Evan Szu on Why Recession Is Coming Before Inflation

Transcript

We're here with no other than the CEO himself, Evan. Welcome to the show, man. I like your tie. >> Thank you. Very nice. People know me for this. Yeah, exactly. Yeah, well, it's a it's a pleasure. Thank Yeah, absolutely. Thank Thanks Thanks for having us out and thanks for spending some time with us. Um I think it'd be most helpful for anyone who's unfamiliar. You guys put together a great show, pulled a great crowd. For anyone who's who's not already familiar, you know, a little bit about yourself and about Gamma Prime. Sure, sure. I'm Evan Sue. I'm a long-time commodity street. So, I've been doing like, you know, crude oil coal futures, treasuries for like over 30 years.

People actually don't believe it cuz they don't think I look old enough. But, I actually been doing it over 30 years. And what we learned with you know, with Gamma Prime and all of our sort of startup colleagues was there's a whole block of these kinds of investments that are really hard to get access to. You know, so how do you find a good commodities trader, a good forex trader? Oh, hello. Please come in. Oh, we [laughter] got some food coming in. Yeah thank Um and um you know, hedge funds, private equity. These things that most people are sort of not really familiar with, but actually make great investments because they're different from the stock market.

They're different from bonds. Not that they're like somehow special, they just don't all crash together. And that gives you real diversification. And so, what we built Gamma Prime for was essentially like, "Look, let's make these sort of alternative investments more accessible to more people." So, you still have to be accredited, which is a a requirement in the US, you know, you know, to do any sort of private investment. You know, globally overseas, they all have their own sort of accreditation requirements. So, you still have to be accredited. But, most people don't even know where to go to start to find these things. And so, we figured we'll put them all in one place. Yeah. And so, who who is the primary customer? Cuz like you said, plenty of experience opening up access to a lot of these alternative

investments. Who's the primary, you know, buyer and in demand of these things? So, I would say we range anywhere from the the sort of basic accredited investor that's maybe putting in, you know, a 10, 20, 50,000 dollars into an investment all the way up to just short of the institutions. >> Okay. >> So, we will sort of we'll sort of end right around the ultra high net worth large family office. We have several family offices that are even in the billion-dollar range, which is quite large, but it's not institutional. It's not a pension fund. It's not like sovereign wealth or something like that.

So, we sort of span that kind of bracket. And those are often the people that have a hard time finding these things. If you're an institutional pension fund for Chicago, you know where to find these. They'll come find you, you know. >> But if you thought medium, you know, high net worth, there there's no Nobody will come service that market because strangely, it's too small. Like, it's just not worth their time. And so, are your clients active digital assets investors that are quite, you know, longer term in the space, quite quite bullish? Or is it more of like an education to allocate to digital assets?

What's kind of the spectrum of clientele as far as their exposure interest to this asset class? So, actually most of our investors are not investing in digital assets. Most of the stuff on the platform is traditional stuff. So, but it's just exotic. So, reinsurance is a great example. Litigation finance, film finance. We have like strange things like that. But then there's a large crypto side, too. So, what we learned is that people want what they want. They come in, they have an idea of like what it is that they're after. We just help them fulfill that. So, recently a thing that's been in hot demand is pre-IPO secondaries.

>> All right. It's just We just go where people want. So, our job isn't to sell them. Our job is to make it available, to vet it, to make sure it's legitimate, and it's properly audited. Um but what we've learned is there's a strong demand for crypto among certain types of large family offices. Often time, the boss is like, "Hey, go out and find me 15% exposure on our portfolio to crypto." Right. And they come to us and they're like, "I don't want to just buy Bitcoin. Like, that's just like super volatile. What else do you have?" We're like, "We have tons of delta neutral things that are funding the infrastructure of crypto, like staking and re-staking, liquidity provisioning, you know, buying over the counter." And

for them, this is often no surprise cuz they like they think, "Oh, all I can do is buy meme coins. Like, that's crazy. Like, I don't want to do that." But, when they discover, you know, you can fund the the backbone of it of crypto and get paid for it, that's often much more appealing. And and so, time and time again, every guest that we've had up here has been preaching tokenization. This has been it really feels like the narrative that's taken hold of everyone. You know, as you're looking at more exotic alternative investments to to list on Gamer Prime, how does the tokenization thesis play into it? You mentioned film industry, delta neutral, all these things.

