Is Bitcoin Giving Way to Altcoin Season? ft. Jamie Coutts from Real Vision PRO

33:00But in terms of those other defile protocols, like there is definitely an argument to be made that they are sort of mispriced, the good ones, relative to smart contract platforms. You know, they're trading on sort of multiples around five to 20 times fees, you know, which in, you know, in terms of like compared to like TradeFi, These are not eye-watering multiples. And I think that's why when Franklin Templeton set up a team and all these other traditional fund managers come in, they're going to look at some of these protocols, see how fast they're growing, see the multiples that are levied on them are not the sort of maybe eye-watering multiples that they were led to believe or they thought they would see when they come into crypto.

33:43And they start making allocations to it. Yeah, it used to be called, back in the 90s, We used to have, you either bought the growth stocks and actually outperformed always. And those people who wanted to be more traditionalist would do something called GARP, which was growth at a reasonable price. Yeah. Which is what they're doing here. I can see it. I mean, even the hedge fund managers we deal with at XPAM, they kind of gravitate towards this because you can build a justifiable thesis around valuation because most people don't really understand the Metcalfe's Law stuff. Yeah. Yeah. Yeah, makes sense.

34:21To me, it underperforms still. I mean, Uniswap may be amazing, but it's never going to outperform a layer one over the full cycle. That seems, I mean, I would argue that it depends on the layer one. Like, maybe not the tier ones or tier twos. No, I mean, the tier ones and twos, you know, the ones that get momentum and are growing. Yeah. Even if the revenues are growing in Uniswap at the same rate, it won't go up as much because it's priced off revenues and not off network yeah like i've i i believe that to be true i've oscillated a little bit i was of the i was of the view that we were going to see a re-rating in defy protocols um and but i i don't think that that um you know i don't think that that smart contract platform suffer as a as a consequence put it that way yeah um And the reason for that is that I see a world where the very high quality applications, DeFi applications, because really DeFi is the pillar or the subsector within crypto that has product market fit.

35:30That's clear. Reward assets, tokenization, all those tokenized assets are going to be in lending pools and collateralized in Aave and Morphine. I think the outlook is very, very positive there. And I thought that like a business, they will end up owning the customer to some degree. And with AI sort of augmented into their applications, that they would become, I guess, the moat would sort of improve around the high quality ones. Like you can kind of see that there is like a tier one, tier two, or tier three sort of aspect forming in DeFi protocols. Like with BorrowLend, it's really Aave and Morpho, I guess.

36:17There's a whole list, a long tail, you know, and some of the high quality, cheap and growing very, very, very fast. But there is sort of a tier structure happening. So I thought that there was going to be a re-rating. And I still believe that to be the case. And I think there's a case to be made for smart contract platforms to be re-rated. down when you start looking outside of the top tiers. Like I look at some of the multiples and like, I'm going to really piss off a lot of Cardano fans, but like the thing doesn't have activity. It trades on an insane multiple to its settlement value and to every other metric.

36:57And I think that those multiples have to compress over time and I'm surprised it hasn't. Depends on the number of users still. I mean, not users, but wallets. Whatever it is is what's driving it. Because it's not network activity. Yeah, something's driving it. I'm not sure. Yeah, and I don't want to piss off everybody by talking about these things. But, yeah, the revenue thing, to me, keeps coming up. And it just reminds me of the 90s, growth at a reasonable price. And it always underperformed the actual things that he wanted to buy. But it's justifiable. It's high quality. You kind of can build a good thesis around it.

37:39Kind of makes sense. And as network activity increases across all of the Web3 ecosystem, we will see activity on Uniswap, Aave, everything just increasing. Just as more things come on chain, there's just more activity. I mean, there's good businesses. Yeah, yeah, yeah. You know, and I think they... To some degree, they end up owning the customer in the end, like the business. And a lot of the chains get sort of abstracted away. So I think there's a case. I haven't actually added any. How do they own the customer? Talk me through that process. More so from a relative to smart contract platforms.

38:25I think in the future, we operating on chain will not necessarily be as attuned to which blockchain we're operating on because we're going through an application front end, which is not the chain. It could be the wallet. The wallet is really not the new front end. It is the front end into the crypto economy. or the specific application that we go to for whatever purpose, whether it's to swap something or to collateralize a loan or whatever it might be. And so whether we're operating on Ethereum or Solana or an L2 is sort of irrelevant. It's more so the application. And if we like that experience with that front end, we'll do more business with it and they will collect more of our sort of, you know, our fees and revenue from us.

