Bear Market Advice | Weekly Roundup

Transcript

this episode is brought to you by bitmex the og crypto exchange that is back and better than ever you'll hear more about bitmex later in the show i was talking to a huge like a very very large institution actually yesterday talking to them about our new research product that we launched last week and i was asking them where the market goes they said it depends on where coinbase goes i go no coinbase depends i go coinbase is dependent on where crypto goes he goes no no no you fundamentally misunderstand how these markets work now now that crypto is an institutional market crypto is going to move wherever coinbase moves so he said crypto stays in a bear as long as coinbase stock is down [Music] [Applause]

all right everyone the long-awaited post permissionless weekly roundup we're coming at you santiago uh is here with us he has a little background noise he is in monaco santi i know you hate it when i tell people your location but i have to do it for this one because you've got all this background noise and it's the f1 cars racing in the background so uh excuse the noise welcome to the show it's a little bit like it's like a flies yeah which is interesting right because a lot of these cars speaking of formula one uh a lot of cars are sponsored by like ftx binance tazos like pretty much every major team from mercedes to mclaren and a bunch of other teams are sponsored

by crypto and so even like the race itself is like crypto.com like if you see any of the races and like so many people i can't tell you just come up to me like oh so that's crypto i'm like yeah like yes like last couple years like because some of the sponsorships like when you see the driver in the little like protective kind of frame there's like fdx or binance or tazos and then crypto.com is like you know very front and center and like tunnels and bridges and all that stuff so yeah um it's been a while seeing the sport yeah just the last six months i mean i remember i tweeted something out i think it was december of 2021 i was like i just got off because i i we were doing a kind of end of year talking to clients and i just spoken with a lot of uh cmos

of different companies and they're like i was like what are you guys spending on and they said we're spending a ridiculous amount amount of money on sports marketing and sure enough and i think they made a good call with uh formula one it'll be interesting one thing i saw yesterday is that pepsi who i don't know if you're a big football guy but pepsi just pulled out of the super bowl and pepsi has been like the title sponsor of the soup the super bowl uh and you got to imagine someone like an ftx crypto.com comes in and scoops that spot yeah like obviously a lot of people like the super bowl where coinbase did an advertisement like there's mixed um there's sort of mixed like uh analysis of like how powerful that was uh like how many users like like the return row ass return on ad spend i

guess which is a very nebulous thing but like at the end of the day like crypto is still very much you know people know about crypto but they don't know about it you know what i mean and so i think like it's just entering mainstream and and you know being part of these major events pushes the needle forward i think you'll end up seeing a lot of um and i think about this a lot because block works itself is a very sponsorship and ad race at one part of our business at least is very sponsorship and ad based like this podcast right it's free for everyone but there's there's sponsors and stuff on it and so i think a lot about what crypto ad spend looks like and i think you'll end up seeing a big pullback in sponsorships and ads over the next maybe 12 to 18 months uh when

you think about the number of new people who come into crypto it always happens in a bull market right everyone comes in in a bull market so because of that companies really ramp up their spending and then in a bear market as people you don't really have many new people come into the industry in a bear market it's really just people inside of crypto kind of cycling between products and things like that and testing out different things and so because of that most companies end up pulling back their ad spend yeah i mean it's interesting that you talk about the market because yeah well there's a lot to unpack obviously a lot has happened um i guess since we last did a roundup the market i mean i don't know if you want to cover like the market i do i do want to cover the market before that i just

want to say we missed you from me and everyone who listens to this show and uh literally like i was gonna say dozens i think it might have been over a hundred people who came up being like santiago here santiago here uh speakers sponsors and listeners and it's very humbling to hear that uh obviously i would have loved to have been there i was actually on my way got robbed by airlines like you know to the point that i was going to miss the panel and then it was unclear if i was going to be able to come back home and my parents are going to be here and so it just ended up being one of those things where uh i i had to i was rugged by the airlines and i think a lot of other people did too just erratic like weather and all this stuff but maybe the

world is just not prepared for people to go back to like normal travel uh i think uh so i'm really sorry everyone i couldn't be there uh and but you know we'll we'll do it again next year we got rugs auntie gotta go bigger and better than next year so it was dude it was crazy i was on the plane i was so so we just did this rebrand you guys should all go check out the cover photo of of empire and if you like it go go share it or something like that but we uh before the rebrand it was like just my face it was like the top half of my face on the thing which obviously neither uh you nor me really liked it that much and i was on the airline i was on the airplane flying down and i'm looking at this guy like three seats

in front and he's he's across the aisle so i can see his phone and he pulls it up in my face you're on this guy's iphone yeah exactly so it's pretty funny it's pretty funny yeah well i mean it sounds like as always we always invite listeners to give us their feedback and it sounds like a couple of folks give you some good feedback and things that we should talk more about in the episode which we'll try to cover this time and going forward of course yeah so let's get into it um nasdaq's down like 30 s p down 20 crypto is you know down i think what was the high maybe three trillion in november it's down to what like 1.2 trillion today global debt to gdp is 350 snapchat just got hammered fell like 40 in a day uh inflation's still sitting at

above 8 uh uk just printed a 40-year high of nine percent amazon just announced they're going to sublet 30 million dollars excuse me 30 million square feet of warehousing space you're starting to see these layoffs like buy now pay later covet darlings like klarna just laid off 10 of its workforce bolt just laid off like 25 to 33 of their workforce um i don't think this is really announced yet but i think you're gonna start seeing more crypto companies doing hiring freezes um and i think travis cling put it well in one sentence he said the u.s economy is legit when sprinting towards a recession right now what is your framework for how you're viewing the markets today santi yeah i'm thinking a lot about this like in the episode

travis i said well like it is possible that crypto continues to go down very severely and very correlated to the nasdaq which is exactly what you've seen um my kind of my estimation like i know people like price targets so i'm just gonna offer them up i would have thought like 1500 for eth and 25k for bitcoin was kind of a really kind of the bottom ish or a range where you feel comfortable like similar to like last cycle i've sort of revisited my operating assumption a couple weeks ago on the basis of like a couple of things one was obviously terra which is idiosyncratic to crypt i think that hurt us i mean it was like 40 billion meaning more value got destroyed