How how are you offering some of the more exotic tokenized products out there, be it RWAs, be it airliners and on-chain credit and all these different things. How much of those that opportunity space are you starting to explore? And what are you hearing from the demand side about what they're most interested in? You know, this may be a bit controversial, but we we take a very pragmatic view on tokenization, which is why? If there's not a reason to tokenize, we actually we don't we won't do it just for the sake of doing it.

And so, what we find is that, let's say you're investing a large investment to a hedge fund. There's no need to tokenize any of that that part of the transaction. Now, it's a lot chunkier if you do it through like kind of the old fashioned way, but you can just do a lot of digitization without going all the way to tokenization. Now, on the other hand, you have certain applications where being a fractionalized would be amazing. So, I'll give you an example. We have a fund of funds, call it fund zero. It's an internal fund of funds. It's the only thing that we do in-house. And what we do is we essentially blend funds for people. And when you put all those into a bucket, the next thing people want is give me something where I don't have to put a hundred thousand dollars in. Give me something where I

could put in five hundred bucks, you know, two thousand dollars. And normally there's actually most people don't know this, but there's actually rules among hedge funds in Cayman Islands where there's actually a minimum investment of a hundred thousand dollars. And that makes it really difficult for a lot of these people to get into. That's a good place for tokenization. So, what we end up having is you have two tiers. You end up having a a secondary tier, which is a tokenized version of a block. And that tokenized version allows people to take much smaller chunks. Yeah. Yeah. Yeah, I mean I think the why question is something that Yeah. We you hear a lot about all right, you have an asset, you tokenize it, then what, right? And just kind of like what are you doing there? You know, what could be interesting for from the

kind of fund perspective, I'm curious if you guys are already doing this is there was a lot of like centralized exchange and decentralized exchange arbitrage, there still is, and that was a large generator of alpha for a while. >> Yes. I think now perhaps there's going to be a tokenized commodity equity on chain on a venue like hyper liquid or or different venue, and then the asset's price on Schwab, the NYSE, on CME, on other brokers. Yeah. Kind of talk to us about what you're seeing in that kind of basis trade or arbitrage opportunity. Is there real value right now in that? Is there alpha in that? Or is it still too small on chain?

I I'll tell you because that's a very specific kind of trading style, I don't feel like I can really speak to it because I'm not in that particular space. I can tell you what I've heard, which is that the straight R play is actually pretty armed out. Like there's not a lot in there for that. But what you do get is you get people sort of arbitraging I would say like the the like second order effects. Right? So it might be like arbitraging the difference in the basis trade prices on different exchanges, right? Or selling one and buying the other. But it's something that the straight R play is as far as I understand is is is

is no longer really viable. But uh again, because that's not my particular area of expertise, uh you could end up with some guest that comes that's just like, "Oh no, he's totally wrong." That's live and well. You just don't have You need to know how to do it. And it's in this corner, you know? Which is always the way trading works, you know? It's like you can't be a master of the entire space. You know, we we love the controversial opinions. You shared a couple already here today. What What are some bold predictions you have for the second half of this year? Well, uh I'll be straight up. I I went on uh I'll give you two of them, actually. So one of them is um Bitcoin is uh has been behaving a lot like, uh you know, in the same way as gold and

two-year Treasury notes and stuff like when every time there's a war scare, right? So every time crude oil goes up, all those three assets dive down. But if you look at the overall trend, you're seeing a divergence. You're seeing two-year notes having a lower low but crude oil has essentially made like a high two higher equal highs, right? So if you look at the Brent like crude oil prices like hit 115 twice in the past last month. You just look at what happened with two-year notes, it hit a lower low. So that's like people are scared and getting more scared. If you look at gold, it hit a higher low.

