All Podcasts Between2Chains B2C0029: Digital Assets: Where are we in the Cycle? ( w/ Jeff Dorman )

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Sep 20 2021 . 46 MIN
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B2C0029: Digital Assets: Where are we in the Cycle? ( w/ Jeff Dorman )

In this episode of Between2Chains Peter Hans is joined by Jeff doorman to talk about where we are in digital assets cycle. They draw parallels to the early 1990s and speculate that digital assets may not be an asset class at all, but rather a technology that will pervade everything, and that calling it an asset class will be equivalent to calling investing in securities an asset class in the future.

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Show Notes

Summary:

In this episode of Between2Chains Peter Hans is joined by Jeff doorman to talk about where we are in digital assets cycle. They draw parallels to the early 1990s and speculate that digital assets may not be an asset class at all, but rather a technology that will pervade everything, and that calling it an asset class will be equivalent to calling investing in securities an asset class in the future.

In this Episode:


1. Jeff Dorman talks about where we are in digital assets cycle in Longer term, in the medium to short term.

2. He always believed, that ultimately every firm in the world will have some type of token in their capital structure. They're either tokenizing their stock or issuing a new token. 

3. He discusses investment potential in several digital asset sectors. 

4. He discusses structural shifts, sell-offs, and short squeezes that propel markets higher. 

5. He discusses the digital dollar, which is truly Fiat backed, as well as the obsolescence of these dynamics. 

6. He discusses what it may take to find a balance between the 2.3 billion internet users and the tens of millions of blockchain users.


Transcript:

Note* Following transcript is generated using AI. Minor errors might be present.


REAL VISION 00:00

Welcome to The Real vision Podcast Network.

 

PETER HANS 00:08

Hi, this is Peter Hans. Welcome to Between2chains. In this episode, Jeff Dorman and I talked about where we are in this cycle. We look at comparisons to the advent of the Internet in the early 90s. and explore that maybe digital assets isn't actually an asset class, but a technology that will permeate everything. And calling this a asset class will be again to calling investing in securities, an asset class in the future. It's a really interesting conversation. It dovetails to a lot of other potential topics. We address some conversations brought up to us at ARCA by other institutional investors, which is something I'll look to do a lot more in the future. I hope you enjoyed the episode. And please rate and review if you do thank you. Before we get going, we want to remind you that Jeff Dorman is the co founder and chief investment officer of ARCA funds, and Peter Hans is ARCA fund Managing Director. The commentary and opinions expressed in this podcast are solely those of the podcast participants and do not necessarily reflect the opinions of ARCA funds or its affiliates and are subject to change for any reason without notice any discussion of investments or investment strategies within this podcast or for informational purposes only, and not to be construed as a recommendation to buy or sell any particular investment, security, digital asset or strategy. Investing in digital assets involves a high degree of risk and volatility, including the risk of the total loss of principal and now enjoy the show with your host Peter Hans. Morning everyone welcome to between two chains. It is what Thursday September 9, right in early see a little after 6am pacific time. Jeff, how you doing this morning?

 

JEFF DORMAN 01:56

Doing great. How are you?

 

PETER HANS 01:56

I'm doing well. Thanks late night, late night for the ARCA team they're celebrating a birthday last night and we had our first ARCA fantasy football draft last night. How do you think how many Breton Did you get enough Browns?

 

JEFF DORMAN 02:11

The 30th birthday party for colleague Kyle what really well the fantasy draft not so much. I definitely don't have enough Browns I think the Browns are going 50 things this year so

 

PETER HANS 02:22

which brown were you most disappointed in not getting outside of Bernie cozaar

 

JEFF DORMAN 02:27

I definitely wouldn't I did take Bernie cozaar. I think he's gonna have a big year but now I think I mean look Nick Chubb and Kareem hunt together they're gonna be amazing again this year the Browns are gonna run the ball. Good offensive line pretty excited for the season to start.

 

PETER HANS 02:40

Very good. Yeah, NFL season starts tonight. I know there's a lot of our global clients are extremely interested in the in the NFL season being being imperious is that is that does that mean sarcastic might just add a fourth grade vocab test? And I knew maybe 30% of the words in that.

 

JEFF DORMAN 02:58

I think that's great, man. I think you know, your listeners definitely want to hear about third grade book as a key become

 

PETER HANS 03:03

fourth grade

 

JEFF DORMAN 03:04

fourth grade and even better.

 

PETER HANS 03:07

Yeah, it was it was that Yeah, at school now is, is very interesting. Because they, they just they continuously like move kids up a grade. And he's reading he you know, so we had summer reading, which I don't know about you, but I never had Summer Reading growing up. But if I did, I if it was assigned, I certainly didn't do it. And, and it was a book about, you know, Nazi invasion of Denmark. And that's pretty heavy stuff for a nine-year-old. You know, and then the vocab words are just like, it's it's too much. It's too quick.

