How To Trade Crypto Cycles with Flood

0:00 I think crypto is an inevitability in the sense of stable coin adoption. Bitcoin adoption still continues to rise in third world countries as a way for them to opt out of their currency and monetary systems. And I think we will see this transition from Bitcoin being this hypervolatile 3x lever NASDAQ to more of a safe haven asset or more of a counteryclical positioning for some asset managers very similar to gold. But it may take some time before we get there. So yeah, good time to rewrite, but definitely still long-term bullish.

0:50 All right, we're we are back with another ThousandX podcast. We've got an awesome guest that probably a lot of you know, and for those that don't, he is an absolute OG. Has been around the block, has been in Bitcoin forever, and has a lot of spicy takes on Twitter, both cryptoreated and not cryptoreated, recently, which is which has been good to see. welcome, Flood, to the podcast. >> Yeah, thanks so much for having me. I'm very happy to be here. I've been watching the ThousandX podcast for quite a while, actually. I think since you guys started, it's sort of on my podcast checklist as I have time to kill throughout the day. So, yeah, you guys have been consistent and crushing it. Happy to be here.

1:35 >> Oh, well, I I I appreciate that. It's been it's been a fun ride with Jonah. Jonah's unfortunately feeling pretty sick today, so we're not going to we're not going to have him here. So, it'll just you're stuck you're stuck with me and Flood, but hopefully that'll be good enough. I'll start with basically I know that you've been in Bitcoin for quite some time basically since 2014 at least for me this has been a very very very weird last call it 12 months where it almost feels like the entire crypto space is getting disillusioned. I think people are people are feeling pretty bad about Bitcoin. It's been performing pretty poorly. The rest of the crypto market has been performing like horrendously. It's almost like shorting altcoins is is a is a is free money. Now, I'm curious like how you think about BTC. Like is it still on a cycle? Are we still like are you still bullish on Bitcoin basically? Like how are you thinking about it?

2:31 It's a question that everybody needs to ask themselves, especially during time periods like this where I think fundamentally everybody in crypto is pretty bullish Bitcoin or at least the ideologies of Bitcoin and sort of the ability to opt out of a monetary system that you have little input over. I think we all love the idea of that. But when you see assets trading the way they have, specifically Bitcoin, when you compare it to gold or you compare it to, you know, indices or you compare to the flood of investment in AI and downstream AI related infrastructure, we've been lagging significantly. I am still bullish Bitcoin. I don't think there's a reason to not be bullish Bitcoin other than potentially quantum risks wi-i which we can get to later. But during time periods like this where prices are down, it's actually the best time to reunderwrite your thesis because if your thesis is unchanged, well, guess what?

3:35 You're getting much better average entries, right? And I think people sometimes don't take enough time to sit down and really think through their portfolio and why they have the allocation they do and think if they need to rebalance or think if they should add to certain positions or maybe things have actually changed and you should make some compositional changes. So yeah, long story short, I'm still very bullish Bitcoin. I think whether it's slightly delusional or not, I think crypto is an inevitability in the sense of stable coin adoption, Bitcoin adoption still continues to rise in third world countries as a way for them to opt out of their currency and monetary systems. And I think we will see this transition from Bitcoin being this hypervolatile 3x levered NASDAQ to more of a safe haven asset or more of a countercyclical positioning for some asset managers very similar to gold, but it may take some time before we get there. So, yeah, good time to rewrite, but definitely still long-term bullish.

4:41 >> I'm I'm actually curious about that process. Like you you're talking about re-underwriting rewriting the thesis. I assume that you've done that. What does that what does that look like for you right right now when you're looking at Bitcoin? Like what what sort of what sort of things were you challenging yourself on or trying to think about re when you're re-underwriting Bitcoin? I I I think I think I saw in some chat somewhere that you were you were actually buy you were adding down here.

5:03 So presumably you've got some conviction. >> Yeah, correct. So I we have a pretty standard process where if we really don't feel like we have anything good to buy, we'll probably just continue adding to our Bitcoin position. We're a trading firm at my family office that focuses exclusively on crypto and crypto-related securities. So, we'll trade things like Robin Hood and Coinbase and other things, but really we try and focus on not necessarily directionally trading Bitcoin, but trying to get better average entries than the average market participant and being a bit more tactical in terms of when we're protecting downside. When I think about reunderwriting my Bitcoin position or why I hold Bitcoin, I have to think about what do I believe is going to happen in the future for monetary policy. I think everybody, myself included, learned a very valuable lesson in 2022 where we sort of had the idea that, oh, Bitcoin is completely idiosyncratic returns. Rates don't matter. We're going to be up only forever. And you just see that that's completely untrue. But in I think along that same vein of thinking, if you take a look at the current structuring of monetary policy around debt, around the current deficit that we have, it seems like it's an inevitability that more capital will need to be printed and the US dollar will be debased and that Bitcoin is actually a very compelling asset to own. And I don't think that's that changes just because it's sold off 50%. and so we think about our portfolio composition in that way. We also do have some recency bias because we have made a considerable amount of returns being in Bitcoin very early. So it feels like a very safe asset to us even if it is more volatile than some other things we could own. but yeah, the real question that we are asking ourselves is what is it going to take for nation states to actually hold Bitcoin rather than sell it. For example, if a nation state discovered a large gold deposit or if a nation state found gold that was buried in an ocean or a territory that they controlled, it's pretty likely that they wouldn't just instantly sell it. But whenever you see a lot of seizures from criminal organizations or other you know typical typically criminal organizations, you actually see a lot of the governments especially in Europe, Germany comes to mind, a few other places where they just kind of instantly sell the assets. And you sort of have to ask yourself like why is it an educational problem? Do they see risk?

