Transcript
Speaker: Welcome to a new episode of the InSilicoTerminal podcast. My guest today is Degentrading LSE. can i Can I ask what the the first thing that piqued my mind about you is ah the LSE at the end of your name?
Speaker: what What made you when did you name yourself like that? Oh, um, well, actually, I just wanted Degen Trading, but that name was unfortunately not available.
Speaker: So I had to add something at the end. Um, and I think a lot of people were wondering, uh, what it stands for. Um...
Speaker: It's actually rather unfortunate. So the LSD actually at the back stands for liquid staking derivatives, actually. So I think a few years back, you know, there was a very, very big narrative across that.
Speaker: yeah And I thought that was going to be actually quite a big thing. um especially in with relation to the creation of yield for Ethereum markets. So unfortunately, I think the cycle that came on did not reward that narrative. um And also, I quickly found myself delving into very different parts of the market shortly thereafter. But I was too lazy to change it. So it stands there still.
Speaker: it's It's almost a bit of ah of a relic of ah of a past time because I more or less obviously thought of the drug as ah the first thing. But like i did I did remember when i when I read it that there was like a crypto thing that was also called LSD. But like I feel like no one has used it that ah terminology in quite a while since it kind of died down little bit.
Speaker: It kind of died. It died. Let's just be real. It died. Yeah. yeah So how how long have you been in crypto? ah I started in crypto, in so I came into crypto on a personal level in 2019.
Speaker: I thought I was very late back then. um I pivoted my entire career into crypto in 2021 actually. a tree so And it before that, you were an market maker in TradFi? Yes, I was an options market maker in TradFi. used to trade EMFX options and then I moved to trade equity index options. Very different things from crypto, but actually also very similar. Actually, I got my start in crypto because Deribit just launched.
Speaker: Derabit just launched VOR curve on Derabit was very, very, very mispriced. Um... That was basically no ball curve. It was a flat surface. Now, to any derivatives market maker, then that is obviously a wrong surface to be quoting from. And that, I think, just goes to show how immature the crypto markets were back then.
Speaker: Does it mean like that basically the the IV, I guess, across all the expiries was flat? ah So the IVs across the strikes were flat. So for example, Bitcoin at that point in time was $4K.
Speaker: So the $6K strike was quoted as the same law as the $9K strike and the $10K strike, right? Which is pretty crazy if you think about it. Because that means that the $9K strikes were basically very, very, very, very cheap. And I think that was how made my first pot of money in crypto. Um...
Speaker: You know, you could do two things, right? You could do a um delta neutral play on the curve, right? If you wanted to be very smart or if you wanted to be a complete degenerate, you just go and buy all this mispriced volatility. um And it was also a little bit of luck that happened thereafter because what happened was that ah Bitcoin started repricing up. Yeah.
Speaker: And the nature of these options that was sold to me is also such that As prices came up, the market makers had to post more and more margin onto their bid to maintain the position. But there was such a big squeeze, I remember, back ah during that time that I remember on the week just before the weekend, ah Bitcoin was at $5K. After the weekend, Bitcoin was at $7K. So my $6K strikes became very in the money. I was up, I think, on that.
Speaker: um um but I still had enough time. I think by the end of it, I think I was, I basically made 100x of my initial premium that I put in. So I always remember that. um But that was how I got started in crypto. It was a very different market from two today's market.
Speaker: Very immature. Is that like, ah what were you mostly trading options then after that time or like since then? Or what did your trading look like?
Speaker: um So after that, actually not options, right? I think the edge for any retail trader or any non-Insti trader is the fact that you need to and you can participate in much smaller markets because for Instis, they have a certain amount size that they need to deploy to earn the capital cost of their balance sheet.
Speaker: and And I mean that could be like the opportunity cost or like let's say your INST, your trading desk, you typically get charged a funding cost for your balance sheet. So whereas, you know, as a retail trader, you're much smaller, you don't have these constraints, you can look at many different opportunities that the INSTs cannot look at, for example.
Speaker: And also, you can also look at certain opportunities that can become very, very um smelly, right? That people do not necessarily want to touch. So I made a couple of good trades in 2020, 2021, but were trades that I think anyone could have done. Nothing really too special to talk about.
Speaker: buying Delta is always easy. Riding the upside is also always easy. i think what's interesting to maybe share about was, um I think my proudest moment was actually...
Speaker: buying um this GBTC, GBTC, ETH, ETH, ETH, before they became ETH, and they were trading at like a 50% discount.
Speaker: um And I think that just goes to show like, not many institutions would actually touch this trade because there was a massive overhang. from the Genesis debt resolution. I think even even for me, i remember I was actually also pretty uncertain at that point in time.
Speaker: I thought that DCG would go under Genesis, would have to do a fire sale for the GPTC blocks. um And that did happen.
Speaker: But once that block cleared, I knew that you know it was time to actually start going into all this. So effectively, you could have bought Bitcoin at $8K because you had a 50% discount on top of at a $16K spot price.
Speaker: And I think that was very interesting because, again, there were two ways to do it. You could be very intelligent, and um hedge out the delta and leave yourself with the discount or you could be a complete degenerate and just write the delta along with the discount right so again I think these were trades that would favor a retail profile, would give you very good risk-adjusted returns, and I think are actually very interesting to put on.
