Bitcoin Reaches an All-Time High: What's Next?

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0:57welcome to real vision i'm ash bennington big day today bitcoin crosses a new all-time high We've got a big show to match. We're streaming live on the platform, live on YouTube. Bitcoin took out its all-time high this morning, crossing above the 69 ,000 threshold, now trading just shy of 65K. Ether also significant price movement on the last 30 days, trading above 3 ,600, nearly 30, excuse me, nearly 3 ,700 on my screen right now. For people passionate about the crypto space, this is really a moment. Bitcoin had been off nearly 80 % over the past two years, peaked a trough some 15 months ago with the collapse of FTX.

1:38The future seemed very much uncertain. If you're watching on video, you can see over my shoulder the book that we wrote about Sam Bankman-Fried and the collapse of FTX. People in crypto were experiencing something of a major depressive episode. And outside crypto, well, in the mainstream media, crypto was having its obituary written. This is really a moment. Glad to have you with us today on this day. Glad to have an all-star panel of investors with us today. Today, I'm joined by Andrew Keyes, managing partner at Dharma Capital, Ram Alawalia, co-founder and CEO of Lumida, and Sebastian Purcell, CIO and CEO of 1.2 Capital.

2:20Gentlemen, welcome to the show. Thanks for having us. Thank you. Thank you. Well, guys, it's kind of a historic moment here that we're having. Where do we begin? Where do we start? Rom, let's start with you. Where do you think this moment ranks in Bitcoin history? That's an extraordinary moment. Look, it's not as seminal as the Genesis block, but it's an extraordinary moment. Last year was the non-consensus rally where Bitcoin and Ethereum and digital assets were written off and you went from uh having cya risk for not being crypto active to if you talked about crypto people look at you funny i think a lot of us probably got a lot of uh for being long digital assets i know i certainly did um i would see people on twitter say follow ron for everything but the crypto stuff just ignore that part so last year was about get long that's the headline last year was the non-consensus rally it was the hated rally this year is the wall of worry and the strategy this year is stay long that's my headline summary yes there's some tactical considerations in the mix Sebastian over to you how do you characterize this moment right now well I mean so as far as I know this is the first time we've we've reached back to an all-time high before the happening.

3:53I think I'm correct on that. And I think this indicates a sort of regime change in the way that the crypto space has been operating. Part of that is just more people, those of us who are in the crypto space, know the happening cycle. And so we've begun to price in our positions early on. So there's an anticipation of the expected cycle. I don't know what that means about the end of the cycle. For me, I was just having a discussion with some of my team earlier today, and we're not certain. We don't know if this means that we're going to get a larger rally in the first portion of the cycle, or if it's going to just mean a larger top at the end.

4:35In any case, something different has happened. I think that that's the real takeaway moment. Something different has happened. Existing old models that would have predicted an all-time high, I don't know, in the summer months, June, July, that would be more typical. Those models are wrong. They're lagging by several months. And that suggests that we've got to be a little bit more on our toes about things. But overall, quite a fantastic day, a historic one for the space. All right, Andrew, thrilled to have you with us as well. You are truly an Ethereum OG. Look, obviously, everybody's talking about Bitcoin today.

5:12But when you look at the charts across the board, this is a very broad-based rally. Ethereum has had one hell of a year. Talk to us a little bit about how you see this from your seat, focusing through the lens of ETH. So a wise man told me, Rom, earlier today, is on a long enough timeline, we're all dead. But that said, I am looking at this on a longer timeline. The first thing that I'll say is I'm going to start with the bad news. There is a great upgrade upcoming on March 13th, which introduces what's called proto-dank sharding. And the bad news for speculators is this is actually going to materially reduce the execution rewards with respect to staking.

6:07So I don't know how many people have actually modeled for this, but layer two scaling solutions like Optimism Arbitrum that have garnered tremendous popularity are going to have the cost of their transactions drastically reduced. I foresee this having basically a 60x reduction in cost, and I don't foresee a 60x increase in transactional volume. So stakers are actually going to have their yield reduced relatively significantly. And seeing that there is over$100 billion of staking volume right now on Ethereum, I think that is a consideration. So that's the bad news out of the way from a speculative perspective.