39:22So that's more the case. It's not to say that in the hyper-competitive crypto economy with low barriers to entry that, you know, a competitor can't come along and knock Aave off the top of the table or knock Uniswap off from like DEX, you know, from spot swaps or spot volumes. That can happen. But I just think that in these two worlds of applications, like the higher layer versus the bottom layer, I think we'll, in the future, we'll think less about the chain and more about the application. And talk to me about DEXs. What do you see happening there? Where's the interest lie outside of Hyperliquid?

40:05It's a good question. Or is it just spread across different chains? What are you seeing? Anything interesting there in DEXs? I think there's, you know, I mean, you've got Base, Solana, and Ethereum, right? Ethereum main chain as being the sort of the big venues. Although, you know, Swee's DEX volumes are definitely on the rise as well. And Solana's, sorry, Hyperliquid's DEX volumes relative to Perpetuals is like about 5 % of Perpetuals. It's just like the Perpetuals business is insane. But it's also growing its spot volumes as well. I think it's an exciting space because I've had this discussion with the index provider that I've worked with, which is a company called Bitformance, to create crypto indices for retail, for the masses.

40:52And originally, we classified the subsectors as like perpetuals and DEXs into two different subsectors. And that might be still valid, but I see a world where DEXs become more than just spot. They'll become perpetuals. they'll also have inbuilt borrow, you know, borrow lend. Makes sense, right? Or interfacing like Legos, but like they'll all go after each other's business. So I think it's interesting. I think Uniswap and, you know, these businesses have an opportunity to like diversify into other aspects of DeFi. So look, I mean, I like Aerodrome. It's interesting because it seems to be the dominant one on base, base that has a very strong position and growing fast.

41:35You know, Radium and Pump on Solana. very strong as well. And then you've got Hyperliquid coming up. And then on SWE, you've got DeepBot. You know, if you've ever wished you could ask me a question, any question 24-7, well, now you can. The RALPAL bot is my AI assistant trained on all of my insights, macro research, macro views, even wine and travel knowledge. The RALBOT is available for everybody who subscribes to either Connect, Alpha or Pro. It can really change your life. You get me as your mentor 24-7. The link's in the description. I think you're going to love it. And do you think, theoretically, there's a pairs trade to be done, a mental pairs trade to be done, which is you would be short the sexes, the centralized exchanges, and long the dexes, i.e.

42:30their market share over time rises faster than the market share of, let's say, Coinbase, Robinhood, Kraken, whatever, right? is that your mental framework that the DEX has become a larger part of the system or not because of the onboarding still is lacking? I'm not sure. I actually haven't thought about that. I see it all grow. I see the whole pie growing. Obviously, yeah. Yeah. But I don't really have a strong thesis around that at this point. Because again, I see a lot of hedge funds with Coinbase or Robinhood in their book they mainly trade tokens but it's the way of expressing volumes I guess it's a really simple macro top down hey this space is growing there's more volume those will do well but I wonder whether I see others having DEXs instead I'm just wondering I wonder what's the dominant bet I'm not sure my guess is still the centralized exchanges because you're onboarding new people into the world and for a DEX you already have to be in that world right yeah and what a bit what about the um i guess hybridization so you've got coinbase who started base you've got okx which has started a wallet right so and they're going to capture crypto volumes and crypto activity through their wallet i'm not sure what they've done on the on the deck side of things as well so i think you're going to see forays from the centralized exchanges into the crypto ecosystem to capture the purely on-chain activity in the same way as, well, I mean, look, Robinhood's a classic example, right?

44:15So they're building on Arbitrum. So I think that it's harder to make that sex versus dex sort of dichotomy, I think, in the future because we're going to see it all emerge. Yeah, yeah. Yeah, and the reality is Robinhood and Coinbase and Binance and stuff have so much money that they can basically point and shoot at any sector and have a damn good chance of winning it. Yeah. Well, did you see that tweet that I sent out? It was a table that I did. I used Bloomberg data to aggregate the global commodity and exchange businesses, the traditional ones. And so you've got ICE and NASDAQ and London Stock Exchange, Hong Kong Stock Exchange.

45:03And then you insert Coinbase or insert centralized exchange volumes and decentralized exchange volumes. And I can't remember the exact rankings, but I'm going to say just at the top of my head that if you aggregate centralized exchanges in crypto and just aggregated them as one entity, they would be fifth or sixth in terms of global exchanges global traditional exchanges that are trading fixed income every asset spot or um you know cash and also futures right so they would already they're already fifth and this is an asset class that has like you know what is it three trillion or four trillion um and dexes if you aggregate them together we're about number 11 so they're just outside the top 10.

