#13: Light and Su Zhu on the Art of Trading

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Uncommon Core

Today, I sat down with Su Zhu and LightCrypto. Light is a real crypto OG and one of the largest and most successful prop traders in this space. We’ve known each other for two years now and I have tremendous respect for his skill and clarity of thought. He’s usually very secretive, so we are thankful that he has recorded his first-ever interview with us. In this conversation, we go very deep into the process and mindset of trading, as well as Su and Light’s current views on the market and how they are positioned going forward. Light https://twitter.com/lightcrypto Listen to conversations between Su Zhu, the CEO and CIO of Three Arrows Capital, and Hasu, an experienced crypto researcher and writer. Together with occasional guests, we explore the transformative nature of trust-minimized currency and financial services. SUBSCRIBE to the Podcast Apple Podcast https://podcasts.apple.com/us/podcast/uncommon-core/id1517659188?uo=4 Spotify https://open.spotify.com/show/3vuV292Him90EjQ5YL4XIw Google Podcast https://podcasts.google.com/feed/aHR0cHM6Ly9hbmNob3IuZm0vcy8yNTc4ZDVhMC9wb2RjYXN0L3Jzcw== Other https://anchor.fm/uncommoncore FOLLOW on Twitter Su Zhu https://twitter.com/zhusu Hasu https://twitter.com/hasufl Our homepage and mailing list https://uncommoncore.co/podcast/ Transcripts, if available https://uncommoncore.co/blog/

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Welcome back to uncommon core where we explore the big ideas in crypto from first principles today i sat down with suzu who is the ceo and cio of three arrows capital as well as light crypto light is a real crypto og and one of the largest and most successful prop traders in the space we have known each other for two years Now and i have tremendous respect for a skill and clarity of thought he's usually very secretive so we are thankful that he has recorded his first ever interview with us in this conversation we go very deep into the process and mindset of trading as well as sue and light's current views on the market and how they are positioning going forward my name is hasu I'm a researcher investor and writer if you enjoy this podcast you can do us a big favor and give us a rating and review on apple podcast you can find the link at anker dot fm slash uncommon core or in the show notes to this episode and now enjoy i'm really excited to have you with us today light we usually don't ask Biography questions on this podcast we are more about concepts and how to think about them approach them from first principles but given that this is your first your first interview ever and you're one of the biggest pseudonymous prop traders on crypto twitter i think our audience is very interested in learning a bit more about your history so so who is light yeah i mean thanks a lot super acts to join given the moment that We find ourselves in in crypto markets today i i got my start trading trading equities and uh equity options about 10 years ago there was this great opportunity where you know activist short sellers like muddy waters and citron started out and they were publishing the information on twitter and so it was sort of an information trade and like a timing trade and if you Saw it first on twitter you shorted that thing into the ground and made tons and that trade kind of uh survived for a couple years until people cottoned on and market maker started sort of adjusting to it um and i went back to playing poker which i had played as a hobby when i was when i was much younger and spun up a little bit of trading capital that way and you know a lot of people i think uh have Made the active decision to go into crypto trading but i didn't i got incredibly lucky because back in 2016 a poker site that shall remain nameless uh would refuse to withdraw me uh in any normal payment rail and was like you can either take bitcoin or you can take nothing and so i decided that as soon as i got it i was going to dump this thing i didn't know anything about it And it just so happened that they sent me this bitcoin at the bottom in 2016 at around 365 370 and so that kind of dragged me into the space instead of me kind of jumping into it which has kind of changed uh i'm a bit different i guess than than most people who made the active decision right because i kind of got lucky and i'm a bit more cynical about the space And uh in 2017 alts happened and everyone made a lot of money and we moved on after alts to trading mostly derivatives and by 2017 2018 i think at some point to about one percent per month of all of the swap flow on bitmex uh and the experi trading before in options sort of helped me go down that road um and now continue to kind of trade a mix of Alts when when there's meat on that bone and then also trade a lot of derivatives and including now a lot of options where uh my partners and i are probably some of the biggest sort of just call buyers uh in the market for the for the past year or so in certain spots so as many of our listeners know i also played online poker for a long time So at um i'd be kind of curious what kind of format and stakes uh did you play just because when i hear someone played online poker like i usually can derive from if they were like a low stakes grinder or played heads up or played one variant over the other i can i can tell so much about their personality just from that sure yeah i i i feel that um i was um I started playing cash but i didn't really i wasn't cut from the correct cloth and i moved over to tournaments and then i ended up being i think maybe top 50 in the world in terms of in terms of roi uh by the time that i i retired i guess from poker um so and but you know that tournaments are just incredibly soft compared to cash like the sort of calculus is much simpler and Like you just need to grind to make money i think it's much simpler and easier to make money in in tournaments than in online cash um and so that's that's how i kind of spun up uh capital so that i could actually make money by trading yeah i guess that's a very typical story yeah i think the uh i think the warm-up at one point uh and that was sort of that's what set it Off someone asked this on twitter recently and i thought it was an absolutely brilliant question um a bit different than what most what most podcasts asked their guests in the beginning so instead of like when did you find crypto when do you plan on leaving crypto what are your what are your goals that you want to achieve here before you can say i'm done with this That is an incredible question um for me personally i like the idea of you money uh and i'll leave crypto when i stop having a material edge in trading it because i i no longer really trade just for the money and i never have i trade because i love playing the game right it's much like trading is almost identical to poker in that it's a game it's a zero-sum game It's a game of incomplete information and the one key difference i think between trading and poker that i find to make trading a much better game to play is that the rules constantly change whereas in poker the rules are fixed and the meta is sort of the thing that's dynamic and trading the rules change and the meta changes which sort of creates these incredible problems that reward people who can get a little Bit closer to whatever the concept of truth is in these games yeah that's a great point so i i i think i've experienced the same so in i was like such a one-trick pony in poker yeah like one or two games one or two player sizes like heads up mostly and short-handed and i would just study the out of that and get really good at that and then you can just play that for 10 years right And um in trading i started trading started looking a bit more interesting the last few months and i just find it so much more complex yeah um than poker i thought the one thing that i kind of took away from poker that's very helpful is the idea of just having good bankrupt management slash risk management can you talk about that yeah i think that that i mean it's easy To make money in markets i think it's harder to figure out the opportunity of cost of capital and where to deploy capital at any given time and how to manage risk and understand sort of what risks you're taking right because there's a lot of unknown unknowns to most participants um and poker teaches you for instance in tournaments it taught me like the the value of asymmetry of Payoffs right because uh like you you pay a buy-in in tournaments and you can win some multiple of that buy-in right so those asymmetric payoffs are very valuable and they also make risk management just naturally easier because it's incredibly difficult if you don't kind of situate yourself with that large payoff small cap downside situation because There will always be risks that you are not fully aware of um and so structuring it that way present prevents you from from the floor being pulled out under you right i think that's a good segue into uh how you approach the the crypto markets um so as as i understand there are many different approaches to to trading many different individual markets um even inside like What we call the crypto market or the equities market many different products many different time frames so um what would you say is your approach i think that i agree with with what you mentioned before that specialization in zero-sum games is the way to sort of maximize expected value um but crypto markets are still in their infancy and they're so soft and what i mean by that is that there's so much Edge for the taking that i think that if you are strong enough in a variety of disciplines you can tend to be a generalist and that kind of solves another problem that a lot of people have which is that sort of the man with a hammer syndrome where like if you if all you do is is trade alts what you're going to do is just continuously long alts right but if you can trade derivatives If you even trade alts you can kind of figure out what tool is correct for what time in the market and um so from a bird's eye view i blend a bit of behavioral economics and sort of the idea that narratives drive reflexive prices i have like a decent amount i try to have a decent amount of asymmetric information and the edge that that generates versus market participants and Then probably my favorite i think is actually just the old school of reading the tape and order flow and kind of just getting a feel for markets if you spend enough time just sitting and staring at market orders coming in from an aggregate of