7:02That said, we've got the Ethereum ETF coming up. We've seen the proxy of what's gone on with Bitcoin. I think that we could see this in May, potentially August, but it's a matter of when, not a matter of if. And then lastly, we are seeing what I think the next generation of utility at the protocol level being experimented and then implemented with what's called Eigenlayer, where we can essentially use Ethereum's proof of stake mechanism to secure middleware. And I foresee this as a potential catalyst in A, reducing supply, and B, kind of offsetting the reduction in execution rewards that I just said by essentially creating new revenue streams for proof-of-stake employers.

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9:55Well, Andrew, as you point out, the only constant in this space is change. It is constantly in flux from a code-based perspective, from a rules and regs perspective, legal regulatory compliance. You pointed out something important there that I wanted to open up to the group, obviously, which is the role that ETFs have had in the Bitcoin space and the perception, particularly in the ETH community, that an ETF is forthcoming for Ethereum. Let's talk about that moment because obviously we've seen some pretty significant inflows of capital into the space. Let's talk about that moment. What does this mean?

10:35Are we seeing a normalization of the digital asset ecosystem with regard to traditional finance? Ron, this is a perfect question to go to you with first. ETFs have opened up the category to all sorts of investors that previously could not access the space. And the inflows have exceeded expectations on the high side. The inflows that are happening every day and the process of educating the market on these assets is still ongoing. It takes time to take a product like an ETF through investment committee and say, here's why we believe we should own this. It takes a while to look at the performance.

11:13and so I think I'm excited about the ETF demand. The other part is the ETF flows are interacting with long call dynamics in the market and this kind of short dynamic in the market. It's happening in the equity markets too and that's creating this, what we've seen this run up, right? Shorts are getting squeezed. When you have long call activity, that creates a demo squeeze on market makers that need to go buy spot once the option price increases to make sure they're not caught off sides. So ETF flows are like this steady fire underneath the market that's creating a powerful bid. We see that same dynamic in the equity markets too.

11:59People are shorting, hedge funds have record short positions on, and you have this rotation from money markets into risk assets that is playing a similar role. The other thing I would say is that I believe most of the category in crypto, crypto is under position. I think this is still a hated rally, not just without crypto outside of the category, which is still not really aware of this. They're going to start seeing some headlines in CNBC and the Wall Street Journal soon. I believe even within crypto is under positioning and that's bullish for digital assets.

12:38could i just ask a question to that point what's the delta here between bitcoin spot if you will and the miners why is something like tarawolf off six percent today when bitcoin reached all-time highs so all the miners are trading down today and a lot of risk assets are down today and that's i think primarily because chair powell is speaking in front of congress and whenever chair powell words come out of his mouth then markets freak out a little bit so that's happened every fomc meeting it's a two-day testimony i think it's a part of in minors i look at as call options on bitcoin so if you know bitcoin has like a what three percent pullback in the last hours or days so bitcoin miners will go down too and look they've been well above their trend channel.

13:31Obviously, after the halving, the revenue for the miners will get cut in half. So we should expect to see some consolidation. Winners will take share and then losers will have to adjust. And of course, losers are already issuing equity to lower their debt burdens. And they see the halving coming. They've been building cash. And by the way, talking about market dynamics, It's been risk-off across the board this morning. NASDAQ off, down nearly 1.6%, led by the Apple sell-off this morning. Sebastian, over to you. ETF flows, what are your thoughts about this moment in time? Yeah, so, yeah, exactly.

14:14I was going to ask you to bring up this little chart here, which is free. Everyone can find this on Dune Analytics. This is, I think, a snapshot from yesterday, which shows roughly inflows for Bitcoin ETF. If it's above the line and outflows, if below the line, obviously grayscale is all of those purple bars down there on the bottom, which can't be taken straightforwardly, right? Some of that is industry churn. I don't understand exactly the point of having a management fee at 5x, the market rate, but That's effectively what Grayscale has. So many people who want to be in Bitcoin are rotating out of the Grayscale trust into one of the other options.

14:59By the way, I don't think we have the chart ready. But if you look at it, one of the most interesting ones is the GBDC discount or premium has come in. I think it was at about 58 % or something at the record-wides, now trading at seven basis points. Right. Seven basis points to discount. Right. Right. And so that has definitely collapsed. The thing is, is that the actual investment vehicle is less interesting. I do think that when people take money out of GBTC, it's been this big overhang, right? Our estimate was about 20 % churn, or excuse me, 20 % attrition. The rest of it might be churn, but about 20 % attrition is just people are like leaving the market.

