Hal Press from NRD | The Merge trade, ETH Bull Case, and PoW forks - The Daily Gwei Drive Thru #2

Transcript

hello everyone today i've got another special episode for you with a guest hal press from north rock digital now all of you will know who hal is i think by now he's been very active within the ethereum ecosystem especially over the last few months and especially around this merged trade that he's bet his fund on basically so i had a really great conversation with him about all things the merge proof of workforce tokens and everything in between goes for about an hour so sit back relax and enjoy the conversation hey hal how you going today oh good all good thanks for having me on yeah yeah no i think this is going to be a really interesting conversation we've been wanting to do this for a little while now and what better i guess timing than three weeks i think before the merge here so exciting times uh you know

it's funny because i first came across you and and your work through the bankless podcast that you did and i remember i shared it on twitter saying that you know i've been a mega eat ball for a very long time but you just it just made me even more bullish which i thought was impossible at that point i was like you know how can i be more bullish on on each and i think that's because you came at it from a completely different perspective to what we've seen in the past right like crypto tends to be very inside baseball like we don't really kind of think outside the box uh in terms of outside of crypto we we don't think in traditional finance terms we we reinvent things within crypto that have already existed in tradford and then we learn the lessons again for some reason

it's just this whole thing whereas you come from a traditional finance kind of like standpoint and background there where and that's why i think you got me so bullish on on that bankless podcast you did because you started talking about a concept that i hadn't really put together in my head and that was the concept of structural flows right and how that changes in crypto and how there hasn't really been a positive kind of like structural flow for an asset except maybe b and b i think i saw you argue there um i think that's what got like got me so excited but uh you know how is that just kind of like something that everyone looks at in traditional finance and that we were just missing within crypto like it seems like we're just missing it for so long and then you came and put the pieces together

yeah i think a couple things you know first of all that's just kind of i i that's kind of my philosophy and process as an investor is to go very first principles on things and i find myself you know i don't really read too many other people's works and and kind of listen to too many of other people's views i i do just to kind of get a sense of what's going on but i try to kind of form all my own opinions from ground up first principles and that's really how i came to those views and why i think you know sometimes i can come at things from different perspectives but in regards to the structural flows it's actually not really something that's discussed that much in traditional finance i think in traditional finance it's

something that people miss as well and it goes back to this idea of you know what i wrote about this a little bit recently but this idea of what i'd call like time harvesting you know anything that has positive net income it doesn't actually need to grow in order for the price to appreciate all that needs to happen is for time to pass and i think that's a very under-appreciated concept even in traditional finance you know people forecast these companies all the time and they're so worried about growth and um and the multiple expanding and they don't sometimes realize that you actually don't even need either of those things for the stock price to go up all you actually need is the time to pass as long as they're accruing cash flows and i think that's why the

equity market is such a consistent performers because it's very positive net income and obviously over time time passes and they they prove that earnings and it goes to the holders and that's what's going to happen with eth after after the merge is they will start to generate positive net income and so time will flip from being a headwind to a tailwind um and that's really what i think is so powerful and that's the the foundation for the structural flows the structural flows are able to exist because there is that positive net income and it's used as a as a buy flow yeah no that makes a lot of sense to me and i think uh if you're talking about time i think crypto is probably more attuned to that because of bitcoin harpenings right like this has been a popular narrative forever in in crypto

it's like the bitcoin harvesting happens and then you know sometime later the price goes up because of that now obviously it's very hard to quantify that you know does the price just go up because we have more participants in in the industry anyway and it naturally just flows up over time it's it's kind of hard to quantify that i found in the past but i mean it's the same kind of concept but you have less flow you have less kind of supply coming to market you have the same demand uh and if not more demand and the price should naturally kind of go up from there at least over time as you were saying it i think some people view this trade or i guess like the merged trade or what's happening with the mergers like an immediate thing where it's like as soon as the merge happens the price is going

to go astronomical like i i don't think that's gonna happen at all like as bullish as i am i think it's definitely a function of time yeah but it's it's it's it's kind of a double whammy i think for eighth because not only do we have this supply shot coming because the supply shock in of itself or reducing supply doesn't really mean anything without the demand to match it like if the supply is one and there's uh like no demand then it's not worth anything right it's just it's always worth as much as someone's willing to to kind of pay for it but i think the the beautiful thing about eth is not only do we have all that that structural kind of cell pressure going to be evaporating essentially we also have the demand drivers like for me i don't want to kind of like crap on

bitcoin here but for me i always struggled with the where's the demand for btc going to come from i know what narratives they have they have like the sound money thing they have the story value thing and and all this other you know stuff that that surrounds it but personally i never really bought into it because i'm more of a technologist and i was like okay while looking at ethereum the demand for eighth is is huge i mean eight is used as d5 collateral it's used it's going to be using staking it's used uh as um as a story value as a money you know within the nft ecosystem and and all this stuff and obviously to pay gas fees so for me it's like yes there's this supply shot coming but we have the demand to match it and the demand is a function of time too like we have these

cycles which these kind of like bull and bear cycles which dictate a lot of the demand uh for each as an asset but i think you know with that supply shock with the the demand remaining the same and then growing over time as we you know all expected to do it it just it's such a perfect cocktail of things coming together and that's at least what makes me so bullish but i think as i said like for me you kind of put the puzzle pieces together in a different way i hadn't thought about especially around that kind of dynamic where as the price goes up if the flows remain the same then the usd denominated flows are going up and you need more usd denominated demand to match that uh it doesn't matter if uh if kind of like um if the the ether nominated is is the

same uh it kind of gets astronomically worse as as time goes up but now we have like the reverse effect happening post merge where i mean for six to 12 months it drops to zero in the nominated terms uh and then the demand for eighth is also i mean we we we believe it's going to be there to match that as well so that's that's what really kind of when i was listening to that i remember like it just clicked in my head straight away yeah there's two things i'd say on that like one is yeah i totally agree with the it's very important to think about it in usd versus ethanol where like the problem with the current proof of work situation is as prices go up it creates this reflexive cell pressure that gets larger and larger and larger in usd terms pushing prices down because