different exchanges you'll generally have a feel for certain situations and that will kind of trigger an emotional memory or some sort of pattern recognition in Your brain of a previous moment that this has happened and so with experience in the markets you'll you'll kind of get a feeling and you'll notice certain things and say hey i've seen that before usually you know this starts and then something else follows you know and then you start trying to match those patterns uh in your head and finding the one that fits correctly and then uh kind of determine the Different scenarios i think that's really interesting and definitely um something i've noticed too where where when poker players switch over to crypto i think there's two big edges that they tend to have one is that the pattern matching they can do it on a very first you know a very bottom-up perspective where They are watching the actual markets you know um and whereas a lot of people they don't put in the work to actually do that they don't put in the work to see how is this market maker moving its prices how are these prices moving on the screen so i think just the willingness to do that gives you like an edge over ninety percent of people straight up i think too like it's also interesting where you mentioned there's So many of a variety of games it's quite similar to the experience that we had where when we came in we wanted to do certain types of trading and just do that only because we knew it very well and then as the market you know as we got sort of more comfortable in the markets we kind of saw opportunities here and there for you know long only style stuff for For more illiquid strategies so i think i think that's definitely the right approach like you said we don't in this space now we we can't even agree on what is the base money of crypto we can't even agree on you know what is the value accrual of smart contract platforms uh we can't agree on what the governance value of token is so you know it's it's definitely it's Definitely too early to be a specialist of any one of these games because this game might not exist i mean the 2017 people said well i'm an ico specialist you know i specialize in pricing the pre-sale round or pricing like these rounds and so it's good to always have your like a zoomed out view for sure yeah yeah and regarding what you said about watching the market and kind of becoming this pattern Matching machine building this kind of intuition over time robin hansen the economist on twitter had a great great advice the other day i think he said if your profession doesn't have this kind of what's the right way to put it this kind of um study that's equivalent to a musician just training the notes every day then you're doing it wrong because every profession has this kind Of thing where you can just get incredible at the basics and you should yeah i think that's that's well said uh one thing that kind of makes that very tangible for me is is watching something where the the constant ritual of improvement is is visible right so a documentary that i i tell people to watch all the time when it comes to trading is jiro dreams of Sushi right that slow process of becoming a master at something um and i think you're dead on when you say that if if if that doesn't exist or if you can't dissociate and see that in yourself then i don't think that you are approaching it in in the correct way and i'd like to kind of add one more thing which is that in markets is in life there's nothing New under the sun i think that most of my training ideas don't come organically i've i read books about markets and speculation especially pre-regulatory before the the turn of the 20th century because i think that crypto markets you'll see they follow incredible parallels of what speculative markets have looked like for centuries like for instance there used to be in reminiscences of a Stock operator there used to be this part about painting the tape and that just meant back then that the ticker tape would would print every single trade that happened and people people who ran campaigns to promote their stocks would just keep making these wash trades back and forth with themselves and when you take a look at coin market cap these days that's literally what Happens with alts right on a big red day you'll have a coin with like a very tight circulation and these guys will just rip it 50 because it's free advertising and it makes everyone look at your your alt and consider buying it because what do people like buying they like buying alts that are going up right yeah um i think what you just said about um basically studying pre-regulatory quote-unquote Raw markets where you have the kind of raw um emotion uh animal spirits that you have in crypto um to then basically predict what prices are going to do in crypto and what people are going to do ultimately that is an incredible concept that i hadn't expressed before so i will definitely pick up on that um and um regarding your earlier point So i am very interested in learning how to hold myself accountable for traits so i i can say very bluntly that i don't have this kind of feedback loop yet where where i can make a decision that is closed in itself and that when the decision is done there can at some point say okay this was a good or a bad decision Um and i i have no i don't know how to approach this problem and i feel like it's really important to to become a good trader so i have two of the best traders in all of crypto here so i'd really love for you to like walk me through how how i can do this like conceptually i can make this process i think it's a great question it's obviously the holy grail because Um it's much easier said than done so anything i'll say right now i probably myself can't do half the time right but but but i think one important concept is um i think you have to have an idea of what your thesis is going into the trade and you have to have an invalidation uh both from a price point of view and from a thesis point of view So i think some people they get into spots where they don't have an invalidation for their idea uh from a price point of view and that obviously just means that you can go bankrupt in trades right because no matter how smart you think you are you're still gonna be wrong like all the time and that i think is the hardest part about trading for so many people because The way that we've structured society now is we don't like feeling wrong right like everything is about not making you feel wrong so like you know like in school you know you the teachers tell you you're right you know your friends tell don't tell you when your flight is down you know like no one wants to tell you that you're wrong usually so so so when the market is telling you That you're wrong via your profit uh if you have built-in invalidation for your thesis that saves you a lot of money because if prices start moving against you quite heavily likely it could mean that it's a better buying opportunity but in general it doesn't right in general it means that you misread the market and and so just having invalidation is super key i think I think on the flip side of that is you should have a rough idea of what it would look like if you're really right and how much do you plan to make when you really write and that gets back to what light was saying about you know asymmetric risk reward right like in general it's a cliche encrypted but you should still try to target a reward that is higher than your risk right whether that's an arbitrage trade Even or uh or a directional trade you want to be in a spot where you can be right like half the time or more and make much more than than than than one verse one you can if you can make three verse one when it's 50 that's a great trade right uh so i think that with that in mind you kind of get a sense of where people generally tend to go wrong in crypto i mean you think About 2018 you know people buy let's say they buy a pre-sale and then they start holding it or they buy it all they start holding it and then they're obviously down money because the thing bleeds out and then they're like you know what i'm gonna buy more because it's a lower price than where i just got it and soon you end up owning like a lot of it and the liquidity dries up as well right And so i think being able to to be willing to be wrong is is a huge part of the battle and i think the the by far the biggest leak that beginners have yeah me that's the biggest leak i have uh so i mean hearing you break it down is is always good right sometimes you kind of remember these things and you forget them and then you rediscover them and then forget them again as you go through Your career um i mean to kind of build on that i think that there's there's sort of three ways that i think i found to be helpful um the first and this will be near and dear to your heart hustle is that every successful poker player at some point learned that it was always about optimizing the process never never the result right and that's what we learned about about expected value Versus outcome um because when you put in aces into kings pre-flop you are going to lose what 19 20 i've forgotten the math now but if if he banks a king on the river does that mean that you made a bad decision no but in poker it's a bit easier to see this but in in markets because we have such incomplete information and the outcomes are so so different than anything that we Could reasonably expect a priori the a lot of people conflate the volatility and the addiction to volatility and the actual result that happened and focus on that instead of the result and that kind of deludes them i think that's that's where the market sort of tricks the participants and that's i also think why you can have guys that are 50 or 60 and they're still making the same mistakes that They were making for 30 years straight because they never focused on the process and introspected the process and tried to improve it the other thing that i'll say is is that people often conflate time frames and i think that maybe that is kind of similar to what sue was saying but you start with as a trade and then suddenly you become a bag holder right and there's nothing more dangerous than having that happen to you because The human mind is pretty amazing in what you can rationalize right and the like if it starts as a trade and the market starts moving against you like sue said and you start adding on weakness in a market that where returns are heavily auto correlated you're you're just going to get absolutely demolished and then i guess what say coda said