Speaker: yeah um So that's really been my focus. My focus and my trading style is to find opportunities that I think are mispriced by the market.
Speaker: Usually they are mispriced for a good reason. There is a reason, right? Because most of the time when you walk along the streets, you don't see money on the floor. Yeah. What was the reason again why the GBTC thing had such a big discount? Because there was like no... people didn't think that there would be redemption at some point?
Speaker: I don't remember. So actually it's very interesting, right? So I think we need to actually... I mean, this is actually a pretty long story. So I'll just talk about it from the beginning to give everyone a good sensing, right?
Speaker: um First of all, GBTC did not always trade at discount. In fact, for much of its earlier life, it traded at a premium. So this is not an ETF. It's actually a close-end product. you basically It was basically Barry Silbert's little golden egg, right? What he did was that he basically got people to put money in.
Speaker: um and then after that Grayscale which is the owner of this product will charge you a management fee all right so you got some fee-based income of it and then after that In TrapFi, it's a very interesting phenomenon where you have funds who might want to buy Bitcoin, but they only can buy, say, stocks.
Speaker: So they cannot buy Bitcoin even if they wanted to. So what these products do is that they effectively created a wrapper in order to allow for certain funds to be able to buy Bitcoin. So the reason why traded at a premium to the NAV, why Saylor couldn't do all his financing earlier on was really because for a lot of these funds, they wouldn't access the asset class.
Speaker: Hence, there was a premium that was paid because These guys like DCG, Michael Saylor, they effectively created wrappers to allow people to access it. yeah um Now, of course in crypto, things always go to the extreme, right?
Speaker: So I think 3Arrows, what they did, they did this trade in massive size. That was how they made a lot of money as well. and they turned around, and then they took their holdings, and then they went to the lenders like Genesis and BlockFi. So again, you you see Genesis, right? Genesis, ECG, Grayscale, they're all owned by Barry Silver. but He basically has his fingers in every part of this trade.
Speaker: And he basically... um took on a lot of debt with those as collateral. So he basically pledged those GBTC as collateral. Now come to the end of 2022, the lenders were under massive distress. They had all this collateral on their balance sheet. But remember, this collateral could not be turned into Bitcoin and then sold.
Speaker: GBTC was also not liquid, right? And you basically had a situation where you had a lot of lenders who have obligations in USD, who then hold a ton of GPTC that obviously the market sensed that, oh, they need to sell this GPTC. So they started, the earliest ones started to get out. That selling pressure created more selling pressure, which pressed this to trade at a discount. And because there was no redemption,
Speaker: That's why you know the discount persisted. And also, nobody by the end of 2022, no one was really bullish enough on crypto, and nobody really thought that ETF redemption would come anytime soon.
Speaker: um And you need to remember that the fee that was actually being charged on this product was 2%, right? So when it was trading at a 50% discount, the effective fee that you're getting charged actually closer to 4%.
Speaker: So if you put on this trade knowing what you know, then you are actually charged a 4% funding cost, right? So if you thought that crypto was gonna go to L, go to the zero, then you probably it would be like, yeah, it's 50% discount, but I don't want to touch it. I think that's what a lot of insties were thinking.
Speaker: And I remember then there was a very interesting signal, which is that the CME futures for Bitcoin always traded at a premium. There was, however, at that point in time, there was a single, I think at least one day where the Bitcoin futures traded at discount to spot price.
Speaker: um That just goes to show, you know, how much hedging went down into the market. So um long story short, why was it trading at a discount? You just had a ton of sellers and the buyers were not very convinced that buying this would make their money at any time soon. interesting Interesting story from almost ah what can be now called the old days already. is there I'm curious, is there any other stuff that where your background in being an options market maker in TradFi has helped you to trade crypto better?
Speaker: um i think actually a lot of people think about like the process of making money. And I'll say that in crypto, making money is not the hard part.
Speaker: The hard part is actually keeping your money. um You know, being in crypto over the last few years, I've seen tons of people blowing up. I mean, in fact, every single cycle, you see people blowing up.
Speaker: yeah usually the guys who make the most of money also blow up the hardest and I would say that my background from being an options market maker made me a lot more conservative towards my approach in taking risks because in options you always need to take into account what your left tail really is right and 99% of the time the left tail doesn't happen But the 1% that the left tail happens is when it gets tremendously painful. right I was market making for a bank um when during COVID actually.
Speaker: went ah When there was a huge unwind into the market just randomly on one of the mornings. These events, I think they they scar you. They give you some amount of scar tissue.
Speaker: that gives you some amount of paranoia. So I know that in any singular bull market, I will never make, you know, the largest percentage returns. Um...
Speaker: But also correspondingly, I think that I have some amount comfort in knowing that I probably will not blow up. And I think that has been super helpful. Again, I think that crypto has a lot of opportunities just because of how unique this market is.
Speaker: Making money is really not the hardest part in crypto. Keeping it is probably the singular singular and the most difficult are challenge. Do you have any like concrete examples of the the risk management strategies that you employ to make sure you don't blow up?
Speaker: i think I'll talk a little bit about i think what is generally applicable for everyone and I think what people can generally do. So I think first of all is keeping some cash.