the miners sell 10 000 tokens a day whether it's a hundred dollars or ten thousand dollars and so obviously you know at a hundred dollars that's hundred hundred thousand dollars um or it's a million dollars but then at like five thousand dollars it's 50 million dollars right so that cell pressure increases linearly with price and the problem is that the buy pressure doesn't right because we're all paid in dollars in everything that we do so when we have like dcas and buy programs it's just it's a dollar denominated by pressure and each denominated cell pressure and so like that's the core reason that i think crypto is so cyclical well one of the core reasons that it's so cyclical in

the way that it is is because the very structure of the asset class is that when it goes up it actually creates its own downfall because it creates this recurring structural cell pressure that's much larger at that point and ends up pushing it back down and then obviously when you push it back down then that's true cell pressure alleviates and it allows it to create a new bottom et cetera um and then to go to the other point about the demand well one other thing that i think is maybe a little bit nuanced and underappreciated about that i'll try not to get two in the weeds and two sort of like nitty gritty but like if you think about and this is one of the things i think is so powerful about eve and and this like this structural change that's going to occur is

we've built seven years of behavior now like we've existed under this system for so long so even if nothing new happens to generate demand we've basically um sort of cultivated and and ingrained this behavior in this set of buyers such that they buy each every day right and eat has come down to a price where that's the case because they must buy every day because the miners are selling it and otherwise it wouldn't be at an equilibrium basically if if we weren't at a price where there were buyers of those 10 000 tokens a day it would go lower and lower and lower and lower until it found a price where there were buyers at the 10 000 tokens a day and so you know we found this equilibrium over

that time and by by doing such we've created this base of buyers that does buy each every day and like there's a lot of people that there's dcie it's just a portion of their paycheck goes into eath every day regardless of what's going on and that's because we've it's needed to because they couldn't find an equilibrium otherwise because of the miners so once you strip the miners away those buyers are still going to be there they're still going to be buying because nothing's changed for them but the person that's been selling them the tokens every day is going to be gone so i actually disagree a little bit that you don't actually even need new demand like your point was like the supply reduction is one thing but you need new demand or doesn't mean anything well i think the demand has already existed right like we've cultivated that

behavior over seven years such that the demand must exist as we wouldn't be out in equilibrium so simply removing the supply can the supply should actually be enough to create the price movement on its own without the debate i obviously agree that there should be other new sort of demand drivers but you shouldn't actually even need it because we found an equilibrium under current situation yeah i i totally agree with that i think i i i don't think we need net new demand at all i think if we stay at the current levels then yeah i mean logically the price should to trend up considering that we're getting rid of so much so much supply so yeah i definitely definitely agree with that uh that framing and i think that's what a lot of people miss a lot of people don't think in those terms where they and it and and

i guess like it's it's very kind of a crypto thing not to think in those terms because there's a lot of tribalism i think that that that attributes to this and people say oh no no one's buying either only buy it in bull markets i was like well if no one was buying ethan the each price would be so much lower than it is right and and the popular narrative of each bleeding against bitcoin has obviously been incorrect in a bear market has obviously been incorrect at this point uh so i think that there is a lot of bad information put out there and people just don't make these connections that there is actually natural ease buyers that buy all the time i mean i am one of them like i buy eight whenever i can right so like yeah you're actually the example that i

referenced in my first thesis yeah yeah i remember i remember reading that i was like oh that's that's fun um but you know obviously just looking at me is is is is is funny because like i am one of the biggest eighth balls but it's not just me like there are a lot of quiet people out there who are just buying each other and i know a lot of those people that just say like two percent of my paycheck every paycheck is just going to eat for the rest of my life and that's just that's just how i do it yeah yeah exactly so i i definitely think that not many people have really thought about that seven year base that you're talking about that is built up over time and it's kind of when you think about the move to from proof of work to proof of stake it really is a

regime change right like a very positive regime change i mean positive to to us obviously there are people who believe that it's not a positive but i think the ethereum ecosystem at large believes it's a very very big positive and it's it's a regime change that should lead to i guess like that feedback loop right just it's not just the supply reduction but it's the move to proof of stake it's the energy narratives the bad energy narrative is going away for ethereum and and uh we're not having to worry about it anymore uh it's it's the the fact that you can basically own a yield on on staking your eighth not only on the block awards but now the fear revenue right so you can have a share in the network so it's it's all this sort of stuff coming together i think that if unless you're

deep in the weeds it's kind of hard to make those connections and i understand that but that's why i always say that i don't think the merge is priced in because i mean if people within the ecosystem if people like me who who has been built bullish for so long are still learning new ways to be bullish then i think like it just points to the fact that the merge can't be priced in like at least in my mind but i i actually i'm curious for your thoughts around the price in terminology do you think people get that wrong a lot of the time do you think people don't have the right definition of what price thing means it's a really it's a really tricky and deep question um i i would say like i it's not binary right like it's not it

is priced in or isn't priced it it's kind of like how priced in is it it's not black and white and i think also i mean i made this point in my article and it depends on your time frame too right it really depends on your time frame like long term i think that it's impossible for it to be priced in because to price it in if you just think about the flows what would need to happen is approximately ten thousand each is ten thousand few reads can be sold every day post-merge so that's right now equates to about 15 million dollars so what would need to happen is for the last seven years someone would have needed to be buying 15 million dollars of eat every single day for seven years and then for the next seven years after the merge

they would have to be planning to sell that 15 million dollars every day that's how you would quote price it and so obviously like no one's been doing and even even if someone did do that that would only president for seven years after the seven years would no longer be priced in anymore um so like depending on like if your time horizon is long enough by definition it can't be priced in and then also like obviously nobody's doing that um so so it's not priced in over the long term but when you think about the short term and the medium term you know it becomes much more of a legitimate question because like if there's a billion dollars of or let's say let's just make the numbers really high for to for the to make the argument like if there's 20 billion dollars that bought each for the