right like everyone gets what they want out of markets most Guys want to come into the markets and they want to be right right they want to prove that they're smart that they know what they're doing and they're going to get that every single time because you're always right if you want to be or if you want to gamble which a lot of people do you can come into crypto and you can gamble because i think that they're just one giant gray area casino but if you want to make money making Money is boring sometimes it's tedious it requires patience and discipline it's not fun it's the same way when you play poker playing fun poker where you have a few drinks with friends you uh you v-pip 50 of your hands and you splash around with your boys but playing good poker very rarely involves that especially on a nine-handed table right so i saw something that i took from poker and it's Basically how i i'd say when my career and poker really took off one key insight that i had was that it's all about simplifying the decision tree so you have this insanely huge decision tree but you don't you don't know which of the decisions actually matter which of them make you money and which don't and um i feel like i got more into this process as we started to To study using um solvers so servers like a chess computer but for poker so you create these like toy games this very simplified versions of the real game of poker which then the computer can solve and you can study the results so this kind of gets you into this output of hmm so the kind the human mind doesn't actually work that they're all that different from the kind Of regret minimization algorithms that we use to solve poker um with a machine so um maybe i should just just borrow this mechanism and apply it like to i study progress where and um and and like one obvious way of that is okay so maybe these these 50 hands are basically all the same so it doesn't matter if they have like ace king or king queen or king Jack you know maybe all top pairs are really the same on this board and it doesn't it doesn't matter like that you can all treat them the same and thereby like dramatically simplify your your decision tree or another example is there there are many spots where for example the opponent operates preflop you call out a position And then you have a lot of boards where the kind of the opponent's range hits this board so much better than you do and so you should never lead out into the pot you should always check and um and then see if the opponent bets or not and then react and this is a thing that a lot of players do right in this kind of very simple situation on the flop order position but um Such scenarios like that exists all over the game tree um actually and if you can find them you i think you can do a really good job so i want to i would like um like to learn more about how i can apply this thing that i think it really should apply to trading but i don't really know yet how i can apply it so do i for example set all of my trades to be the same Time frame so i basically have to say they are validated or invalidated after a fixed time unit and do i make all my trades the same size so just to remove these kind of complexities where i think they may not be all that relevant but really like stress me out and make thinking about the trade so much more difficult yeah i think there's a lot to unpack there but The the sort of the abstract concept that you're saying just hit like a struck a chord in my brain because i remember learning something from poker which was that you noticed that a lot of the mediocre players that never made it would kind of come to you with these very specific hand histories where they're like i have a second set on the turn i bet the guy check raises There's like an open ender and this is like a decision that's so nebulous that has such minimal ev between the the different options that we're talking about you know a couple bigs maybe per 100 but then this guy is like opening ace jack off under the gun uh nine-handed right on a hard table and just just hemorrhaging money right so just finding the leaks First is super important and i think that what you need to do is also with the ability to evaluate looking backwards so you need to record your trades because there's all sorts of cognitive biases that are brought on by volatility in markets uh by sort of the addictive nature of of information and price movement and the pain of losses and all those cognitive biases that come From prospect theory that behavioral economists have been talking about for a couple decades and so first you need to have a recording of what you've done why you did it right so trade journals um and then reflection after after the fact especially if you're a discretionary trader i think if you if you are mostly delta neutral i think That it's a different game but for people who are directional in nature and discretionary um it's incredibly important to be able to look back on trades and break them down and have some sort of recording because otherwise you'll keep making the same mistakes over and over um and then that way you can also leak find right the equivalent currently of just of just firing off on different exchanges And being able to bet millions of dollars on some random hunch that you have or just because you're angry at someone that day is like the equivalent of playing poker without poker tracker or hand histories like it's insane when you look back on it that way but like i think that's what a lot of guys do um and it still works because it's like kind of like poker in 2000 and i don't know 2005 you know where you Could sit out of a sit and go go to the store get yourself a pack of cigarettes and you'd come back and like five people will have busted and you'll get a min cash somehow you know like that's where we're at still um and the game is just gonna get harder and harder and the goal for you as a trader is to improve your edge versus the market in a zero-sum game faster than your competitors and new Competitors who are coming in the space like i knew in 2017 that that this would would happen right but i didn't i underestimated how fast and how quickly incredibly sharp people would come into the space and just deteriorate edges um especially on the delta neutral side because i think a lot of the legacy finance guys came in and that was a trade that they could Port over like the cash and carry sort of stuff directional still they're still like they don't want to get burned because they don't really fully trust it because it's it's super scary where the risk is not really definable to them and stuff like that and so the edge i think has been more robust but even that i think obviously is going to Disappear slowly as the markets move towards more efficiency i think one way too that has helped us simplify is you can kind of bucket crypto markets into you have bitcoin regimes you have application layer regimes and you have sort of you know like older alt-style regimes right and i think that there's not that much sample size yet but The human psychology has been such that um if you have a structural view on some of these sectors that helps in inform what kind of spots you're looking to get into right so like in 2018 like one of the things that like impressed me the most about light was that like here like people were still trying to find what else to buy whatever and we're talking about like you know shorting alts right we're Talking about because like the beauty of bit mix actually was not that you could trade like even perps uh per se but that you could short alt btc right at that time in 2018 open interest was massive right you had people buying xrp edc at like 20 contango in may 2018 right eos ppdc at 15 container right and like the opportunities in 2018 for being short alts versus bitcoin Were tremendous right it was a tremendous time for that and so i think that in retrospect now like everyone looks at it and says it's so obvious but very very few people were actually looking at it then thinking that way they were still thinking about okay like i remember novogratz he said you know the public markets may be coming down but private markets are still great he was still trying to buy sats right he's still trying to buy ico so i think The one way that i think is really important to simplify like always is like what is your base slide view on various things because then you can take trades that you believe you can be asymmetric at right and you can have have an edge at if let's say like everyone is bullish um on alt or on d5 coins but you think you know something that they don't you think you know that uh You can recognize uh when it's starting to top or when when there's no new money coming in that gives you a huge edge because it's quite asymmetric you can sell uh knowing that you can be invalidated quite easily by more money coming in and if you're not invalidated then you know that like that that gives you a nice half-life right where you kind of can simplify the trade say here's my Thesis here's my my schematic that the market always does these cycles and we're in this part of the cycle um you can kind of be very provable about do you have a feel for that market right so i think you generally want to have an idea of who you are what information you have what what kind of studying you've done right um if you're studying the tape a lot if you're Studying the markets a lot you can probably guess when bitcoin is about to break down more than half the time because you'll say hey there's a lot of these signs right there's like a sponsor nuke and if you're looking at alt a lot you can probably know when like a small cap is you know going to a hard fork going into an event so there are all these ways to Make money but you have to be able to define what your general schematic is and and how your planning to be better than most people at it yeah yeah that that sounds dead-on to me i think one of my friends floored me a couple nights ago at dinner when he said he said he said the following said it Isn't the things that you don't know that that get you it's the things that you think you know that just ain't so and people get in trouble all the time here because they have these sort of frameworks that are overly convoluted um and like more is is much worse in complex systems with a lot of risk um which which i think markets are are dead On and so i think that making distinctions between investing and trading are really important because i think most people kind of lump them together and investing requires a different set of questions it requires