45:54And if you think about the growth, it's really only been three years of growth, three or four years of growth. Where are they going to be in three or four years' time? And then you look at the multiple that Coinbase is being assigned and then you assign that to all the businesses in crypto, then it's actually undervalued. And the other one I've looked at is, I keep an eye on that crypto.com number of active wallets. metric which is now at 900 million budget there's a 900 million i think 800 million whatever right it was five it was 600 last year now and suddenly it's like fuck we're gonna get to a billion by q1 of next year and the way to think about it people just argue about this all day i'm like stop thinking it's not a billion users we understand that but how many bank accounts do you have and sub accounts you know you got your household checking account you're saving or IP addresses.

46:54It's that. It just shows you the speed this is growing. And when I looked at it, there are more. I mean, there's now twice as many of those. Let's assume the number of active users is, we don't know, 500 million, whatever the number is, pick your number. It's more than all of the traditional brokerage accounts added together in all traditional markets. that's what that's what i've got to is like there's more active people in this because of the young cohort and all the foreigners and everybody else because it's a global access to globalized products that exist elsewhere in all of markets yeah i mean when i did the settlement volumes like it was because i just got the data that i've been looking for for a while i remember i was speaking to you maybe like six months ago you're like i can't believe we can't get this data and suddenly i got it so i dug into it and i was just sitting there going holy shit it is matched this tiny little asset class is matching visa's total transaction volumes of the last five years i know but it's growing at 90 and visa's growing at eight so where is it going to be in five years time so it looks like if this is the most updated one yet We'll get to 942 million wallets by the end of this year.

48:18Right. By the end of 2025. You know, I think, you know, I remember even like the projections for a billion being sort of 2027, 2028. So, yeah, we're growing faster then. Is that right? I remember you saying maybe like three years ago, it would be like 2027, 2028. We'll get to a billion. But we're here. That's where we nearly are. We seem to be going faster than the projection because we're projecting about a 43 % annual growth, but it looks like at this stage, but it looks like it's still growing faster than that. So it's still growing faster than the internet was at this stage, which is an extraordinary thing.

48:57Yeah, it makes sense. It's like it's built on top of an exponential network, so it should move faster. And that's with every single headwind and every hostile regulator and national government working against it for really the last couple of years. So it's pretty phenomenal. Yeah. And do you look at overall activity about how is this new global economy? so not the regional economies of Ethereum versus Solana, but the global economy doing, you know, total value that's happening on this? Because, I mean, that's something I think we don't step back enough, and I try and do that as much as possible, just to see, you know, how are we doing?

49:42And I've talked about it with a number of wallets. Super interesting to know what the total activity in all of crypto is. Yeah, I do. So I've got a, I don't know if we want to share this, but I've got dashboards here which sort of aggregate smart contract platform activity. And one of those earlier tables was settlement values. So that's one aspect to it. But looking at total TVLs, total stablecoin transfers, how much value is being bridged into the ecosystem or between networks, everything. So I do look at that stuff. I wonder what total daily value is. We look at FX markets and we kind of know it does like a trillion dollars a day, whatever the number is, a couple of trillion a day.

50:31I wonder what we totally do across all of crypto, Bitcoin, smart contracts, the whole lot. Yeah. So it's around$70 billion in terms of settlement value on chain a day at the moment. That's taking the last 30 days median, right, or 30-day average, right? Because it's extremely volatile. So it's around sort of 70 based on the numbers that I was just working with for this report, okay? 70 billion in settlement value versus kind of call it 4 trillion in total value, right? Yes, that's right. And let me give you another number. So the cumulative on-chain settlement volume for the last five years is$57 trillion.

51:32Smart contract platforms. That excludes Bitcoin. And what's Bitcoin done, do we think, on top? I can't remember. I haven't really looked at it for a while, but it's probably...

51:49But if you compare, so Visa did 70, around 70 trillion over that time. So that's the dominant payment network. It's like a layer three on the financial system. So you've obviously got bigger networks like Swift and Fedwire, which is colossal. but in terms of like trying to give it some sort of comparison, it's really slightly shy of what Visa's done over the same period of time, but it started at essentially zero. Yeah. I mean, that's amazing growth. And if you listen to what Scott Besson says, he's like, well, we think we can have a$3 trillion stablecoin market. That's just in the underlying value held, not in the transactions that executed on that.

52:39and you can see how this is just going to go to warp factor 10 in terms of you know exponentiality of all of this stuff yeah that's yeah that's a good point people get hung up on like the value but it's actually what that does to the velocity of movements inside the crypto economy um because actually you know that's an that's another important um i think valuation metric that doesn't really get looked at enough it's like it's it's about how quickly capital moves that also determines the value of a network or an economy. And it's been, you know, the biggest, you know, bugbear of traditional Keynesian economists for the last 20 or 30 years.