merge that plans to sell after the merge it's going to take a very long time for that supply to chew through the 20 billion assuming there's zero buyers after the merge is successful now i don't think that's the case but like you can certainly it's not it's not impossible for it to be priced in the short term and so the way that i my my personal view is that it is still not priced in even on the short term but i think it is more priced in than it was six weeks ago like when when we were at the lows in june um and i would tell people like you know the merge is coming in september they would be like oh no it's not it gets pushed every time like maybe it'll happen in 20 in 2023 like early 2023 and right now like today we got the main net

merge announcement right so like that's clearly the perception has clearly changed and people's positions have clearly changed with it um like there's a lot of people talking about the merge now six weeks ago no one was really talking about it now everyone was just like in shell shock about how bad the contagion of the of the luna and 3ac blow up was so like i think you were certainly more priced in that and if you look like the best way to understand like has there been anything priced in is to just look at the traditional relationships right like eth is up still even after this latest correction like 80 off the low bitcoins up like zero salon is up like zero avalanches up like 20 like

cosmos is up like 50 or something like all the high beta alt l1s that usually have a pretty strong like just traditional beta relationship to eat so when eat goes up they go up more when heat goes down they go down more they're all up less than eat from the lows which tells you like this is a pretty and it's not like one of them like you could look at a basket of 10 of them they're all pretty much up less than me um and obviously bitcoin is like not moved at all so this move off the lows has really been a very east-led move which tells you that like the market is pricing something in for the merge so it's indisputable that something is priced in now which by definition means it's more pricing than before however

with that said i still think there's a lot of people fighting the move and i don't think all the people that are going to buy east for the merge have bought youth for the merge yet and then obviously i think there's a whole contingent of people that are kind of skeptical that it will occur successfully and will buy heath the day it occurs successfully when they see that it's actually happened and they didn't want to take the execution risk so i don't think it's priced in in the short term per se but i definitely think like it's kind of hard to argue that it's not more priced than it was yeah i think that's a good way of thinking about it time frames are the most important thing i think when it comes to like debating that that that he's at priced in or not because

whenever i say i don't think it's priced in well i'm i'm operating on very long time frame ceo like i'm not it's not priced in over the next 10 years like there's it's impossible exactly exactly and and i think it's it's funny because when you when you think about the the price thing stuff around people are actually believing the merge is going to happen or not i can actually forgive people for believing it's not going to happen maybe not now but like over the last few months because it i don't think you were around in 2017 but no but i hear you it's been pushed so many times it's been six years away for four years yes the whole ecosystem was convinced that proof of stake was coming in 2017. like you had i think even vitalik saying saying as much so i can forgive people for for

that but at the same time as you've said plenty of times like if you pay attention to the core dev calls and the consensus layer calls and and pay attention to the test nets you you knew it was coming like and you knew the actual road map uh quite a while ago now actually to get to to mainnet um but yeah there's still a lot of people who are skeptical there's still a lot of people who get fed the wrong wrong information depending on who they follow and then they think that information is is the truth and they're like oh that's not going to happen they're just lying you know it's all it's all a marketing stunt and then when it actually happens and you can no longer deny reality uh you you look at it and then you're like oh crap like do i buy you know should i

buy now you kind of get those fomo from mo people uh kind of coming in but how much that counts for is another thing because like short to medium term it's very hard so i don't know how much you think that accounts for i mean there's another thing too which is like you know it is actually a big task and a big undertaking and it is not without risk like like i think that there could be some issues with the merge i don't think that there will be i don't think it's the highest probability scenario but i think it's non-zero um and i think that so like there should be some risk premium priced in and also i think it will be like a pretty big deal if and when they pull it off successfully like i think it

should give people confidence in the dev team like i think it should be a fundamental catalyst in addition to everything else so it should i think it should matter you should have more than just like the fomo people i think there should be you know reasonable people that that buy it that that day when they see everything happening successfully it should be a vote of confidence um so i mean we'll see but i do think that it's a it's a fairly significant event and i think also this is kind of one of the ways that it differs from a bitcoin having is that bitcoin having is a flow event now albeit it goes from structural supply to less structural supply but

still structural supply whereas it goes from very severe structural supply to actual structural demand so it's certainly even bigger on the flow perspective but a bitcoin having event is actually a negative fundamental event like bitcoin security actually reduces the moment that the having occurs um so it's like a negative fundamental event about a positive flows event and because like as i say a lot of the time and it's not rocket science like crypto prices move on flow is not fundamental so bitcoin tends to go up even though the fundamentals gone have gone down um because flow ends up ruling the day but for eth it's a flows catalyst but it's also a fundamental positive catalyst right like the network actually becomes more secure

the data merge occurs and the network becomes greener the day that merge secures and people become more confident in the security that they the emergency carriers right so you have all these fundamental positives in addition to the flow positives um so it's it's kind of a bigger deal in that sense than a habit yeah and i think that's a again a different way to look at things that people don't traditionally look at because they they always think you know bitcoin harborings are bullish because the supply harbons but they don't look at the network security going with that because they assume that the price is just going to go up to match that the price is just going to double and then we back to the same securities and and i think that i even have a problem with that which is that a network that's twice as big needs

twice as much security so yes you can get to the same usd to nom security but it's not actually as secure because relative to market cap you haven't actually changed anything yeah yeah exactly and i think that's very very important and something that people don't think about very often um but you know in in that kind of like sense of negative catalyst or negative kind of fundamentals like because this is topical right now do you think the ofac stuff has overshadowed the merge trade at all or do you think it's like inconsequential um i certainly think it's been relevant i don't think it's inconsequential i think it has caused some legitimate concerns it hasn't it hasn't concerned me

particularly much because well first of all i mean there's a few reasons but like to answer the first question bluntly yes i do think it's been a conservative i think it's overshadowed the merge not entirely but i think it's it's been a negative on people's minds uh marginally and then the reason that i think it doesn't concern me too much is well first of all there's absolutely zero indication that anyone is going to try to censor anything in any immediate time frame and i don't think it would be very intelligent for the us government to try to do any sort of censorship by via stakers so i think it's a very low probability event but even if they were to do it there's actually