7:55 Is it you know politically unfavorable? Like it's very interesting to think about like why do nation states continue to not hoard Bitcoin and why do they continue to sell it? and and and our question really is like I think when we think about longtail Bitcoin upside outcomes that is one thing that's been pared for a long time in the Bitcoin community which is you know that nation state hoarding game theory or replacement of metals or replacement of the US dollar or replacement of other potential currencies held in reserves in lie of Bitcoin and like that just clearly hasn't taken place. I think we've been very wrong on that, but I don't think there's a set time period where, oh, if it doesn't happen in the next year, it'll never happen. So, it's tough to have an investment thesis based off of that. But those are sort of like why you may think, oh, Bitcoin, you know, like longtail v and topside is, you know, just fundamentally mispriced.

8:56 and that's that may be why you want to own the spot asset because you think there's a decent chance of, you know, the US government or other countries eventually saying, "Hey, what it might be a good idea to own 5% of our you know, currency reserves in Bitcoin for whatever reason or even just start hoarding it from seizures and then it sets off kind of this game theoretical chain reaction." But, we really haven't seen that take flight yet.

9:21 Yeah, I think I think it's kind of interesting because that's one of the reasons that people have been super down on Bitcoin versus gold because we are seeing that with gold, right? Like we're seeing a ton of central banks basically stockpile gold on their balance sheets and that's one of the reasons that gold is going up in a straight line. this is this is a geopolitical play to show to short reserves and we haven't really seen that with Bitcoin yet and I think we've seen we've just seen a lot of retail sort of step out of BTC and I think what what some one thing that I look for in in bottoms I'm curious if if you look for this as well is basically I look for people to start moving on and I feel like I've I've seen that a lot recently are people basically raising their hand and saying okay I'm I'm sort of done with this like I'm going to I'm going start looking elsewhere. I'm going to start investing in other things.

10:09 Maybe maybe disinterest is the right word. When there's when there's tremendous amount of disinterest in Bitcoin, I think that's that's probably the most most bullish time period to to start buying at least on a on a 6 to 12 month horizon. but yeah, I don't I don't know. It's it's kind of a it's kind of an interesting interesting question just because this this time is a little different with the types of people that are stepping out. so I guess I'm curious like from your perspective, how does how does it compare to the to the other bare markets you saw? Because I saw the 2018 I saw the 2018 bear, but I wasn't really here for, you know, 2014, 2015, 2016. Wasn't here for Mount Gox. So, I'm curious like was it was it worse back then or was it was it better back then?

10:53 >> It was just different. the populace in crypto I think had less traders. trading notional volumes were probably 1/100th of what they are now. And so I think the majority of the attention around that time period was more in like theory crafting and ideological discussions kind of leading up to the block size wars of like what is Bitcoin? What should it be? What can it eventually be? And the bare market around that time period was actually I think not quite as bad as the bare market of 1718 into even 19 because what we saw in specifically 2018 2019 was we saw just like a total volatility death of the asset. Like there was a period of time in 2019 where Bitcoin traded in a $3 range. there's a like a famous print where you know it traded in a in a little $3.

11:51 >> Sucked so hard. That was so boring. I remember that >> like all of our lives are wrapped up in that. Sorry to cut you off. I was just like wow. You brought me back. >> No, of course. Yeah, that was a real surreal time period. It must have been a weekend, but even still you were just like, man, this this market might just be totally dead. that obviously ended up not being true, but yeah, I definitely look for that. I look for a Bitcoin vault to come down. I look for open interest to slowly just bleed out.

12:18 exchange inflows to really stop and and lower. And so I think, you know, when comparing to AI, it also feels like crypto has become a bit less socially acceptable. Like if you're in AI, it's not seen as cringe because the upside is potentially infinite. I think unfortunately in crypto we've gone through a time period where you know so much was promised and so little was delivered. This isn't really in relation to Bitcoin. Bitcoin kind of promises to not deliver anything and remain mostly unchanged which is a benefit but also a potential flaw if it faces like idiosyncratic risk like quantum which you don't really know how to price.

13:01 And then when you think about who has been rewarded in the form of capital, it's actually been people who have been very momentumheavy. So people who have piled into AI names, people who have chased very large funding rounds, people who have been very futurist and bullish on, you know, the advents the advancement of technology at, you know, even more of an accelerated rate than people might be assuming. And the people that have been punished have been actually loyal crypto holders who are bullish on crypto companies or products or tokens. If you look at like cryptoreated equities, even you know businesses centered around crypto, they've really been hammered, right? And when you think about like the average altcoin one year, two-year, 5year return, it's horrendous. So, I think a lot of people are just tired of crypto promising new finance or promising, you know, tr better products that will materially improve your life. And really, all we've figured out is like how to make gambling slightly better.

14:07 And you know, that's okay, right? But I think the value and the returns are finally going to coalesce in like a more mature market around the only things that really make sense. One which is like monetary store of value that could be Bitcoin, arguably Ethereum. And then you could go to okay trading and the proliferation of permissionless trading. Hyperlid comes to mind. other DEX copycats come to mind and Salana comes to mind where for the first time ever decentralized applications have a comparable experience to their C centralized counterparts. And then the third thing is obviously the proliferation and adoption of stable coins which also feels inevitable. If anyone's ever tried to make like a large bank wire, you know, no matter if you're at JP Morgan Private Wealth or I I assume other than if you really own the bank, it's a complete pain in the ass.