 

JEFF DORMAN 03:39

Next step is learning about Turing complete and a lot of different blockchain concepts so

 

PETER HANS 03:44

Yeah that they're more they're more interested in, especially my girls, they, Lucy, my oldest daughter will will ask about how much things cost and eath, which I think which I always think is awesome. And that's, yeah, well, that's actually it's not a bad segue. Because, you know, one of the things that I wanted to talk about today, and it's a question that, you know, we get all the time, from institutional investors about just kind of, you know, where we think we are in the cycle, you know, because, you know, from, from a behavioral psychology standpoint, obviously, no one wants to, no one wants to come into markets, you know, after you've seen massive run ups, but historically, time and time again. You know, I think one of my first podcast episodes was about this, right? You know, Amazon was at, you know, a buck and change and, you know, early 2002, and, you know, granted $8, and you were like, Oh, it's up 800% I'm buying Amazon now, you know, and, you know, same thing happened in, you know, the early 90s in the internet, when, you know, you had kind of the first infrastructure build out, you know, over that entire decade, you add EMC up over 95,000% obviously, you had many, many opportunities to buy EMC in the in the Early 90s when it was only up 1,000%, you know, and and but it's really about looking forward not looking back looking at, at what you what you potentially missed. And, you know, we know there's a lot of institutional money on on the sidelines. And I think we're in extremely early stages in the overall larger cycle, that this isn't an 18 month trade. But nonetheless, it's a it's a question that we that we always get from, from institutional investors. So, you know, I know how I'd answer it, but I'd love to just kind of kick it to you. And maybe let's just talk about it a little bit, you know, where do you think we are in in the cycle? Longer term? And then and then, you know, what, what about in the medium to short term?

 

JEFF DORMAN 05:44

It's an interesting question, because it's very difficult to answer. The digital asset market has gone through periods, basically, to real cycles, right, in terms of, you know, trading, probably beyond anybody thought was possible on the upside, and then largely crashing and then stabilizing, and then, you know, three years later, you know, getting into another cycle. A lot of that has coincided with Bitcoin halving’s, right, you know, the Bitcoin halving happened last summer, the rally pretty much started around that time, right? And the same thing happened four years ago at the last Bitcoin having the difficulty in thinking about cycles, though, is, you know, the digital digital asset ecosystem has so different now than it was during any of these last cycles, right? We have totally different assets, we have completely different sectors. More importantly, probably, we have completely different investors. You know, we've talked about in the past, where a lot of times it's who is invested in matters more than what is invested. Right? When you when you when your four years ago, it was largely just Bitcoin investors, and, you know, technologists and software developers, and maybe a couple of early VC's that were invested. It's a very different universe than when you have, you know, country and corporate treasurers, and long short equity funds and macro funds, and, you know, individuals from tons of different emerging markets and all these different areas of the world that are now impacting the digital asset space. On top of the fact that again, it's much more than just Bitcoin and ethereum. Now you have Defi, you have web 3.0, you have sports and gaming and NFT's, it's really difficult for me to assume that the past is relevant at all. I think a lot of people like to discuss these historical patterns, because that's what we do as investors, we assume things are going to repeat and we assume we're going to things are gonna look the same as what they once were. But we're talking about an asset class in general, it's only 11 years old, and really outside of Bitcoin is only about five years old. in any meaningful capacity, I'm just not sure that we can assign any real probabilities to historical patterns at this point. You know, there's there's a fair amount of people now who think about supercycle so we're talking about like, maybe the past isn't going to happen, maybe there isn't going to be an up and down. Maybe this is a supercycle where it's going to be, you know, five years of just straight up. You know, again, that's largely guesswork. For me, I don't think about cycles, I think about evolution, which is we've evolved from just cryptocurrency to cryptocurrency plus smart contracts, we've then evolved from smart contracts to, you know, these other sectors that I just mentioned, they all are going to have completely different patterns. And in my opinion, largely differentiated patterns. You know, the NFT gaming pattern, for example, might look like a Bitcoin pattern, right? It might be running too hot, you know, everybody loves open sea. Everybody's buying individual, you know, art and paintings and crypto pawns in board API clubs. And then they just give up six months later, and that might crash. But I don't think that's going to have any impact on you know, a growing salata ecosystem or a growing Terra Luna ecosystem. You know, even if Bitcoin continues to trade with its historical cycles around the halving? Again, I just don't think that's going to be relevant to what we're seeing in the ethereum ecosystem around Defi and, you know, around some of these gaming tokens that are starting to take off, so I'm just not convinced that anything we've seen in the past is going to drive narratives or prices going forward.

 