plenty of defense mechanisms like you've already had the largest staking operator come out and say that they would first shut down their staking operation before complying with that right so like that's one thing and then there's obviously been a lot of discussion around social slashing which is another option um and i think ultimately what will happen is if any of these threats are credible like the staking organizations will just move overseas like it it's no different than these same vectors of attack are there with proof of work it's just that the miners aren't all us-based um but there's no reason that the stakers can't can't move over overseas and i think they would and i think for that very reason because like any rational logical person can see that that will be the course of effect if they tried to go

down this path this path will never be gone down because the government like maybe people don't like that but they're not actually that stupid so like they wouldn't do something like this because they know that it's not actually going to accomplish the desired effect and all it's going to do is just push push these organizations offshore which they don't want yeah i think that's an important point um because the government you know or their fact sanctions is all about controlling uh i guess like the flows of money or controlling what north korea has access to i think that was the main purpose of it on tornado cache right but then you kind of expand that out and say well okay what if the us government ordered stakers to censor certain things like okay well where does that stop right does it stop tornado cash or does

it keep going and then what's the limit here like we'll you have to have community buy-in on a chain you have to have people buying in and on to a chain like no one's going to buy into ofac chain if that happens right they're going to like it doesn't matter about the value of a coin um people are going to the community's going to come together and say no we're going to reject this of chain even though there are these powerful centralized entities in support of it like we're just we're going to reject it we're going to social slash them we're going to go and do our own thing none of the core devs are going to work on ofac chain right and like none of the most of the app developers are not going to work on olfactory and so so where so i think

that's the balancing act as you were kind of alluding to where the us government can do certain things but if they go too far then they lose power to do anything and that's not what they want right yeah and i think that i think there's enough people advising the government that they would tell them like that that's not a very good idea don't do that and i don't think that they i don't think that they will do that um but it's certainly an interesting thing and like i think in crypto it's not good enough to say like oh it's unlikely to happen so we don't have to worry about it like you should be prepared for all edge cases regardless of whether i think it's likely or not um and so i think it's good that like we are preparing for this potential scenario but like just as an

investor myself i don't attribute a very high probability to it so it doesn't cause me to lose too much sleep yeah yeah i i think so as well i mean i think it definitely on the narrative front overshadowed the merge a little bit but on the fundamentals like it overshadows it for like four days right don't talk about offec fork anymore right there's always like a a fud thing that comes up like i'm sure though i promise you between now and september 15th there will be at least two more of these things that come up like yeah they're just there just will be like i don't know what they'll be like but but there'll be something um that's the thing and as always and they'll last for four days and all the people that want to see if lower will publicize them and then it'll get

fatigue and they'll move on to the next one that's it and there's always something that's that's the shifting narratives of shifting goal posts especially when something goes successful like i mean i've noticed that with the the bitcoin maximalist who for very long time said that ethereum would never move to proof of stake and then it's undeniable that we are going to move to proof of stake well now they've shifted the goal post right they've shifted to something else like so the haters always going to find something to hate ethereum about it's just more filtering through that noise and realizing what's an actual fundamental concern and what is just news of the day as you said yeah i think that's fair and i think also you know just in the interest of like being fully fair and transparent and

depicting both sides like i think there are certain things that have changed since my initial thesis that have gotten more bearish too in regards to the merge catalyst like certainly when i wrote the initial piece you know we were doing like 40 million dollars per day of usd to nom fees and that's like demand that has to be absorbed every day and obviously now those numbers have come way down so i still think that the merge is a very bullish catalyst because of the supply reduction but i don't i think it's probably not quite as bullish as if we had been doing the same fee levels as we were six months ago today um so i think there's there's there's goalpost moving on on on the on the bearcase side but i think we also do have to be honest about like the

the facts that change on the bullish side of things as well and i think the reality is like yes activity is lower now and that is negative it's the price is also a lot lower and i think a lot of that's priced in and i think the supply reduction is plenty enough of a catalyst and a regime shift to change things anyway but but i don't think that you can ignore those things either yeah like i updated my staking yield i was projecting a ten percent sticky one originally and that's just that's just not going to be the staking yield now like post marriage i think it's going to be five yeah yeah no i i think so i think it's funny because the high fees lasted for so long i think some people fell into

this false sense of security that we'd never go back down to single digit way i think i sometimes fell into that um but at the same time yeah you go ahead first i was just gonna say i think it's reflexive i think as soon as the bull market can't even like starts coming back the gas price is just gonna go up again yeah i think it's an interesting question i don't know the answer you might know better than me i mean i think certainly there's been a lot of discussion about okay ethel be deflationary well actually it won't be deflationary if the merge happens right now it'll be roughly flat supply which is still extremely good but it probably won't be deflationary so that's like one thing that you know people should just understand in terms of expectations um

and then regarding the the fees i mean i do i do tend to agree like there should be that reflexive force i think the problem is this rally has been so eccentric and not broad-based it hasn't actually occurred at the same time as like an activity pickup but there really hasn't been that pickup right like prices of 80 and ethanol fees haven't moved um so it's an interesting dynamic i mean hopefully it's just with a lag and things will pick up as we get towards the merge and around the merge but like just again in the interest of being you know intellectually honest we haven't seen it yet

yeah and i think that's a consequence of just like just buying and selling eight and just eighth going up it's not going to add that much fair revenue to the base layer because a lot of the fear revenue comes from you know the actual activity on d5 for example especially around trading different tokens and if you're so bullish on 8th and there's such a catalyst around it then there's not really that much of a reason to go into different tokens it's like you buy eight sort of thing but in saying that yeah you have been very vocal about certain tokens that you think have a higher beta that i'd love to touch on um i personally uh just for disclosure i own a bit of rpl and ldo which is two of the tokens that you've spoken about but no i mean i don't own them in any you