there than like lehman which is remark like is is wild and looking further into like where people got hurt like i think 20 to 26 percent of users were from the us a lot from asia especially korea so it was like and a lot of it was retail and so that environment sets us back i've always said that the biggest risk this industry is self-sabotage like we can talk about like tara was it a ponzi was not a ponzi a tweeter about this i don't think it was a ponzi was just like it sort of it caught up to not building enough utility in in any ways like bear markets really test the resiliency of protocols and i don't think it ends with tara by the way but nonetheless like just going back to because of that i revisited my assumption and i think like

i think like we'll probably kind of bottom i think of two frameworks one is what's like the aggregate market cap of of crypto as a whole like where do we kind of bottom and i think like to me it feels like 800 750 to 800 feels kind of about right which you know 750 to 800 total market cap for crypto yeah like like 800 billion we're at 1.2 today 1.25 yesterday was like 1.3 but the market's now that so like that means like you have like probably i'm thinking 23 more downside from here um going into like the second half of the year which would probably place again ethan in like 1000 inch range and bitcoin in the 20 000 range

obviously like i'm not a look it's anyone's best guess but what i am encouraged about is a couple things one i think if you have a longer than one year time horizon you can start seeing good entry points because for me like my view is that crypt is going to be at least a 10 trillion dollar asset class no it might take longer it usually always takes longer i think we've just been impatient right um anyone that has been encrypted the last two three years has made a lot of money and that's not because you're necessarily smart it's just because the markets and qe and easy printing like the same as venture right um but i do think that like i don't think i i haven't seen like true

pain the same kind of pain that i saw in 2018 2019 yeah and for that reason i feel like they're on the on the a couple of things like take a couple of quarters to play out meaning like redemptions for funds take a couple quarters to see and so that's for selling um i think inflation's probably going to continue to persist like food prices are up 30 on the year you basically invaded like the bread basket of europe uh russia and ukraine are like supply a lot of fertilizers for the world uh a lot of countries like 10 of the world's calories come from these two countries like what i'm starting to worry about is there's nothing transitory about this inflation um and i think it's it's gonna put a lot

of strain and so for that reason like i'm not a macro expert but i do think that it's sort of like i don't feel i don't feel like the immediate like need to come out and and start buying just yet because i do think there's like still negative skew like negative asymmetry in the market where i'm just kind of waiting um i'm nibbing but i'm waiting i'm not i don't feel compelled to like really enter the market obviously i'm super long crypto i'm not shorting um but i'm having cash right now and just cash really i'm not trying to do anything i'm not trying to be a hero in these moments i just remind myself that the name of the game is to survive because you know i think you and i can agree like

it feels to me to put it in perspective ethereum is worth like 280 well no sorry 200 billion ish yesterday the when snap kind of announced earnings and the basket of social media companies like wiped roughly 100 billion of market cap that means half of ethereum now put that in into perspective right um of course critics might say well these applications actually have a lot of users and traction and and i get it but once a dying industry the other one's not and so i think for that reason like you know the nasdaq like wipes out a trillion in a week that's just the entire crypto market cap gone like we're so early and so again i'm trying to like

present two frames i'm not a short-term trader obviously i pay attention to what's happening in the market because i want to survive i want to be there to catch the bid when people are just really capitulating i don't think that's full like the full extent of that i don't think it's kind of we've seen i think we're starting to see that we're starting to get some levels that are pretty painful for people um but you know i'm looking at uh you know second half of the year as i don't know probably weakish and uh i'm just gonna be there to catch that bid yeah rambling i'm sorry what do you think no no no i mean i think it's um there are a couple interesting points there one is that maybe you thought we had hit the lows but then this whole ust tara thing happened and i think one

thing that's really important there is uh just a learning there is that it's important to readjust your expectations based on what happens right you should never just have one price in mind okay i'm a buyer at 30k i'm a buy you have to adjust to the environment um another interesting point there is that there's going to be more contagion there's going to be more contagion in the markets and this is gonna spill out and we haven't actually seen the ripple effects uh one thing that comes to mind is like the nft markets there haven't been many for sellers in the nft markets really um and i still think the nft markets are insanely overvalued and i think when you actually actually see some of this like max payne is when some of the new folks who came into nfts start selling uh selling their nfts into

ether and then selling the ethan to us dollars um fund redemptions you make a really good point um company company insolvencies i'm not saying the big companies but if you remember back in 2018 2019 there are a lot of these like maybe five 10 15 person companies that kind of just it wasn't a big deal they kind of just closed shop and founders went and took jobs at coinbase and maybe they went back to their web 2 jobs but that's what kind of max payne looks like um a lot of the terra ust stuff was just really hyper focused so far at least in in that terra ecosystem listen like let's like i like what you said like i thinking probabilities and there's a couple of scenarios like again

crypto's not gonna go away like increasingly less like the probability of crypto kind of dying off is is low lower and increasingly so you have really positive stuff that goes unnoticed in these type of market environments meaning like shopify instagram a lot of really big merchants are supporting you know nfts and and you know accepting bitcoin as a payment like the central african republic now accepted like bitcoin and there was an interesting meeting in el salvador with like i think was 38 or 40 central bankers like again we've seen this movie before in 2017 there was a lot of hype there's a lot of companies announcing that they were going to support crypto because it's a nice thing to do and you want to be a relevant company and like you know be cool for millennials or

whatever but it feels real now for the reason that you're getting a lot of utility yeah now okay a lot of protocols were just like like yield farming is sort of what's that saying like like really powerful technology like feels like magic or feels like is indiscernible for magic and i feel like like yo farming is not magic like let's put that aside right right but there is actual real utility in some parts of crypto not not all like the idea of collecting the idea that people now want to collect a thing called an nft and then they open up their imagination to being having ownership of digital content is pretty powerful