PETER HANS 09:11

Yeah, no, I think that makes a ton of sense. It's very interesting. Because, you know, I can't and I can't necessarily think of a great parallel, and maybe there's no great parallels for any large technological revolution. And that's why they're so powerful. Because, you know, I think I think one of the analogies that I, that I like, is is kind of the advent of the Internet as a as a, as a, you know, massive technology that essentially permeated every industry and changed everything. And it was, although it seems kind of fast and furious in terms of what it launched, you know, throughout the 90s. You have to, you know, kind of look back and actually think about Okay, well when did this technology actually start developing I mean, again, reality was, you know, what, late 60s, early 70s, when the first kind of node to node messages were sent using that protocol. And then I think, you know, official advent of the Internet is was was, you know, more like 1983. So you had, you know, almost 10 years before, even the first kind of real infrastructure builds that were investable and made it into mainstream and then not until, you know, arguably, you know, 20 years later that you see, you know, the real proliferation of kind of web two and everything that happened. So, you know, that there are some timeline parallels there, but that came out of actually, it's not it's not a it's not a bad analogy, when you think about it, because, you know, the the internet came out of research came out of academic research, and there was a lot of viewpoints that it was only to be used for academic research. blockchain came from Bitcoin, right, blockchain as a technology would not exist without Bitcoin. And there are still many people, mostly, you know, a lot of you know, hardcore Bitcoin maximalist the thing, the only use case of blockchain is Bitcoin. I mean, it's in the end of the Bitcoin standard book that that is the only conceivable use case of a blockchain. Obviously, that's not that's not true. And, and, you know, at ARCA, we believe that it's the, you know, it'll be a foundational element in essentially every aspect of our of our economy and world in the future. So that that would that would argue for a much, much, much longer cycle. You know, how do you think about I guess the the overall technology growing and what you might know, you said, you know, don't look at the past, but, but sometimes it helps to have a comparison.

 

JEFF DORMAN 11:45

Yeah. And, you know, I think our CEO, Rayne Steinberg wrote something pretty interesting. A few weeks ago, I think it was published in the forum's he was, he was even asking the question, are digital assets even an asset class? Or is it just a technology that's going to encapsulate all asset classes, meaning you will have currencies represented in digital asset for we already do, obviously, with Bitcoin and some of the Bitcoin knockoffs. You know, we will have commodities that are represented a digital asset form, you will have equities will have fixed income. I mean, you could argue that most of Defi is really just fixed income in a new shell. You know, I think, when you think about it that way along the same parallels that you're talking about about the internet is, if that's true, we haven't seen you know, 90% of what is going to come in this digital asset ecosystem, ecosystem. I mean, I've been a big believer, and I know you are as well that eventually every single company in the world is going to have some sort of token in their capital structure, right? Either they're tokenizing their equity, or they issue a new token. That is some sort of a pastor token that's a quasi equity quasi, you know, membership or reward card. You know, I think your local barber is going to have a token to increase coordination and bootstrapping from their customers. I think your local restaurant Well, I think your kids climbing gym will have a token. I think, you know, the entire private placement market that's dominated right now by $10 to $15 million EBIT companies and they do, you know, small 10% debt deals that are back there that are issued by JP Morgan and largely just get bought by, you know, Aries and Oak tree. I think that will be replaced by tokens at some point as a capital formation and customer bootstrapping mechanism. So, if that happens, then again, it throws this whole idea of a cycle out the window, because now you're saying, well, digital assets are no longer unique. It's just an infrastructure that in campaigns encapsulates everything that already exists. All these other asset classes already exist are represented a digital asset form. And then it would be really hard to say, Oh, well, you know, all digital assets are going to follow a cycle because they need to let us make sense, like, why would equities and fixed income and commodities and currencies, all of a sudden trade together just because they're represented in digital assets for? Right, it wouldn't make any sense. So I think as EAC I think the as this asset class continues to evolve as this technology continues to evolve, and it starts to replicate all of these different other instruments and asset classes that already exist. It's impossible for everything to trade together in any meaningful way. Like I think we're probably no less than a year or two away from people not even being able to say I invest in crypto or I invest in digital assets, because it won't make sense. Then the next question will be what part of that ecosystem Do you invest in? Do you invest in these equities? Do you invest in defied you invest in NFT's or gaming, it'll be completely separate investors, with completely separate theses, investing in different parts of this ecosystem, again, the same way that we always talk about ETF's, right? Nobody would say, oh, ETF's are going through a cycle. Because that wouldn't make sense. You'd say, well, is healthcare going through a cycle, those are represented as ETF, or bonds going through a cycle, those are represented as ETF's are, you know, is gold and commodities representing or going through cycle, those are represented inside of ETF. And I think ultimately, this just becomes a wrapper for everything that is investable, which would again throw the entire idea of a cycle or a supercycle or any Sort of cross acid correlation, throw it out the window because it just will no longer be relevant.

 

PETER HANS 15:05

Right! I think that's great perspective. And I actually agree, it's really interesting because if you think about it, and it is not dissimilar, right? You know, blockchain is the underlying technology, right? And the digital asset is, is any representation of a, an asset that trades and settles via a blockchain and is stored via blockchain through a digital wallet. And obviously, as the technology matures, and as new use cases are adopted, it becomes broader and broader. And if what you and you know, rain wrote about that, you know, that, in essence, every asset becomes digitized in the form of trading and settling via via blockchain, then, then you're totally right, it becomes less of an asset class, and we're more of a technology, but that that will eventually evolve, not on not unlike, frankly, the internet as a technology going kind of back to that parallel, right, in the in the early days, you know, in the in the 90's, you had, you know, tech stocks, you know, and then and then as that, you know, and you might have had an analyst that covered tech, you know, and then obviously, that, that seems ridiculous, you know, 10-15 years later, because you had, you know, you had hardware, you had software, and then you had, you know, security and you just kept getting narrower or narrower and narrower and having different people that cover different things. Fast forward to today. There's not a business out there, that's not a tech company in some capacity, right? If you think about the 90s, like this tech boom, it was like websites, you know, like pets.com, and eBay, and, you know, and all this sort of, and everything else, right? That's just commerce, right? It's e commerce, right. But now, like, there's not a business in the world that doesn't have a doesn't have an internet based component to their business. I mean, hell, Domino's is a tech company now, right? Starbucks is a tech company. Now. Every everything is a tech is a tech major, major tech component to their business. So you get it, you wouldn't say like, Oh, I invest in technology is like, you know, okay. Like, what, what does that mean? And I think I think you're, you're, you're, you're totally right. And that would that would argue a couple of things. One, that there's, you know, and we're drinking our own Kool Aid here, but that there's tremendous opportunities to invest in the overall infrastructure and opportunities to build out that system to make all of this possible. And, and, and over time, it will, in essence, permeate everything. So it's going to be about not that I invest in digital assets. It's, you know, what sector? Where are the opportunities?