know sizable quantity i just buy eighth uh but you know when it comes to these other tokens are you playing them off the merge trade alone or do you think some of them actually have you know the the properties to outperform eighth over the long term yeah it's an interesting question um i'd say primarily it's around the merge event and the merged regime shift i think that's not because i don't believe in them long term it has more to do with my kind of investment philosophy my investment philosophy is your goal as an investor is to do nothing 90 of the time and pass on all sort of medium and low conviction ideas and then when the high conviction ones

come around really take advantage of them and only really express risk around those periods of sort of max conviction and and max you know alpha um and i think that that period is around the merge especially for the liquid sticking derivative tokens um and so it's un like like so for me it's more about you know maximizing that period of max conviction and then you know after that finding you know the next thing that i have max conviction on because i might think that these are good tokens that will out from ether the long term but it's a very marginal view after the after the merge right and so for me it's just it's less is less investable under my

framework um and so i'd say you know that's that's that's probably why i look at it more as kind of a trade but i do think that there will be you know big long-term businesses built here um so it's not that's not to diminish their their long-term potential i think we have very similar investment strategies and investment kind of like thesis when it comes to these things like i understand the bull case for for some of them like i know that particularly rocket pool has been very very vocal that their community i should say not not the rocker pool corders but the community has been very vocal about their bull case for rpl and i actually agree with it but when you depending on your time frame it becomes very hard to you know outperform

a form just based on the the prior kind of like history and the prior data not to say it can't right but it's kind of like if you're trying to if they say you're buying you know a liquid staking token it can be rpl or something else for five years and you're buying eight for five years like it's pretty much impossible to to to have any certainty around that token now performing eighth it it's it's extremely hot like i agree it's sort of marginal and that's why for me it falls in that sort of medium to low conviction bucket which is like you know those those things might work and they may be positive eb but it's just not within my framework as an investor yeah yeah exactly and my framework is outperforming each maybe other people's isn't maybe they're happy just outperforming usd and they want to

support the community they want to have a stake in the community because obviously when you buy a token even subconsciously your you know stake in that community goes up right you pay more attention to it you're more invested in it literally and and and non-literally uh so i think if people doing it for that that's that's that that's fine as well but for me personally i just want to you know stack eighth right i don't want to give up the give up eighth for something else but i understand people who who do that and maybe they are doing it as a short to medium term thing as well like not everything has to be a long-term investment uh you know the whole culture of crypto has kind of poisoned the well a bit where it's like oh yeah everything needs to be a term thing when not you

can do short to medium term bets but you have your long term kind of stack as well i mean people i mean obviously you you and as an investor would do this where you kind of have percentages of your portfolio in different things based on different time frames right and i yeah for sure and i try to be kind of very open and upfront about all these things so as to avoid like misconceptions like i say this all the time right like i am a self self-proclaimed prophet maximalist like i will never say otherwise like it just is what it is i'm an investor that's my job my job is to maximize dollars not like be married to any ethos so like you know that doesn't mean that i don't care about these things it's just it just shouldn't be my priority because

that wouldn't be honestly fair to my investors who's money i manage right so like i try to be very open and upfront about these things and um as a result like that like i said before like it's just there's a million different things you can look at but i'm always trying to find that the few things that are that have that have highest conviction on um and so i end up you know i think this is just generally true in crypto and it's kind of interesting like there's a million different pumps you can chase like there's 10 000 opportunities at all times and you know i'll have people kind of pitch me ideas and i'll be like that's a good idea i think it'll work but i'm not gonna participate in it because i just don't have the time and i

know that if i try to do that like i will just be spread too thin such that i will it will take away from everything else i'm trying to do like i think that's an important crypto is kind of managing that bandwidth where it's like if you try to chase every pump you will end up catching no pumps but if you just focus on a very few sort of like high conviction things and you do the diligence and you build the conviction in them you have a much better chance of capturing them and monetizing them appropriately and i think in crypto like it's so volatile this actually takes on an added importance because it's very easy to get shaken out of positions if you haven't done and i i've learned this right and i this is another thing i say all the time like the best lessons you learn in an

investing period are from losing money and like when i got started in crypto like i made this mistake a few times which is like you would try to chase things without doing like full diligence and having full conviction in the idea and inevitably what will happen is crypto's volatile and as soon as that thing underperforms like five percent and it's it's and it has some big seller you lose your conviction you start to doubt yourself and you panic and that's gonna happen in anything that you own like there's always going to be that volatility so if you haven't gone through the process of kind of building the conviction to hold through those periods where things don't look as good as you think they should look you will you are destined to fail because those periods will come um and so i think it's very important in that context in crypto

to really like understand you don't have to chase everything and the things that you do chase you should really like have built a a strong view in just that you're not very fickle and fragile in your holdings and you will you will hold through your your thesis unless the facts change yeah yeah and i i think it speaks to what i always say and i always tell people you need at least two cycles to understand crypto because the conviction point is very true like you can have so much conviction on an asset and think it's the most bullish thing in the world but it can still go down 80 90 percent i mean 8th literally went down like 85 percent from its all-time high yeah with all of those fundamentals with that you

know high free revenue right the merge coming so it doesn't matter you know how much conviction you have on something in crypto and it even doesn't matter how bullish it is it's it's it's so volatile like it's still extremely volatile because there will be volatility yes there's no trading halts right there's there's it's very unregulated still there's so much leverage in the system there's i mean we saw it go down because of all that contagion like people thought oh no we're never going to have like a big crash again uh because it's not that contagion like what are you talking about like terra blew up then three hours capital blew up then this blew up and this club and all these people are like insolvent now and then you had these four sellers which is just to price that even more so i think people in crypto you have to

be in a couple of cycles to realize that it's always the same kind of thing like too much leverage and and doesn't matter how bullish you get on something it can go way higher than you think you can but can also go way lower than you think it can in in you know a span of a few months so i definitely agree with that and i also i think that on this on the like uh the positioning thing where you try to chase like 10 different things and you end up losing on all of them it's it's an attention thing at the end of the day like we're humans we don't have the ability to pay attention to 10 different things individually we have to have a team for that that's why the big investors and big investment firms they have hundreds thousands of people