So it looks like it's like bottomed out. You look at Bitcoin, it's pretty much breaking out to like new highs. It's breaking over that. If you're a technical trader, you know, the resistance area right 80,000, you're looking at underlying accumulation. I'm actually long it for the first time in a year and a half. And I'm long it with some size. The other thing that I think people are completely over playing right now is the inflation scare. I think people are talking about you know, all this war is like going to you know, drive all this inflation to the system. And you know, this is my personal model. This is not the truth.

Is that inflation drives into markets when there's strong demand. When people have jobs, they've got money, and then they like push prices up. When they don't have money, what happens is it just drives into like pushing the economy down. In other words, if you don't money, what are you going to do? You're going to stop going on vacation. Or you're going to stop buying the extra television. It's not going to like you're not going to let the prices pass through. You're just going to stop spending. And I think what's going to happen right now, if if you look at the way people are reacting, they're all focused on inflation. I think if you look 6 months out, you're going to see that whipsaw back the other way, and it turn into pretty intense recession. And I think the these two-year notes, you know, are going to

be way up, meaning the yields down. I think gold's going to be way up. And I think Bitcoin's going to be up, too. But again, that's not a popular view right now. Yeah, we had Kathy Wood on and she was saying that there's actually like this good deflation happening from AI, from productivity, and just generally in the way that inflation has came way down. And she was kind of formulating that this good deflation is very bullish for markets. Liquidity is returning. If you look at the Fed balance sheet, it's QT has ended. It's bottomed out. And now kind of some stealth QE has begun.

>> Yeah. Yeah. Well, I would say the stealth QE is essentially the turning of the business cycle. You know, I think you know, interest rates are on a on a cut. And I think if you look historically, an oil price shock, people don't remember this, but in 2008, there was an oil price shock just before the like crash as well. All it does is it just adds fuel to the like economic cycle. You're you're you're you're adding a tax the energy tax when people can least afford it. And I think all this Shouldn't that be the end of the business cycle? Yes, that's what I mean. I think we're headed towards the end of the business cycle and we're headed down, which is going to mean not inflation.

It's going to mean massive deflation. And not I don't think deflation of the type Cathie Wood's talking about, which is kind of the good type. I'm looking at business cycle type deflation like job losses. Last year, it looked like they had decent job gains all year and then the BLS revised their job numbers down and it turns out we had almost no job gain the entire year. Remember, you need 100,000 per month just to break even against like the population. So, we're already in a bit of a jobs decline. We're in what they call the flat part of the Beverage Curve. And I think that just it just hasn't hit yet.

I don't think people realize what's going on here. So, you're bullish Bitcoin more in the interim than Yeah, I actually am long and like I said, it's long, first time I've been long in in about a year and a half. Yeah. So. Very cool. Yeah. Well, Evan, we know you got a panel to go to. Uh thank you for spending some time with us. Really, really appreciate it and uh thanks for coming us out. >> thanks for coming out. This place is still absolutely slammed. It's 4:00. I mean, people are still here. We actually are consistently the biggest side events at Token 2049, at Consensus, at Abu Dhabi Finance Week. Yeah. And um and it's all free. So, >> again here in Miami. Yeah, thanks, Evan.

Good to see you. You're a good man, Evan. Appreciate it. We'll see you next time. Thanks. Guys, you heard it here. Oil is the end of the business cycle. Pack your bags and cash and and get your bunker ready, ladies and gentlemen. Evan is going to arb your arb. I'll tell you that man. Thank you. >> arb your arb. We'll see. I like going on record like this because like I said, everyone talks about it after the fact, but this is like making a call when it's not popular. >> Yeah, and if we're wrong in six months, it is. Well, then I can be like, "Hey, I was on record for it."