 

JEFF DORMAN 17:46

Yeah, and I think, you know, we wrote about something last week, you know, we titled it, w a gmic, which stands for, you know, we're all gonna make it. You know, there's an entire vernacular right now, that is being built around your communities supporting the assets they invested. Right, if you, you know, there are games that aren't even launched yet that issued a token to get excitement in bootstrap that future growth of what a game might look like. And these are opportunity. Now, these are tokens that sometimes trade up 100x even though before the game isn't even launched yet, right? We have protocols like Cardona. You know, Cardona has a $90 billion market cap, they literally just finally launched some of their smart contract functionality after six years of academic peer reviews. No, it literally has zero economic traction relative to something like ethereum. Or even like the newcomers like Selena, and avalanche, there's a $90 billion market cap, you know, you go down the list, all of these different ecosystems are being built before the project is even off the ground. And what you do is you are basically enriching your future client base, and making them a powerful part of your community, to the point where you don't even necessarily have to launch Rob, because you have such a following and such a diehard group of people that are willing to back this project until it gets off the ground. And it reminded me of my old project finance days back in the debt market. I was telling you a story about the old Atlantic City revel casino. It was one of the highest cost projects that were ever built into Atlantic City, right? It was back in the mid to that like 2010 2011, when Atlantic City was trying to replicate what what Vegas had done, and they built they spent $2.4 billion financing this amazing casino, and it took, you know, a year and a half to build that kind of rushed it the layout didn't make sense. They ended up going bankrupt six months later and then went bankrupt again, six months after that, and the bond, you know, the ultimately they sold the project for about $110 million, you know, so a massive loss for for the equity holders. They lost 100% Morgan Stanley, themselves walked away from $900 million of equity to bondholders. In loans, they, you know, they lost 90% of the value, ultimately, when this rule in this company was sold, but you think about it, it is like, well, project finance is largely a lot of what we're doing in the digital asset space, where you're basically issuing a token to bootstrap the growth of something. The difference is, you know, in the traditional debt equity world, you have a clock ticking the whole time, you know, are you going to run out of money? Are you going to default, can you make your interest payments, that just doesn't exist right now. So what's happening is these communities are growing and building and becoming more adamant and more powerful, even before you have a project that by the time the project actually launches, it almost is guaranteed to work in some capacity, because you have all these people who support it. So when you think about that, and what that means for companies going forward, again, you kind of have to do this, that you're not going to survive, if you don't have the digital assets, you don't have the community, you know, if you don't figure out a way to engage your customers, and have them be stakeholders, beyond just showing up to use your product. So again, when companies and projects start to figure this out, and you just, it's just gonna be a never ending cycle of new issues, you know, it's not going to be, you know, the same top 25 or top 100 tokens on coin market cap, it's going to be a different group every year, because you're just gonna see more and more entrance into this world. And when you when you build that sort of trust, or if nothing else, like this like mindedness of your community, before you even have a project, imagine what it's like if you bring someone over like an Amazon, or a Starbucks, or a Delta Airlines who already has a huge community, and you start to turn them into real stakeholders in your company, it's going to be something that we've just never seen before. You know, that the the, the interest and the love of owning this digital asset and being part of this community and growing with the company. So again, I just think you just can't compare where we're going with where we've been. It just, it just doesn't make any sense to me. Like he said, Every company is now a technology company, every company now uses the internet, if we're right, and that's the same thing in blockchain. I don't know how anything that's happened to Bitcoin or ethereum is ever going to be relevant, again, with regard to what prices do in this asset class. And if you're a digital asset, native investor, or you're, you know, one of the people that are early investing in the space or you have a fund, like ARCA does, that's investing in this space, you're just gonna have a front row seat at this continued evolution, right? You might be investing in Bitcoin five years ago, and a theory and three years ago and Defi two years ago, and gaming and NFT's now, you're gonna be investing in everything in the future, through these blockchain wrapped assets. And, you know, there again, there will be certain sectors that might go through a cycle, there will be certain assets that might go through a cycle. But it's just, it's crazy to me to think that you're just not going to be up into the right for the next 10 to 20 years, as you just see continued growth and evolution and new entrants coming into blockchain.