uh nfts whatever the regardless of the floor of some of these like blue chip projects or just large market i think you're gonna i sort of see the continuation of that trend now you might argue that people might you know not to the raging euphoric kind of kind of activity that you saw but it's not going to go away and it acts as an on-boarding funnel and you get a lot of utility what i'm trying to say with all this is i'm actually calmer now than what i was like six nine months ago i get really nervous and on the edge when i when it's sort of a raging bull market and valuations are like 100 million for pre-product stuff you know who said this exact thing is bill gurley and i'm i don't know if you

listen to all in and chamoth and david sacks and those guys but they just had their all in summit and they had this panel with bill gurley and bill gurley at one point goes the calmness that i feel is right after the site right after the hype cycle blows up because things make sense again and really what you're talking about is oh okay this makes sense right uh salaries kind of go back to normal funding goes back to normal um yeah just valuations go back to normal expectations i feel the same way which is and might mike and her talk about this i've been talking about this a lot is things are just going back to how we believe the world works right and it got really hard to operate and run a business in the second half of 2021 because nothing made sense it got really

really tough and you're like are we doing the right thing are we like you know we we we were pretty like still cautious with hiring and we're always we're always uh optimistic but also kind of cautious and like we're like are we being too cautious and and that and now we're now we're kind of patting ourselves on the back saying okay i think we did a good job here listen in crypto you always have to assume that in a four time in in the cycle no matter what you're holding you're you should be prepared for an 80 drawdown at least yeah or something like bitcoin right and so like if you invert and you say okay whatever i'm holding then i should kind of prepare for that eventuality and i should not think about this artificially propped up number of low-flow coins

and like adjust your spending or your plans on that now i think if like you know i get really excited now because like seed rounds are now properly priced not at 50 million or 60 or 100 but actually at 20 which is the value of human capital um there's a lot of i still see kind of a disconnect between public markets and private markets now uh you have an a16z that just raised a four point three billion dollars one four five five one one point five for the seed that's crazy well i'm like well how what does that mean does that mean that like a seed is now a growth deal or the best so let's actually do the math on this because that was that was a crazy fun to me so um by the way

shout out to the 18t team like yeah i think like they they have done wonders to no i agree i agree and and chris gave one of the keynotes at permissionless and it was amazing and well uh by the way you can watch that video on youtube i think we're putting it up tomorrow or the next day but um four point let's do the math on this actually so four point five billion dollar fund three billion for venture 1.5 billion for seed um so scary trying to do uh public mental math here but how much how much does a16z put into on average into a deal for a seed i mean a seed round is no more than two to three million i would argue like like they're not stretching it because i think that's series a like well seriously it's probably but like okay in crypto historically it's been

lower but assume okay so let's say one and a half let's say two million okay so let's let's call it two let's be optimistic here one point they need to do 500 deals 500 750 yeah i mean no it's i think it's 750 right whatever the matter is i'm assuming like i think they have a billion for seed and if you're assuming like on average they're going to deploy two to three you know that's 400 call it between five let's take an average of five let's call 500 500 companies they need to get in that seed round the map there is crazy i mean they're basically just trying to own the space yeah i mean yeah but that so that's basically the tiger model specifically for crypto right which is if you are allocated to tiger's venture fund you are indexing venture and tiger just created a system where they could

spit out term sheets on the hour right yeah uh and by allocating that fund you weren't getting their like portfolio managers you were getting access to venture and your indexing venture and it feels like by investing in an injuries and by the way i could be totally wrong here um we'll have the andreessen guy should come on the podcast but uh but it feels like you're indexing crypto venture i think so like i mean no matter what it's encouraging to to see that that there is capital that is looking to get deployed which which brings me to another point that i want to raise which is look there's a lot of allocators that increasingly have done the work on crypto uh we talked about in the episode with um ikigai guy um travis sorry that we

you know kryptos are more investable asset class because it's bigger ethereum is transitioning to a more esg friendly narrative which is important um and so you sort of think and like the tier one venture funds the latest cohort vintage that was raised like a couple years ago two three four years ago and are harvesting now i think the tier one like top quartile funds did like 2x 2.25 x that would have placed you like in the best like benchmark for instance is probably top they probably outperformed because they've done some phenomenal investments one of the few funds that have been disciplined actually in fund size they've never raised more right to 250 million exactly which is exactly

incredible and i respect that a lot nonetheless the best tier one crypto fund's probably done at least at 10x um no that's not necessarily gonna be the case um but what i'm trying to say is okay so if you're a pension fund if you're a major allocator of capital as soon as this dust settles wherever it may whenever it that may be whether it's the second half of this year the fed decides to kind of slow down uh tapering and whatever and you know inflation's under control and assume that all kind of that plays out at some point allocators like in 2008 like in march 2020 after these huge shocks they say okay i need to allocate i need to if i was in

cash i survived i need to go back and make up and i think that's the bold case for crypto here which is whenever that happens would they allocate the venture or they can allocate to the next argumentation of the internet like the highest growth area which is crypto and i believe that and i think more people increasingly believe that and so you almost have to think how many of those dollars are going to go to your traditional fund investing in enterprise software or in crypto and i think more people are more funds are going to start allocating to the asset class at some point yeah but the name of the game today as i sit in my chair is just survive i've seen so many funds do dumb [ __ ] over the years

they blow up and the name of the game now now every fun it's now in fashion to like put out your letters and saying here's what we sent to founders hey guys don't spend all the money that we gave you actually just bunker down survive i'm like well no [ __ ] that's all that should always be the operating assumption to your point jason yeah you guys have never but but i will say i disagree with some of these notes that are going out yeah it's all horseshit i if you have capital now the biggest problem that crypto companies have faced over the years and this raging bull market has been hiring now if you raise around and you have a war chest tell me why you shouldn't go out there and hire the best talent and snatch that up

and build find out here are the three things that i'm just yeah i haven't invested in in as many companies as obviously you have but here are the things that i'm thinking about for block works right uh one and the ways that i'm advising some of the other companies i've invested in is first things first get to a sustainable business model and i'm actually curious if you agree or disagree with that because in traditional venture you actually don't really have to get too sustainable for for a long time uh or at least that's been the last for the last year 10 years since qe started so i'm saying try to get to a sustainable business model and by the way token go up is not a sustainable business model we're really lucky at block works that we've we've boot outside of a very small check on