Speaker: I think a lot of people are either all in or all out. That's not really a very smart approach, right? Because you think about it this way. Let's say you are 60% invested in the market and the stock or the ticker goes up like 2x from there.
Speaker: You have effectively...
Speaker: made maybe close to one point five eggs of your portfolio. And if you were all in, you would have made 2x. Now, and the difference between 1.5x and 2x is not too far, right?
Speaker: But what if the market went down by 80%?
Speaker: So if you are, you know, in crypto's case, you know, it's very common to go down to like to do a minus 90%. Yeah. um What would happen if you were, know, just all in is that you would then be at like 10% of your net worth.
Speaker: And if you were 60% invested, would still have at least like you know close to close right to half of your capital. And for half of your capital to climb back up to 100%, you just need to double your money again, which is not too hard.
Speaker: But from 10% to go back to 100%, you need to 10x your money. right yeah yeah And that that is actually like difficult, not to mention the tremendous amount of mental scarring that you would have.
Speaker: So I would generally say, I think, like, one of the easiest risk management advice to do is to actually just always think about, you know, how much cash to really hold because cash is an anchor, right? A lot of people project for the good times, so you've got to really, like, try to project for the bad times as well.
Speaker: um And there's a very interesting study. So I think everyone by now would... probably know about this thing called the Kelly criteria. And the Kelly criteria is basically given I know that, you know, something is going to be positive EV, what percentage of my portfolio should I be betting?
Speaker: And I think what people have found out that the optimal Kelly ratio to really be betting, the one that is easiest to write. It's not the full Kelly, but rather half Kelly or even a quarter Kelly.
Speaker: And most people um not a very good in a drawdown, right? So if you're not very good in a drawdown, what happens is that realistically, you need to expect that your trading performance is going to deteriorate. So you really shouldn't be sticking to something like half Kelly or even a quarter Kelly.
Speaker: um If we were to talk about it from that perspective. It's also very interesting that the best opportunities in crypto come during the bear market. Mm-hmm.
Speaker: And if you want to be active, if you want to have the ability to deploy during the bear market, then you need to have some cash. You need to have that staying power. yeah need to You need to really, really, really have the ability to always be in the game. Yeah. and past a certain point, you know, you really want to talk about compounding a portfolio, then...
Speaker: You also got to realize that the opportunities that can accommodate a portfolio of like say 100k versus this a million versus 10 million versus 100 million looks very, very, very different.
Speaker: And the challenges that you face will be also very different.
Speaker: What do you think about where we are in the markets currently, as we like mentioned briefly before recording in regards to, I mean, we we've been in the bear market pretty much for quite a while, but now we had this treasury shenanigans that happened, I think like two to three weeks ago now.
Speaker: What do you think about that whole situation in regards to crypto? um I think that
Speaker: I think that crypto is in an interesting spot, right? oh And for very good reasons. So i talk about let me talk a little bit about like how markets were like a few years ago.
Speaker: So in 2021, markets in general moved together. In our last crypto cycle, we had a bit more dispersion. And in this current cycle, what you're actually really seeing is a lot, a lot of dispersion, right? So I think there's a picture going around Twitter today, which was saying that, you know, a year ago, both ZEC and Hype were both at $50, right? Today, Hype is, you know, $80, $85. ZEC is close to $1,500, right?
Speaker: eighty five zanyc is close to a thousand five hundred dollars right so what it means is that this is, when you talk about like the crypto markets, there's no singular, it's not a singular asset class that you're really talking about already, right? Because you can have Bitcoin not doing much while you can have ZEC, you know, pulling 5x,
Speaker: um dispersion is the name of the game now. So I would say that the core insight I have for this current cycle is that we are going to see even more dispersion in the markets but then because some of the factors that create a general push for liquidity is not here at this point. What you're seeing in the market is a lot of residual capital that is beating narratives that they believe in. These narratives can be privacy. These narratives can be privacy.
Speaker: say, the establishment of crypto infrastructure, um and or even, say, things like, for example, AI.
Speaker: right AI, is I think, is going to be a very hot team in crypto. So if you look at the developments of where AI is going, i I would say that it ranks up there with privacy just as much, if not even more.
Speaker: Yeah.
Speaker: So do you think that, the I think many people always say that, especially if they come into new, into into crypto and they're like, hey, Bitcoin is kind of old, you know, you don't, if if it goes up to X, you only make $1,000 if you put in $1,000. So like, do you think that there will be less focus on Bitcoin itself going up? Like other other coins would be able to in a bull market while Bitcoin is like ranging or not making new highs or whatever?
Speaker: Yeah, for sure. I think Bitcoin, I mean, Bitcoin isn't reliant on retail liquidity to really push it, actually. It has gotten to such a large enough size that, you know, retail liquidity is not going to be a factor for Bitcoin. And like what you said, people come into crypto, I came into crypto because wanted to make 10x, 20x, right? And that is...
Speaker: not very realistic with Bitcoin in the next one to two years. um And this is why you see people are throwing money into the trenches, why people are, you know, participating on FOMO, despite FOMO charging a huge amount of like, bid-ass and the amount slippage that you get based on this. It's because people come in into crypto to...