 

PETER HANS 22:46

Right. And, and I think, you know, what, that's an interesting point and speaks to kind of, you know, zooming out on a chart, right, you know, if you if you looked at Amazon 1999 to 2002, it's a tremendous loss of value. Right? You know, I think, I think that, you know, behind the tech bubble, it was approaching $100 a share, and then, you know, bottomed out post 9/11 in a in a in a very low single digits, almost 20 years ago. But if you zoom out in that chart, that's nothing right? You know, because then it went from a bucket change to, you know, 3500 or so. What, how do you think about what we've seen, you know, over the past few months, few years in terms of these kind of, in the in the moment, right, it feels crazy, you know, you can see 20 30% moves in minutes, you know, a lot of names that, you know, you are very vocal about about really loving, fundamentally saw drawdowns of 70%, you know, across, you know, late May, throughout June, and then 100%, you know, the increases Plus, you know, how do you how do you think about it, and, and manage kind of the emotional aspect of managing risk and a portfolio in an environment like that, when, you know, ultimately that everything is up into the right long term.

 

JEFF DORMAN 24:15

Yeah, I mean, you know, this is where that community versus fundamental valuation really comes into play, right? If you are a just diehard believer in a project, but ultimately, that project barely exists, or doesn't have revenues, or doesn't have cash flows. You might be the biggest believer in the world and the biggest evangelist and the biggest power user, and you know, on Twitter and in Reddit and talking about it all day long, and when it drops, 70% you're gonna have a hard time saying, I definitely want to buy more because I know for sure this is gonna work right price will definitely test your belief if it doesn't exist. Whereas if you own something that has real revenues, and real cash flows and real yields and real users and all the KPIs and metrics that you can value, it's not hard to be like, Alright, well, this is a buying opportunity. I'm going to you know, find out every dollar I can or every No asset that I can to go invest more into this because I know it's going to recover because I can see that the data is telling me that this is not a fundamental sell off. This is a structural, you know, technical types in life. So there's no, it doesn't surprise me that when you talk about that 70% drawdown and 100% gains, most of the better assets were the ones who gained first Now eventually, you know, turns into a full all out rally. But, you know, there was, it was not hard to figure out which were going to be the better assets that rallied first, because those are the ones that people really believe in, and are willing to put more money into when it falls. So I think the volatility will definitely scare and shake some people out on the things that are more hype than substance. But, you know, it's not going to affect the entire asset class, the entire asset class, as we just mentioned, is made up of little mini asset classes that all have different characteristics. And, you know, you're seeing it, you're seeing it with inflows on for example, you know, we have said multiple times we think Bitcoin is a great asset to own personally, right? It's probably, you know, it's more of a call option, it's either worth zero, which is very unlikely, or it's worth, you know, a million dollars per coin one day. But even even Bitcoin, like, you know, Bitcoin had outflows for eight straight weeks, beginning in May. But the inflows started only three weeks after the drawdown, they were just coming into different assets, they were coming into a theory of they were coming into Defi, they were coming into Samana ecosystem, they were coming into gaming and NFT's, right, those were easier stories to add to on a dip because you knew for sure that there was real substance here, there was real value, I could come up with a valuation that said that something down 50 or 70%, made no sense relative to what it was doing. For Bitcoin, it's like, I don't know if you know, does 100,000 or 10,000, or 50,000, make that much of a difference. Like, if you think it's going to a million dollars a coin, it's just as cheap at 50,000 or 100,000, as it is at 30,000. It's not like you have to rush in and buy more. And I think you're seeing that right, as the investors get smarter. As they get more institutional, they're going to make decisions that are based more on fact, the narrative, you might get caught up in the narrative on the upside. But on the downside, the fact and the substance is what people looked at it like that we saw it in the last two months, the inflows were undeniably coming into other assets besides Bitcoin. And again, that doesn't mean bitcoins not going to go up, you know, 10x, from here very well might have might go 50x from here, but it's a it's becoming harder and harder to substantiate the price or to buy dips in things that are largely driven more by community and narrative than by substance. And then, you know, when you think about even how much money is on the sidelines, who hasn't even entered this space yet? You know, it's hard to be negative for a long period of time when we were having the conversations that you and I are having with pensions and endowments and sovereign wealth funds and family offices who largely still only have exposure to Bitcoin, or ethereum, or nothing at all in this space.

 

PETER HANS 27:47

Yeah, more likely nothing.

 

JEFF DORMAN 27:48

Yeah, I mean, they're coming in, and they're gonna, and they've already done their due diligence, they spent their time watching this asset class go up and down, they've spent this time their time seeing these previous cycles, they're ready to come in independent of price, which again, supports the idea that you just can't have a meaningful drawdown right now. You can have a meaningful drawdown in terms of price, but not in terms of timing, right, it's very unlikely we're gonna have an 18 month drawdown, the most of time, you're going to have these, you know, one and two month blips where, you know, the market sells off for structural reasons, maybe leverage got too high. And, you know, you have cascading liquidations, and people get scared for a couple months. But it just seems incredibly unlikely that you're gonna have a sustained sell off across the entire ecosystem. When it's evolving this much. It's growing this fast, and you have this much money sitting on the sidelines, ready to come in.

