Talk Your Book: Is Crypto Dead?

0:00Ben Carlson:Today's Animal Spirits Talk, your book, is brought to you by Grayscale. Go to grayscale.com to learn more about their whole suite of crypto ETFs and also their new research project called The Stack. That's grayscale.com to learn more. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholt's Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions.

0:36Ben Carlson:Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.

0:44Michael Batnick:Welcome to Animal Spurs with Michael and Ben. Ben, I'm going to ask you the same question that I opened the show with Krista. I think her answer was not surprising, but be honest. Pretend nobody's listening. Is Bitcoin dead?

0:55Ben Carlson:No, because every time someone says it's dead, then it comes roaring back eventually. That to me is the most bullish thing about crypto in aggregate. And its history is the fact that every time it feels like it's dead, it's not.

1:07Michael Batnick:No, it's interesting. It's$62 ,000 a coin. Right. I mean, I know it's well off the highs and we're in a bull market and it feels like it's dead. Or, you know, if you bought it at$120 ,000, you're not feeling so great right now.

1:21But five years ago, I don't know what the price was five years ago. You would have taken this five years ago, or maybe call like late 2010s.

1:29Ben Carlson:If you just said Bitcoin is going to be at 60, the market cap of crypto is going to be over 2 trillion, you would have said total success.

1:35Michael Batnick:Right, right.

1:36Ben Carlson:Right, but yes, the goalposts, they always move and it was higher. Obviously, you don't think Bitcoin is dead. This is a painful period, though. I feel like every new crypto winter is a little more painful than the last.

1:48Michael Batnick:No, I don't think it's dead. But also, I have no idea what the next catalyst is. And I don't see a lot of excitement out there. I think the next catalyst is higher prices. And I'm sort of kidding, but not. And the question is, what leads to higher prices? I don't think it needs much. Just no more sellers. Again, I'm getting back to caveman markets here. But the fear of missing out can never die.

2:17Ben Carlson:That is the reason why this is the most emotional of all asset classes. And I say that when it's going up, it feels like an unstoppable, unbeatable force. Every time it goes into a bull market. And every time it's in a bear market, it's like, oh my gosh, what were we thinking? It's just the emotions are amplified. I think the 24-7 trading and all that stuff kind of changes a little. It's kind of funny. Do you think that the ETF has pulled crypto back a little bit to be more like a regular market vehicle where it matters more in market hours than outside of, like it used to be outside of market hours matter way more for crypto.

2:49Michael Batnick:Well, I don't remember what you were talking about, but we pulled forward everything. Your theory of we pulled forward everything. Were you talking about crypto with that or something else?

2:59Ben Carlson:No, but I'm happy to lump it in.

3:00Michael Batnick:All right, well, lump crypto in because we pulled forward a lot of demand. The ETF was highly anticipated and now we're digesting whatever, you know, we're obviously on the aftermath of that. So no more stepping on the toes of our conversation with Krista Lynch from Grayscale. Krista, it's great to see you again. Thanks for coming on. Thanks for having me. All right. I'm going to start with the softball. We're recording on Monday, July 13th. Bitcoin is at 62 ,000. Well, well, well off its highs. I think it hit 120 or something like that last winter. No, not even. Oh, wait, hold on a sec. What am I looking at?

3:36Michael Batnick:Whoops, that's the wrong chart. This was last. I'm looking at two-year bonds. It's stuffing onto your bones. This was, it was last spring, I believe. Was it last spring? That makes sense. Yep. Yeah. Okay. So last spring. All right. Anyway, it's out of favor to put it mildly. So let me ask you this. Is Bitcoin dead? No. So I guess I'll start off by saying that we at Grayscale have long-term conviction in the asset class. And there are - All right. I was just checking. I mean, I really, I would hope that we do, but we do. And there are going to be these bumps along the road, especially with a relatively volatile asset class like crypto.

4:15And while it can be disconcerting to be going through one of those phases, there are a lot of really positive things that are happening underneath the surface. So I'm sure we'll get into these a bit more. But for me, the biggest area of focus in the past few months has been infrastructure build. And you don't necessarily see immediate price appreciation as a result of that. But there is real investment going on in the blockchain infrastructure itself. So I think that's very promising. we have seen some areas of excitement in certain altcoins. We'll probably get into those as well. But altcoins that are showing real utility, again, going back to that intersection between crypto and traditional assets, that infrastructure connectivity, hyperliquid being one of them, Canton being another one.

5:04And so I do think that while things have not necessarily been exuberant for Bitcoin and other digital asset prices, it's still been a time where we can find pockets of optimism and continue to build behind the scenes for when the time is right.