Speaker: well, a large percentage of people come into crypto, especially retail, to really gamble, right? They want that life-changing opportunity. The next $50 is not going to matter too much to them. But hey, you know, if they could make like $100K from it, that would matter to them. yeah And this is why i tend to think that um the trenches have continued to have some amount of activity even throughout the bear market because that...
Speaker: because debt that gambling demand is just so naturally attuned for crypto and it's always present. um What I think is changing, however, is also that beyond just pure gambling demand, we are also in a very interesting phase where the crypto infrastructure actually is becoming very, very useful. um The ability to be able to send money everywhere or to send value anywhere, the rise of ai agents, the ability to make payments, transact, exchange value, coordinate.
Speaker: This gives rise to very interesting features like, say, um open source models where you can run private inference on it. it's going to be a huge thing, right? Especially when you have like censorship that will come down very soon in AI.
Speaker: um I tend to think that we are going to see like two sources of like very speculative demand in crypto versus pure gambling.
Speaker: Second is
Speaker: speculation for future use cases. Speculation for crypto to capture the next big market narrative, that big term.
Speaker: That I think is going to be what will move certain larger size outpoints. So I tend to think that, you know, there is there is something for everyone um in crypto.
Speaker: It remains probably one of the easiest or the least competitive markets in the world still.
Speaker: Where do you think we're we're at like macro-wise right now? After this this week, we just had the the Clarity Act not not pass or like not not ah preliminary pass and also the FOMC where Walsh hiked rates.
Speaker: Maybe let me just like break it down into two really distinct questions, right? Because like yeah Clarity Act, I don't think anyone really expected it to pass. So it's it's not very there was there's not a lot of like implications on it not passing. The next thing is that regardless...
Speaker: of that if it doesn't pass, the regulators themselves are going to give guidance on on crypto, right? So that actually is also going to create some amount of clarity.
Speaker: No pun intended. And if you look at it from that perspective, I don't think it really, really matters too much for crypto. um The FOMC hiking is a little bit more interesting just because...
Speaker: um The main question really is that whether we are at the start of the hiking cycle or not. And if we are, it's not going to be very good, right? Because that is a constraint on liquidity, etc. um However, if we really think back towards ah what...
Speaker: could potentially happen and some of the second order implications, it's not really that bad. Because if you think about it, the whole reason why there is this push for rate high is because of inflation, because of higher oil prices. Look, just because you increase interest rates doesn't mean that oil prices are actually going to go down, right? It's probably not going to go down.
Speaker: So this... ah actually outside of monetary policy, the next thing for markets is that there is actually a vast amount of paper wealth that's being created right now within AI, right?
Speaker: Within all this AI valuation. And that actually is going to be a stimulant for markets in general. So you have like two two moving parts. The Fed, if they embark on the hiking cycle, that is going to slow down the economy, reduce the liquidity. But at the same time, you have all this newly minted millionaires, billionaires from Entrofe, OpenAI that's going come into the markets and also like, say SpaceX, right, that actually happened yeah alongside with the vast amount of like AI wealth that is
Speaker: currently, know, being created. So I would say that generally there are many competing forces. It's very hard to make a projection on it.
Speaker: I'll say that if you want to make money from speculating, there's there's no real edge in like looking at this form guidance. but But there are interesting insights to glimpse from it.
Speaker: The first being that if you look at the Fed, whether or not they hide rates, what businesses can endure high rates?
Speaker: And the answer is businesses with very high margins, businesses with high growth, these are the businesses that can endure high rates. The businesses that would suffer are those that are very marginal, businesses that don't do very well, businesses that have a heavy amount of leverage, or basically they cannot earn. Their ROI is below their cost of capital.
Speaker: And if you look at it, the only game in town right now is semis, right? Because the semiconductor stocks are earning huge amounts of money. They are not priced very expensively because people don't understand these stocks enough. And I think this is where I sense, like, in my opinion, this is, like, the next big opportunity, right? Um...
Speaker: The next big opportunity comes because you have enough people who have control of money who don't understand it enough. And in this case, it's all these big boomer hedge fund managers who went through multiple semiconductor cycles, who got brutalized by these semiconductor cycles because the cycle always, always turns, right? There was no such thing as AI that created a very lasting demand,
Speaker: in the case for memory. um And you also have Michael Burry who is like pointing at say depreciation and be like, oh, you know, these nail clouds are not worth any money. They are going to fail. But if you take past all these biases, you look at the actual data itself, it's telling you something very different. It's telling you that the memory shortage is going to last for another good five years.
Speaker: yeah right At that point in time, um even if memory price, even if the stops don't increase, the cash that's on the balance sheet will be way more than the stock prices right now. If you look at, say, all these different new clouds, they are raising money. why why Why are they, you know, like for example, yesterday called with, I think they probably need to sell out like say 4 to 5 feet of stock. Why are they doing it? and They are doing it.
Speaker: And why they taking on like 6-month leases? It's because if they, you know, issue and sell 4 feet of stock to and do the build-out in 6 months' time,
Speaker: that six-month lease is going to give them $2 billion dollars of um all revenue. So they effectively make four extra B of revenue from that.