53:21Like, why is velocity going down? So, you know, here you've got a new economy, essentially, where velocity is increasing and with stable coins, really accelerating. um you know i think that should be like the cornerstone that of any pitch to any traditional investor as to why they need to look at this um ecosystem it's not so because it's like four trillion it's going to ten it's going why it's going because not only is value moving on chain but it's just easier to transact and that velocity of transactions is a multiplier on the asset price on the value of the assets. So yeah, it's a big thing.

54:00And so finally, because we've gone through a lot of stuff, where is your measures? Because you look at liquidity too, and you've been posting some stuff on X about it. Give us your top down where we are on the liquidity cycle from your perspective. So I think we're, I mean, April for me was the demarcation of an important inflection in liquidity because we, you know, I have my own global liquidity index, as do you, and they're all sort of like proxies for the, for kind of what we think global liquidity is and they differ a little bit. But once you regress these things, they have a very strong correlation.

54:40And if you do sort of like predictive measures like Granger causality and whatever, yes, it does have very significant predictive value. So I do use it a lot, but I also, appreciate that it's not a perfect one-for-one for global liquidity. No, and people get confused over that. It's a roadmap. It's the contextualization of where we are in the cycle and what to kind of expect as opposed to, oh, well, it went up today, so in a month's time it will go up. It doesn't work that way. Yeah, exactly. It's going to wiggle. It's going to surprise a little bit. But from my first principles basis, global liquidity goes up that increases the marginal demand for risk assets and the preference for risk asset investors is the assets that give the most protection to monetary debasement which is why they've got marginal new dollars coming into the to the financial system to buy assets in the first place so but that that sort of what i call like a super bullish regime which is just using technical analysis on global liquidity, looking at the breakout that happened in April, gives us runway for another...

55:49Typically, though, these periods of the breakouts last for about two years based on previous cycles. But this is a... The ascent of global liquidity in this cycle is far more moderate for reasons we can get into. But I think that... And also, let me just also add that global liquidity increasing is not or the absolute level of global liquidity is not the most important metric it's the rate of change and risk assets will sniff that slowing down so i think there's another sort of six months left in the cycle and i know that's pretty much lining up with where you are as well um maybe it's a little bit more maybe it's a little bit less you know our view is if the dollar continues lower and rates go lower financial conditions are easing and that gives a nine-month lead.

56:41So it might push it out further than we expect. We don't know yet, but definitely doesn't feel like the end of the cycle is going to be this year by any stretch. Well, yeah. And so that actually, you know, that correlates to what I see on the chart here because we've just broken above. Like it's been sort of five months where we're in this sort of new regime where global liquidity is higher than where it was at the peak of the last cycle. And that usually, and, you know, I've got another chart here, which looks at sort of liquidity versus debt, which I think is the critical metric. And the problem is that debt has been growing at a clip.

57:17Like, I think since 2023, when I ran the numbers, US public debt has risen by about 15%. GDP has gone up by 10%. So there's a 5 % differential there. That is a problem. the bigger problem is that the liquidity growth is around three or four percent since then so there's almost i've been trying to think this i've been trying to think this through jamie from you know you and i swapped that chart where you send it over to me and say what do you think and i'm like yeah okay and i've been thinking my fear is we're not measuring part of global liquidity and that's the the duration of issuance right the bills i don't think it's getting captured by any of our work somebody else on twitter posted something about it today that they're working on it and i fear that somehow we're missing yet another liquidity lever that we didn't know was coming which was like we're not going to issue it five years anymore we're just going to issue in the first three to six months uh and that's more mike how was on um on the podcast today and it was like that seems to be more liquidity that we maybe you're not capturing in this i would be the first to admit that in fact when i put this on twitter that's exactly what i said like a week or two ago when i put it up i said i'm not capturing this i guess this new form of liquidity um that's coming you know directly from the treasury uh rather than through the central banks or the monetary-based metrics that make up my liquidity measures.

58:55So I would definitely agree with that. Could we measure it as a proxy using the rate of change of money market funds? Something, because these get issued somewhere, right? They either get issued into stable coins or generally issued into the banks or into money market funds or some combination. I wonder if there's an easy proxy or do you have to go through and clean the data and do all the laborious work of figuring out exactly what was issued and where in the curve? I thought about stable coins and using that as trying to blend that in as a way to capture what the treasury is doing. But I hadn't really thought it through.