14:58 Like it's extremely difficult. It's T+1 settlement like well not T+1 but it but it can take a full day. It closes after 5. Like it it just feels super antiquated. I remember I was one of the earlier adopters of Signet which was Signature Bank's sort of like instantaneous wire. And when I looked at it I was like oh this is just USDC under the hood which was crazy. but yeah I think we're going to see advances in that. I think it's going to be easier to spend your crypto on and off ramps are going to get better and sort of the crypto world will will merge into this soup of like centralized and maybe mostly decentralized or partly centralized products that sort of blend the best of both worlds. and that's where the value will occur to. I think everything else will continue to get hammered. I think it's really important to kind of separate crypto away from things that are just kind of outright scams and frauds. And I think it's about time we kind of call these things that like yeah, people are experimenting and it's entrepreneurship, if you could call it that. But really what the majority of tokens have been over the last five years have just been like slightly innovative or not even innovative ways to try and scam retail. And it makes me sad.

16:16 >> Yeah. Yeah. I think I mean there's there's a there's a lot to unpack in those statements, but I think I think generally people are people are feeling that, right? They're saying, "Well, I don't even know where to put my money in crypto anymore. I don't know all these things that you've outlined, I think, make a ton of sense, but people start to think, well, where do I put my money if I if stable coins are going to explode?

16:38 How do I make money on this?" Like, what what am I investing in? I can't you can't buy USDT and hope it goes to $2. That ain't happening. So, you have to figure out where am I actually putting putting my capital. And that's why I think a lot of a lot of crypto was driven I mean you're a trader, right? A lot of crypto was driven by trading. It was driven by people saying, "Okay, well, even if this even if this thing right now is totally useless, its utility is that I can buy it low and sell it high based on some narratives or based on some VCs investing or based on this or based on based on that, right? I mean, you you kind of even see it now like if you're if you look at the market like Near, for example, is is going up because everyone's excited about excited about AI. So, I'm kind of curious like like what are you doing then to make actually make money in in crypto? Like how are you thinking about okay, I think that this space is still going to grow, this space is still going to explode. How are you putting your money to work? Like are are you actually are you still trading even or are you are you more on the investing side now?

17:39 Yeah, correct. So, I still trade. So, I'll give you a breakdown of kind of what we do at at my family office and then also at full stack. So, I guess a a very short summary about myself, which maybe we could have started with, but that's okay. is, you know, I've been in crypto for 11 years. I was a very amateur trader initially. and then I joined and I I was doing basis trading at a large family office for a while.

18:05 this was on BitMax. you know back in the day annualized returns on pers were quite good in the high double digit percentage at times there were even I remember some futures arbs not on very much liquidity but with some fairly amateur market makers or very uninformed traders who were paying like 3% to like short the futures into you know a week from expiration like it was just totally crazy stuff and you know markets were were extremely inefficient after that I left and I've just been slowly building up my own family office what we do here is we do a mix of everything. We do quintessential market making, we do HFT taker. I mainly do special situations. So crypto kind of has this propensity to trade minus 20% as we all know on random days. And there are actually quite a few manual arbs or very interesting cute trades that you could put on. Something that I missed that I went back that I was talking to one of my traders about was on the 1010 DPEG.

19:03 One of the most interesting trades that you could have put on was buying LSTs and then borrowing f you know borrowing spot or or selling you know futures even at a slight discount because some of the LSTs specifically fairly liquid ones like Marinade on Salana and other things were trading at like 60 cents on the dollar because of presumably just portfolio margin liquidations on Binance and the Binance risk engine just spitting it out. And you could have gotten in, you know, tens of millions of dollars across a few LSTs and then shorted the future and had, you know, a very cute and clever arb there for 10% in maybe a day just because you have capital when other people don't. And this is sort of like I think what our overarching thesises or or tenants are at our company is when we believe PEPs are an optimal way to transact value.

19:50 They will replace options trading for retail. I can go more into that later. Second is that we try and have capital when other people don't. And then third, we try and give ourselves a lot of levers to push and pull at different market times. So for example, for a hype position, we will typically have a hype default spot position. We will also potentially be short the future and then we may or may not have options on depending on whether we think they're fairly or unfairly priced. This gives us three different levers to pull as the market gyrates up and down. And it actually gives you a lot of options to say, "Hey, you know, I'm long 10 million hype. I'm short one million of futures against it." You'll actually be paid to put on this trade. And then when the market goes down, you actually have a button to click to not really buy more hype, but cover a directional position, right? And and this gives you tremendous amounts of flexibility is I think pe I notice a lot of people's crypto portfolios are very inflexible where they're like I own 80% Bitcoin and you know 10% altcoins and 10% cash.

20:53 Well, okay, if the market goes down much further than you ever thought, you're not going to be able to really drastically alter your portfolio composition. But if you're simultaneously, you know, long and then short the future and then you have some options that you can open or close or or roll or do whatever you need to do, it gives you kind of a lot of atbats or at least it helps us where for example on the hype blowup day, we were fortunate enough to be short hype on Binance and Binance had a very significant DPEG against the hyperlquid spot market because the hyperlquid spot market had the autonomous buyback going and so this created also market makers were just totally you know, killed on Hyperlquid.

21:32 A lot of top market makers who, you know, have since made the capital back and presumably had offsetting P&Ls on Binance were just not really operational on Hyperlquid. It was probably hard to get their capital there because gas fees were so expensive and they were focusing on defending their positions on Binance and other sexes where they may have credit lines. and it is a lot easier for them to actually transact and trade there. plus their positions are going to be materially larger on the sexes as hyperlquid is only around five to six% of market position also creating inefficiencies. If you're aware of this dynamic, then you will say, "Hey, assets may be very mispriced on Hyperlquid relative to Binance or Bybit or OKX. I should have capital sitting on both that is ready or positions sitting on both that are offset to be able to take advantage of these potential inefficiencies." And my CIO Kyle Saska, who I don't know if you've ever met, but maybe you have. He's in he's based in New York as well. He kind of has this you know sort of quip where he's like markets are like a pop quiz especially crypto markets where if you didn't study you're going to fail and if you studied they're actually really easy and there's free money on the floor. So we try and have portfolio construction that is malleable. We have the ability to make adjustments if things change and we have the ability to actually react very quickly when a large opportunity presents itself. And then ideally our systematic strategies are continuing to generate cash so we'll just have more and more cash to deploy. And that's sort of how we've constructed our portfolio.