Speaker: And if you think that compute is going to be in a shortage, I mean, people can argue whether the right depreciation schedule is like five years or six years or seven years, but it honestly doesn't really matter if I'm going to make back all my money after one year.
Speaker: Like, it doesn't actually matter. But this is not what... the people who have control of the money see, right? And they are seeing the world more from Burry's view. And this is why there's an edge. There's an edge in the market because there is not enough understanding.
Speaker: um And this is why I generally tend to enjoy going into markets and market situations where there is a gap in understanding.
Speaker: Because if everyone understood it, there is no inefficiency in pricing. You're going to just get market performance.
Speaker: So this is like for stocks like SNDK, SK Hynix. SNDK, MU, SK Hynix, and this. In fact, actually one of my um very interesting trades that I made shortly after ah the GBTC ETH trade was um going into into some of these crypto miners. right They were incredibly distressed, but they had access access to power.
Speaker: And shortly, they basically all became um shell operators. So they would operate the powered electricity shells for these new clouds.
Speaker: So I think generally... I would say that as a retail, the biggest edge is to find spots that Instys or Insty-like participants will not touch. If you have a small pot of money, then you'll be very happy because when you are at $1,000, trying to grow it to $10,000 is probably not very difficult.
Speaker: And you can probably find many, many different ways to do it, like ad hoc farming or like just doing rafflings, etc. Trying to go from $10,000 to $100,000 is also not super difficult. There are still many ways to do it.
Speaker: But if you want to grow your portfolio from like $10 to $100,000, then it's going to be a little bit more complicated. You only can take on high-capacity opportunities. Mm-hmm.
Speaker: So I would say, but generally, good opportunities are found in places where most people are not looking or don't want to look. Places that people are looking at are not going to be e likely lead to have opportunities, right? I mean, it's a huge fallacy where where Generally, i realize that, you know, let's say you lose your keys. um People like to search for it in places where there's light, you know, because that's where you can see.
Speaker: But that's not really the point, right? You got to search everywhere, especially in places where there's no light. Yeah. Yeah.
Speaker: how How do you execute your ah like what what kind of instruments do you use to execute your ideas nowadays? Since you're like, I guess the market is kind of ah very good for you now with like the TreadFile background and all of the stuff you look at because equity perps have become so huge. Do you like use like HRP3 perps to express zero memory ideas?
Speaker: oh Yeah, so I think those are actually good because they have a decent amount of liquidity. um But for most cases, actually I reserve my liquidity on crypto for my crypto ideas. Right now, I would say that despite HIP3 growing to what it is, it is still a lot better and easier to trade on IBKR.
Speaker: The liquidity that you get in TrapFi from that arena is a lot, a lot better. The fees are also a lot cheaper. um I the are... i think i think the fees are
Speaker: I mean, i did I did some calculations on how much fees I paid. I i believe like this year I paid maybe like say 0.2 bps for my IBKR trades, right? um That would not be possible on Hyperliquid, for example.
Speaker: um Or court forbid, say some of the sexes where the fees are actually really high, right? um And how would I express my ideas? I mean, you have different kinds of instruments, each with their unique differentiation, right?
Speaker: Because if you think about it, really is a SK Hynix pub on Hyperliquid the same as a SK Hynix pub on Binance? Not really, right? Because um I think very interestingly, one month ago, you had a situation where SK Hynix on Hyperliquid weak down.
Speaker: Why? Because the opening auction price for SK Hynix ah was... They had um one order that was very very low and that created wick in the Oracle price on Habit Liquid.
Speaker: And people got liquidated for that, right? But the same thing did not happen on Binance. So yes, you have the same ticker still, but they are not actually fundamentally the same thing, right? And this is also not the same thing as like trading 00660 or skh y on on the US ADR. I would say that I think a lot of people are too trigger-heavy to like just like run with idea and like take some risks. But in fact, actually, you really need to look into the fine print of what and you are actually trading, right? A perp is different from a stock. um
Speaker: the same thing listed on different venues can behave very differently, even though 99% of the time they behave the same, right? Because they reference the same Oracle. But what are the edge cases? You really got to look out for that.
Speaker: What do you think about the the other AI stocks like NVIDIA, Google, Meta? um I think those are actually fantastic. Like, NVIDIA is probably going to do really, really well. For the longest time, it hasn't moved. But this is how NVIDIA really trades, right? um You generally have...
Speaker: And and i can explain a little bit about why Nvidia trades the way it is, which is that it doesn't move for a long time and then it does a massive like pump and then it just stops there. And the big reason is that within the markets today, you have two classes of people. You have people who believe in the AI story and you have people who don't believe in the AI story. Now, for the people who don't believe in the AI story, they are not going to be buying AI stocks, right? They're going to think this has gone out 10 times, you know, it's all going to crash down like Michael Burry.
Speaker: And you have people who believe in the AI story and be like, you know what, NVIDIA is good, but... why would I buy Nvidia which only can go up 2x when I can go and buy like say Sanders or whatever bottleneck stocks that they have in like some Taiwanese market or like the Japan markets So effectively, the buyer group for NVIDIA is actually has become a lot more limited. You actually end up having just more passive buyers for NVIDIA, right? um However, I do tend to think that the time for re-rating in NVIDIA is actually probably pretty close. um It's going to throw out like 70% growth next year.