 

PETER HANS 28:35

Yeah, it's interesting, because in, you know, there's not the same drivers that we see in traditional markets, you know, on an individual name basis, it's going to be, you know, fundamentals and news. You see that to an extent here, less than one The downside, frankly, more, so more so on the upside. But it seems to me that that a lot of the major moves in the market in short term are very structural in nature, right, you know, big leverage on winds. You know, we saw a big short squeeze kind of kind of in July. You know, what, because ultimately, if you kind of remove those, those more kind of structural elements and look at the look at the overall market dynamics of fundamentals, and ultimately, you know, as I've said a million times, you know, I'm a big believer in like, at the end of the day, who is a market who's the incremental buyer, who's the incremental seller, it just seems to me looking at the dynamics, there's far more incremental buyers for this overall asset class and certainly for something like Bitcoin, then there are incremental sellers right if you're involved right now in this asset class, you're probably not capitulating be like You know what, I just don't buy it anymore. not believe in this, you know, like, more people are coming in and not. So you know what, I guess what do you think? Think, how do you how do you how do you view those kind of more structural moves, sell offs and and, you know, short squeezes that move things higher?

 

JEFF DORMAN 30:09

Yeah, I mean, a lot of it. When we say structural, what we mean by that is, this is an incredibly fragmented market, meaning it's 24. Seven, it's global. There's hundreds of exchanges, hundreds of OTC desks. But unlike the debt equity world where you can transact across multiple venues, but all do it through your own prime broker or your own brokerage or bank, you have to physically fund these different places that you're going to trade before you trade. Which What that means is, whenever you see a sell off, like there, you can see the on chain data, there was an amazing amount of stable coins that were being put onto exchanges on Tuesday during the sell off, they just don't get there fast enough to buy, right, it takes time to move your assets. In the traditional equity world, you don't have to move your assets to do a purchase, you just buy it and sell it later. So when you start to see a sell off, the bids will fill in long before you have these cascading liquidations. And even if you do start to have some cascading liquidations, you know, ultimately there's going to be some sort of a circuit breaker that stops it and lets people you know, regroup before it gets out of out of hand. We just don't have that in digital assets. And to some extent, it's beautiful, right. And we have this anti fragile market that has huge price swings, but always kind of fixes itself and always writes itself without any intervention from governments or from you know, bigger systems. But it takes time, it takes time to get your money from one place to another. You know, if for anyone who actually tried to trade on Tuesday, at one point, Coinbase and Gemini and crackin, and finance were all down at the same time, they were down because there was so much money trying to enter their ecosystem to buy the dip. And it takes time to settle all those blockchain requests and to get all those money into various accounts. So you know, that's an issue that happened in March 2020. It happened in May 2021. It happened this past Tuesday. It's not that people didn't want to buy it, it's that you physically have to move assets around in order to buy it. And because that takes time, you get those cascading liquidations like I think it was three and a half billion dollars worth of liquidations on Tuesday. And then what happens is because the price is going down, you have a lot of momentum. And you know algorithmic traders who think that it's therefore you know, the cycles over time to short it. So they pile on, and then it might psych some short term traders out from buying because the price is down so much. But it doesn't impact at all, the sovereign wealth fund or the pension, or the endowment has been doing due diligence for 24 months trying to get into this space doesn't impact at all a large hedge fund that is sitting on 20% cash, it's just you know, you have to recognize that these new and bigger and different players that are coming into this market, just think differently than the, you know, Johnny day trader from his parents basement, who is trying to get assets to Coinbase to buy the dip. And I think you'll just see less and less of these structural breakdowns over time when you start to get real prime brokers. And when you have, you know, these big institutional investors who are always sitting on some pile of cash to invest, and I think you're already seeing it, right. That's why the may sell off only lasted two months, you know, Tuesday sell off, might only last two weeks. And it's just going to continue to be shorter, it doesn't mean you're not going to see the big price moves, you're always going to see the big price moves until we figure out this fragmentation and lack of prime brokers, but they're just going to be shorter and shorter. And I think ultimately, a lot of the momentum trading that worked in say, 2017 or 2018, it's just not going to work anymore. It's just too big of an asset class now with too many different factors and too many different types of players to rely on any sort of a playbook from you know, four years ago.

 

PETER HANS 33:38

Yeah. I mean, Well, look, you know, I remember when I, you know, when I graduated college, it was the date that I had a couple of friends that got into day trading, right, because that was, you know, a hot thing and, you know, 98,99,2000 you know, that went away real fast. And, you know, maybe, you know, only relatively recently did kind of come back where now, you know, people are, you know, young younger people are, you know, day trading again, and think that's a career. Now, obviously, that's, that's a different market? Well, here's a question I got, actually last night talking to an institutional investor. And I thought it was a really interesting question. What do you think, because a lot of these inefficiencies are caused to your point, like, it's very hard to get, you know, cash via, like, into the system out of the system, there's all these kind of structural inefficiencies that that can cause a lot of, of this analysis of cause, like a lot of the yields that we see and take advantage of, what do you think potentially CBDC’s do to that to that dynamic? You know, especially if you actually get a Moreover, digital dollar. That's, that's truly Fiat backed, and, you know, maybe a digital euro, is that kind of make these dynamics obsolete?