day one of the business we've actually never raised capital so we were forced to create a sustainable business model but that's the first thing token go up is not a sustainable business model try to build a sustainable business number two keep your foot on the gas when it comes to r d don't trip trim down everywhere else trim down your sales budget your marketing budget trim down on just your operating expenses keep your foot on the gas for r d and your product because at some point this bear market ends and you should try to emerge much stronger than everyone else on the product side once you have a good product you can ramp up the sales marketing pretty quickly um and the last thing is just scoop up good talent anyone who was hiring in 2018 2019 knows that you got it's a kind of a weird way to put it

when it comes to people but like insane deals on talent there are some amazing amazing people that might get laid off or might realize that their companies don't have sustainable business models and will hit the market for the first time in two to three years you should be if you've already raised and you have the capital you should be on the on the hunt for those people so and i think sequoia actually had a good one good piece of feedback which is crypto companies are very adverse to hiring cfos or director finance or vp of finance um i think because a lot of people think that a good cfo sits around and tells you not to spend money they that's not what a cfo does they sit around and tell you how to invest your capital they're like the capital allocator within the company they tell you how to allocate that

capital wisely so i think a lot of companies would be in a good place to actually hire a director of finance or a vp of finance or a cfo right now and we're doing the same block works uh i mean we're hiring a director of finance right now for the first time so yeah yeah really good points and the thing i'll add is you know it's okay if you're starting a business and you don't necessarily kind of know your monetization model and sometimes like social media at the very very beginning was like this even when facebook was doing the ipo i remember like a lot of people didn't understand how you monetize attention and of course now like you see google um which like attracts like 80 90 cents of every marketing digital marketing

dollar spent goes to google like total monopoly and facebook and has a line like the rest of the slices like facebook and a few other platforms but what i'm trying to say is like it's okay like i don't i don't expect when i invest a founder to exactly know what the like viable business model is going to be sometimes like you understand that you're creating something that there's going to be a lot of demand and and when you're investing in a network i think if you have a lot of demand then it becomes easier to i think to some extent monetize and build a business around that so you're willing to kind of loosen some restraints of saying okay fine it's a killer product i'm gonna take a flyer on a really good founder

but at some point like you need to understand like how is how are these networks going to make money now thinking of something like ethereum is easier i think in many ways easier and harder right because you say back to my initial kind of opening statement which is let's think about for a second how much you think ethereum should be worth like it is powering multiple verticals and applications um the demand for block space goes up as there's more activity on the network l2's net net allow for more throughput and activity in ethereum and supporting more users

including nfts d5 gaming you name it right and so it's almost like to explain it to someone normal i was on the road the other day and someone said wow would be great there was huge traffic and everyone was like paying on the toll road it would be it'd be great to own this business i'm like yeah absolutely it's a cash cow that's kind of like owning eve except your distribution is not tied to the infrastructure of a particular road and geography you're basically monetized you're creating a monetization layer on the internet the entire service is provided by the internet not one application like facebook or google might be the closest analogy here which is google kind of like again captures most search is something that is very pervasive and opens up

what you do in the internet like there's an open canvas of you clearing information and retrieving that in ethereum similarly you own each then you understand that like the value accrual layer is is pretty clear there's more demand in the network then it's tied back to ethereum eth the substrate that powers all this right we've heard these analogies right i'm just trying to put it in perspective because sometimes people come new to or like ios right it's like yeah exactly sort of oil the oil of the web 3 economy if you will and so yeah the last thing i'll say is like yeah it is impossible to time markets like like don't for a second i'm not like

and i always assume that i'm never going to be able to do that but in many ways like you're able to imagine this you're today you're reaching levels where you can start investing in companies that have been battle tested that have real utility and usage and you can monitor this on chain and see how in this environment like the number of users that are going to openc or going to something like maker and opening cdps or you can assess this in real time and make your own conclusions yeah but you're able to pick up these names three years now of more progress than last cycle at the same or lower valuation that to me feels like a pretty interesting environment to allocate capital yeah it's more de-rust

yeah before we talk about it i i do want to do this uh i do want to talk about when you're buying what you're buying how you think about buying private versus public disconnect the private markets are still really running away from publix and in crypto with starkware and layer 0 and things like that which i find pretty interesting but before we do that one more question on just how you're advising your portfolio companies and the companies you've invested in um i think a lot of people when they hear the word leverage think about investing right they think okay i levered up right in an industry where the prices can fall 80 percent uh any sort of leverage is gonna wipe you out right retail and institutional invest in the same assets institutional just manages risk better uh and because oftentimes they actually don't lever up

like retail does i think that some people don't think about building companies in the same way but maybe they should and i think a lot of companies levered up in 2021 um by maybe over-hiring and just having costs get way ahead of their skis for those companies that quote-unquote levered up um their company and maybe way overhired now the asset prices are down 60 70 80 percent uh maybe their company growth rate has fallen 80 percent maybe their revenue has fallen 80 percent how are you advising those companies is it one fell swoop swift action layoffs is it hiring freezes is it how do you how do you think about advising those port codes it's a really good question i actually haven't been in a situation where like that's

it's it's been kind of recent but i have been in instances where this comes up and look i mean i think i think you trimmed the fat like it's never it's or you wrote the band-aid off it's never fun it's never but but survive like survival is the primary key here and that whenever a company is raising capital i would say you have to assume that like you have to at least survive for for 18 to 24 months um there's one thing that like so so i like one of the more interesting observations i got recently from one of really good founders said look one engineer does like 80 like literally 60 70 of all the work here like we could not live as a

company without this engineer and i have 20 others i could live without 80 20. right it's across sales not even it's like a power lie right it's like one one or two really good engineers go find that one person and retain him and pay him well um and i think sometimes like in these bull markets it becomes like let's just fill roles and bodies and community manners and all this crap it's like listen stop going conferences cut the crap go home build a [ __ ] good product that's it you don't need to go in any like no disrespect to permissionless like i think conferences are important we haven't seen social like like we've been kind of in covet and it's diff sometimes it's great to go to conferences but if you're a team i go to conferences because for