Speaker: And the only reason why it's not doing higher is because you know, they are constrained by capacity. So this is a stock this that in my mind resembles something like Apple in 2010. It's going to be a compounder. It's not going to be like super exciting thing to own. Like no one is going to give you a medal just because you own Nvidia, right? ah It's going be like one of those boring stocks that that is going to do really well. Yeah.
Speaker: um In terms of like, say, the hyperscalers, like say, Meta, Google, I think it's very interesting that they actually became hyperscalers, right? Which is that they decided collectively at the same time in history that, you know what, we're not going to return cash anymore to our shareholders because for the last like 10, 15 years, these were the guys that were doing the highest amount of buybacks. They said...
Speaker: Very rarely have we seen an opportunity to make so much money, and which is why we are going to throw it all into KPEX to try to make that money.
Speaker: For the last one year, they got punished. They said, because investors doubted that, you know, what if all this KPEX doesn't make money, etc. But very recently, if you look at the earnings, they are realizing that, hey,
Speaker: maybe the guys running these hyperscalers, these multi-millionaires are not actually stupid. Maybe they know actually know what they are doing because the return on this KPEX is starting to show up.
Speaker: um It's not percolating through the minds of many people now because what is showing up is the KPEX from like, say, two years ago when it just started. But if you look at... how much um compute shortage there is now, you look at how things and the pricing that things are going at, I would say that generally the hyperscalers are going to earn like say 30, 40, 50% return on capital annually. And that is going to re-rate the stock prices.
Speaker: What do you think about, you briefly mentioned that earlier, like the the censoring of models that you think is coming or like this general topic of this cursor last week of slowing down and how that is going to develop?
Speaker: armss Look, I mean, I think for this, I generally will preface this with the fact that um I'm more of a markets person than say hard marketer.
Speaker: tech nerd, for example. But if I were to look at it from ah business perspective, it is very disingenuous to say that, hey,
Speaker: you know, now that we're at the front of the race, everybody, let's slow down, slow down, okay, slow down, so that we we can monetize ah heard the models that we have already trained.
Speaker: um It sounds very disingenuous to me. I think that's one. And I think the second thing is that it's unrealistic. to come to an agreement to pace the frontier. um And you really realize that if Trump is not going to enforce something like that, and then, you know, the game theory optimal is, you know, screw this, right? We're just all going to run as fast as we can because it's a race.
Speaker: What is interesting, however, is that at the point that we are at, which is where you have models and reinforcement learning that... is accelerating the speed of development. I think this actually can be very interesting um to really think about because this has a lot of implications down towards, you know, just beyond trying to make money in markets, but towards society, towards the future of wealth, etc. I mean, I don't really have very good answers for that.
Speaker: um But I tend to think that markets are going to change in many, many ways.
Speaker: just beyond, even beyond, say, the nature of money, for example. um One other thing that I would probably highlight is that the role of crypto in the future...
Speaker: It's more important than ever. Why? Because, say, being traced with AI, with technology, it is much, much, much, much much easier to be monitored, right? Governments can know what you're doing.
Speaker: um I mean, in China, you know, you have security cameras everywhere, right? So if you commit a crime, the cops are going to show up in your door in like 10 minutes, give or take, right? um This would have been unthinkable, maybe like say 40 years ago, but really many places all over the world are going to be much less private just because there's a huge amount of compute power that is able to to monitor and to assess.
Speaker: um And I think this is why privacy is actually running, right? Because privacy is a human need. The next thing is that with the labs pacing the frontier, it also probably means that, hey, we have all these really good models, but we're not going to give it out anymore. We're going to keep it for ourselves. We're going to keep it for people who can pay.
Speaker: And the thing about all this is that The reason why the labs gave you the models in the first place was because your prompts, your responses was helping to train the models as well.
Speaker: Yeah. And it really creates a pretty bad scenario. And I think Alex Karp from Palantir actually talked about how insane it actually is, right? Which is that, you know, any organization that utilizes all these models is actually giving out a lot of data and data that could be accessed by their competitors.
Speaker: And that's why I believe the influence will become private. Like it is not even about... It is not even, it's probably like, i would say like, I'm probably like say 80% sure.
Speaker: Right. And it's kind of like looking at your browsing history. Do you really want people looking at your browsing history? You wouldn't. Right. And sometimes, you know, you would, I'm sure many people have asked the dumbest things to their chat GPT and they will be mortified if their chat GPT history got up.
Speaker: Yeah. Yeah. Yeah.
Speaker: what What do you think that the other interesting AI place in crypto right now? I guess VVV is kind of the only thing that I can really think of. And then for privacy, we have like Zcash and Nier.
Speaker: umm I'm not the biggest Zcash fan, but I guess it's a good narrative. Yeah. um I think Zcash is is an interesting one. um And Zcash, the reason for its price performance is really the fact that a lot of the spot supply is cornered and it's not in the market, right? So it's not available. and So it will continue doing very well.
Speaker: um and I think in May Zcash had that exploit the IOM would exploit yeah um that I think without that happening i would say that we would not be seeing such strong price action now right because I know a lot of, you know, Zcash believers, privacy believers who soaked into that move.