23:06 >> That that's I I love that quip. That's I actually I've haven't heard that before and I haven't met Kyle, but I think that's I think that's pretty it almost it almost reminds me of a tweet, you know, like the famous what is it? the the MA the manager tweet M&GR tweet that you know >> free free like you you know basically discretionary trading you do nothing you do nothing you do nothing and then five times a year there's free money on the floor and you pick it up and I think one of the things that probably is most interesting to our listeners and also also to me is sort of figuring out and what we try to do on this on this podcast a lot when when Joan and I are talking is sort of try to teach you how to study for that pop quiz because I think a lot of traders get lost in what do like what do I even look at like how do I even how do I even think about the the markets and what what could happen and how I should act in in these certain situations and I'd love to hear your take on that. I mean maybe one of the best ways to do it is just to describe some trades you've taken out.

24:04 but like how how are you guys basically studying for this pop quiz, right? Yeah. So, there's a lot to cover in crypto and especially if you're a single manager, like you're managing your own capital, you're a trader. one, there's a lot of psychological pressure, I think, that people put on themselves where they're trading for a living or whatever that means. You should, you can trade for a living. It's entirely possible, but there's a lot of pressure there. You should definitely separate your capital between, you know, hey, this is my actively deployed trading capital. this is like my long-term buy and hold portfolio if I go through periods where I don't have alpha and I don't know it which is very scary and then you should also have capital set aside for living expenses that way you're not comingling the three I think people put themselves under duress because they're they're not able to like bifurcate their capital into different buckets but we try and focus and and we think edge really comes from understanding one two maybe three protocols in crypto really well and I and potenti potentially betting on their adoption or betting on their failure.

25:12 One example in the past was Luna. this was a trade that we missed that really I think sort of drilled this philosophy into our heads like it's a lesson that we never forgot. We're sitting on screen looking at Luna imploding. We've done the math on Luna. We understand that once it gets going in one direction, even if Jump steps in, it can pass a point of no return. But we were just scared to short it. it's very difficult to fade jump. It's very difficult to, you know, think about, hey, I should, you know, I should potentially fade this thing. But the trade that was obvious was shorting US, shorting the stable coin, right? Or finding a borrow or something, finding a way to get short exposure to the stable coin because your downside was so capped, right? You could have shorted US at 95 cents on the dollar and you had, you know, just over a 5% risk if it ever went back to a dollar and that was it.

26:06 You had a very clear, completely defined riskreward trade for something that if you had done the work in advance and really intimately understood, you knew had the potential to go to zero. And so you were getting like 20 to1, which is an incredible trade, right? Following that, I think we really spent time understanding exchanges and how exchanges function. And there was a lot of asymmetric information around hyperlquid where people when we would ask them even people in crypto hey how much do you think Binance makes a year or how much do you think the global perpetual swaps market generates in fees and revenue a year people would say oh I don't know 1 to2 billion three billion it's more like 10 to 20 sometimes 30 in you know in 2024 or something like that and you know that you're just like wow so on the airdrop people are going to fundamentally mispric hyperlink liquid because we think that Hyperlid has a chance based on its current growth to potentially have high double digit high singledigit percentage of the global purpose market. That would mean 1 to2 billion of revenue. People implicitly are maybe pricing that at a hundred or $200 million of revenue. And so they're going to sell at 10x which is a1 to2 billion market cap. So we were a significant amount of the hour one day one volume on the hyperlquid airdrop.

27:24 this also transposed to the call option trade that we kind of famously put on through Flowesk. Shout out Flowesk. where we did, you know, 40 60 call spreads where Flowesk was pricing it at an 8% chance that Hyperlink would go to 60. We believed that there was more like a 20 to 25% chance. So you get some expected value on the options there. And then the reason why was we went back and we sort of modeled like for every dollar bought of the hyperlquid market cap based on sort of our guesstimation about liquidity and dynamics around the hyperlquid spot market, what impact do we think the buyback machine will have in terms of like $1 of buybacks is x amount of market cap, right? And we just had a, you know, pretty basic formula and we were like, huh, like if they buy back a couple, what was that number?

28:18 >> we estimated it was like one to 20 basically. So for every dollar buying, it could be like $20 of market cap or on Bitcoin. >> That's actually that's actually pretty huge. >> Yeah. Yeah. Exactly. Because again, $1 buying No, sorry. Go ahead. >> No, I said I just wouldn't I guess I guess it's kind of true with crypto in in a nutshell, though. That's that's a that's that's a smart way of looking at it. >> Well, yeah. When you hear like flows matter, right? What does that mean?

28:42 Well, $1 of buying does not mean $1 of market cap, right? Because of the way that markets function and slippage and liquidity. So, a dollar of buying on Bitcoin can translate to like seven or eight dollars of market cap. And the inverse is true with selling, right? And so, I think that's something we looked at for hyperlquid. We were like, well, people are yes, pricing in the impact of the buyback machine, but are they pricing in the like multiplicity of supply and especially active supply?

29:12 Like this is something you can't really model, but like who was selling their hyperlquid airdrop? It was people who would have been like actively trading it or actively selling it or like motivated sellers that supply was being taken off the market and not just going to another person who's making a short-term trade, literally taken out of circulation. And so, you know, these dynamics I think made Hyperlid like a very misunderstood asset from like $2 to $60 basically. And we trade in and out of it. We trade everything and we still maintain like a large Hyperlid position is we think Hyperlid has kind of set itself apart from the other competitors.