5:21Ben Carlson:What is it about the psychology of this asset class that maybe I'm off here, but it seems like when things are going well, it feels like nothing can stop crypto and it's just going to go to a million. And when things are going badly, it just feels really bad. Like, oh, no, now it's going to zero. Why is it so heightened in this asset class? It feels different for some reason that it's like a runaway freight train of momentum in both directions whenever that happens. Yeah, it is really fun to be in the space when things are up and to the right, like you said, and it can be quite the opposite when they're going in the other direction.

5:52I think it is a relatively nascent asset class. And there are, keep in mind, a lot of people who originally got involved with crypto and were really not embraced by the mainstream. And so I think that when it is having moments of positive price appreciation, I do think that a lot of investors who have believed in the asset class for 10 plus years, you know, they're really, really excited and feel validated. And I think that leads to some of this sentiment that you described. Now, in the past few months, it's become a little bit more stable. And I think that that is something that speaks to the maturity of the asset class as we've gotten more investors that are, I would say, diversified in their interest in crypto that ranges from institutions to individuals who have gotten involved in the asset class through things like the ETPs.

6:45So you will notice in this most recent downturn, it hasn't been as precipitous as in the past when you might have seen 10 plus percent drops in one day. This has been a relatively steady decline and it is stable where it is now. So while we would love to see prices higher, it's not this crazy turmoil that we were kind of used to in other periods of downturn.

7:09Michael Batnick:I think one of the reasons why it feels particularly bad. Well, there's a bunch. number one, it feels like AI is sucking the oxygen out of every room. And there is a real talent exodus from crypto to AI. And I think that's probably way in the past at this point. That's not happening now. It already happened. But the other is that you see the stock market right near an all-time high. And to see crypto, not just Bitcoin, performing this way, it feels crappy. Now, the get out of jail free card, and that might be the wrong expression here, But in terms of like, well, why is Bitcoin performing this way?

7:47Michael Batnick:Tell me if I'm reaching here. You might disagree. Bitcoin is software or it's code or whatever. And software is no longer eating the world. The world is eating software. And the equity of a lot of software companies has been doing really poorly. And if you look at a chart of Bitcoin versus the ETFs, IGV, for example, it looks pretty similar. Maybe it's not that confusing or that big of a mystery why it's in a bear market with the stock market at an all-time high. I really like your point about AI. There was definitely a period of time where crypto was the hot topic. It was the, I would say, alt of choice for those who wanted to get involved in the most percolating topic of the day.

8:39And again, going back to that point about maturity of the asset class, crypto is still very new for many, but it is not as novel as it was before the ETPs really allowed mass adoption of it. and AI did for a period of time kind of take that place. So I do agree that from an investment standpoint, we are competing with the likes of AI. Of course, crypto remains something that is relatively new and nascent, but it has come so far in a very short period of time in terms of mass adoption. And your point about looking at some equities as well, I think we do look at a number of macro indicators for crypto And I never really thought we'd be talking about the CPI print tomorrow in the context of Bitcoin prices, but we are.

9:29And so I think that it is true that there are more competing investments out there. But like I said, the fact that we continue to build for crypto to actually be something contributing to the back end infrastructure of how we run the banking system, that's not going to ultimately manifest in price appreciation overnight. But I think that it is more fundamental, more real value add that we are now putting this asset class to work for.

9:58Ben Carlson:Do you think that it's fair, the comparison people are making between Bitcoin software stocks? It seems like it's, I don't know, Michael, you can correct me if I'm wrong, like an 18-month window on the charts. And like the lines do kind of go in a similar direction. But that relationship wasn't there before. So I don't know if this is just people just dumping tech stocks and Bitcoin is kind of lumped in there. Do you think that it's a fair comparison or do you think this is just kind of a coincidence? We can see the move in sympathy. This has been something that I would say forecasters have looked at before.

10:31And oftentimes people are trying to find the most correlated area of the investment universe to try to interpret or predict what digital asset prices are going to do. I do see alignment with the software thought process, but I think Bitcoin and other digital assets mean so many different things to so many types of investors that it's hard to pigeonhole it into one specifically. Now, of course, for some, like I mentioned, this kind of infrastructure build theme does align a lot with software. But of course, there's still the conversation about store of value. To me, I think that there's a lot of new developing financial products that are leveraging blockchain solutions.

11:11Like if we get into hyperliquid, I think we'll probably talk about perpetual futures. That's one area where we see this crossover between traditional finance and crypto native investment rails. And so I think that you could argue that that has software ramifications, but I think it also has financials elements to it. So I don't necessarily put it in one category squarely, but I think the rationale certainly makes sense. But I really lean back on the digital asset space can mean so many different things to so many different investors. And we continue to see that evolve in a myriad of ways.