 

JEFF DORMAN 34:57

I think I think it does, to some extent in the sense that A big part of what we're doing in this ecosystem right now is onboarding, right. How do you onboard people into a digital wallet or digital asset? Right? Bitcoin historically was the best and the only onramp. In the last 12 months, we're seeing people come into maybe ethereum, or d phi before they touch anything else. Now you're seeing people come into, you know, whether it's NBA top shots are crypto punks, or other NFT's. You see people onboarding through there, ultimately, you just you're seeing the growth, I mean, metamask alone, which is the noncustodial wallet that supports the ethereum ecosystem. They went from, I think, 500,000 users a year ago to now 10 million, right? That's a pretty big indication that there's just more and more people entering this ecosystem. What CBDC’s will do for me is it just it just onboard more people to a digital wallet. And what that means is, will it take away from a stable coin maybe will take away from Bitcoin maybe. But what it ultimately does is it gets more people into the ecosystem that ultimately will be ready to buy dips, and ultimately will have cash on exchanges and have cash, ready to go in a metamask wallet and have cash ready to go and decentralized exchanges. The more people that get onboard into this ecosystem, the more likely they are to find other parts of the ecosystem, right? Whether that is NFT's or gaming or d phi or web 3.0, or Bitcoin or theory or Silvana, you name it. So I think the CBC is absolutely going to be positive for this ecosystem in the sense that, it's just going to mean, you're already sitting there, right. And I've used this analogy before and apologize for anyone who's heard it before. But, you know, when I first got an iPhone, in whatever it was 2010 2011, you know, I was not big into playing games, it wasn't a big part of what I did. But once I was in the iOS ecosystem, of course, Angry Birds ended up on my phone, right? Why wouldn't in the ecosystem, it's just a click of a button to, you know, download the app and start playing with it. I didn't love it. I didn't stick with it. But I probably had on my phone for two years. It's the same thing, right? Once you're in an ecosystem, you start to explore the different parts of the ecosystem. And that's what we're gonna see from CBDC's. It's just going to get more and more people who are comfortable. I mean, even even what's happening in El Salvador right now. Right? You know, they came up with a new Wallet for the citizens of El Salvador to own Bitcoin. That's just a gateway drug. Eventually, once they have that, they're going to start figuring out, what can I do in Defi? Can I, you know, stake here and earn some yield? Can I lend here? Can I be an LP? Can I play a game here, it just, it just breeds upon itself. And ultimately, the more money that stays in the ecosystem and isn't trapped outside in the traditional bank and brokerage system, it just again, it means that the cycles go away, and that cash becomes plentiful, whenever there's a dip or whenever there's a buying.

 

PETER HANS 37:33

Yeah, so you know, that, that, that the CBDC's I agree with you are very important, because in a lot of ways, it forces people into the, into the ecosystem, or brings people into the ecosystem where they can, you know, more readily explore other protocols and get involved. You know, you mentioned, I think, 100 million metamask users, I don't know if that's wallets or

 

JEFF DORMAN 37:57

10 million.

 

PETER HANS 37:58

10 million, okay. 10, even smaller, 10 million users, or if that's 10 million wallets, or what, but that's still in the grand scheme of things, a pretty small number, in terms of, you know, global population involved in this global. I wanted to call it asset class, just call it, you know, technological ecosystem, right. And, again, back to that kind of internet analogy, right, you know, throughout the 80s, you know, up until the, you know, early, you know, 91,92 it was it was researchers, it was academics, you know, today there's an estimated, I think, you know, I read a third of the world's population is actively using the internet. So that's about, you know, two and a quarter billion people 2.3 billion people or so that's a lot. That's a lot of people, when you really think about the difference between the, you know, that 10 million number and, and 2.3 billion. You know, one of the big things for the internet, there were two big things. One was was was regulation, right, you know, previously the internet was illegal to use for commercial purposes, right. So it actually took regulation to bring adoption and investment into the ecosystem. And then two was, you know, basically the building of a GUI, in the form of like, a user friendly browser, you know, Mosaic, and then what 92,93, somewhere around there. What, what sort of the CBDC's kind of bring people in, I think, you know, we're proponents of regulation actually being a positive catalyst to for investment into the ecosystem. What do you think about kind of the the, the user friendly side of it, because you know, wallets can be intimidating. blockchain can be intimidating. Do you have any thoughts about like, what that could look like to bridge that gap between the 2.3 billion internet users and the, you know, maybe 10s, of millions, blockchain users?