sort of almost ontological questions in this space so what is bitcoin what is alts um whereas trading doesn't like how do we value these things where trading doesn't Really require that right because trading just requires making having something go up when you're long for an appropriate amount of like risk taken right and then running that back over and over and trying to capture that expected value yeah i i i think with d5 as well especially like i remember when d5 like made a blow off top and then i was saying a lot of people like i think Like some kind of top is in at least for like a couple a couple weeks uh plus right like not like not a normal top where you like you buy the dip the third day and it's up and remember people saying like well these assets are bad and they'll go down but i have the blue chip ones and but those would be good and i think it's like there's a lot of composability on the way up with alts with with coins and There's a lot of composability down too so people recognize the composability on the way up they're like okay yeah this total value locked ties with this so they all go up together then when it starts coming down they're fast to say how their bags are somehow decoupled from this reality but the other benefits that they don't own are the bad ones so they basically believe in this decoupling When to an outsider looking at it there is no such thing right like it's for sure so i think i learned that very early on from the stock market because i started in 2008 2007 where we all know in stocks on the way down they correlate coalitions go to one and in a bull market core coalitions can disperse a bit but on the downside it it goes heavily correlated So i think just being aware of these kind of very basic tourisms uh can get you like just to get outside your own head and say okay what what do i have to do here do i have to hedge do i have to you know be prepared like what would it what would a panic look like will people be panicking what i own right to hold yourself accountable you need to hold yourself accountable To to to to something right and you have to decide whether you're investing or speculating or trading as an investor i think that you're targeting some sort of equilibrium value that is that is hidden from you right and price oscillates around this theoretical number driven by supply and demand and sort of investor psychology and the cycles of narrative and emotions of euphoria And depression and you can kind of think of of price oscillating around this value as you know the beings in in plato's cave right that are that you can't see they're obscured from you and price is the shadow that's being illuminated right but as an investor you have to have some sort of uh philosophical framework for what value is how it's reached etc as a trader though If you are a trader and you hold yourself to that standard of accountability having those beliefs that are absolute is only dangerous right and so you you have to hold yourself to something different there were these sort of incredible stories where guys would say hey i think i think so and so is cheap value-wise but they don't have a valuation model Right like how how can you say that compound is cheap at say you know 50 or 80 when it's impossible we currently have no satisfactory evaluation models with which to value them even with bitcoin we're struggling kind of reaching into the dark but at least we have something a bit more stable and you know a lot of guys i think just they try to prove their hypothesis so which is that the most asked backwards Way to do something in trading and the thing that's going to lose you the most money because they say hey i have these bags or i want to buy these bags or i'm long already uh how can i go find 13 good reasons why i should continue to do this right whereas the correct way to do it has always been from even from the scientific process is to try to nullify the hypothesis right That's whenever i have a trade idea that that feels good the way that i actually spend time playing with it is by trying to figure out all the reasons why this this is a terrible idea and then if i can't come up with something conclusive if i can't nullify the hypothesis then i feel more confident right and That requires you to put yourself in the shoes of the other participant on the other end of your of your trade and say this guy is wrong for these he believes this and he is wrong for these reasons um and i think that if you can't say that or if you even haven't haven't thought at that level then you're you're doing it uh the wrong way and then you There is no accountability because you can always find other reasons to rationalize your behavior especially because of all the sort of behavioral foibles that humans have right why can't people sell on the way down even though they're supposed to hold all the way through the alt cycle and then sell once it's obviously cracked well it's because they regret not selling at the top and then The next time it spikes they hope that it goes back because they have in their mind a snapshot of their highest aum or personal balance so they can't sell on the up thrust what do they do once it crashes again from the up thrust that didn't clear the high now they sell the bottom because they panic right and that's because they keep trying to find reasons to justify what they want rather than what What reality is and your job as a trader is to kind of just listen to the market and try to reduce those biases that make it so that you know 99 of people will end up being losers in in their participation in markets oh yeah it was it was a few weeks ago i don't know what it was some kind of bearish event i think it was bitmex bit max um the lawsuit um going up on twitter and i i asked one of you if i Got to but i asked is this should i panic and um bitcoin was already down if i did and i think the response was no it's too late to panic now this kind of illustrates this whole like you don't skate where the park is is at right now right yeah you panic immediately or you shouldn't panic at all yeah that dovetails pretty nicely into sort of figuring out the uh Sort of like the state of the market right because i think that uh the way that the market behaves when it comes to news is pretty telling about sort of it's almost like market participants kind of show their hand um and you get a bit of information because you see how they react to events and then they kind of tell you what their line is going to be in the future but given how they react so when you Have so all this slew of bad news and i think this was sort of the party line in a lot of places that people realize you have this non-stop series of bad news and the market barely budges right so and then you have like a few pieces of like excellent bullish news and the market just absolutely rips now was it the news or was it the market structure it's probably a combination of a bit of both But um i think it's really important to kind of take those signs um and people kind of miss the force for the tree sometimes like they say that like right bull markets are made by climbing what the stereo a wall of worry and bear markets are built on on on hope and you can see that right when people clung onto narratives like backed or product launches and like that When when prices are tanking this is a reflexive asset it's built on narratives when people aren't making money some people are going to dump and there was this old story about you know every time a journalist has to write an article about about why copper did so and so and they all they pull out all these reasons right there a lot of the bloomberg reporters are like this in crypto they have to come up with some reason to explain Why something happened and then one guy couldn't find a reason one time and he just said you know the market went up because there were more buyers than sellers and that's what's happening in risk assets today right like you have a reflation trade that's occurring and people need to deploy their fiat and stuff and and bitcoin is sort of a shelling point for all of those arguments about About that start that made it created in 2008 in the first place yeah i i do want to talk to you about the macro like bitcoin against the world a bit later um but i also want to explore kind of the crypto market and um so how how are you currently positioning crypto what is your thesis for maybe the next couple months so i um a few months ago i was I was an honest farmer right because the opportunities there were were absolutely incredible um in terms of sharpe ratios um and the narrative was there basically that this thing was new and exciting and that it had like unlimited potential and then you kind of saw you kind of saw that breaking down and maybe maybe people like putting putting the cart before the ox at a certain point when you had you know Part-time students and like uh uh other like promotional men uh releasing products that people were piling in hundreds of millions of dollars into and then those are some of the things i think sue you mentioned it on a previous on the one podcast that i've listened to this year about once you start seeing the mimics and and like the con men come in the supply the supply of these things is just Increasing at such a rate that demand can't possibly match it right because the cost of creating safe or some other mimic is basically nothing and so who's who's going to buy these things and so you could see sort of the euphoria and like the the new paradigm sort of views and then the market kind of softened and it crashed and then it couldn't reach the high and people i think kind of Got lost because the uniswap launch kind of obfuscated it and made people complacent and that was there's always a little trick like that that happens right which makes people hope against hope or their reality the other thing is that i think that they they they held on because they wanted to believe that because they everyone wants something more they want to make more money rather than what the market gives Them right they want the market to give them what they want but anyways i in i think in september i dumped the last of my alts i think it was on the uniswap launch day because it was just incredible exit liquidity on things that you wouldn't have otherwise been able to get exit liquidity and i felt like a fool the next saturday and sunday because i think after that There was that big rip um in alts and that that also gave exit liquidity and people who were very disciplined those were the days that they were selling you don't sell on