29:47 >> Yeah. I mean, especially I wonder now too, I I'm sure I'm sure you saw the news that the CFTC is clearing a path for US perpetual futures, which should be some people are saying good for Hyperlid, some people are saying bad for Hyperlid. but either way, probably going to introduce a lot of new trading opportunities for us in in here. I mean, hopefully it brings on retail. but I'm curious what your take is on that around hyperlquid specifically and then also do you think it's going to impact market structure in crypto at all that that if per come to come to the US? I hope so. anytime I have the privilege of talking to a regulator or people in the admin which I do fairly frequently is that I think America has two great exports. One is culture one is liquid standardized financial markets. and the fact that we don't own crypto derivatives is a travesty because we own and dominate every other market except for maybe metals, right? Which is also kind of a problem, but we that's that's for that's another time. I think consumer preference will be on pers. Binance has 400 million plus KYC accounts, right? It has singledigit percentage of the global population on Binance. Of those accounts, around 20ish% or 25% have created derivative accounts. You get a separate user ID. Of those accounts, over 92% have traded per only 8% of traded options. It's one of the largest consumer preference studies in history.

31:23 And Binance is a for-profit company. If users were clamoring for options, they would just provide options. But the reality is users prefer PERBs. And I think if I had to guess why, it's because it's a linear payoff function. It's very easily understood. If you tell a retail trader, hey, build me a payoff function for 10% out of the money six-month meta calls, they're going to be like, what you you try and tell them about convexity and they're and they're they don't really understand. People misunderstand retail is looking for sufficient leverage to make their trading interesting. They're not really looking for convexity. Those aren't necessarily the same thing. And even when you look at the products that retail trades, retail trades zerodt options, they're over like 56% of options volume. I looked at a shocking statistic. Robin Hood has 7.5% of US equities option volume now through through its platform, which is just unbelievable. and you know, retail for now in in the US is trading options, but I think if you give them the opportunity to trade a per they'll they'd much rather trade a per. So I'll take I'll give another example. What is a prediction market? A prediction market is just a per that settles at zero or one, right? It's just basically a future that settles at 01. And retail has actually shown that they prefer this sort of market, this sort of easily understood payoff function to the you know sports gambling odds. like a lot of volume has actually shifted from the sports sites to these you know swapl like you know future-like instruments in the form of these prediction markets and I think that'll continue I think you know if you give retail sufficient leverage on US equities and on individual stocks they'll trade it and I I think the third example is you're you're already seeing adoption globally on HIP3 where you know there's decent volume on single name equities and there's significant volume on commodities and and there's decent equ volume on the on the indices there you know in the hundreds of millions you know per day upwards of single digit billions I think you're seeing that you know retail really does enjoy trading ps I think it's a better instrument it's also a more fair instrument options are segmented segmented by strike by duration and by contract right there's a few different contracts for S&P like exposure and this fragments liquidity This gives market makers more edge because they can charge bigger spreads. This is where a lot of the like the majority of like money for Jane Street and a lot of these firms that you hear, you know, the boogeyman kind of it comes from trading option spreads against retail, right? On a per all the liquidity is uniform and a retail trader can express a position for one second or one year from one contract and it's simple and it's a linear payoff and it's easily understood. Also, they don't have unlimited risk. retail in the US can sell an option and potentially lose more money than they have in their brokerage account with a perp and you know nonreourse liquidation you know leverage like we give in crypto that's not possible so yes I I will die on this hill I really fundamentally believe that pers will dominate options volume over the next decade >> I mean look as somebody that grew up in grew up in crypto I I absolutely hate trading futures I think that you know when whenever I I trade oil now I trade a lot of trade a lot of commodities these and I'll trade trade these markets and like I wish that there was a really really liquid per that I could that I could go trade just because it is it is a much better user experience and one thing that I've been trying to think about is kind of well what what does this unlock what what gains the most if if if we both genuinely believe which I think we do that per just a much better you know m much much better product and options and will get adopted who are the major who are the major winners and who are major losers and then where do we where do we put our money to work? I mean are we are we shorting some of these public publicly traded companies that that make options markets? So I wonder if you know options options volume closes down because one thing one thing that is is true is that products do cannibalize each other a lot especially when the product is just where do you get your leverage and I think we saw this actually super clearly with Micro Strategy. the Micro Strategy premium collapsed in on itself.

35:42 it was already trending down but it really collapsed in after options came out on IBIT because people were just using MSTR for leverage and then they moved over to trading trading IBIT options. I think probably something similar happens if you get pers in the US especially Bitcoin. I think people people probably start trading more. but I'm you know I I do I do try to think about what's like what is going to fundamentally benefit the most and what what is going to be what is going to be hurt. because I think at the end of the day what we're trying to figure out is where do we put our money, right?

36:11 >> Yeah. I don't know if there's any obvious shorts that come to mind. I don't think it's going to be a complete destruction of options where volumes go to zero. I just think it some of it will be supplanted by PERS. But more so I think the pers market will just grow and general like interest in finance, interest in trading, trading as even a form of like discretionary entertainment spend as opposed to even like sports or other forms of gambling is sort of what you want to bet on or what I think may happen. Like I I self-rationalize what I do being a trader and advocating for PERS and trading because I understand and I empathize that a lot of retail traders lose. Like I'm not ignorant to that fact. But I do think that it's much better for someone to lose money speculating on something real rather than like playing blackjack or a slot machine at a casino. I just think the capacity for potential future learning from like playing blackjack is almost nothing, right? or pulling on a slot machine is nothing. But if someone loses money trading, you know, Nvidia, they may be like, "What is Nvidia? What is a chip?" And they may become more educated in hopes of potentially having better returns. So, there's sort of like a motivational aspect or some potential second order benefits to like if if if losing money is inevitable, I'd rather they lose money trading. Also, that would be better for me because I can trade against them. Anyways, >> fair enough.