me it's great to meet all teams and it's a good like environment but i am wary of teams that constantly go hop around a conference circuit go to one conference a year one of my best investments was meeting stani at def con in osaka that's it i saw the booth i'm like wait wait a minute eat land like and i met stani and that was one of the best investments i've ever made full stop but it hadn't not been there it was difficult but like no amount of financial engineer is going to fix a crappy product you need to build a great product go find the right engineer i think you're going to be able to find that of course like really good talent might be dissuaded from matter of crypto right now but on the other side they're a lot of the web 2 folks their

rsus are underwater that's so much that's insane you read my mind exactly yeah and so i think it's uh look the name of the game is surviving and and and i think it this cycle will be testing the resiliency of protocols if you're just some sort of nice yield farm that's not providing much value you're gonna be wiped yeah like people are gonna like that's it but now is the time to deliver on your promise and deliver on your roadmap um one thing that that i find interesting from a lot of these venture folks is we'll see how much of this capital actually gets deployed because i guess what's important is i think we're like on record

record number of commitments to funds but not actual capital calls yeah because when you hear it's important when you hear a headline like hey this venture fund raised sand recent like four and a half billion it's not like they haven't called the capital they haven't called the capital so tell us how that works okay let's say someone raises one billion dollars how long does it take to call the capital how many capital calls do you do when do you decide when to call the capital how does that actually work uh it depends on the fund it depends on like their deal flow right sometimes they might uh call and it a lot of times when it's a like in this case they might call depends on the like the quantum but they might call like 10 of the fund so they probably called 150 million or so

which if they're deploying you know that might last them six months or three months depends on the market environment and bull market you did open c you deployed at what was 100 million in open sea like okay well yeah like you can see a path towards calling capital pretty quickly like a 16c raised up fund like not too long ago was it a year ago yeah the 2.2 billion and a half fun yeah something like this so like uh how much of that's been deployed probably a decent chunk not all of it how much of that's been called probably over 50 percent um but um but yeah you know i think like you you should reasonably assume that most of these funds have a 10-year horizon of which five years is like their investment period so capital pride gets called over that period i would i would say like asymptotic like

you probably call 50 in the first two years um but it kind of depends on the market environment depends on the font depends on the manager and their strategy yeah speaking of funds by the way i think this in the bear market you're going to see a separation between crypto funds and non-crypto funds uh in the in the bowl you had like tiger and you had all these uh non i'd call non-crypto funds who are allocating to crypto and they're actually doing quite well what ends up happening in the bear as we go into like the depths of the bear um and even i've just noticed this anecdotally on calls a lot of the ones who developed this like quote unquote really deep interest in crypto in the prior bowl they're going to lose their conviction in the depths of the bear and you're going to have

funds that have these like considerable vesting token positions from years past and it's important to remember fund managers are just people too they get scared they get jittery they are worried about their career um and if they start profit taking right and i actually think that sends the markets down even further but it actually kind of separates the the real crypto investors from kind of the i don't know i don't know a better word for it but like the fluffy ones yeah well i think it's a really good point because tiger is down 40 this year yeah well from its peaks uh i think this year 40 probably now a bit more now 40 45 percent yeah um now let me ask you a question how much do you think crypto is a percentage of

their portfolio five to five percent um seven five yeah five less than five yeah can we agree probably less than ten yeah yeah yeah yeah like i don't think they have more than a billion dollars in eth no now it's liquid what do you think they're gonna chop got exactly exactly i think and so that's why have we seen that maybe i think a lot of people well you i mean it's not just you you cut the longest tail of you cut the risk yeah yeah there's everything for them as they view it the eath is farthest on the risk spectrum yeah like how many portfolio managers are covering crypto and tiger how many of them are covering enterprise software right exactly who's going to pile the table

when chase says hey guys we're getting redemptions we need to chop what are you going to chop yeah all the crypto gone done yeah that's probably going to happen second half of this year and i want to be there i want to be there to buy empire is brought to you by bitmex with the launch of their spot exchange bitmex is running an insane promo right now we wanted to give you the inside scoop here's the deal for the next two months users who trade 250 worth of crypto on bitmex's spot exchange will be entered into their million dollar giveaway prizes range from thousands of dollars all the way up to five hundred thousand dollars that's right trade 250 bucks on bit max for a chance to personally win

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because those who try to time the absolute bottom it usually doesn't work um well for me oh let's put it in perspective okay like i'm very long crypto a lot of it no no no no let me just say i'm i'm not selling any crypto i'm very obviously the same way wait i don't think we need to preface that i went with the cash i went to cash like q3 q4 last year q4 last year way to give you the hint 20 20. you got to tell me 25 percent of my friend 25 of my book was in cash yeah nov november december last year i just wanted to end the year and with in a well capitalized position and that ended up being a good call i guess uh i've deployed a decent chunk of that in a private over the course of last two quarters

and and so but now i'm i'm not like as compelled yet but as i said you know i think i will start nibbing i don't know like it's starting to feel like actual pain like i still think it feels like you're fighting the fed and that's the difference here is that every single cryptocycle has been with the momentum of the fed behind you even if there's a um a crypto bear market you're still you're still riding the waves of this colossal global macro bull market and this time is different for the first time ever in crypto's history because you're you're fighting the fed and you're we're going into what feels like a global macro bear right for the first time since 2009 uh

when does that change i have no clue no one has any idea but it does feel like you're fighting the fed until maybe into late q3 q4 maybe early 2023 and so that for me is the reason i'm not doing anything it's like i just do you think do you think we're gonna see triple digit like sub thousand i do i do i think we see triple yes i think we see triple digit eth i think that's like 900 800 600 400 um i don't know if this is real no i don't know zero yeah i mean what i think ends up happening is like i think they eat merge i'm incredibly optimistic about the eth merge but not on price in the short term um in a bear market if you remember like in a bull market everyone loves the