looking at this sort of stuff to just inch out that extra alpha and debate like indexes and i actually think i actually think like even at the investor level though that's a common mistake like i s like anytime i speak to a hedge fund like crypto or equity fund that's like you know we hold 50 longs and 40 shorts and we have a diversified book i'm just like good luck yeah like like it's just i just don't have a lot of faith that strategies like that can actually generate alpha especially after all the execution costs and the slippage that you incur like i'm much more of the opinion that you want to have a very concentrated book you need to learn how to risk manage with concentration because that's the obvious like um kind of sacrifice that you have and so

you know we will never ever be greater than 100 net long or not short like i don't think that's you know that's just not something that we would do but but i do think that having those concentrated positions opens up a lot more potential for for alpha generation long term yeah yeah i agree with that and i mean the leverage thing it's literally the position killer it doesn't matter how small or big you are like it's the same thing i mean it's actually just still crazy to me that 3ac took on so much leverage and just blew themselves up yeah i mean they were like even the worst kind of like uh one of probably one of the worst like altcoin investors and lost like 90 of their money they still did better than 3ac

because they didn't lose 100 but um i think that's that's something that gets a lot of new new people off guard too because they come in with not very much money and they're like well how do i maximize my returns here ah you know the exchange is like here's leverage you know like finance especially which is obviously very popular in ftx yeah like here's leverage and you know there's no real risk disclaimers around that there's no like uh you know this can this is a high chance you're gonna blow up it's like here's a way to make outsized returns and and obviously outsized losses but i think a lot of new people are attracted to that and and they get wrecked right and that's why again i go back to you need to experience a couple of these cycles you need to be in the weed you need to be

paying attention to actually get the wisdom to be a better investor and i think that's true for all investing not just in crypto right hopefully hopefully only one cycle otherwise i'm gonna have to get burned by another one well do you have you have prior experience right from other markets yeah yeah in other markets yeah yeah but i certainly learned a lot this like past six months like i think you know when i launched the fund it was december 1st it's funny actually um you know we launched the fun basically at the pico top and we had a pretty we had a pretty large we had a pretty large allocation um like like very large uh we lodged the fund at 46.50 so there was a lot out there was a lot of lessons learned we've done okay but

but uh there was a lot of lessons learned and then i think you know one other thing like in this context i don't know if you want to talk about it but there's another potential set of tokens that i think is is interesting through the merge um that i haven't talked about as much which is all of basically the arbitrary ecosystem tokens i think the timing of the arbor trim odyssey aligns particularly well with the merge and it's kind of one of those stars align situations that makes for another pretty interesting way to kind of try to outperform each so i don't know if you want to talk about

that one but that's another one that we could discuss yeah yeah i mean definitely and there's also i it was also the proof of work kind of forks and the and the tokens around that as well that we could talk about we can talk about the arbitrary thing first or i guess like just the timing there i mean personally i avoid talking about app player tokens because they're just so hard to invest in like it's just sorry i mean we don't even have to name names yeah yeah yeah in your in your thinking around it for sure i think the the listeners would as well yeah sure i mean like i said we don't even have to name names about like specific tokens um but i think well first of all i think we are based we're pretty firmly entering l2 season like

optimism and arbitrary are gaining real traction to the point where they're actually getting more activity than some aldol ones like they the the the l2 thesis is actually playing out and they are actually cool interesting things going on on l2 chains um so that's kind of like a backdrop but with arbitrary specifically there is this this this this i don't know what you want to call it this thing called the odyssey which is going to restart after nitro um launches on august 31st they haven't given an exact date but the assumption is that it will start very shortly after nitro restarts on the 31st call it sometime in the first or second

week of september which is exactly in the lead up to the merge on september 15th um and the the the my assumption and i'll just talk about this from my assumption so we can just like none of this is factual these are just my assumptions um is that the odyssey will restart then and the way that the odyssey works is basically the point of the odyssey is all these users have to go through and complete all these different tasks within the arbitrage ecosystem to get these nfts which are markers of their um having like they're kind of like popes like for having done these these these actions and the assumption of the community and my assumption as well is that there will be some relation between completing those tasks and

getting the arbitrary token airdrop i don't know the exact connection but there will be likely be some connection so as a result there's a very large amount of very interested users in the odyssey so i think like the odyssey already had its beginning and it was started as like a the first week it goes weeks by week the first week was a bridge week and i think hop was the most used bridge but they put like hundreds of thousands of users through hop to get their their odyssey um sort of nft and so this odyssey is going to restart and it's basically going to direct hundreds of thousands of users through various arbitrary app layer protocols in exchange for for

probably giving them some future benefit with arbitrary airdrop and so you're going to have all these people that are just like fervently going through this odyssey using all like being effectively forced through these different application layers these different applications and just from like a mind share perspective and also a tv on activity perspective that's obviously a very powerful dynamic so i think if you can try to look into you know which protocols you think are going to be part of the odyssey and are therefore you can predict basically in advance okay this this product is going to get hundreds of thousands of new users and hundreds of thousands or not hundreds of those but tons of new attention on social media and tons of people talking about it and

it's not rocket science then to figure out that okay maybe this token will perform well over that period of time and it just so happens that period of time directly aligns with the lead up to the merge yeah yeah no i i think uh i agree with your overall thinking and assumptions there i've been very bullish on on l2s for a long time but i think you're your kind of i guess i think uh thesis or thinking around the l2 this is actually playing out is true now i mean up until this point there hasn't been that much activity but now it seems to be growing and it's kind of feeding off of itself and it's funny because the odyssey stuff they paused it because uh they hit their limits there's so much activities yeah there's too much activity on the network so with nitro i