59:35It's been the back of my mind. It's not complete yet. yeah it feels like this this is the conversation we're having in like mid 2022 when we were like building stuff and we're having these conversations and we kind of came to the same conclusion about like where the bottom is going to form um but i yeah i haven't done the work um and i'm sure you guys will as will i but i think it's definitely missing because obviously that's since 20 since yellen that has been the playbook um you know the quantitative the balance sheet's been tightening for the last three years, but Bitcoin is up. And that's because liquidity is being pumped in through other mechanisms.

1:00:16And that's why we've been using the total liquidity as opposed to Fed net liquidity and before that, the balance sheet. Here's another interesting thing that we found in GMI. We're like, why is this business cycle longer? Part of it is like rates haven't come down. Okay, fine. Then we went back and did the foundational work again about debt maturity. And what we found is back in 2021, they lengthened the maturity of the debt because they could because rates were low. Yeah. And so now, four, five years later, we're having to roll that debt. And it's because it was five years and not four years after the 2021 cycle.

1:00:57They extended the cycle by a year because they extended duration. Now what they're doing is, looks like they're shortening cycle and so it might bring the cycle back again or if they continue to just issue in the short end maybe we don't get a cycle i'm not suggesting that's the case but just intellectually it's interesting to see oh and if they just continue to issue the short end there is no cycle because it's just endless liquidity oh yeah so i would love to see the work on the composition of debt based on maturity because i think that would just be a a like and also the rate of change of the did i not send you my last gmi uh i don't think so okay i'll send it to you right now if you've done that okay i've got to dig in um we did some of it yeah the thing that worries me rao is okay so they're moving to the shorter end in terms of issuance um it's not that there's endless liquidity it's that the system is fucking way more fragile in that environment right because they have to be it's like they have to constantly be on uh the case in managing the financial system and you know making sure that that volatility in the bond market doesn't start creeping because like with the previous regime of more long dated issuance there was these cycles of like four to five years and you know they became i think a lot more sensitized to it and able to get ahead of it now they've just basically turned into a short-term you know a short-term liquidity engine uh which i think causes a whole bunch of other problems it's like basically buying a car on a credit card yeah as opposed to you know a five-year car loan right which could accelerate the exiting from US treasuries in one aspect, but maybe stablecoins sort of plug the hole.

1:02:59I don't know. It's incredibly interesting, but obviously there's just more liquidity, more cowbell. I mean, that's the perfect end to the podcast, actually, because that's what it is, right? And that's the framework. We've all kind of coalesced around the same framework, which is liquidity is the big backdrop. The adoption of the technology is the secular trend as well. Those two things are leading to what we talked about, stuff like the layer ones, the top two tiers becoming very attractive investments because the activity is accruing to those as new people find new applications. We've got this whole other area, which is the applications built on top of these, which are generally revenue generating, gives a whole other set of opportunities.

1:03:50You know, it's just a broadening space. And you've done a lot of pioneering work on sectors, subsectors, that if people aren't on the Real Vision platform, it's on for Real Vision Alpha if you go and look at the dashboards there. There's a really nice breakdown. And we're going to be only building on that further on sort of a lot of the work that you do on this. But I always love the fact that how you, me, Julian, Andreas, everything, and we all kind of weave around doing our own thing. But somehow it turns out to be this cohesive understanding with a few differences here and there about what this is all about.

1:04:28And it's not like we're like, what are you going to write? I'll make sure I don't write something different. It's like, you know, what are you looking at? This is interesting. And it's just it just comes this way. Like, yeah, I think the synergy is amazing because we don't we don't collaborate. we just go we do our own thing but in the frameworks is you know different and i lean into your stuff on the business cycle yeah it's like i've just sent you gmi and that came out 12 days ago um so it's not like you read it so like oh i'm gonna follow that framework is it's not how it works it's just a genuine curiosity in the space that's that's building all of this stuff out and i think it's it's been great so listen mate fantastic conversation as ever really really useful and i look forward to reading your next piece when it's out when's it out uh it should be out on uh in on monday u.s time so it'll be and that's real vision pro right that's on pro yeah yeah yeah fantastic all right my friend take care thanks a lot thanks ral nice to see you lots in the conversation with jamie there as ever it gives us a framework of understanding you see how jamie and i kind of feed off each other to try and build this deeper understanding of this new world and hopefully you got as much out of the conversation as i did anyway i'll see you next time today's video is sponsored by vechain the leading layer one designed for real world adoption live since the first of july stargate is vechain's new vet staking platform built around their updated tokenomic model which forms part of the renaissance upgrade stargate reduces barriers to entry, improves yield for all participants, and provides a user-friendly staking experience.

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