PAUL GUERRA: Hello, everyone and welcome back to the Real Vision Crypto Daily Briefing. Here's why you should watch today's show, a marriage many would have dreamed of. GameStop partners with FTX. We will discuss how significant this is and what it means for investors, meaning you. And then plus, we'll do a deep dive into crypto investing with a crypto hedge fund manager, who will break down their conversation with Brian Estes down into key takeaways for you.
My name is Paul Guerra. Ash Bennington is of course here as well. Don't forget to subscribe and smash that like button for the YouTube algorithm or join us on the Real Vision platform. Alright, guys, so let's jump right into the latest price action. The European Central Bank has just raised interest rates by a record 75 basis points, as expected. The fight against inflation remains firmly the driving factor in macro. And then some analysts point out that this continues to spill over into crypto prices.
Here we see again, when macro effects crypto. The total crypto market cap is still playing with a $1 trillion level for what it feels like the 100th time this year. It's being bouncing on and off with a $1 trillion level. And we're seeing some recovery for Bitcoin. The largest cryptocurrency has stabilized around $19,000. However, it remains one of the biggest underperformers on a weekly basis. Though its market cap dominance also continues to fall.
It's now just above 37.8%, down from the 48% that it had back in June. And it is the lowest it's been since 2018. Ash, how is Ethereum performing today?
ASH BENNINGTON: Well, Paul, it's a story we've seen on most days lately, at least, which is that Ethereum is making bigger moves than Bitcoin. It staged a stronger recovery and it's firmly in the green for the week. We're also looking at Ethereum Classic as it continues to make big moves, that trades as ETC. Ethereum Classic, as you remember, is a cryptocurrency that preserved the legacy blockchain after the 2016 Ethereum hard fork.
Ethereum Classic has emerged as potential destination for some Ethereum miners after the merge. It's because once Ethereum moves from proof of work to proof of stake, Ethereum mining will cease. Ethereum Classic is once again surging and is up double digits on a weekly basis, Paul.
PAUL GUERRA: That's right ash. And finally, we're keeping an eye on FTT. And that is the native token of the cryptocurrency exchange FTX. We have a chart here for you, guys. And it joined a boost after the exchange announced a partnership with GameStop, which brings us to our top story of the day. When you have the company behind arguably the biggest and most talked about trading stories of 2021 team up with one of the biggest names in crypto, there are bound to be fireworks on social media, go trending for hours, which it did.
This tweet by Sam Bankman-Fried, the CEO of FTX says it all. Check it out. We like that, a clear reference to the GameStop mania encapsulated by the phrase I like the stock seen across Reddit forum WallStreetBets which caused a lot of news during the last few months. And Ash, we've seen GameStop turn more and more into the world of crypto as it seeks to reinvent its flagging business, they've done NFTs and so much more things. Details are scarce at this stage but what could be in it for FTX and GameStop? What are your thoughts?
ASH BENNINGTON: Well, it's an interesting play. Obviously, this is a partnership, not an acquisition, important to point out. I think what this potentially, potentially gives Sam Bankman-Fried is access to retail locations. It also gives him an interesting story to tell. It's a marketing story, I guess you could say above all else. But look, it is an interesting one. And I don't want to be too cynical and saying just dismissing it as a marketing story.
Obviously, these guys have brick and mortar, they have some logistics. It is potentially interesting to see, Raoul's pointed out that in many ways, the value of these network is equivalent to or proportional to the number of users. Obviously, GameStop may help Sam Bankman-Fried to reach more of a mass audience. Lots more people perhaps have walked into a GameStop store over the last decade or so than have traded on FTX here in the US just in terms of sheer numbers.
I'm peculating there, but it does make a little bit of sense when you think about trying to build a brand. It's an interesting story, and we're going to keep an eye on it and see what actually materializes on the ground in terms of actual pragmatic applications, Paul.
PAUL GUERRA: All right, Ash, thanks for that. And the deal with GameStop is just one example of FTX's increased appetite for big business moves. They've been doing it all year, and it's in the making, which brings us to our next story, and that is that Voyager assets are going to be auctioned off and the remaining assets of Voyager Digital, the bankrupt crypto broker, will be auctioned off next week.
FTX has publicly expressed interest in the past, but the offer was dismissed by Voyager's lawyers. And the bids for the auction have already been submitted. Decrypt reports that 22 parties expressed interest in early August. Alongside the sale process, Voyager has been working to return some money to its customers. Specifically, last month, the New York bankruptcy court handling the case approved a proposal to return $270 million to the affected customers. And another 1 billion off the platform's remaining funds will be distributed through the bankruptcy process.
And as part of this process, users have been sent emails listings the types and the amounts of the crypto they have in their Voyager accounts. Those who disagree with the record of their holdings have until October the 3rd to submit a claim. Ash, here for Voyager's court filing has revealed liabilities of up to $10 billion and that's a lot of money. That suggests to me that Voyager customers are not going to get a lot of their money back. What do you make of this?