the way up because these things always go way further than you can ever anticipate you sell on that first up thrust once it's clear probably that the market is topped and then you have an invalidation because if It hasn't topped and you just get back in and that's okay you know but my positioning ever since then which i i kind of said i think was that i rotated into stables and btc i thought the market was fairly uncertain back then and i was worried about alts and d5 being a contagion on bitcoin then i saw that bitcoin wasn't going down uh and so i Started adding a ton of just naked calls outright and i want to kind of talk about a bit about that because i think it's really interesting it's a source of alpha for a lot of people even if you don't feel comfortable trading options which is that if you understand the way that the flows work in the options market they come from two sources one people who are hungry for yield Right so these are traditional macro dudes who are like buying spot and then selling covered calls because there's no yields and they feel comfortable enough to do this then there's structured product flow that has been used as a lure to miners and other whales who are fairly unsophisticated financially and they say hey i love i would love to get you know some consistent steady income stream and Especially when markets are quiet they're willing to sell that for the stream but when you sell those options and or they're repackaged as a structured product by some of these companies that are operating and catering to these people like you give up the whole reason that you own an asset like bitcoin right and you you you give it up for pennies on the Dollar sometimes and so i think structurally those forces have made it so that implied volatility is consistently mispriced in the market and it has that like it gives the opportunity if you're selective about the times that you buy volatility and you also get to buy cheap leverage on bitcoin uh it makes for an incredible opportunity i don't know How many times you just run over people by just buying a ton of calls like i think in 2019 in april it was mind-boggling that people were just religiously selling upside and uh you can always tell like the heuristic that i use is when people get really gung-ho about selling uh volatility so there was this article that i always tell people about which was that random bloomberg that was like in Crypto bear market survivors find a rare lifeline and that lifeline was selling bitcoin calls covered calls at three thousand to four thousand dollars in the bottom of the market in 2019 right so when those guys start selling a bunch of those calls because they don't think that there's upside is when the market has the most upside and it's being sold to you for the Cheapest prices i've i think sue you've kind of convinced me that that like basically in these markets because it's such a money game and there's constantly flows between alt and btc and back and into stables that the pain trade is usually like it has a higher probability than it should have of happening because part of the game is that a select Few people of like who are strong holders kind of just get into something beforehand and then wait until everyone else starts running into it and then they dump their bags near the end of that cycle and then they rotate back right and people won't really talk about that because we rely on alts to drive action exchanges need it we Need it as traders um ico teams need it because you can't sell tokens unless people need it and no one's willing to say it but it's the greatest lie right like that at the end of the day we all know that if you were to go into a coma tomorrow for 10 years and you you had now one chance to set your crypto portfolio you would would you own bitcoin yeah you'd probably own bitcoin would you own File coin would you own compound is that the things that you would put into your portfolio if you were to go into a coma next year for for 10 years i don't i don't have the answer to that question you know or maybe i do but i don't want to say it you know like the beauty the beauty of options right is that you don't have to look at it the same way it's a lot like poker if you're a Fish playing poker you don't have to care about eevee about like vpip you you just play your hand right and there's also a lot of hope that happens there too like if you're a fish you actually care about hitting your flush like you want to like hit a flush you want to hit your hand whereas i remember like when i first started trying to get better at poker someone told me like you should never be hoping For any cart you should be thinking about how you play on different cards and i'm like yeah but i wish i had my hand so options is very much like that where the like the people that are trading it not like from a directional view they just this promo is from a vague hope it's from a vague hope that they get their yield and like they can keep rolling it and you Know the like the biggest uh way i first understood this is that people prefer the physically delivered options in the ogc market also in part because they never have to think about the p l right because if you sell calls on your bitcoins and the price goes through the roof like on derebit it shows you're down a shitload of money right because your Unrealized p l is super negative but if you sell an otc uh physical delivered call nobody's sending you like any statement showing you to your don money all that happens is that at expiry you send your coins and you're like yeah but i would have sold them there anyways if i sell a 4k call i would have sold there anyway as it went up because that's that was my level For those coins so you see what i mean you can it creates these tricks of the mind and that's that makes a great two-way market because then you have people who are saying i think the probability is good for this trade and you have people saying i i like the way that this trade uh i like the cash flows and i like the i i like the risk profile of the trade so That's how they get hit all the time right because everyone wants the consistent high probability payouts they love that and they don't like losing consistently death by a thousand cuts so there's like and these these markets are so so emotionally like they they tug at like the heart strings or whatever you want to call it and so people are making these gross errors in Term from an expected value calculation because of that right because they're just satisfying a primal like an animalistic need to feel good rather than going back to that sakota quote right like if you want to feel good in the markets and have like small and consistent wins then blow up or like literally pass up on a once in a lifetime opportunity sometimes by selling Upside volatility you can do that you know and people are gonna some people are gonna be happy to soak that up like i think we've been probably one of the largest buyers of some of this covered call writing that's been happening like every single month you know we show up people message us because they know that we're like the the marks basically right they say oh Boy boy do we have some more calls to sell you and you say yeah yeah sell me those calls again and like i've seen it now it's almost shocking i think sue and i we talked a couple months ago and i asked you is it really it was it really going to be this easy again right like are people really doing this again where they're overselling this stuff and they're just like selling it because It's working right now and because realized vol is coming in uh like below implied and they just assume that it's gonna be pinned forever and i think you were saying the same it's like how do people not remember previous regimes right it's almost like the market participants get tricked into thinking that whatever is now will continue to happen in the future Without ever thinking about you know things that could change i think you're you guys are both quite good at kind of sort of thinking about what could happen in the future that is different from today and i think that that always makes good like macro and directional guys um who kind of anticipate what could happen and what things could change and catalyze those changes When you have a view on the market such as bitcoin is probably going to go up um in the medium term how do you do how do you figure out what is the best way to express that view with with a trait what kind of instrument and so on i think i structure most of my positioning based off of a couple things one is liquidity and the second most important one is Is is how how to approach the risk of the trade so um on the first in terms of liquidity i think that when you get to a certain size it you have to start selling sort of in sub-optimal spots um and buying in sub-optimal spots like for instance if you look at poly chain buying wi-fi i think that some people who are like big they just have to do certain things Like they have to buy on the way down they have to uh sell on the way up because they can't really time it and that impacts ex-ante when you're deciding to enter a trade whether or not the liquidity will be there for you to exit and exit cleanly because like the slippage and price impact all hurt the eevee of the trade so the more the the bigger of a position That you take the more the the higher the threshold has to be in terms of expected value or sharp of of the trade because if it's very marginal the other price impacts are going to just eat up any edge that you have and then you're just flipping coins with people that you don't know the second in addition to liquidity is sort of risk management and i'll kind of Walk you through an example of this year so in march of 2020 after the the market completely imploded uh going margin long on bitmex with 100x leverage on multiple accounts was an incredible play because the mark price that is used for liquidation was trading at 4 000 when the swap and futures were trading at 3 000 right so now you have it wasn't i think it was actually not 4 000 and 3 000 but it was there was a 10 discrepancy where the thing that was being used to liquidate was 10 higher so if you buy longs you have a 10 buffer instead of the usual 60 basis points that bit mex normally gives you on 100x long you open a ton of accounts you margin along all of them you have capped downside and you just destroy when the market rips which will it will inevitably Probably do unless we were unless bitcoin is going to zero which you very well could of that day but and you get to collect