think they're going to 10x the amount that they can handle i wonder if that's enough sometimes because yeah the demand seems to be going up and also because like you give people more block space they're going to use it at the end of the day like developers are going to use it they're going to create more more heavier applications that that take advantage of this extra scalability so i do wonder what that's going to look like but i agree with you that it's just another attention sync there right especially post merge where people are like okay what do we focus on now you know the emergency i definitely agree with that like i definitely think post merge you could get a rotation into l2s and l2 ecosystems yeah yeah exactly so it's gonna be interesting to say to see that play out for sure and i i obviously as a as a an

eth maxi i love seeing l2's eight into the l1 market share i think that their one stop is kind of funny because it was such a huge thing late last year like i guess like the six months of last year probably and it was such a huge trade but you know eighth even just like with the fact that it's like you as an investor you look at the tokens that are available to you and maybe you look at ether and other l1s and you're like okay well eight is going to zero new supply entering the market in the next six to twelve months and you have these all-tail ones where there's a lot of supply overhang especially from early um investors and potentially team and the way i look at it is like well then why would any investor really want to pile into these

l ones especially because they're losing market share to l2s as well so like i don't know it's kind of when people come to me and like oh i'm bullish on this r1 i'm like but why like the the the token doesn't have any valuable crew and then it's competing with eighth and it's competing with l2s and it's like so and people call me and ethemaxy for having that view it's like i'm just looking at the facts at the end of the day like the facts are that eth has going to have a much more positive uh i guess as you put a structural supply uh kind of tokenamx proudly yeah tokenomics i guess is the right term there broadly then something like an all-tail one but something like a lot of the tokens like not just all-tail ones a lot of tokens have these overhangs and they don't have

the demand drivers that eth does they don't have the product market fit that ethereum does as a network and that that's kind of my whole viewing and i always come back to eighth because of that but i know one other thing i wanted to kind of talk about as well with regards to the merge trade was uh proven work forks like do you think that they're going to like be something that people take advantage of through i guess there's this trade spot eighth uh long spot eighth short uh i guess like futures eighth or do you think it's kind of yeah i love people doing that trade yeah i love to take i love to take the other side of it explain why i'd love to hear your thinking around that um well firstly like broadly i mean there's some context on the fork i don't think that the fork is going to

be a very successful or viable long-term project i think that the ethereum classic already exists and fills most of this void and already has existed for a while and it's going to have much better tokenomics than this other fork um it kind of fills everything that this other fork will do already so there will be this competition between this new fork and ethereum classic anyway and the bigger thing is just every holder of each is gonna get three tokens that they can dump for free money and they're all gonna die um so like initially this fork is gonna get just absolutely wrecked i think

like i think it will just be nothing but sellers until it gets to a very depressed valuation so like there's people paying you know three percent to buy the fork right now which is basically a six billion dollar market cap i think most eath holders would very happily sell this at six billion so like why you would step in front of that to buy the fork in advance doesn't make a lot of sense to me because you can just wait till like the day the merge occurs successfully and you'll be able to buy the fork at well below that valuation i would imagine because literally every holder is going to be trying to dump on you um so like i don't really understand the need to go and buy the fork in advance when you know there's going to be this absolute rush of sellers

um so that that's the first thing i'd say and i also don't really believe in the long-term viability of it however i do think there's a potential for it to catch a narrative um so like i would imagine that the trajectory of the token it follows similarly to a lot of other air drops where like it launches at a price gets completely wrecked for multiple days and then everybody ends up selling it at depressed valuations and then at that point it's pretty washed out and it has like a squeeze on thin liquidity makes new highs and then just bleeds out into like eternity um so it's not to say that i don't think the fork will ever have a run it's just that

i don't think it makes any sense to pre-buy your fork in front of massive known cell pressure um so for me i'm actually doing the opposite which is i'm selling all my forks in advance because i'd like to sell before everyone else sells um so the way that i do that is i just swap my spot eat position for the futures contract that everyone else is selling to try to get the fork so basically like i swapped my spot position for the dec future which trades thirty dollars below the um spotty and should have some backwardation after so you're probably capturing like 35 and before like when i was doing most of it it was even higher was it like 40

dollars so i'm basically like taking in 40 dollars of free money in exchange for giving up my right to receive the fork so in essence i'm selling my fork for 40 before it even happens right so for me that seems like a pretty easy and successful trade like even if i'm wrong and the fork is higher like i'm happy to take by three percent like if i give up a couple percent it is what it is but my guess my strong belief is that should i want to buy the fork i'll be able to do so on day one at significantly cheaper prices yeah and i think it's funny when you think like thinking about that because there isn't just one of these forks from what i've seen there is like two or three of them and it's like okay well

this is just fragmenting attention even further so yeah if if there is like two or three that go up and then people are like okay what which one do i buy right and then everyone's trying to sell every single fork it's kind of like where's that as you're saying where's that buying gonna come from maybe when the dust settles and yeah and everything's calm down i mean to maintain this market cap right like all the tokens are distributed day one so if you really think that this is gonna have six billion dollar market cap let's just assume that half the people sell their their forks which i think is probably light it's probably greater than that but let's just assume half if it's going to maintain a six billion dollar market cap you're literally gonna need to find three billion dollars to buy it there is no chance

there's three billion dollars of money ready to buy and eat fork the day after the merch there's simply no chance i mean i don't believe in any i don't believe ever in absolute certainty so we'll not say there's no chance but there's very low chance yeah yeah no i think so and i i got the the same kind of like uh thinking around that as well i just yeah i don't know who these buyers are going to be especially in that size like there's probably going to be some buyers maybe some people who don't understand the dynamics around it but yeah i think there will be buyers at very depressed prices like if the fork goes to 500 million dollar market cap like i'll buy some yeah and i think other people will buy some there and at that price you know you only need 250