 

JEFF DORMAN 39:52

 Yeah, for sure. I mean, you know, you could also the other thing you missed there in terms of the growth the internet was when it went mobile right when it went mobile in 2009. I mean, that was a huge adoption curve for internet based applications. We haven't really even gone mobile yet in blockchain, right, it's still largely done on your computer, it's still largely done, you know, by a small group of people who understand the technology. To your point, I think we're not too far away from a world where you don't even know you're interacting with a blockchain based asset. When you're using it right email, the email is the best example. Right? If you, if you are a gmail user, or a hotmail user, or a Yahoo user, or Microsoft, whatever, you're not thinking about the underlying SMTP protocol that powers it, you just know that when you hit send, it gets to your recipient, right. And when someone sends it to you, it gets to you in your inbox. You know, there's different features and different UI UX components to these different software applications that are built upon that protocol. But you're not thinking about the protocol itself. I think that's largely where we'll be in 5 to 10 years is, you don't have any idea. If you're interacting with a theory or with Solana or with, you know, algorand, or avalanche or you name it, you're just going to be using applications and in the background, all of these different transactions will happen, you'll have cross you'll have atomic swaps, or you'll have interoperability or cross chain swaps, that happens. And ultimately, I think that's what gets you to that new level of adoption. And that's probably you know, whether it's CBDC's, or something else that gets people in here, the more people that are in here, the less and less they're going to become tribal, around these, you know, early project financings, the more they're going to be like, hey, just, you know, tell me what's fun to use? What's easier? You know, I got to go take a short term loan, where do I go? You know, I got to learn to me, or where do I go. And all these things will happen with a very simple user interface. And without any thinking twice about what the underlying chain is, or what the, you know, how the technology works in the background. And I think, again, the CBDC's will be a good example of that, right? People, just people who just trust their government money, will more likely get involved with a CBDC than they will with something like Bitcoin or ethereum, or tether. we'll forget, you know, whether that's the right attitude or not, it's just true, they're gonna they're gonna feel more comfortable doing it, or they're gonna be forced to do it. And once they do it, it leads to developers thinking about, okay, how do I get them from point A to point B? You know, what do I need to build from a user interface? What do I need to do from a UI standpoint, or UX standpoint, to, you know, get people comfortable with moving these assets around, where it doesn't feel like, intimidating challenge? Again, I think I've used this analogy before as well. But like, it reminds me of, you know, I remember 20 years ago, when when people first started doing electronic ticketing at the airport, a lot of people were intimidated by that you would literally see a line of 100 people talking to a ticket agent, who would then just walk over to the kiosk to get you your electronic tickets. Right? It was like, okay, you needed some hand holding. Meanwhile, they have no problem going to fly at 500 miles an hour, in a giant metal tube at 30,000 feet near, but they're intimidated by putting their credit card in the machine. Well, nowadays, that's ridiculous, right? I mean, nobody stands in line to talk to an agent, they just put their credit card machine, get their ticket, or they already have their ticket by the time they get to the airport, because they, you know, had it sent through their their phone, either by email or by SMS, to a paperless ticketing, right. But 20 years ago, that was a big deal. People didn't want to do it, they were intimidated by it. So eventually, you will have that tipping point where it just gets easier. And people stop thinking about how hard it is to send a transaction or how scared they are about typing in the wrong wallet address and losing their essence forever. There will be checks and balances, it will be easier. You know, eventually, you know your grandparents will be using this because it's just easy. And we're no we're not there yet.

 

PETER HANS 43:37

They're not alive. But But yeah, if they were I want his life. I shouldn't say that. Shouldn't shouldn't bury my poor grandma before. Yeah, no. And frankly, it'll make you know, terms like alt coins and Bitcoin dominance and some of the garbage that you know, we just do, you know, talk about being you know, very backwards, looking down even even more ridiculous in the future.

 

JEFF DORMAN 44:02

Yeah, for sure, I look forward to that day.

 

PETER HANS 44:07

Absolutely. All right. Well, let's, let's wrap up. Now. I know we've been made a little, longer than we'd normally would like to be. But this is this is good. So in, in conclusion, since I know the majority of the world is Cleveland brown fans, why don't do you? You give everyone your your final record projection and, and end of season projection?

 

JEFF DORMAN 44:34

Yeah, I mean, I definitely might be too conservative here, but I think they're gonna go 15 in two and just dominate the playoffs all the way to the Super Bowl. So, you know, I have no problem with people calling this episode back when it actually happens. And then like I said, I think I'm being conservative.

 

PETER HANS 44:49

So Baker is MVP that is most likely

 

JEFF DORMAN 44:53

Yeah.

 

PETER HANS 44:54

Usually goes to a quarterback. If they're going 15 to two, he's winning the MVP.

 

JEFF DORMAN 44:57

Yeah, I think you definitely have to, I think you'd have to ride acre for the day.

 

PETER HANS 45:01

All right, well, then I think you got to talk about this offline, but I'll give you some odds on that.

 

JEFF DORMAN 45:05

Okay.

 

PETER HANS 45:06

I'm gonna be able to argue that a little bit.

 

JEFF DORMAN 45:07

Definately

 

PETER HANS 45:09

All right, buddy. Well, it was great. Good conversation, a lot of interesting things to talk about. And I'll see you again next week to do it again.

 

JEFF DORMAN 45:15

All right. Well, that's it. Thanks.

 

PETER HANS 45:17

All right. Take care. If you enjoyed this episode, we hope you subscribe to the podcast, share with others, post about it on social media or leave a rating and review. To catch all the latest from real vision. You could follow us on Instagram at real vision TV and on Twitter at real leadership. That's all for this episode. See you next time.

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