15:42Some of those people initially just had their money locked in the trust and could finally to get it out at this point you know some of them might be taking profits etc but in general these have been really record numbers by any standard um we're just shy of uh you know reaching about what is it 50 billion overall so it's a lot that's going into bitcoin and for us at our firm we've been really focusing on the how of this distribution because traders who are already in the crypto space, it might already have Bitcoin and they might be operating on the Bitcoin chain, you know, doing their NFTs, you know, ordinals, all of the mean coins, everything that's happening, their bitmaps for people who don't go into really esoteric stuff.

16:28There's tons of esoteric stuff happening on Bitcoin right now. Sort of non-arbitrary tokens, all kinds of cool things. Those people who are trading on the Bitcoin chain have been holding Bitcoin, the ETFs from the retailers. And remember, there are ads for this. I can't scroll through my phone without finding ads for these, right? And so they're everywhere. Retailers come on board, they can easily buy the ETFs. Those of us who are on chain, other traders on chain, take the gains from Bitcoin and then they cycle it into the other things that are on the Bitcoin chain. It doesn't tend to move, very interestingly.

17:05So this money may move into ETH. I've been hoping, like Andrew, I love Ethereum. I've been hoping that there's going to be more movement from the Bitcoin inflows into like some of the other chains. And I think that'll happen. But right now it looks like a lot of it is just kind of staying right on Bitcoin. And that ecosystem is growing tremendously. Well, let's ask Andrew about that because it's a good point. First, I should say the discount on GBTC looked like the wide was at minus 48%, 48 % discount now, discount of about seven basis points. Andrew, to pick up on Sebastian's excellent points there, you said perhaps the most important words in terms of forward price action so far in this show, when you were referring to the ETF for ETH, when you said when, not if.

17:52Let me ask you this question, Andrew, what gives you that level of optimism that an ETH ETF is coming? I think we've got all of the canaries in the coal mine with respect to a futures product that is needed for surveillance. That was one of the first road bumps when the SEC was giving feedback. We've got all of the same issuers for the Bitcoin ETF are re-upping in this regard. We've got litigation ready as an industry, if needed. And frankly, we're going into an election cycle. There was no coincidence that after the XRP case, we saw Biden polling with the laser eyes. You saw that cup of coffee that Biden literally had coffee mugs with the laser eyes.

18:54And that to me was kind of the concert. It was in concert with kind of the road to the Bitcoin approval. And we're going to see politicians do what they do best and juice the economy into a Goldilocks November. Because they want to, you know, we as a society have amnesia pretty quickly. And I think that we're going to see lower rates. We're going to see things like the Ether ETF approved. We're going to see debt forgiveness. and we're going to see that right into the election. Did you say debt forgiveness? Yeah. I mean, you heard the student loan debt forgiveness that's going on? Yeah. Crazy. You think it gets done?

19:37Oh, for sure. For sure. And does it stand? We've already had a Supreme Court reversal on that. I don't want to opine on political punditry. The Republicans could block it. uh but but but that is absolutely the intent one point i want to raise is the eth etf i still get an eight percent discount that was one of the trades we were very vocal about last year it's kind of a form of double alpha because the discount to nab closes and you get the benefit from the appreciation of spot that's up today as well and it's also notable that bitcoin and ethereum has added diversification i've looked at my pnl every day and i'm looking at days when banks have issues or tech stocks are down and what you've seen is digital assets have have been up so that bolsters the case for investment managers to identify a role in the portfolio for digital assets and i agree with what andrew said like you have fiscal deficits at wartime levels you got spending on chips act that's still being ruled out ira act it's an election year uh you know fed is likely to maintain their posture and bias towards cutting even though that's been kicked out uh you know the the bear case is that you have an inflation surprise uh but i don't see them raising rates i don't think they can do that they already adjusted their posture in december the market got ahead of that by saying oh they're going to cut in march They never said that.