funding and you get to do it on 100x leverage on all of these accounts right so there that trade has that sort of risk management now later now when we get to like 9 to 12k and on the pullback i hold spot and instead of holding margin longs that i get trapped into With with no liquidity if i'm wrong i want calls right because now i've developed another way to cap my downside but allow myself to have the exposure in case my macro thesis is correct without having to get stuck with everyone else in a sinking ship if we're wrong right and so that's in in combination with the fact that people were selling these calls for Dirt cheap it ended up being incredibly alluring as an opportunity because you say hey i can capture all the upside and i don't get trapped if i'm wrong and people are letting me take their upside for free basically like it just ended up being this incredible incredible trade and like it's why having derebit come into into the space and grow a lot has been So important because it affords you these abilities to sort of tailor make your own sort of risk profile of your trades right so you can give yourself some more room to be wrong if you want to you can take bigger positions and that payoff when you're right um that's sort of the like i guess i don't know what you would call it the institutionalization of the space or like just the development of the space That gives people more tools uh to trade and express their views in a way that makes sense from a risk management perspective so we have we've talked about um the thesis for for bitcoin and um why you see d5 maybe in a in a downtrend at least for for the next two months so what about ethereum sue especially you're you've been very vocal On twitter that that you're you're you're very constructive on bitcoin but actually very bearish um on ether in comparison so what what is the reason for that especially in now that the the last last few days ether has actually kept up uh quite nicely yeah i think first i should preface by saying that i just should post a lot so i think as either was going up i also should post it a ton Uh and i think almost like every bitcoin i knew i would ping them once a week and be like like just i'll just show them like a chart like i was doing this to fidelity and stuff they they're not pleased they're not pleased uh but um yeah no i i look i think i think that bitcoin is the clear um denomination for the biggest players in crypto Uh that's you know whether you're cz whether you're you know um the big miners the big exchanges the biggest players it is the it is the base currency in my view so knowing that i think that there's a big foundational understanding which is that when chama said he was going to put his family office into three assets bitcoin Amazon and the la clippers or it was a golden state warrior sorry i think it's golden state yeah nba is nominated but but but the point is like he's not he's not going in and being like i'm buying like a basket of coins i'm not going in and buying a basket of internet stocks right he and and michael saylor talked about this point a lot too Where he says you want to buy the one that is the clear dominant factor and bet on the rest of the world coming to see that because that's how you get a network effect to work for you right that's what the bitcoin cash people didn't understand which is that you can say you're better on utility on this but if you don't have the network effect Then you have nothing right you you can't possibly compete so i think bitcoin has the network effect as the base money that is very hard to overcome i think ether right now it's still pricing in too much of a base money effect where people think that there needs to be two base monies i don't think that there need to be two base monies actually uh in crypto i think there only needs to be One uh and and so i think 2017 also has created some really high wicks so because of those wicks people now look at those wicks and say it could get there again and i think that's dangerous for two reasons one is that the first big wick of may 2017 was in a period of before the bitcoin having i mean before the bitcoin uh Uh hard fork right where people were very scared about flipping people were very scared about you know what would bitcoin become and people were quitting bitcoin left and right i remember raul paul he said at 2000 he's selling all his bitcoin that this fork is too dangerous right like maybe he will buy either and then you had you know later on in 2017 where you know you had bch Bdc at 0.45 you had you know a lot of questions about that that environment is not the same as the one we're in now where you know bitcoin three years later is far more lindy than it was then it's 40 more lindy right uh roughly and i think in terms of years that normies have seen bitcoin it is like 10x more lindy i'd almost never hear anyone say bitcoin To scam anymore i only hear them say you know did i is it too late you know how much is left or you know where can i get it but there's no one that will even say it's a scam anymore they they'd be sheepish to say it now even the even the the the people who used to call bitcoin scam like a lot of people from the ethereum community especially in the altcoin community they now say Bitcoin bitcoin is a quote-unquote meme coin or a religion coin and they don't even realize like how bullish in itself that that statement is so they think they say something is kind of denigrating bitcoin but in reality they just make the point yeah the robert schiller and this is the nobel laureate this isn't a joke that this is his name Wrote a book that uh uh a colleague vance recommended to be called narrative economics and the first chapter is is on bitcoin right the guys who are inside the crypto bubble they're lunatics if they think like that you know uh like your average 50 or 60 year old family office manager he's we've we've just spent 10 years convincing him that this thing is not a ponzi and a pyramid like And that it's not a stone cold fraud and now people are like i wonder i wonder which corporation will be the first to put f in their treasury like that that that's a bridge too far right you know these people have barely signed on board for owning like magical internet money let alone something like ethereum um that like my views haven't changed on this since uh john pfeffer wrote an institutional Investor's take on crypto assets pfeffer's paper is probably the most lucid sort of attempt at valuing both bitcoin and ethereum that i've seen to this day and i have yet to see a compelling rebuttal to it that said i think that ethereum whereas bitcoin valuation comes from [Music] most the narrative now mostly that it's a store of value With ethereum and alts more broadly i think that they've always just been speculative vehicles for a transfer of wealth and for the ability to gamble and that's what that's what really gives them value also because they're kind of trend following and that those things the narrative is so important right because with ethereum you have this f 2.0 narrative and sometimes that Narrative breaks down right when they don't deliver and you can see the narrative breaking down and then the price starts following then price ossifies that narrative further and further because we deal with so much uncertainty in how to value ethereum it is what is it is it's a dark forest right that's one of my favorite turns of phrases that i've heard In this space and no one knows how no one knows how to value it so we have to resort to narratives and to looking at price right so there's a full reflexivity there because no one knows how to value it so if the price goes up then ethereum is valuable if price goes down ethereum is a piece of trash right and we're currently in the stage where ethereum is underperforming it's not even underperforming just on a Risk-adjusted basis it's actually under-performing just straight up on just on numbers on coingetco basis which is insane right because you demand you need to demand so much more return to take on the risk of owning ethereum versus bitcoin and you're just not getting it now and people are realizing it and the best part is that as they realize it they start piling into Bitcoin out of alt out of ethereum which just makes more people capitulate into bitcoin right and that was sort of the metaphor with the sinking ship when everyone's on one side of the ship except a few people who got ahead of the crowd and then everyone starts running in and i think people are going to make this mistake where they people i got a bunch of messages in the Past week about what i think about alts now right or whether is it time to rotate back into alts you know now that bitcoin has had a move up i think that the burden of proof is on people to prove that you should take your bitcoin move out of an asset that has an incredible macro backdrop and is currently outperforming everything else on a risk-adjusted basis and for some reason buy alt because you Think that that trend will change it doesn't make sense to me in a reflexive asset and i haven't heard any sort of compelling argument as to why bitcoin will stop outperforming so it just it seems like people just want to be contrarian for the sake of it rather than because they have a pretty strong reason and you see it literally today bitcoin kind of paused it Like after it touched 13 and people started punting on alts again and like like it you know those short-term rotations i think usually get punished and everyone wants an a continuation of the alt-season right now i think that like the pain trade could just be that like alt season is uh is a is a year or two away although i still think that d5 with the caveat That i think d5 will at some points some of it will do very well again because i think that there is some something really transformative happening that allows like a pretty valuable regulatory arbitrage to happen and i think that if pfeffer updated his paper he would probably say that you know maybe we're getting closer to having value capture mechanisms On these tokens that make at least some sense and capture some of the value whereas before in 2017 there was nothing there right that could be valued in any way i think fantastic points and i think another thing too which is like crypto natives they massively project their own views on normal people that are coming in and they're incredibly um They're incredibly like unaware of how normal people think right like a lot of the bitcoin buying over the next few years i think will be people not trying to get rich but people trying