fundamentals they're like look how much cash flows actually is spitting off look much cash they love the fundamentals in a bear market there is no fundam there is nothing that can turn a price a a downward price back around it it's it's almost like i think kane said this it's like any any news or anything about your project is bad news because it reminds people it reminds people that they're holding that asset and yeah i think i don't know i i want to believe folks like travis and and the framework guys who say the eth merge is going to be really really exciting i think the framework guy said that but it feels like there's too many cards against us so um yeah what do you think about what do you think about the eth merge are you do you think that moves the price or do you

think it kind of just we cruise right past it no i think you said it very well which is on the long term hugely important yeah and and you know it sets us up really nicely but i'm not gonna i mean historically a lot of these events have been not well priced the ip1559 every single block like bitcoin happening event is not priced in but you're right again these are changing times i am not old enough to be investing in uh in my professional investing career which started right after the financial crisis i've never been in an environment that doesn't have qe and cheap money yeah and i'd like to remind myself of

that like i was talking about with my my parents yesterday said look i i consider myself being extremely lucky to have caught this bitcoin bug early on and also but i need to also remind myself that even if i were investing in other things other than crypto would have made a lot like it would have been a very favorable environment if you're in stocks if you were in basically long innovation and and farther end of the risk spectrum if you're willing to take risk for the last 10 years you were handsomely rewarded does that make you a great investor not necessarily yeah and so like i don't know like i feel like the average most people come to crypto it's exciting you understand the potential but narratives always get ahead of fundamentals and i am maybe i'm

over correcting or being overly cautious here because i don't i think we're entering kind of there are a lot of things that i don't understand and in flux and look some of the best investments you make and they feel really really uncomfortable i remember when i f first bought eth the ico it felt extremely uncomfortable i listened to vitalik speak but i never saw his and then i i bought a bunch of eath and then i looked at him like i saw a video and i'm like what have i done here like this is an 18 year old kid who came working from like bitcoin magazine and like i love italic but like you're like wait a minute i just invested in like this guy's trying to build a world super

computer and you could feel that he's really smart but it felt candidly a lot of people don't like to go back and like you know it felt to me very uncomfortable i didn't necessarily do it because i believed in like i loved open source but there were a lot of other protocols at the time that were trying to do what ethereum was trying to do like made safe and like a few others and it's important to like understand that i think because and and i like to remind myself of that because there will come a time where i will start buying and you know near term i might just feel like an idiot but you know if you again if you have a longer than one or two year horizon i think you'll be okay yeah i think

yeah keep in mind it's only been six months since the top and usually if you look at past cycles you've got the first couple months or like you unwind i think it was um ian from syndicate had this nice thing it was like the first couple months you unwind and stabilized the next like five months you you restructure you refocus you start collaborating with others by the end of the first year you start to get these kind of breakthrough discoveries then into year two you start building and you've got growth and then after maybe 18 months two years you get the new bull market which ends up being bigger than the last one and keep in mind we've only been sick we're what yeah six months into this bear market depending on how you want to define it i think we can close the price

conversation buying conversation with two things one is uh you're saying how low does eth go let's look at the numbers from the last cycle at twenty thousand dollar bitcoin bitcoin is down 70 from the all-time high in pretty much every other bear market it fell like 85 to 90 so down 70 from the highs would be the best bear market we've ever had and that's at 20k bitcoin when that happens or if that happens i should say expect pretty much all of the other long tail of assets in crypto to be down 85 to 95 from their highs if if they're quality if they're not quality they go to zero and they never bounce back up um but yeah if they're quality uh and the last thing i would just say on price is

know that selling here and losing and act not about selling know that losing interest in crypto here will likely cause a lot of future regret yeah like guys we are entering like i again my long-term thesis is unchanged i was advising a bunch of founders in the alliance though i said guys like you got to remember why you did like it is important to write down [ __ ] and say this is my thesis it's important it's okay to change your thesis and update your assumptions like absolutely these are all operating working hypotheses that need to be updated with new information and probabilities but again like crypto there's more regulation coming which i think is going to be positive

yeah long term my thesis is unchanged now yeah of course this is a healthy cleansing of a lot of garbage out there a lot of garbage and that's fine like look in these moments there's i mean this could be a huge wealth transfer from people that believe in this and i'm not i'm not like i'm not a hodler like a die-hard hodler everyone the last thing i'll say is you can't listen to a lot of these people give you advice i don't like to give advice on this stuff i don't like to give price targets because i might i might change my mind two seconds after i said something and it i made this mistake in the last cycle i didn't have look i've sold eth

at 75 cents i've sold the ether 6 7 18 24 100 150 four thousand and everywhere along the way not a lot i've sold more stuff than if has been probably the thing that i hold on to the most over time but what i'm trying to say is like i i look back and the mistakes that i made is were because i didn't have like a good understanding of why i was doing something you didn't have conviction that you created yourself you listened to other folks i i've made that mistake so many times in crypto too i i listen to someone say they're buying xyz token but not realizing that they don't tell me when they're selling xyz tokens uh or just the full scope of that so no i

agree i want to um move into a couple predictions with you santee and one so you tweet on may 15th that's your bottoms that's you you had some nice tweets recently that's your bottom signals tweet i've got something to say i don't go to permission exactly no you had a predictions for i think the second half of this year tweet and the first one was that coinbase would be acquired by large tradfi coinbase has fallen from i think they ipo to around like 80 or 90 billion or maybe that was like their high um they're at what like let's pull it up 15 billion today 50 billion coin base stock yep yeah 15 and a half billion um by the way like when it hit 50. i tweeted that when it hit 53 and it announced earnings and it was trading at like close to yeah i want to say like

yeah nine well i usually agree with you on most of your predictions i strongly disagree with you on this one um so i want to get your take on why you have like what is the probability of this happens and like what is your conviction around the coinbase is acquired yeah well let's see what what's the thesis here yeah if you're a large financial institution look at what coinbase look at what jp morgan's now doing and goldman and these banks are like increasingly servicing and trying to catch up to service their customers that want the ability to buy crypto and i think they're gonna when you've been neglecting an industry for so long you wanna catch up to that and a very