21:11But adjusting the posture of the Federal Reserve was like changing an aircraft battle group in the ocean. They're not going to just turn around and say, hey, we got that wrong. They're very deliberate about that. And I think that you play this well for non-crypto-native folk in the Ether trust, because I, as someone crypto-native, always think of the opportunity cost of the stake yield. And basically, that discount window actually outperforms holding spot and staking it. you know the three and a half percent yield currently right now so so ram you know so you alluded to this idea of uh non-correlated returns asset diversification space include improving sharp ratios is this something that you see folks out there thinking about who are not crypto natives it's hard to know what others are thinking about i certainly see it I'm sure other people in the market see it also uh you know it happened again yesterday when you had tech stocks were down and and the coin was up uh it's happened multiple times happened during the banking crisis I think folks can remember that period in time too uh when you had digital assets rally when banks were declining it's very interesting the like the correlations of Bitcoin and ETH partially they're related to the dollar if the dollar's down that supports digital digital assets partially they're correlated to tech partially their meaning tech goes up and these assets go up partially they're negatively correlated to the banking system it really is a unique a unique type of asset that you can have in your portfolio then you look around the world you still see inflation run amok in in other countries and you see people looking to digital assets as a way to protect their families and escape from regimes that would want to control them by controlling their money um so yeah no i think uh uh i think the role of this in the portfolio is going to start taking more and more attention it's already part of the cfa curriculum by the way digital assets has a section in the cfa curriculum so like the intellectual battle is being chipped away and you've got larry fink the largest asset manager in the world who's legitimated the asset class i mean that's a that's a big deal you can't understate that and you're getting sovereign wealth funds uh that'll start to explore this um so yeah look i think you know the supply is obviously constrained why is coinbase going down why why is that going that because they can't find enough bitcoin they can't find enough ethereum so i think that's uh constructive to andrew's point i think eigenlayer is a highly understated opportunity in ethereum the ability to create restaking and structural leverage in the system should be a significant accelerator for ethereum and jump in and explain a little bit about eigenlayer for folks who may not have a solid grasp on the technology so simply put uh there are thousands of what i would just simply put as middleware activities that one could do uh the the the seminal use case right now is data availability uh and rather than any of these middlewares creating their own token and that token may be having let's call it on the low end you know a couple million dollar market cap to a billion dollar market cap, Eigenlayer enables the use of Ether and the Ethereum proof of stake network as the security function.

25:11So we can actually lend security to any of these middleware tools. And with this middleware tool, you will earn yield in Ether. And basically, rather than having to have a thousand middlewares, each with their own token with a smaller market cap that has much less security, you're now able to use this much larger pool. So ostensibly, each one of these middlewares have a hundred billion dollar security moat rather than their hundred million dollar security moat. So what it's doing really is just building up that technology stack in a way that enables middleware functionality and doing things that really have practical value in the ecosystem.

26:07And I guess the advantage here, I mean, for folks who have a couple of gray hairs and have a little bit of traditional finance backgrounds, what you hear in this, oh God, 2008 rehypothecation of assets. But I guess the value of this is that when you have this on a blockchain, you don't have those types of lack of transparency where you don't know who's holding what risk. You can net things out. You can do it in a way that's programmatic. Go ahead, Andrew. Yeah. And I think you nailed it. In the typical rehypothecation, we don't know where the assets go. In this, one has to opt in. And so there is structural leverage, but it's structural leverage that's mitigated per middleware functionality.

26:54So you can't rehypothecate it infinitely without your ability to be called for a slashing event per instance. So I think that there could be, and a lot of people are saying there should be our next blow up in these ecosystems from something like this. And frankly, there is that chance. But I think it's technically not a rehypothecation. And I think the risk is mitigated much better. I would say it's a great, great explanation, Andrew Weigen there. And I think I agree it is structural leverage. That's bullish. And some people will look at this and say, oh, okay, look, that's going to end the ecosystem.

27:49Leverage helped boost digital asset prices through these non-bank shadow lending and DeFi in the last cycle up until it blew up the ecosystem. All right. So it's important to keep that in mind. And there's a good framework called the Minsky framework where there are three phases. And phase one is when you're underwrite to cash flow to get to your return objective. You make a decision on investment based on the cash flow. Phase two is you need leverage to get to your return target. And then phase three is pure speculation. That's why you're betting on the foolishness of others to buy your assets at a future price.

28:24so i think eigenlayer and structural leverage and i believe there will be a renaissance in defy as well because defy works defy is another primitive that works in stable coins which has product market fit right is ushering in phase two of this minsky hypothesis that's a bullish it's a bullish even though it adds leverage i know leverage is a bad word but fundamentally what that means for asset prices is uh constructive sebastian purcell a little light conversation about the eigenlayer and hymen vinsky this afternoon uh let me ask you this i mean we obviously uh leverage can have catastrophic effects uh but stupid leverage is very different than rational leverage uh and leverage particularly i mean look you want to buy a house you want to take a student loan it's leverage right i mean we don't want to sort of vilify it uh because There are cases where people lever up 30 to 1 and wind up getting washed out.