11:52Michael Batnick:So, all right, let's talk about the other stuff. I mean, my opinion for what it's worth, I don't think Bitcoin is dead. I think that it is hard to see the next catalyst to the upside. Like the ETF was very, very, very obvious, which is why, in my opinion, prices did what they did anyway. But all it takes is a little bit of momentum. And I don't know what the spark is for higher prices, but it almost doesn't matter because higher prices begin higher prices and people will think, oh shit, it's going to 250. I don't want to miss it. And whatever, the story will follow. So that's my two cents. All right, Hyperliquid.

12:27Michael Batnick:Ben, what's that guy's name that writes for Colossus that writes those profiles? Dom Cook, right? Dom Cook. What an awesome piece, good pull, on Hyperliquid and the founder and what they're doing there. And it was a fascinating story. And Hyperliquid, for people that aren't aware of what it is, is it's a blockchain-based exchange where it's open source. You can list anything. There's a lot of flexibility into what can go on there, and it's a marketplace. And so, for example, SpaceX, before it went public, was trading on Hyperliquid. And I think that in the 24 hours prior to the IPO, don't quote me on this, but it did$150 million of like real numbers.

13:08Michael Batnick:And that gave you a very good look into where SpaceX was going to IPO. And then there's crude oil futures, which obviously got a lot of attention during the weekend when the markets were closed. And these perpetual futures are having such an impact to the point where it's moving equity markets like CME and SIBO and a lot of these companies are getting impacted to the downside in a way that is kind of amazing. Like we're talking real established players with real market cap declines. So what is Hyperliquid and where do they fit into the broader digital asset story? Yeah. So like you mentioned, Hyperliquid hosts this decentralized exchange where perpetual futures are traded.

13:53I think you gave a great -

13:54Michael Batnick:And a perpetual future is, I'm sorry, just for people like, what the hell are you talking about? Yeah, I think you gave a great overview, but to go drill into the perpetual future itself a little bit more. This was historically a crypto native trading tool. It's a future that rolls on a daily basis. So it does not reach a terminal point where it's settled like a traditional future would be either in cash or the underlying exposure. Perpetual futures were historically something that were used for underlying crypto exposures. So Bitcoin, Ethereum, so on and so forth. And they were very popular amongst crypto native traders.

14:29A lot of leverage. Yes, they are. You can use leverage. Exactly.

14:33Michael Batnick:You can get a lot with a little. A dollar goes a long way. Exactly. Probably why they were so popular amongst crypto trading, the crypto trading community. But as you mentioned, they have become an opportunity to also trade traditional underliers. So I think that Hyperliquid got most of its attention with the traditional trading community initially during the events happening in the Middle East, which were generally over weekends or other times that U.S. exchanges were closed, the hyperliquid perpetual future on oil became a way for investors to take risk off the table or put risk on the table at those times.

15:11And in particular, oil being highly impacted by the activities going on in the Middle East, it really got a lot of attention.

15:18Michael Batnick:This wasn't like a little thing. There was real dollars and it actually worked. And in institutional capital, there's not a couple of dudes in their pajamas trading this. Exactly. And over the course of the ensuing weeks, we then saw perpetual futures on very, very traditional exposures like the S &P 500. And so your comments about SpaceX, to me, as you were saying that, it really resonated as an ETF person. We always say that ETFs have historically been this way to have price discovery when underlying markets are closed. But we're now finding that these perpetual futures are another enhanced way to have price discovery when markets are closed.

15:56And so that spirit is really actually quite similar to what ETS did for markets 10, 20 years ago. And I think that, you know, the threat or perceived threat that perpetual futures might have on some traditional providers, they're really paying attention for that reason. I think that this is a tool that traditional traders have really caught on to. And we now see some of the traditional providers who did not historically have perpetual futures in their offering filing to potentially be able to bring them to those venues as well.

16:28Ben Carlson:So for the people who aren't familiar with Hyperliquid, explain how the blockchain is involved here. Like, what's the point of how does the blockchain help facilitate this?

16:36Michael Batnick:And just to follow up on that, like what blockchain are they using? Do they build their own? So the token itself can be used to, I'm not going to get into the weeds too much here because that's not my area of expertise, but the token itself is involved in the listing of these perpetual futures. And of course, there's correlation between the use of the DEX and the value that those tokens provide or represent. And so offering this venue has been a huge value add to the traditional and crypto native trading universe. And then a way to capture or express our thesis that that is going to continue to grow is on investment in the Hyperliquid token itself.

17:14And so we actually did just launch an ETF on the Hyperliquid token. We work very closely with the Hyperliquid, I would say Hyperliquid community to help. When did that happen? We launched it maybe about three or four weeks ago. What is the ticker? It's HYPG, HypeG, as we like to call it colloquially. But we worked closely with the community of hyperliquid holders and developers, and they actually helped seed our fund, which was very, very exciting to see the community actually participating in investing in our product.