easy way to do that is by acquiring someone coinbase we look at their business taken ahead custody and and trading has gone down and there's increasing competition for folks that get like i get it i understand like how and why the market has reacted the way it has given their p l their margins and like history behind that but if you're a jp morgan like why wouldn't you acquire something for 15 billion it's a drop in the bucket and it puts you immediately on the map of being able to service customers coinbase has regulatory modes they have people internally that are you know know how to operate i think i think it's one of the few two or three exchanges that has never been hacked

so there's a lot of ip there that i think is worth something and coinbase is still synonymous amongst a lot of institutions and especially in the us with buying crypto like you think of crypto using a coin base no no i agree and that's worth i think at least 15 billion i think i think that's worth 20 25 billion if you're jp morgan or someone this is probably on your radar yeah okay so i agree with that um how much cash does jpmorgan have on hand cash and cash equivalents like a lot yeah okay 750 million that sounds low all right we can pull this number up later 44 billion that sounds more okay so anyways so jp morgan's got a bunch of cash obviously they go to coinbase why

would coinbase why would brian armstrong who's been through the 2015 bear the 2018 and 2019 bear why is he dumping at the bottom why is he selling coin or you're saying it's not up no he's a fiduciary responsibility to deliver the most amount of value to investors now i don't i'm like he can get you i feel i i gotta if that happens i just feel shitty for brian armstrong because well it's not a private company right so like they have public shareholders there might be an activist here that says you have to sell and and i think that you bring a committee that does an independent appraisal and is it a fair deal it's a fair deal now maybe he can block it by virtue of voting shares and super like because he can veto it if you wanted to

uh i think it was a paradigm through the other founder um who bought a bunch of coin base at the bottom like at 55 60 bucks i think they bought like a couple hundred million like 100 million or so um and so what i'm trying to say is when you're a public company you have more pressure from independent shareholders to unlock value and so if some if jp1 comes in and bids i don't know 120 100 bucks like you know you kind of have a fiduciary responsibility to at least entertain that bid um now sometimes people have structures that prevent from a hostile

takeover if you will but it still might create like a bidding contest to buy and scoop uh coinbase like you can always have a shareholder knock on your door and say we want to take you down like you have like that's it like i mean it gets like they're called hostile takeovers for a reason yeah god i hope that doesn't uh i i don't i would disagree here but we'll we will see yeah um i'm just looking at like i i think i've been thinking increasingly about like would you rather one like clean spot bitcoin or coinbase uh because i mean one is pretty capital efficient because you can like use that as collateral to buy like you can stocks you can use pretty easily as collateral and crypto not so much

you're going to the dark side now too let me stop you i know i'm going deeper just think about this don't answer it but just think about like if you're an institutional player like would you rather own like bitcoin or coin like coinbase yeah well i was i was talking to a huge like a very very large institution actually yesterday talking to them about our new research product that we launched last week and i was asking them where the market goes they said it depends on where coinbase goes i go no coinbase depends i go coinbase is dependent on where crypto goes he goes no no no you fundamentally misunderstand how these markets work now now that crypto is an institutional uh market crypto is going to move wherever coinbase moves so he said crypto stays in a bear as long as coinbase stock is

down i hadn't heard that take and that's a very tradify take but that was his take and i and he manages billions of dollars and so i found that i found that quite interesting three things just to round this out three things you could arguably call them leading indicators or important indicators kpis if you will one price of coinbase um to crypto as a whole is now considered a leading indicator for risk appetite in the market like every single me like cnbc bloomberg looks at crypto talks about it because it's it's inherently like a very real-time 24 7 barometer of willingness to take on risk in the market and so that's interesting for any allocator of capital whether you like crypto or not it's just sentiment it conveys a lot of sentiment in the market

and three is i would monitor very closely the premiums and or discounts of greyscale shares of eth gbtc some of these things historically they've traded a premium now they're at a pretty nasty discount premium in a bowl discount debt criminal and historically mind you a lot of people didn't want to touch like the underlying assets so this was an easy way to pay up for convenience now that's as custody solutions become more prevalent like that goes away because you're you know these are closing funds and so you can't really unlock value that easily yeah let me ask you about one of these one last prediction that you made here uh you said a few crypto funds close shop blow up or deeply underwater when luna ust tara the whole debacle went down um

a lot of people started pointing it like jump three arrows arca galaxy and my gut reaction was like people love to point fingers those funds are gonna be just all right they're gonna be totally fine like they're they're big enough that they're gonna be fine my worry started to look at maybe more the 50 million dollar funds and this is because if you remember back in 2018 2019 20 march of 2020 the funds that blew up it wasn't the billion dollar funds it was the folks who had 20 million 30 million 50 million so just i mean what what is the scale of when you say a few crypto funds are going to close shop and blow up or they're going to be deeply underwater first off i think it's important to recognize there's a difference between blowing up and then just being too underwater uh so you just close shop so

maybe if you could touch on that and then touch on who you think uh maybe closes down i think it's a ladder which is uh like melvin capital for instance the guys that were like shorting gamestop and got totally blown out by like you know that they closed shop recently because they they returned capital some to investors and they said listen we're so deeply underwater that it's hard to retain cap it's hard to retain employees it's hard it's very difficult so they're going to start over which is kind of like uh like if you're an lp like it's pretty like you know frustrating i guess when like these people just close shop and say like it's gonna take us three years to like make money so we're gonna start a new fund and and like you can do that now again

uh it's like it's like filing for bankruptcy for if you're a company yeah exactly yeah and so i think that a lot of funds are going to be in that situation where like they're so underwater like they're down 80 percent that you know it's becomes difficult to to retain talent and big funds small funds any like tier one i don't have anyone in mind like i think a lot of people like got hurt pretty badly by luna uh obviously we saw which ones some some people actually came out all right while i was shorting it or like were able to profit pantera came out with letters saying that they made like 1.7 turned into 140 or 446 or something million so you know it's not certainly blowing up um the funds lost a lot of money uh but you know like i think if you're doing

proper risk management like luna was never more than ten percent of your book fifteen percent of your book at most hash i think probably more i think between axiom and and luna it's a pretty sizable share of their portfolio um the other one is just reputational risk i mean the market has amnesia so i think like like even if you have a tattoo of luna like i think you'll be okay um but uh but yeah i know i think it's it's really that where it's not just luna that's traded down so so badly if you're down 80 it's kind of hard to recover from that yeah uh if you're a whale fine if you're an individual investor fine but when you're allocating and have managing people's money and you have redemption schedules and yeah it's my new redemption schedule that might