29:20Sebastian, how do you think about some of these issues? Well, my real sense about Eigenlayer is that there's a transformation that's happening. And the leverage question is an interesting question. I don't think that we're in the phase of the market cycle. We have to worry too much about that yet. I'm less concerned at the moment about that. What I see is that there's a change in the narrative of what's happening. last market cycle there was a sort of a competition among all the l1s to see who can get the most market share who can out compete you know ethereum before ethereum finally upgrades to like whatever fast enough transactions per second and solana's going to get that or avax or god knows what else right that was last cycle this time what we get with eigenlayer and a few other modularity cases is a sort of cooperative as opposed to an adversarial environment wherein it is possible to bring in the larger L1s and coordinate them so that users, and that's what users want too, is they want to be able to move from one place to another and coordinate it in a simple way.

30:22So this, it turns that previous cycle's adversarial campaign into something much more cooperative because, you know, even near, for example, which last cycle was built was like the fastest L1. They also have a DA layer that can function that way. And that's the modularity narrative. And I think the modularity narrative forces people to refocus their assessment of L1s. And that does mean that once we eventually get some more flows onto ETH because of maybe ETFs or whatever else, that will help the rest of the space. Sebastian, what does that mean when you say refocus their view of what's happening on L1s?

31:01Explain that. Well, I just I just mean that like so before the idea was that, okay, we have all these L ones and how we we tracked at one point like 30 one L ones. And the idea was they're going to consolidate down like cell phone carriers, right? We're going to get three to five. That's it. And the rest of them are going to go under. At this point, we don't need that. A bunch of them can effectively move on as kind of L twos on ETH effectively with using modularity, other kinds of data availability layers, and they can become integrated. It is one of our theses is that ETH is going to gobble up a lot of these other, uh, former competitors.

31:37It looks like it's already happening and they're going to be able to use technology stacks like Eigenlayer in order to do that. Let's throw that over to Andrew. That sounds quite bullish for ETH. I'd agree. And, and, and furthermore, I think that we're actually seeing, uh, the traditional, let's call it web to best in breed user experience engineers migrating to the system. and focusing on account abstraction. So all of this stuff is low layer, nerdy back office yield generation. The user of a decentralized application shouldn't and doesn't care about any of this. And they want to use Uber or decentralized Uber and it just to work.

32:25And with the account abstraction functionality coupled with my first and foremost bad news, this proto-dank sharding that reduces transactions to 60x less on layer twos, we should be able to have a seamless user experience going forward. So to your point, Sebastian, we should have cheaper and better user experience. And that's what I'm looking forward to from kind of a fundamentals and actual technology and less speculative nature going forward. We're going to take another quick break and be right back with more of the day's top analysis on the Real Vision Daily Briefing. Well, as we talk about improving the user experience to web two layers, I got kicked out of Facebook this morning, massive outage, I guess, I don't know if anyone else did.

33:22Hey, listen, let me ask you this, Andrew, can you unpack a little bit more granularly about what's going to happen with protodank sharding? You mentioned this bit of fee compression that we're going to see. What is it likely to happen in the short term with that? And how does that resolve in the intermediate to longer term? Sure. So essentially, we are consolidating transactions. And the simplest analogy that I can use is that if the four of us went to a bar and I opened up a tab and I bought us each round of drinks, each round of hamburgers, each round of desserts, and another round of drinks and then closed the tab.

34:05The entire tab is going to be condensed in what oddly the industry is calling blobs. And basically we are going to batch those transactions, all those microtransactions each round. So when we started the tab, we started with a zero. And when we end the purchasing the food at the bar, we have a$100 tab. But we went from $10 to$20 to$30 to$50. So$100 with each of those rounds of food or drink. And basically, we're going to be able to consolidate each of those microtransactions into a blob of data. and that blob of data is going to cost 60x less. So the introduction of this data structure where we can basically parse disparate transactions and batch them is the new upgraded technology.

35:12Is this something, Andrew, that's going to be optional for small transactions, clearly? There's a reason why one would, you know, So for example, in the US, we have two main payment systems here, Interbank, ACH, and Fedwire, one which transacts net and one which transacts gross, maybe for a bar tab. By the way, good looking at bar tab below 100 bucks in New York or Puerto Rico these days. If you're doing this for a lower value transaction, obviously you want to compress that to the smallest fee possible. But if you're doing something like on chain, like selling a high value asset, you don't want them batched up because you want to be able to get transaction finality.