to keep pace right that's actually why people buy most things in all markets because they want to keep pace like when people buy equities it's because their neighbor buys equities it's because everyone they know buys equities So that is what creates the shelling point like people normally don't wake up and think they can outsmart everyone and like buy like you know the bitcoin killers uh plebs do and and plebs might be able to get away with it in some parts of the market but like in in general you know with the you know with the 50 year old family office guy example he's not just trying to save his job by Not taking risk he's also trying to make sure that he's coordinating correctly with people right he's trying to go to the right party because if he goes to the wrong party not only does he lose money from that thing going to zero he also didn't go to the right one right so the loss is is absolute so he needs to first buy enough where he's at the party then maybe he can gamble with some other stuff like you Know if he feels a big wealth effect i think you always get all seasons i don't think you just like get all it's dead like ever but i think that i don't think any coin can track bitcoin as a base money uh going into a more hyper monetization phase uh because there's no reason for it to right you're not comparing two different things and so i think my personal view on ether Especially now too is like you're in it's actually in a far more precarious situation than people realize because one you have the eth2 roadmap being very complex and they're kind of realizing that a lot of it the research has failed um the roll-up roadmap is is i think promising but will not deliver the things that people are hyping it to be people Always hype it way too much right and then they realize you can't actually do that much with it and this isn't a backdrop where you have very credible contenders now for d5 for for for smart contract chains you have polka dot which is three years in the making you have cosmos which is several years in the making and these are all live mainnet projects now that have serious developers serious People uh and and so i think what will tend to happen is that ethereum right now still being valued as a base money by a lot of people i think eventually it will be valued just as a smart contract platform same as polka dot and cosmo so it'll leak a lot of value to bitcoin from that base map that that kind of base money demonetization and then it will also have to compete For this nebulous smart contract market cap pi which no one really still understands how to value what this overall pie should be worth you know and moreover people only now are starting to realize that the application layer of ethereum and of all these coins should be worth the most actually and this is something i can get behind and you know speaking with some of the smartest minds in ethereum you know You like you know there's something challenging about the thesis when the smartest minds in ethereum believe that you should buy the tokens that build applications on ethereum right because they would say you know well in web 2 you had zynga and zinko had a lot of problems making money because they were deep platforms and all that kind of stuff so web3 enables like radical you know App building you know like anyone can build an app and get tons of users well if that's the case then you would you would assume that the apps are going to accrue more of the value uh in crypto than the base layers if if they didn't i mean this is still capitalism right if they didn't then why it wouldn't make any sense it wouldn't make any sense so i think the vision of where you have massive Application layers that are on all chains that are on solana they're on polka dot they're on cosmos they're on ethe and they work really well and users don't even know that they're using blockchain like that i think makes a lot of sense uh i think it makes less sense that a smart contract platform can achieve some kind of maximalism Which people are trying to assign to it now and i think that this is quite short-sighted uh it is part is primarily a bag holder thesis i think uh i think if you i think if you zoom out and you explain it to other people they'll just say why does aetherium deserve to have the smart contract mantle is it because they're the nicest i think that's what they'll you know because it can't Be that that they have the best community that can't actually be the real reason uh fundamentally what people don't realize is that every rollup chain is in itself a different blockchain yeah and there's really no difference between apps com end users coordinating on going to cosmos going to polka dot versus going to the Same roll up you have the same kind of coordination game um with being on the same blockchain being on the same shared state and um that's one reason why i'm pretty structurally bearish ether right now and the second is um the second is that you have this competition for where the value is going to go that you you also touched on Someone who's who was maybe constructive on defy right so are they going to buy ether as a sort of etf on on basically the whole default space are they going to buy any default tokens and in the future i mean every rollup surely is going to have its own token as well right because these are all vc backed and vc's all want their want to make their their exit So you're going to have roll up top tops you're going to have application tokens and then you're going to have base layer tokens so that's if you compare that to bitcoin bitcoin is the shelling point for so many different narratives and there's for all of them only one option to buy btc and if you look at something that's happening inside ethereum Even in this narrow space it is basically one of many ways to express a constructive view on that on that kind of event and that's that's kind of like the reverse selling point almost it's that's what's what's really worrying me right now yeah it uh now that you guys have kind of put it this way it actually scares me for anyone who has like ethic exposure because you have this enormous narrative problem Right the fact that this discussion i'm in this space every single day and some of the points that you guys made on the tech side are complex enough where i don't fully i don't fully understand them even though you conveyed them decently like that points to a marked narrative problem right bitcoin's current narrative is incredibly elegant and simple everyone can agree on it as you said with ethereum i don't even Know what the narrative is anymore that can be sold to people and like that that narrative is key for price appreciation and it currently doesn't exist or it's conflicted the fact that it's it's so complex and convoluted means that it cannot be spread right quickly to people that could potentially buy this asset and that seems to be incredibly worrying from a trading perspective for me The other thing that i think is fairly simple is that ethereum is just underperforming bitcoin like the market is clearly signaling that you should be in one asset and people i don't think many people really think for themselves in this world and so you know and i don't either you know when i see that bitcoin is outperforming i i'll come up with a reason to explain That and i'll make sure to be long bitcoin you know and you just don't want to be the last guy who catches on or fights his his like mental biases last because you were holding out hope that maybe something will reverse in the trend these are trending auto correlated markets and for good reason right because we don't know what these things are worth so price is our leading variable for Value and so you do whatever the smart money and other people are doing by voting with their wallets and buying stuff and right now that is buying bitcoin yeah and um i think i mean the the last bitcoin soft fork was three years ago right that's hard to wrap your head around and people people say bitcoin is stagnating right bitcoin is not evolving But i think what's really happening is that the normies right the kind of the the people who are not watching crypto so closely nothing happening in bitcoin is actually the best thing that can happen to bitcoin nothing happening no news nothing that is except like you know people buying bitcoin and coverage on it that is That is what it takes to build the kind of lindy effect that we need i i don't even i mean with the different with sort of the volatility of of alts in terms of their monetary policy in terms of the technology i feel like you almost can't establish sort of any sort of lindy effect uh because it's it's constantly pivoting right there's new faces People leaving um actually i guess i kind of walk that part back i don't think that the people really matter but the fact that it's constantly changing at that rate means that it's difficult for that effect to take over and to demonstrate solidity which is what these guys want right because they're taking an enormous reputational risk right like if michael sailor is wrong um he might Not care but other people in his shoes are going to be the that guy who's like the uh you know the crazy dude who who bought this thing that was obviously a scam and five years later it's down 95 right and so bitcoin being around and being kind of similar and unpredictable is super important for these people because i think that they know what they're going to get and they don't have to worry about you Know vitalik deciding to skip f 2.0 and going to f 3.0 i actually saw on twitter today um paul tudor jones going on cnbc and saw the clips being shared and um listened to them and i saw him say something that nobody had pointed out until that point and he said i've never seen a store of value where you also have such Great intellectual capital behind it and i'm paraphrasing but when you short the bond market as an inflation hedge you are really betting on the fallacy of mankind rather than its ingenuity so he what he's saying is that other inflation hedges are fundamentally bearish on humanity whereas bitcoin is kind of bullish human ingenuity and bullish humanity and even though i've kind of always felt That i've never seen it expressed in such a way bitcoin is always sold as when when when the bitcoiners are right the world is going to so if you buy bitcoin you're buying doomsday pretty much it's at best you can you can say okay maybe it's like a small like doomsday hatch or whatever um and that shift what do you think about that i think the optimism actually you can even see it