37:41 >> You heard you heard it you heard it here first. When you lose in the markets, it's flood taking your money. >> No, not always. I I've our trading returns have actually been fairly lackluster just given we've continued to average down Bitcoin where we've kind of been blown out a little bit. We haven't shorted anything against it. Thank god we didn't short gold. But I I think we're looking at a lot of these ratios and we're trying to figure out why we're wrong. But I think there will be sort of like a violent snapback in the market especially if it looks like there's more optimism around Bitcoin becoming quantum resistant as that has been you know quite a few managers concerns and even some large sovereigns.

38:19 But anyways, I think you know I I want to touch on one thing in crypto that I I think it isn't really discussed enough but you know people are coming around. Vitalic put out a thesis about you know L1 value acral and L2s and this is something that you know my firm has talked about internally a lot which is like where will the value actually go in crypto? If we think that crypto adoption is inevitable, if we think that these products are comparable and potentially may have, you know, competitive benefits versus centralized counterparts, who makes the money? And it's been very clear to us for a long time that the money will actually be made by applications. And I'll use an example from traditional finance. When US retail trades in America, they say, "I'm trading through Robin Hood, Schwab, or Interactive Brokers, maybe Weeble." They don't say, "I trade on the NASDAQ," or, "I trade through NY or I trade through Direct Edge or BATS." They aren't even aware unless they check the trade confirmation of where their transaction actually landed. And now through the advent and proliferation of payment for order flow, trading is basically P2P with market makers. And so, you know, we look at crypto and we look at the way that retail has to be deterministic about where they trade where a user says, I'm trading on hyperlquid, not lighter. I'm trading on the Salana blockchain, not Ethereum. I'm trading on Poly Market, not Cal Sheet. But functionally, I think a lot of these products are funible to some extent, if not identical. And we'll see retail traders having that choice removed by products that provide a very aggregated trading experience. Sort of like a super app kind of thesis where I think new entrance in crypto won't feel particularly strongly about which blockchain their assets are settling on.

40:12 Just like a user now in crypto who trades on Salana doesn't have a strong particular preference for which AMM they swap through. Right? And we will actually see apps, things that provide simplified onboarding experiences, aggregated trading experiences, more capital efficiency, removing this like choice or forced understanding of crypto for users will actually acrue a lot of the value. It's part of the reason why we're spending a lot of our time building full stack, which is sort of centered around this thesis where you can deposit to one place and you can trade all of the products you want from one app. And I think that's where the value goes to. And I would I always ask people, would you rather own NASDAQ in an uncertain environment where PERPS may be a product that they either are able to smash or not smash and or would you rather own Robin Hood, which can service per which could service sports betting, which could add banking and gambling and payments and crypto trading, whatever they want to add, and can swap, which Robin Hood fundamentally owns the customer relationship. And it's not it's it's clear to us that like Salana will not own the customer relationship in the future. Ethereum people won't feel particularly strongly about where their assets actually sit. They'll say give me access to the products I want and make it convenient and ideally make it low fee or no fee. And if you can do that, users will predominantly prefer your platform.

41:37 Yeah, I think that what what's what's kind of I guess what makes me nervous about that statement and probably makes the people in crypto nervous and we've been talking about this on the on the pod for quite some time now is that basically I agree with the thesis but what that means is that most crypto applications end up going going to zero if you're cryptosp specific right because I think I think serving the crypto crowd itself is slowly starting to There used to be this idea of all these cryptonnative applications that would solely solely service the community that that we're in. And now I think what we're all seeing is that crypto enables a ton of stuff to be done on the back end. It enables applications to be faster, more responsive, more efficient. but at the end of the day, you need to build a business. You can't build just simply a crypto application anymore. And I I almost fear that there's there's still a tremendous amount of capital locked up. I mean, there's, you know, more than $500 billion of of market cap value across a lot of these altcoins that don't seem to be making that don't seem to be making that pivot. And so, I guess two questions for you are one, do you think that the great alt short is still on?

42:53 like, you know, do do you think that you can still ride these ride these things to zero? And then two, are there any applications that you see that are in crypto right now that you think could grow into real real businesses that you're looking at? I wouldn't short alts down here because alts will always drift around and because of structured products from founders and VCs who own altcoins, they have a lot of beta to the majors. And so, it's not even that someone's necessarily like buying these altcoins. I think a lot of them are zeros. They're or zombie companies or completely dead just sort of minding the shop and, you know, grifting the treasury. but that doesn't make them good shorts because they don't need to trade to zero, right? And you like fundamentally an asset could trade to zero where it's like delisted from most exchanges or it does low volume, no volume, there's no liquidity, but like you still don't get paid on the short and you have like all the risk and then maybe you're getting chipped away by a funding rate. So like I really think when I put on the large trade in 2025 of like the kingmaker trade where you long hype, long BTC, short alts, like that was the time to do it. I remember there was a period of time where Celestia was trading at dollars, not cents. That's the time to do it. Like, you really have to pick your spots shorting alts. But I I honestly think like shorting alts primarily is a waste of time unless it's offset with a very sharp long, right?

44:20 You you basically want to again back to our thesis of like multiple levers to pull like, hey, I think alts have extended to the downside a little bit too much. you know, I'm going to cut 50% of my alt shorts and look to read it higher or take some of that capital and double down on my long because by closing shorts closer to what I think is the bottom, I should also be getting cheaper prices on my long legs, right?

