appeal to Gen Z investors new to the market. He sees potential if Robinhood makes crypto more accessible to this demographic.
- He notes Robinhood's fee structure, which at one point was around 35 bips (basis points, where 100 bips = 1%), can be high for professional traders but profitable for Robinhood given its large user base.
- While Robinhood's PE (Price-to-Earnings) ratio is high (mentioned humorously as "69.420"), Avi believes it can grow into its valuation if crypto continues its trajectory, contrasting it with Circle, which he thinks will struggle more.
- Strategic Implication: Platforms like Robinhood expanding crypto access can be significant drivers of adoption. Researchers should monitor how these platforms evolve their crypto offerings and the impact on user behavior and market liquidity.
Plasma's XPL Token Launch and the Tether Ecosystem
- The conversation turns to Plasma, an angel investment for the hosts, and its XPL token launch, described as having a complicated mechanism but being oversubscribed.
- Avi frames the XPL launch as akin to a "Tether IPO... public and decentralized on Kobe's platform."
- Tether (USDT) is the largest stablecoin by market capitalization.
- He explains the XPL token is likely a staking token for network security, with potential for future fee-sharing from transactions on the Plasma network, which aims to be a blockchain for stablecoins.
- Avi highlights Plasma's close relationship with Tether and the potential benefit of a dedicated network for stablecoins, especially for traditional finance adoption, as it avoids competitors on general-purpose chains like Ethereum or Solana.
- Actionable Insight: The Plasma launch and its connection to Tether represent an emerging trend of specialized blockchains for specific use cases like stablecoins. Investors and researchers should watch how these dedicated networks perform and whether they can attract significant volume and value.
USDC vs. USDT: Market Dynamics and Growth Trajectories
- Avi shares his screen to compare the market cap growth of USDC and USDT.
- USDC showed a rally at the beginning of the year but has since flatlined, adding only 6 billion in market cap since February (around 10% growth).
- USDT, despite its larger base, continues to show steady, massive growth.
- Avi interprets this as USDT experiencing organic growth while USDC's growth seems more event-driven and less sustained. "USDT is getting organic growth and USDC is kind of getting the, you know, okay, bunch of people came in here and then now nobody really wants to use it anymore."
- Jonah offers a "steel man" argument for USDC: even with a smaller market share (e.g., 10%), its AUM could still grow significantly if the total stablecoin market expands. He also posits that the traditional finance ecosystem might eventually pivot to USDC rails.
- However, Avi believes the stigma around Tether is diminishing and anticipates "some uptake of Tether from, you know, real financial institutions" in the next year.
- Strategic Implication: The contrasting growth patterns of USDT and USDC are critical for understanding the stablecoin market. Researchers should analyze the drivers of organic adoption for stablecoins, as this is a key indicator of long-term success.
A Framework for Evaluating New Crypto Projects
- Jonah proposes a "really dumb" framework for experimental investments: if a project's FTV (Fully Diluted Valuation) is below $1 billion and it looks promising, it might be worth a small investment ("yo"), even if the token utility is somewhat "woo woo handwavy."
- Avi refines this: the project should also be tackling a large, real problem with a real team, not a "pump.fun coin" (referring to meme coins with no substance).
- They agree that XPL, despite some "headscratching attributes," meets this framework: FTV likely below $1 billion (at launch) and addressing the real-world use case of stablecoin infrastructure.
- The XPL launch on Kobe's "Echo" platform, requiring AML/KYC (Anti-Money Laundering/Know Your Customer), is seen as a move towards legitimacy and long-term building.
- Actionable Insight: This framework provides a simple heuristic for initial project screening. Researchers can adapt this by adding more rigorous criteria related to tokenomics, team experience, and competitive landscape for projects passing the initial FTV and use-case check.
Pump.fun's Billion-Dollar Raise and Solana's Risk Profile
- The discussion covers the Pump.fun token sale, which raised a billion dollars.
- Pump.fun is a platform that allows for the instant creation and trading of meme coins, typically on Solana, using a bonding curve (an automated market maker mechanism where the token price increases as more tokens are bought).
- Jonah suggests Pump.fun should use the capital to build a legitimate launchpad (a platform for launching new crypto projects and tokens) with more features than its current meme coin focus, potentially linking KPIs to equity.
- He expresses concern that Pump.fun's future actions could negatively impact not only its token but also Solana (SOL), a high-performance blockchain, making Solana feel riskier.
- Strategic Implication: The massive raise by a platform known for meme coins highlights both the speculative fervor and the potential for such platforms to evolve. Researchers should monitor how Pump.fun utilizes its capital and the broader impact on the Solana ecosystem's reputation and stability.
The App-Chain Thesis and Value Capture Dilemma
- Avi notes a recurring issue: successful applications on a Layer 1 (L1) blockchain (the base blockchain like Ethereum or Solana) may eventually want to become their own chain to capture more value. This is reminiscent of concerns about Layer 2 (L2) solutions (scaling solutions built on top of L1s) cannibalizing ETH usage.
- He references an old article, "Blockchains are Cities," but points out a flaw: there are now low switching costs and low costs to starting "your own city" (i.e., your own blockchain).
- Jonah brings up the Fat Protocol Thesis, which posits that most value accrues to the base L1 protocol, not the application layer. This incentivizes applications to become their own L1s.
- He cites Santiago Santos launching his own L1 for a private equity firm focused on crypto infrastructure in Latin America, rather than building on an existing L1.
- Avi concludes: "I'm not bullish on chains so much anymore. I think the age of infrastructure of buying infrastructure has sort of played out and the age of applications has dawned on us."
- He clarifies that Hyperliquid is both a product and a chain, emphasizing "product first." This points towards an app-chain world (application-specific blockchains), a concept earlier explored by projects like Cosmos (ATOM).
- Strategic Implication: The tension between L1s and applications seeking to capture value is a critical dynamic. Investors and researchers should analyze how projects position themselves in this evolving landscape, with a potential shift towards valuing strong applications that may or may not need their own chain, or app-chains with clear product-market fit.
Concluding Thoughts on Solana and Market Positioning
- Jonah reflects on his Solana holdings, feeling that while it might still appreciate, it may not be the best performer going forward, especially with developments like Pump.fun potentially becoming its own chain and Hyperliquid emerging as a strong competitor in the "NASDAQ of crypto" narrative.
- Avi shares a similar sentiment, preferring to allocate assets elsewhere despite still holding some Solana.
- Actionable Insight: The discussion suggests a re-evaluation of established L1s like Solana in light of the app-chain trend and increasing competition. Investors might consider diversifying into promising applications or app-chains that demonstrate strong product-market fit and value capture mechanisms.
Reflective and Strategic Conclusion
The crypto market is maturing, with growing emphasis on sustainable business models and real-world utility over pure speculation. Investors and researchers should prioritize deep due diligence on project fundamentals, tokenomics, and value capture strategies, particularly as the "app-chain" thesis gains traction and redefines L1-application dynamics.