in the way That the average bitcoiner views something like the uh subsidy problem right like i've always kind of believed that the people who think that bitcoin will have a fee problem i think it's like the middle of the bell curve view because i think like like the very low side of the view those just not even know what a fee subsidy is they don't even know and they won't care and they'll just be like I bought bitcoin and i'm up and i'm gonna buy more and then on the other side of it you say well there are all these ways it could get fixed and the market will find a way because these are the things that we've all collected together haven't we so we've all come together as a world and collected these things and and stated that this is our numeraire this is the way that we distribute value This is the way that we collect value there like like there's an optimism on both sides that ingenuity will find a way to preserve this value right so i think like the the idea of where you know they just won't figure it out and then all the value will go to zero like that actually is like the ultra pessimistic view of human ingenuity which is that we spent all this time Buying all these coins doing all this proof of work but we couldn't figure out the fees we couldn't figure out the stuff all goes to zero buy some other coin right like that's actually hyper nihilist in a way and and so i think like the like the fact that bitcoin buyers don't even need to know as much about it but believe in this shared like concept of a digital Money that was the first incipient blockchain i think that that is why like the guys like him they see it as inherently optimistic whereas um like you said in the past people didn't quite see this optimism as clearly it's a it's a strange it's a bit of a strange place because it attracts both some of the smartest and some of the stupidest people that i've Ever encountered and i'm not quite sure exactly why it does that maybe maybe for different reasons but it's almost it's almost actually quite fitting because i think i think ben hunt had a good point about how like narratives he says you don't want to be too smart by one half um because then you don't get anything and that's similar to sort of that that meme right where you have the 120 iq dude Who's just sitting there just getting just getting demolished on both sides and then you have the guy with adiq and the guy with a 140 iq and those guys are doing the same thing as well um and like you like you have like people like just commenting on paul tudor jones like a guy like that that level of thought is is fairly unique given the valuation in the space and There's a there's a few other people i'd like to think in my opinion including youtube that like compose some similar quality of thought that like it just seems like just based off of the ratio of evaluation of the space to the amount of people who are who are kind of participating in it that seems on a relative basis very cheap compared to uh gold and peter schiff you know It's very hard to have a constructive view on something like gold like on the very on the very long term it's it's it's an enhan inherently regressive bet yeah i think it i think maybe that's why it attracts some of these people because there is a way to both on a normative basis feel positively about the space right like i keep My philosophical bents at the door because i'm a traitor but like it's unquestionably compelling to me in a lot of ways that i agree with them that they kind of highlight like uh like the positives in humanity right that's unshackled from some of the the things that we've developed as a society and governments that we may not have intentionally done but yet here we are You know and this offers potentially a way to rethink the system it seems i never found those arguments that i would want to hold bitcoin if the financial system collapses financial system collapse i don't really give a about you know eating cans of cat food like that's not really why i'm here i'm here because i think that it's potentially a step forward towards like A problem right and it is a humanistic solution in that way yeah and um sue you and i we in 2019 especially that was kind of the center almost for of the articles that we wrote kind of skeptic series on bitcoin that humanity kind of advances with cooperation and you get cooperation via this kind of social institutions and they work by by restri actually restricting human Behavior right that is what enables trust and cooperation the knowing that the other guy can't screw you in in ways that you you can't predict and you can't insure against and that's fundamentally the thing that bitcoin and cryptocurrency and smart contracts enable and why i think it seems so because they seem restrictive to people but people don't realize that restriction is actually the Driver of cooperation at the driver of growth of humanity yeah i think trust minimization is a huge concept there and i think that also gets back to the question of you know can there be another base money in crypto besides bitcoin and i don't think you can get that kind of trust minimization anywhere else it's very hard to replicate the fair launch some people will say it's unfair But i mean nothing is it like ever truly fair but as fair as you can get um i think you can't replicate it now given how much attention there is and you can't replicate the idea which is that it's gonna just be the sore value right you you can't come out and say i'm also just going to be a store value anymore because there's a Cardinality uh which guys like child mouth understand and i and i think the wealthiest people in our society understand as well right where you know let's say the ultra prime area of a city right the real estate there the ultra rich in that city they can all agree easily on what is the ultra prime of their city it's not something that they can have different opinions on we can all Agree that you know the parts of manhattan nearest to central park on the south are the best parts and need to be worth the most right and so wealthy people are very used to this idea of a shelling point for money for stores of value and so because of that there's money thesis and tech thesis in crypto and i think the tech thesis guys they've done a lot of good stuff right we We can use a lot of cool blockchains now because of what they've done but i think that the value accrual of most of the native tokens of crypto ultimately will go toward the money use case where it has now enabled trust minimized currency to exist and so i kind of see all the you know all the other chains they're ultimately feeding back into bitcoin uh and and making it more viable Showing people what its properties are and why they're valuable and why they can't be replicated easily so i think you've mentioned you've made a pretty compelling case for sort of that sort of shelling point argument for bitcoin and i think that it's it it warrants kind of asking the question of whether that thesis can be wrong and Whether an alt or some combination of them can achieve can achieve that sort of game theory solution as well and i think where a lot of people kind of get it wrong unless i'm kind of strawmenting them is is that they they say within an alt system that alt within the solana system that alt is quote unquote scarce maybe less scarce Than other things but still scarce and they just view the system in a vacuum rather than understanding the whole context of the space where there is no scarcity up within alts versus bitcoin because so many exist right that that removes the scarcity each of these separate sort of universes impede the claim to scarcity within other universes right or rather Not universes but solar systems whatever you want to call it and so it it becomes orders of magnitude more difficult to reach a shelling point as an alt uh because of this lack of scarcity and differentiation whereas whereas there is only one bitcoin right it's always been bitcoin versus alts that narrative has been maintained ever since you had feather coin and it Also continuously becomes like reiterated when things like feather coin litecoin and other projects like this become dead project usually and then they become replaced by something else and we've seen so many cycles of this that it almost becomes impossible after your first alt cycle after you kind of say i want to find the next bitcoin because i need to catch up to these People that have been around for a long time right this the sort of plebeian mentality of wanting to get money quickly versus the mentality of those who have been around in the space for a couple turns of of the wheel of time and have seen they've seen these things die over and over and now it goes back to the idea that if you go into a coma tomorrow There's no way that your portfolio is going to be made of of ripple okay like that portfolio is it probably made up of bitcoin 95 of it potentially or maybe maybe a market weight allocation between bitcoin and ethereum if you feel very strongly about it and then maybe a few speculative type bets right like that are like very small percents of the portfolio like that would be the Construction that gunta had right now i would have to to put myself in now i'm not even sure if that would it might just be a 100 bitcoin at this point um and i i feel like i'd be kind of embarrassed to tell some of my friends from traditional finance my views but i think that it's it was an it's an interesting time to talk about this because i think that we're clearly out of the analog of the Nikkei in the 80s now and i think conclusively on bitcoin right and again i say price ossifies narratives and you see that bitcoin is clearly not sort of having a a death rattle the way that the nikkei did right because people were hoping that it would run it back like i look at it now and the way that it's moving and sort of the macro backdrop it would make me embarrassed but i think It is it is more more likely than not that we clear the all-time highs at this point within within let's say this year or the next right which seems like an outrageous claim to make because i think that you know based off of sku's model i think you look at those options they say 20k or overs is priced at seven percent currently right with the with the simplifying assumptions that they're using like that Seems ridiculous to me like it seems ridiculously cheap to me and um like but it's hard to say something like that with strong conviction because it sounds i sound like a lumen you know you

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