44:42 Like people do not give themselves enough ability to sort of like make decisions. They sort of are like allocated to something and then prices go in either direction and then they can't make adjustments. They're just like, I'm still long the same amount. so no, I I wouldn't short al alts. I would just not pay attention to them. I would just go through and really ask yourself like, do I think this company or token or or chain has any competitive potential? If not, then I'm just going to not spend any brain power even paying attention to it. Oh, it squeezes like bear chain. Oh, it squeezes 150%.

45:17 Like, I could not give a at all, honestly. I just think it's like it's destined to go to zero and it will go to zero and it's an inevitability to some extent and you shouldn't waste any time kind of thinking about it. >> That's I I think that's the most hilarious explanation of yeah, these things I've ever I've ever heard. Yeah. No, it's I think that's I think that's pretty one one thing that we talked about on the pod is is pick is picking spots. I mean, we got we got sort of flamed at the beginning of the year because I said that I thought memes would be would would be would be a phen phenomenal short and then I clarified that you you tend to want to short these things after they get squeezed up. And then Pepe squeezed up like 90% and everyone heard the first part and not the second part. so I do I do want to sort of reiterate that point is that shorting in crypto is really just about you have to be super super good on timing to do that. But I do think that a lot of these coins are still phenomenal shorts. I mean if like if if WorldCoin ever is up, you know, 50 to 70% over some period of time, and it's it's blown out all the shorts, I still think that's a I still think that's a phenomenal short. But I think you're 100% right. It's all about It's all about sort of picking pick picking your spots. I mean, are you like are are you still directionally day-to-day trading? Yeah. In your in your family office or is it mostly just now now market making and then sort of three to six months bets like accumulating BTC and and letting it ride? Like are you like do I know that at some point there was there was edge.

46:56 I know that I know that you you pro you were probably trading Bitcoin dayto-day. Like, do do you still think there's edge for the retail trader in trading Bitcoin day-to-day? >> I certainly don't have any edge trading day-to-day. I'm notoriously terrible at short-term calls, actually. Pretty bad. >> Fair enough. >> Mid mint to long-term calls I'm decent at. I would say above average given that we've had pretty spectacular returns. But yeah, shortterm I'm I'm pretty terrible. so I would say no. I think just on account of the market participants like in 2025 we noticed that a lot of like systematic strategy capacity just went down quite a bit because suddenly SITSAC jump tower HRT and all the other firms could like fullheartedly trade and not feel like the SEC was going to come and like kill them or something like they basically got the green light from the admin to trade crypto. or they felt empowered to do so because they felt like it was a good calculated bet because enforcement actions were signaled to have been decreasing and stuff. So, the market has gotten harder and that would lead me to guess that retail has less edge. So, I am retail and I definitely feel like I have less edge in this market. you you genuinely think you're you're you're retail here. I mean, you you've got a you got a market making firm that presumably has some good tech. Well, >> I mean, yeah, but I'm not deploying systematic strategies, right? I'm more of an LP in that. Like, we we kind of like I'm not I'm not doing signal gen or anything. I'm just candidly not smart enough and not good enough of a programmer.

48:32 I think that I'm decent at mid to long-term capital allocation and I'm decent at saying, hey, I have this thesis and that thesis potentially being correct, but more importantly than that, you have to bet on the right thing for the right duration. Right? You can say, I think DEX trading is going to grow and then you're stuck long Ethereum instead of Salana. And you were right, but you were also wrong. You could have said I think you know perpex trading is going to grow and you longed lighter at 1.5 billion val like founders fund did and you should have just bought hyperlquid and you would be up hundreds of millions of dollars. Like I think there are it it's one thing to be right about what's going to happen. It's another thing to find the right thing to bet on.

49:17 I spend my all time I spend my time doing that rather than trying to like guess the direction that the wind's going to blow for like short-term Bitcoin trading. But I think there are just spots that feel obvious. Like I'll do most of my volume on a day where like Bitcoin's down 20%. And I'll look at even something like Ethereum and say is Ethereum 20 28% less valuable than it was yesterday. Like probably not, right? You can you can have some reasonable assumptions about mean reversion there and you can put on a trade. but you know, back to like shorting alts as well. I think people forget like if you have alpha, you should not only have alpha in picking longs, but you should also have alpha in picking shorts. And yes, if you are outright naked long something and it goes up 10% and your short leg goes up 3%, you've only made 7% instead of 10. But riskadjusted, it's much better. You are paying slightly higher fees. But if you do have alpha, you should be able to pick something that's going to go up less when your long leg goes up and go down way more.

50:15 And it's much more important to protect your downside in crypto because I fundamentally believe all a lot of the returns come from like having capital when people don't. Crypto is very leveraged. Crypto is very volatile and you know these opportunities presents itself where everybody understands hey I think Bitcoin's cheap here or I think that this is a temporary explosion because of something that happened but they didn't have capital to buy. when FTX happened, unfortunately I had quite a bit of my cash on FTX, which really hurt. and so I, even though everybody knew Bitcoin was unbelievably cheap at, you know, 18K or wherever it traded down to, it didn't matter because no one had capital to buy. But the someone who did have capital to buy, whether through luck or skill or cunning, was able to make unbelievable returns without any of the headache of trying to guess like short-term price movements in Bitcoin.