Speaker: Right. And think about the crazy people who would buy during such a move. Right. I mean, there were buyers. I bought. Right. um But that's because
Speaker: i i'm I'm not your typical, you know, let's chase the momentum kind of buyer, right? I'm very patient. I like to look for, like, this kind of very unique opportunities where everyone is, like, telling you, you know, the house is burning down and I'll run inside that i'm burning the house that's burning down. Yeah. ah So, really, you have a ton of supply that's locked up by people who would buy during the exploit. I mean...
Speaker: I mean, i it's it's going to move in ways that I think people would not be able to comprehend. um In terms of like what are the crypto tokens,
Speaker: I think there are some AI tokens that can be quite interesting. There are some new tokens that I think will end up being very interesting, especially if they have that inference narrative. I'm not going to give like specific tickers because um you know I have a personal policy not to like just shield stuff. ah and to I just think it's bad karma.
Speaker: At this point in my life, I don't want to... You know, I rather just not have drama in my yeah that's fair. um So just say, you know, for the people that are watching, listening to this, there are tickers out there, you know, you just have to go out and look for it and they can't enough.
Speaker: But there are. And I would say that I think some of them will probably do like a 10, 20x this cycle, if not over the next one, two months.
Speaker: I think it's very interesting this Zcash hyperliquid comparison that we we have been seeing on on the timeline for the last couple of days because it kind of reminded me that um you know hyperliquid was such a good coin throughout the whole bear market like it held very well it went up a lot and then Zcash is just like, for for me, Zcash doesn't really have any fundamentals. like it It has like the privacy narrative attached to it, but it's not really like a useful yeah thing. like It's not really used. But it's it made me realize that that's actually kind of the point of crypto. And that's like the most bullish part because Hyperliquid has this this cap of like, it's now rated by its cash flow and its revenue and all of that stuff. And Zcash is just like pure belief and and emotions, which is actually way better for price action than if you like ground something in reality with fundamentals and actually kind of what you want to have in crypto when you trade crypto for the infinite upside.
Speaker: Correct. I think that is what is actually is... um um you know, that that makes hyperliquid trade the way does during a bear market and, you know, Zcash trading the way it does.
Speaker: Um... i think I think this comparison that is coming up is also because you know you have a ton of people. The only people with money left after the end of a bear market are people who are deeply cynical, right? People are deeply cynical, deeply cautious. They will take some time to turn. um And then they will get a lot of FOMO when they see coins like Zcash running because they'll be like, oh, what why if only I bought, why why why didn't I buy, it right? Yeah.
Speaker: ah um And then at the same time, the people who have bought this kind of tokens, well, unfortunately, after the end of the bear market, they have no more money, right? they They got to try to find some money again. They got to make some money again. So it creates a very interesting dichotomy. Most people, would say, are are probably sidelined, right?
Speaker: Even the people who are allocated... you know, how many of them are actually happy with the amount that they allocated in, right? I don't think anybody full-ported into this.
Speaker: Yeah. Only like a couple very few ah delusional believers that have been like shilling Zcash for many cycles. But I think if if you think about it that like a year ago, or i don't know how much time has passed, but like it it made it, it did like a 25x or something. So yeah that's actually pretty crazy for like one of the bigger, bigger coins. Yeah.
Speaker: Yeah, well again the supply of this token is incredibly controlled so um I think I was trying to buy some Zcash spot in May and it was a nightmare, right? Like you would you'll be pushing the price up against you. and fell to and and And that actually is a very bullish side, right? When supply is so controlled.
Speaker: do you have Do you have a view on perp taxes in general, like markets apart from hyperliquid? As we have, like we have lighter now variations going to TGE soon, and extended. And do you think there's anything interesting there or...
Speaker: Yeah, for sure. I think there's going to be a lot of interesting products to trade, right? I mean, at the of the day, a pub that says, oh, venue for you to trade things.
Speaker: And I think Hyperliquid is doing a good job in pushing out like things that they think that people might want to trade. But the market is also expanding. And I do tend to think that the market is big enough for more than one singular winner. I think the perp dexes that will do well are those perp dexes that find a niche that they can dominate and they can win in.
Speaker: um And those would probably do well. i think hyperliquid started very good example, right? Because hyperliquid basically...
Speaker: hype is basically one of those tokens where you know that the team is not trying to run you they're not like keeping all the money for themselves you know that you know owning a token there's actually a point in holding a token right like besides besides like governance or like vibes um and I think that they are probably one of the few teams that did not abuse their holder base and that's why they got rewarded for it and I think incidentally Because of that, I think it has shown teams like a new way to like really participate.
Speaker: I think last cycle, we just had too much low-quality teams that basically just wanted to, you know, route everyone, make some money off the token because they saw how easy it was in 2020, 2021, right? So those projects out then.
Speaker: um Those all didn't do well, right? I mean, look, think about it. Like what? I think there was like some L2s like Skrull, many, many, many, many names that just died.
Speaker: Yeah, ZK Singh. They're just rubbish, right? They were just out there to make a quick buck. Whereas I think that we have two important forces now. I think the first is the fact that I think teams are realizing that, hey, the easy way to just rock people for like, you know, a few hundred K is over because VCs are getting increasingly selective. And why are VCs getting so selective? Because, you know, last cycle, got a lot of them didn't make money from all their VC banks, right? yeah So they're getting very selective about it.