ASH BENNINGTON: Well, ultimately, what it depends on is the amount for which those assets sell for obviously relative to the liabilities. I think some folks in crypto are suddenly getting a crash course in bankruptcy law here. It appears that essentially what's happening is that depositors, we use that in double quotes here, are being treated essentially like general creditors. That's all about the priority of the distribution of assets in the event of insolvency as we've seen here.
Look, the reality here is there are likely to be lawsuits on top of lawsuits. We remember this from the bankruptcy of Lehman Brothers in 2008. Those lawsuits went on for a very long time, different classes of creditors arguing about the allocation of funds. That I suspect is what we're going to see here to some extent, probably not to the level of complexity that we saw in Lehman Brothers, but who knows, because again, this really is unprecedented.
This idea of depositors, not really depositors if under the law, you're being treated just as a general unsecured creditor. I think it's important to talk a little bit about CeFi here in the way this story has actually unfolded. CeFi functions more like TradFi than like DeFi in that it is very much subject to fallible human decision making. When you see folks who are in the management of these companies making poor decisions, it looks like just a traditional TradFi story where you have challenges with risk management, asset allocation, all of these things that ultimately come back to negatively impact the folks who are now just general creditors.
I guess the difference here between TradFi and CeFi is that in a TradFi environment, depositors are treated with more legal protections. By the way, I should say DeFi has risks on its own, which we've covered on this show before in terms of technical risks, security hacks, all kinds of different things. As I've said before, ICBTR, it's cool, but there's risk. I should also point out that there were people, particularly Bitcoiners, who warned about these risks in CeFi. And furthermore, some CeFi institutions remain solvent.
This isn't the case that's happening across the board. We've seen it of course, in Celsius, we've seen it in Voyager Digital, as you point out here. As Bitcoiners say, not your keys, not your coin. I would add on top of that, even if they are your keys, there's always risk in crypto.
PAUL GUERRA: That's right, Ash, there's always risk in crypto. And yeah, as you said, we have also the Celsius and the lawsuit after lawsuit, there's Terra, there's going to be a lot of lawsuits happening. And that's something that's going on as we speak. And that moves us actually to our next story. Finally, we had a flurry of US regulatory voices speaking out in the past 24 hours and more coming today.
Crucially, we heard from the new Federal Reserve vice chairman for supervision, Michael Barr. And his views are particularly interesting because he used to be an advisor at Ripple Labs, the crypto company behind the XRP token that's locked in a lawsuit with the SEC. And in his first speech since taking office, Barr said on Wednesday that crypto needs similar oversight to traditional bank activity. That's to your point, Ash, when you see CeFi and TradFi, there is some regulation coming and his comments were echoed by another Fed Vice Chair Lael Brainard.
She also made the case for more regulation. Regulation is a heavy theme happening right now in the US and it seems that regulation is coming. And the block is citing now a taken down report by Barron's or remarked by Gary Gensler, the SEC Chairman, from a speech expected later today so keep an eye on that. And according to the report, Gensler will push back against the crypto industry's reluctance to accept regulation and its enforcement. Ash, what regulatory picture does all of this point for the United States?
ASH BENNINGTON: Well, Vice Chair Barr called stablecoins, and I quote, "unregulated private money", and then went on to say, "Congress should work expeditiously to pass much needed legislation to bring stablecoins, particularly those designed to serve as a means of payment inside the Prudential regulatory perimeter". Now, if you're a tech person, and you're listening to this, this probably sounds like some loyally legalistic, regulatory mumbo jumbo.
But this is a very clear signal from Vice Chair Barr that regulation is coming. This is something that we've talked about here on this show before. I think it's probably the story of 2022, 2023, and 2024. This is clearly something that we're going to hear a lot more about. And I would just say in terms of my view, and I've been thinking about this a lot, we're going to see, I think three camps here.
Ultimately, the first camp is the no coiners. These are the Warren Buffetts and Charlie Mungers of the world who have basically said cryptocurrency is radioactive, avoid it at all costs. I suspect that camp is probably going to be shrinking a little bit, or at least it's going to be off to the side. There are going to be people who hate everything about crypto, they're just not going to participate in the space. And I don't think they're going to be much part of the conversation.
But what we're really looking at, in my view, at least shaping up here is going to be between like a war for the soul of crypto. There are going to be folks in this space who really believe in the ideals of decentralization, who believe in the ideals of censorship resistant money on the one hand, and then there are going to be other people. And this is the important point, Paul, within the crypto space itself, we're going to say we need regulation, we need this to be harmonized with the traditional financial system.
And that I really think is going to be what this debate is going to be about in the weeks, months, years and maybe even decades to come. Understanding how that shakes itself out. Digital money, programmable money, I think is certainly here. And I believe it's here to stay. I don't think it's a question of if, but more a question of when and critically, critically, how? Will money be truly decentralized along the libertarian ideals that have governed Bitcoin, for example? Or are we going to see more regulation in this space?
That really, to me, is the critical open question right now throughout all of crypto. And I think this is debate that we're going to be having. It's just beginning now. But we're going to be having it for years to come, Paul.