51:09 No, I I I totally I totally agree with that. I think that the number one thing is just capital preservation. I mean, I remember that actually the most money I've I've ever made was post FTX. because we just went super deep into Salana, super deep into Bitcoin and specifically actually GBTC. We bought a ton from the FTX estate after after they liquidated. and it was like, it's crazy because in situations like that, it's like you're you're not fighting with anybody because as you said, nobody has the capital. Nobody has the capital to deploy. So, I think that's if if there's probably one lesson to take away from this from this entire entire chat, it's you know, make make sure make sure you don't blow up. and you know managing the risk of your portfolio whether that's not n just straight up naked longing you know layering layering and shorts whether it's using you know options to to do that I think it's extremely extremely important so I don't know I I think I think with that like the the the last thing I want to ask you because everyone's everyone's gonna everyone's going to hound me if I don't is you know what are your what are your big three or maybe there's just one like big three trades for for20 26 through 2027 like what what are you if super convicted in right now if anything?

52:25 >> Bitcoin snapping back and correcting some of the ratios between QQQ and gold. So outright long Bitcoin should get paid at some point. I don't know when, but that's our bet for this year. I wouldn't use long-term options and pay Theta. I would just buy spot or lever spot. I think PERPS are going to continue gaining market share versus options. So, own things that will in the future proliferate the adoption of per segue into it or just outright be perp dominant like something like Hyperlquid or something like Hood comes to mind.

53:06 I believe we do own Hood so I have to be careful and preface it with that. This isn't, you know, a security recommendation, but we do have >> Hood got totally nuked recently. So, I mean, if you're bullish on HO, this is probably a great entry for people. >> Yeah, correct. We've we've been adding recently. because I think, you know, there's two facets. There's like Hyperlid for the onchain, more technative, more informed, sharper capital that understands the benefits and then Hood for the average everyday American retail. And you kind of want to own both as they serve two fundamentally different marketplaces. And the market should grow. So, you want to own both segments. one may perform better than the other and you should be intellectually malleable to sort of sort of slash your exposure between both and then I think I don't think I know I fundamentally believe this I think aggregated trading experiences not just crypto but ideally encapsulating all the relevant products that people want to trade are going to acrew all the value and so that's why we're spending all our time building something like full stack which you know in short is going to be one platform where you as a trader can touch all the relevant products you want from one deposit source. So you won't have to bridge and you won't have to think about moving your capital across different venues and you may be able to be completely chain and venue agnostic if we do our job well enough where you just feel like you get convenient access to the products you want. So I think trading generally is going to continue increase increasing like retail adoption of trading, retail interest in trading.

54:44 and then I'm I'm pretty I am pretty bullish on AI candidly. I think you are still going to continue to get paid to be like delusionally bullish on the progressive nature of like technology advancement. And so you >> So you're not you're not a you're not a Satrini doomer? >> No, I'm not a I'm not a doomer by any means. I just think like there's so much capital in the world and it has to go somewhere. And the potential upside for AI is infinite, right? I'm summoning digital god. I'm going to make something that gets me all of the value and all of the money. And that's a very compelling argument that like isn't easily dispelled. like the Bitcoin argument of, oh, this is going to be the dominant currency of the entire globe and it's going to win everything. That's going to probably take longer than we expect or maybe never play out quite to that scale. But, that's a pretty good cell for capital. But AI fundamentally from like a sci-fi perspective or like an infinite return perspective, like what's my riskreward if the returns are infinite? Well, I should always make that bet. From an expected value perspective, like AI is still pretty good. So, I wouldn't fade AI this year, candidly. and then I think politically, I think we're in for a lot of volatility politically. I think, that's something if you had to wait along societal unrest, political unrest, you should do that, >> which is a little bit probably that's probably the gold trade, but yeah. Yeah, I think I think portion is it's it's dark, but hopefully, you know, it's it's some time out. you know, may maybe we get maybe we get a few years before this really really comes to a head. but dude, this was this was an awesome conversation. I really really appreciate you coming on the pod and and talking about it. I know our listeners are going to love this. especially that the the way the way that you think about trading and investing, I think is pretty unique and is evidenced by and as evidenced by your returns has been pretty successful.

56:40 So we we appreciate you coming out. >> I I really appreciate it. I really appreciate you taking the time to have me on. I don't do many appearances and I don't know I I try not to be repetitive. So hopefully this was kind of a more of an approach to trading. I haven't talked about trading in a long time. So but no, I'm really happy to be here and you know if people are interested in you know I I think I'll leave I'll leave the podcast with one thing. I think crypto is very isolating. and I think it's very easily it's very easy when prices are down to become apathetic about crypto and to sort of quiet quit and slowly just leave or like bleed out or whatever. And I totally understand that.

57:22 But if you have the like mental fortitude to realize like this is where the returns are generated. This is where the most asymmetric opportunities occur because there are just less eyeballs and less dollars looking at them. if you're able to have a framework around that, that is where potential amazing returns can come from. And not just with your capital, but also with your time. Thinking about where should I spend my time, what company should I work at? And being very thoughtful about that is something I think people candidly spend too little on or thinking about like what is my career trajectory? Why am I working where I'm working? Am I just optimizing for capital and stability or do I really want to work someplace with like tremendous upside? and yeah, and I always leave any podcast with this. I think if I could implore one thing in all people, it's that people making media and putting content out there, the haters are always like 10 to one for the positive people. Like haters are very loud. People that are enjoyers are very quiet. It means the world to someone, especially you have no idea what their mindset is or or what their mentality is. It's very important to tell that person you appreciate their work. So, Obby, I really appreciate the work you do at Thousandx. I really appreciate you having me on. I sincerely mean that. But for everyone else, go out and tell someone whose whose work you admire, >> dude. That was that that was that was an awesome close. I appreciate it. you know, which so I just want to add one thing just cuz you said something that is like ex you literally did exactly what we set up the podcast to do, which is when Joan and I started the podcast, we said, "I think we need to help people figure out what to do with both where to put their money and what to do with their time." And you sort of you sort of wrapped it up beautifully there. So thank you again.

59:14 Nothing said on the ThousandX podcast is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the company's funds or projects discussed.