Speaker: And also, people realize that, hey, you know, with AI, it doesn't cost so much to make a project, launch a project, do things the right way.
Speaker: you We don't need that VC cash. And, you know, taking VC money, there's, there's, it's not free money, right? Because at the end of the day, what happens is that you have a lot of projects that are decent, um,
Speaker: and a ton of supply is owned by these people who are going to sell, right? I mean, there's nothing evil about VCs. I mean, they they took a bet. and They invested when there was probably like no product, just vibes, nothing much.
Speaker: So they deserve to make their money. um You can't blame them for choosing to sell. But at the same time, it creates a very perverse mechanism, right? Because then your holders, your future buyers would be like, hey, why am I buying when like I'm just going to get sold into, right?
Speaker: So I would say that I think what we're going to see in the new class of projects, I think we are increasingly seeing people who are thinking a little bit longer term, who are saying that, hey, um let's but that's ah let's let's be long-term greedy and not short-term greedy.
Speaker: That makes a lot of sense, actually. Do you have a... How do you see the options space in crypto currently as someone with like an options background? I think Deribit has... They've already got bought by Coinbase and since then some people don't like them that much anymore, but now there's stuff like Derive.
Speaker: How do you see all that? think it's interesting because... So two things, right? So first is that crypto options were not very efficient because the volatility is very high. And when volatility is so high, the cost of option is very high.
Speaker: That makes the implied leverage in an option not too fantastic. And at the same time, what you have then is that you have perps which can offer you one hundred x leverage. So, you know, if I look at like, you know, if I buy an option and gives me five x leverage versus I buy like a pub that gives me leverage, like retail is probably going to choose the pub, right? um But I think that will change because the volatility of Bitcoin has like gone down quite a bit since then. So the natural vol is getting lower.
Speaker: So there is maybe a point to using options now. The next thing is that option markets are also getting a little bit more sophisticated. I think that maybe we do need some amount of new innovations like...
Speaker: um to come that will make trading these products even better because, again, when your leverage rises from, like, say, 5X to, like, say, 8X, okay, that's good, right? But that doesn't mean that free retail will like this more than just going, like, 10, 20X long on Binance.
Speaker: um So you need another... evolution to unlock that 20x leverage ability and how do you do that I mean I'm not gonna say too much because i um this could potentially be something that I wanna work on down the road ah but I tend to think that we are going to see increased usage. Whether or not this will become a breakup product, that I think really depends on the execution of the teams in the space now.
Speaker: Yeah. yeah Also, running an options platform is probably going to be like five times harder than running a per platform. yeah Just because of the non-linearity of the risk that is involved in um in managing it. So i I'll say I'm not super bullish on something like that happening yet. At this point, I think it could be interesting. Maybe it will take another year.
Speaker: ah to To close this off what is your what is your take on on just the next or like the last couple of months of this year into the midterms? How how will crypto, how will the markets behave?
Speaker: ered
Speaker: I would say...
Speaker: I'll say that I think this year, if I had to sum it up, is basically, it's really expected, unexpected. um And why do I say that? um First of all, you had,
Speaker: a random Iran war that came out of nowhere. ahead Next, you had a massive rally in Sermis that came out of nowhere. The markets actually ripped up so hard.
Speaker: And while everyone was looking forward to a very bullish July, July became one of the hardest months for momentum. Actually, even all the way back towards the dot-com crisis, July was actually one the worst for momentum. right ah If you look at, I think, Morgan Stanley, they did this analysis and they realized that, hey, you know what, all the momentum funds, they basically gave back all their gains. They were up like close to 2x for the year, they gave back all their gains. yeah
Speaker: um And you know, September, that has traditionally been a very bearish time for asset prices. That actually is not looking too terrible now, right? So I'll say like theme for this year, if anything, would be to expect the unexpected.
Speaker: um Going into the midterms, you know, the US has a ton of like problems, like say high oil prices, a random ass Iran war that's still dragging on, high rates,
Speaker: But I also say that these are all problems that are actually solvable, right? Where basically, basically, you can make a few decisions and these problems can go away.
Speaker: they They are not insolvable problems. So I would say... the situation for me doesn't look that bad. If anything, I'll say that people are under position for the upside versus an over position for the downside, both across and um in and crypto and traditional asset classes.
Speaker: Again, I'll also say that the number one thing is that
Speaker: patience is probably going to get rewarded. I think a lot of people over-index on very small local moves um that is not going to be healthy. Why? Because, you know, going with the team of this expected, unexpected, um you never know when markets were really ready or you never know markets were really puke, right? Because we have just had so much extreme moves this year.
Speaker: would say... you know, my best tip is, you know, um always have some amount spare cash. Don't get too bearish.
Speaker: Look out for the exit if you are very bullish, you know. um And also, look for interesting opportunities. I think there are a lot of them in this market currently at this point in time.
Speaker: Very good bullish narrative to to close it with. Thank you very much for coming on. This has been very interesting. hey No problem. I enjoyed talking about it and I hope it's useful to whoever who is listening as well.
Speaker: Yeah, I'm sure it will be. Thank you very much.