PAUL GUERRA: That's right, Ash. And this is a right moment to actually say for everyone watching, please just smash the like button for the YouTube algorithm and don't forget to subscribe to our channel. And as you said, Ash, yeah, regulation is coming. And if you're new to crypto, you have to know that it is one of the biggest themes for crypto right now, regulation. If you're new, you have to know that.
You can have a significant impact on how the space is valued going forward. But for now, we have to learn to manage our investments and trades in the crypto winter exacerbated by a negative macro environment. But it is important not to lose track as well as the long-term potential. Here, the question is, how do you value it? How do you value crypto?
And Ash caught up with Brian Estes, the CIO and CEO of Off the Chain Capital. And he asked Brian how he manages this tricky environment. Let's take a look.
BRIAN ESTES: Yeah, so this is my third crypto winter I've been through. I think I've become insensitive to it. I don't like seeing the price go down a lot like most people, but I just don't feel a lot of pain anymore. The first time I bought Bitcoin was back in 2014 and 2015. At the time, my average cost was around $600. And then about six months later, it was $178. And that felt more painful than it does today. Because that was my first cycle.
And then the next cycle was when Bitcoin went from 20,000 down to three, and then this most recent one, it went from 69,000 down to around 18,000. But our models which have guided us over the last eight years are confirming that Bitcoin is very, very undervalued. Our first model that we use is just basic trendline analysis. All we do is we plot out the historical price of Bitcoin on a logarithmic scale and then we run a regression line through the center of that, so half of the value is above that dotted line, and half of the value is below it.
It seems very simplistic to do it that way. But that model is 91% correlated to the historical price of Bitcoin. And that model tells us today that Bitcoin's worth $92,000 and it's trading for like 20,000, so it's telling us that Bitcoin's very, very undervalued. The next model that we use is based off of Metcalfe's law. Metcalfe's law is how you value a network, like Facebook or like a telephone company.
The Bitcoin network itself, what we do is we square the number of users, multiply that times the transactional value going through the Bitcoin network. And that model is telling us that Bitcoin should be worth about $42,000 today, and like I said, it's selling for 20. That's now telling us that Bitcoin's 50% undervalued, and that model is 94% correlated to the historical price of Bitcoin.
And then our other two models that we use are based off the Plan B's stock to flow model. The first one is using dollars, that model is telling us that Bitcoin should be worth about $100,000 today, should be worth a million dollars a Bitcoin in 2025, and $10 million a Bitcoin in 2029. And then the stock to flow model using gold as the monetary unit tells us that Bitcoin should be worth 100 ounces of gold today, and it's actually selling for 14 ounces of gold.
That's also confirming that Bitcoin is very undervalued. And that model says that Bitcoin should be worth 1000 ounces of gold in 2025, and 10,000 ounces of gold in 2029. And if you think about it, 10,000 ounces of gold is worth about $17 million today. And that's what the model is telling us. That's our most accurate model. It's 99% correlated.
We had a call with Plan B last week. And we asked him, have you seen this before? Have you seen where your models are so far wrong, like they're saying Bitcoin should be at 100,000 or 170,000 if you use gold, and it's only at 20? And he made a great point, because, yes, they've been this wrong before. He pointed out in 2013 and 2017, they were this wrong. It was just the opposite, though. Bitcoin was much higher than what his models were showing.
That makes a great point, that the model today is confirming that Bitcoin is very, very undervalued, just like it confirmed it was overvalued when Bitcoin was at 20,000 in 2017. And when it hit 35 back in 2013.
PAUL GUERRA: Very interesting to see Brian's approach to evaluating the Bitcoin's network. But Ash, for everyone watching here right now, Brian seems to believe that the network effects are playing a key role for Bitcoin. Could you please elaborate a little more on what Brian meant by the Metcalfe's law?
ASH BENNINGTON: Well, Paul, first, obviously, not financial advice and not an endorsement of the valuation model that Brian is using here, just my explanation of his interpretation, my interpretation of his view. But let's geek out a little just for smiles here. Let's actually talk about what Metcalfe's law is, because it's often used but rarely defined.
Metcalfe's law is actually an engineering construct that's been adopted by some investors to describe what in their view is the valuation of certain networks. Metcalfe's law, actually, as it turns out, is about any type of network. Robert Metcalfe is the CO inventor of Ethernet. If you plug an Ethernet cable into the back of your computer, that's the guy.
PAUL GUERRA: Wow, no way. Sorry. I didn't mean to interrupt. I didn't know that. That's really cool.
ASH BENNINGTON: Yeah. And what his law is about, it describes the number of connections between any given number of nodes on the network, and the formula for that is n, where n is the number of nodes, n times n minus one over two. It's the number of nodes on the network, which is called n, times n minus one because a node can't connect to itself, and over two, because A connects to B and B connects to A or essentially the same connection, but in different directions. I think that's right.
I didn't study math as much as I should have, knowing that I was going to be doing it for a living. But if you graph n times n minus one over two, it basically looks identical, virtually to n squared, which looks like this. That's the traditional exponential growth function that you see, that's increasing and increasing at an increasing rate. That's just what the formula looks like.