come from people that want cash because they're chopping crypto because they're still up if you've been in an lp and a lot of these funds you have a one or three year lock-up schedule you're still pretty up at least 50 so you might take the win and leave yeah and so that's what i worry about that you have a lot of these redemptions for selling in a q2 you know early next year and that's creates more pain in the market um so yeah yeah uh it feels like the i think this is the last thing we can touch on then we can close it down for the day is uh it feels like the discrepancy or maybe the desire to do privates instead of publix it feels like people are so scared to touch public markets right now uh stark wares raising it or just raised

to eight billion layer zero it got leaked that they're raising at three billion right and so keep in mind these deals you know we were talking to the lair zero guys a while ago that people have been rate a lot of these numbers that you see those were deals that were closed or nearly closed weeks sometimes even months ago so keep keep that in mind when you see some of these numbers but it does feel like the desire to do the privates is still so much higher than publix and that the opportunity over the last year and a half has shifted to pri has gone from privates now it feels like it's maybe more in the public's you are a real you are really focused on the privates you've always been early stage seed um does this change your mindset and how you approach the markets

absolutely no it will come in time right you buy a lot of liquid stuff like it's i'm glad you bought this up because it's very hard to outperform ease in the long term it's hard yeah most funds don't like literally yeah they benchmark their performance against eth and it's very very hard yeah and so on a risk-adjusted basis if you're sitting here today eth is pretty compelling to me again none of this financial advice guys but you know i've my average entry point into 100 plus deals that i've done over the last like six seven months has been like 30 million fully diluted i feel like my margin of safety is pretty high if i'm investing this is what bill ty's saying

and really competent founders that are not gonna give up and build a product that people use and love and care about some of them are going to die but you need one pretty good one or 10 out of you know at least 50 of those to be a huge outliers to it's a power law distribution yeah in the early stage yep but i again like eth there's a lot of really positive catalysts i like bitcoin you know as well as a just general hedge on the world going bananas um and so like yeah i agree with you like i think it's the thing with public is and this goes back to the hardest thing

and someone commented when i was making these predictions like just tell us when you're selling and i'm like give us some advice around that and honestly it's the hardest thing to do it's super hard even even investing in early stage at some point you need to be faced with a situation where like something becomes 20 30 40 of your book what do you do yeah and well i think when it where it gets really tough in crypto is oh not just in crypto but uh public hedge fund managers is when you're very public facing for that thing so like hashed delphi it's very tough for them to sell luna because they're so public facing and absolutely they're about their marketing and their brand yeah yeah it is really hard managing risk is like i like to tell founders say listen i need to manage risk and rotate capital

into my strategy which is private but once you go public and you're worth it's like i'm trying to make at least a 10x and i need to believe i can make a 10 to 50 to 100x on an investment if something's already trading at a couple billion it's very difficult for that to deliver more than that and so statistically speaking well digital founders look i need a harvest like at some point you need to take profit it's okay like you know huddling is fine and we hear these crazy stories of people like huddling a bunch of bitcoin and eath and just you know become like what they are now like that's great but every strategy is different so like i think you need to take profits along the way

generally speaking you want to be selling when there's a lot of euphoria in the market uh which makes me really uneasy like i wake up in the middle of night i'm like it is crazy that something's going on like market just felt like it was going up and up and you're like at some point it's like an earthquake this is what i was worrying for a long time and one of my worst trades was like shorting was like uh shorty oh no i was going long interest rates in like 2014 like i felt like interest rates are like this like it can't go lower than this and then of course it goes negative i'm like it was i went like tripled triple levered like etf of like long interest rates man did i get blown out there like it was a terrible trade

i just didn't realize that this party could keep on going for so long and it's sort of like nature i think offers a lot of cues into designing protocols designing companies i always like to read like biology and like understand how nature works because nature offers a blueprint to designing things that are probably more sustainable um because it's it's sort of like a very beautiful design that has order there's it's just chaos but there's also order self-ordering systems i think are the ones that end up surviving in this kind of adversarial state otherwise there's entropy and like in markets like it's like earthquakes the longer the longer that an earthquake doesn't like the longer there's

that time passes and there's been no earthquake it's sort of like this idea that like there's gonna be a stronger magnitude earthquake you almost want to have like tension be released over time right as opposed to these tectonic plates like not releasing a lot of that tension no i'm not about i'm not like here's your here's your nature analogy i'll throw out at you for uh sticking on this theme bear markets are like forest fires right forest fires rip rip through they kill like 90 of things in their way but the 10 of things that are left end up getting built much stronger there we go and that's that's what we see in the bear market so anyways man i think that's a good time to call it um hopefully uh you know hopefully we're

all in that 10 percent and you don't get burned uh yeah don't get burned don't put on your put on your fire suit and survive survive stay healthy it's important to you know you know if you need help it's painful everyone that has been long innovation is hurting know that and reach out to people if you're really in a bad spot reach out to people there's never you know it's never too late and listen we've all been in situations where it's not fun to see your net worth collapse 80 50 it's not fun but that's the name of the game you either learn to love it or you go and invest in bonds and you know call it a day don't invest in bonds uh keep keep stay interested in crypto i do have to make a call out it feels weird to call out uh

this right after you make that heartfelt um uh comment there but we are sitting at 88 reviews on apple and 85 reviews on spotify so we're 12 away on apple from 100 we're 15 away from spotify if you've made it an hour into the episode please stop what you're doing before jumping into your next podcast before going back to the computer if you're on spotify we need 15 reviews if you're on apple we need 12 give us a five star review uh and then we are also releasing a lot of the panels from permissionless on our youtube so we'll drop the link in the show notes chris dixon uh hassou did one on mev that was really really good you can go over to the youtube channel and subscribe so anyways we'll see you next week we've got some really good episodes coming out and uh as always thanks for

listening and santi be well my friend thank you guys stay safe out there we'll see you next week [Music] you