million of buying power to absorb half the supply so i think that's like a potential scenario like i think yeah you know there probably is 250 demand for for this kind of fork and so i think something like that is what will end up happening it probably won't ever reach 250 it'll probably be i could see it going to like one or two billion and kind of like absorbing a billion dollars of cell pressure there i think that that seems reasonable to me but so if i can sell it at six billion and i think it's gonna go to two it's like a it's a pretty it's a pretty um positive eb decision yeah no i i think so and it's it's kind of like i mean i think it will just fade away over the the longer term i don't think it's going to have any longevity

at all especially because like i don't see anyone wanting to build on it everything's just going to blow up and it's just going to have like a really bad start from all the dumping so i yeah it's also like the long-term prospects i'm certainly not a believer yeah like just talking about like the birth of like the short-term pomponomics yeah there's another question yeah definitely i think so and i think it it there will be some some of that because it's funny because like even if people are in the know like like you you're still gonna take that because you're you're counting on other people like just being speculators as well at the end of the day and you're like well you know if i can be a smarter speculator than them then i'm gonna take that that trade and yeah it makes perfect sense

and and i think that's why people get caught off guard by a lot of the just absolute trash pumping in crypto it's like well it's pumping because there's kind of this self-fulfilling prophecy of all these speculators coming in right and then you just need to be smarter than the other speculator and get out before they do to win there's a lot of pvp games being played here i think that's right and like you know like i said like i am myself became profit maximus so whether i believe this fork has any long-term value or not is completely irrelevant to the decision to buy at 500 million market cap because i think other people will pay me three times that at some point in the future right like that's just you have to be able you have to you you have to be able to like

separate those things as an investor especially in the space where the fundamentals are so opaque um or otherwise just you just will fail uh and then the other interesting trade this one is a little bit more nuanced i'm like i'm happy to talk about it even though i don't have my full position on there because it's like so few people are set up to actually do it i don't think that it'll move the price it's more of just like an interesting one um but there's a pretty reasonable dislocation in my opinion between the sep and these future points where i think it seems to me that and i'm curious to get your take on this um but it seems like the market is pricing in a pretty sizable scenario that the merge gets pushed past september 30th

which in my opinion is extremely low probability um but basically the september futures point trades about 15 above the december's future point and it doesn't really make any sense to me because the march futures point is above the december's futures point so like the rest of the curve is implying what's called contango in the futures market so like an upward slope but specifically the sep these point is backwardated because i think they're pricing in some chance that the merge gets pushed back september in which case the september point would go back to spot and the december point wouldn't um if you if you believe that if you

believe that the curve will be contained go from septice after it's pricing like almost 50 chance of delay which to me is just an absurd mispricing um i think the scenario is probably closer to like two percent um if that but i i guess i'm curious though like you probably don't think about this too much but um do you have any views about what the shape of the futures curve will look like after the merge because it's an interesting question actually because like on the one hand is ethel will be a yielding asset now but saying that it's already a yielding acid like that much is changing like it gives you four percent yield today i think it will give you five percent yield

post-merge now yes the the four percent today is not a real yield and the five percent after the yield it after the merge is a real yield so it's a pretty big deal even though that nominal shift is small but as far as the futures market is concerned they don't they don't care about real yield versus nominal yield which is prices and nominal yield so like but anyway post-merge there will be a five percent yield so you could make an argument that the curve should have backwardation meaning like the futures trade below the spot because otherwise you could sell the future above the spot by the spot stake the spot and get the yield and collect on both legs but typically that's not what happens which is and what happens is that the futures actually do trade above spot because people are willing to pay a lot

for the ability to get leverage and not actually have to put up all the collateral to buy the spot um but i'm curious if you have any views i i wouldn't like you doesn't matter if you don't but i'm curious for any views on how that futures curve will look after the verge probably not any views on the futures curve itself it's definitely not something i pay that much attention to um and you're obviously more versed in it than i am but in terms of like the probabilities of the merge going past september 30th i mean it's always a possibility but like i just i don't know how anyone could could think that and unless unless okay say the merge doesn't get delayed and we don't push it back ourselves and for some reason ttd the hashrate could move yeah exactly so you're more powerful

would have to move by so much at this point yeah so much it would have to would have to have yeah it would have to go down considerably yeah yeah that's about 50 through the end of september yeah with by potentially and highly likely rising eighth price which means the rewards are going up right for miners right miners are still earning the reward and hashrate has been stable for an extremely long time now even with the merge coming so like i think that's like that's like a one percent or probably less it's a sub 1 probability scenario exactly so i don't know so i've put i put this trade on and i'm probably going to continue to put it on because i think that the merger will

happen then and i think basically once it happens the second these points will pretty much trade in line with each other but that's like another example of how you can kind of take advantage of people pricing it as these forks i i think it's it's probably an uh information asymmetry thing where a lot of people are just getting the wrong information about the the merge and how it all works because to be honest like i hope so i hope i'm not missing something about the shape of the curve i've done a lot of diligence on it and i can't seem to find any reason why why i can't missing something i can't think of it either i mean maybe it it really is just the complexities of how it's going to happen right the ttd is not something simple to understand and how it actually

activates the fact that the merge has been coming for six months like you know the next six months in perpetuity uh it's it it could be just all of that confluencing to to cause this rather than anything anything else but i mean i don't study the the curves uh really uh ever but my honest sense my honest sense just like to close the loop is that i think people are extremely um short the december point as the most common point to try to capture the fork so i think it's just artificially depressed but we'll see yeah yeah i guess that would make the most sense probably there i think it's just i think it's just positioning but yeah we'll see well no we'll know on september 15th yeah exactly exactly all right well uh

that might be a perfect place to to end it today unless you've got anything else that you thought we should touch on but i think we touched on a lot and i think it's going to be this would be great i think people are going to definitely enjoy uh the whole talk here but uh yeah thank you for for coming on and talking to me how this is great i appreciate you taking the time yeah yeah for sure and i think you know we're we're all obviously very excited for the merge looking forward to it at that time of recording it's only about three weeks away so yeah good merging i guess is that a thing we say these days i don't know but good managing i'm i'm good with it today was the official main net announcement so it's a good day for it perfect day

exactly well thanks again uh and i'll see you later thanks man