The Next Cycle: Investing in a Changed Market

Transcript

Uh, but it's a pleasure to be here, guys. I'm Avi. I am the CEO of AX Media. I used to be a portfolio manager at a hedge fund called Golden Tree. And like all successful PMs, uh, left to go start a podcast. So today I have the pleasure of having Jason and Zahir, two amazing investors with me and we're going to be talking about the state of the markets and why this time might actually be different. Thank you guys for joining. >> Uh thank you Avi and uh big fan of your podcast. I watch it every time and uh uh my name is Jason. I run Folio Ventures.

Uh it used to be a uh APAC focused hybrid fund both in private and public markets. Um and uh but now I run also run a mini family office that invest in both traditional as well as crypto markets. >> Thanks for having me guys. Well, you know, I've known these guys for a long time. Traded with them for a long time. Name is here. I'm CSO and founder at Plasma and I'm founder at Split Research where we trade uh proprietary capital. Used to run a hedge fund but now that's all um you know our own money. So we trade across venue. We trade on you know uh all the crypto derivatives. trade on um the traditional derivatives and now increasingly so on prediction markets.

So we're spending more and more time in that in that vertical and that's probably our bread and butter now. >> Amazing guys. So I want to start by pointing out that it's 2026 and the market today is radically different than the market of the past. And I think a lot of people like us, we've been in crypto for eight, nine years now. We've seen a lot of different cycles, a lot of change, and it feels more real today than it has in the past. There are a lot of projects out there that are generating real revenues that have real customer buyin. And I want to start by putting it to you, like what do you guys think, we'll start with Jason, the

biggest difference between the successful projects of 2021 versus the successful projects of 2026? What is what has changed? >> I think back in time I that was when I first started professionally managing money. Uh there was always the urge to chase the things that are pumping. I mean there's still that today but I think back during that time um uh the revenue and the buyback meta were not were not really a thing. I mean it hasn't been a thing really until two three years ago when Hyperlid launched.

Um so a lot of times there's really no rhyme or reason at least from a bystanders perspective of why things are going up so much. Um a lot of times I think during that time it was because there are cabal or cabals that are really just driving this thing for a lot of reasons on the back end. And uh SAPM at the time like well I don't know what's going on but I have to buy it. Um but if you fast forward to today, I'm not saying that doesn't exist, but uh generally speaking for me and my fellow investors, we actually get to look at the metrics and actually uh believe in the management and see in doing what they're saying they're doing and actually invest based on funny enough fundamentals. And I think that's probably the biggest difference between

now and then. And I I don't feel the urge of chasing the things that I thought didn't make sense um uh today than before. >> Yeah. I I would say that probably the biggest difference that's notable in the last five years is that the companies that you know the the tokens and companies that have come out are obviously revenue generating in a real way and have a much clearer story of how they expect to make money. If you look back the largest tokens by market cap in the 2021 era were all like chains and foundations. Now that's completely different where you know obviously they're still the largest you know from a legacy perspective but they don't have the the kind of zeitgeist attention and

that's mostly because they're not exclusively making money and people are placing a massive premium on companies that a have a you know very clear revenue story and b have a better monetization pathway over the next you know coming 12 16 18 months. So I I I think the the stage has shifted from you know prudent investors asking well is this a good team and good project idea to you know how are they going to end up making money how does this come back to the token and why do we actually want to care about this project >> makes sense and so with all of that considered how has your investment process in assessing changed like what I mean maybe take us through what your

investment process looked like in 2021 because That might be fun for some people because the answer is probably kind of ridiculous >> and [laughter] then talk about how you approach projects today. >> Bro, I talked to you then and I just like ape the things you like. [laughter] >> I I still do that today. >> But no, no, seriously. But like back back then it was it was like you were playing this aggressive rotational game and you were like actively um uh on Twitter thinking about what other people are aping. And I I I I I echo with Sahir's point which is during that time there was D5 summer and then there was the the rotational game between chains where you have to like ape the next D5 thing on a different chain. And usually what happens is um the layer ones

usually pump first because that was the currency to ape. Um and I remember like I have there are like a thousand things happening. None of them have any fundamentals but they all have the flows. And it was like a market of 80% 90% rotational traders of capital who are all like down to ape. So, so the game then was if I had to outperform like I have to really chase those people and chase that capital. But uh but I mean there is still a lot of that today but everybody got a little more rational and the people who are the most momentum driven that don't care about fundamentals largely got crushed or they had kind of you know gotten so rich that evolved their style into being more fundamental driven. So, so the market

now if anything felt a little more rational, at least in the past 3 months, it was like, boy, like what I did in Trafi actually works, you know, like Hyperlquid and Uniswap and all these things with revenue. It's the [ __ ] that people actually buy first now. Um, and and to me, it felt a lot a lot better uh >> Yeah. I mean, back in 2021, it was like, oh, the color of this project is nice. Let's go buy it. you know, obviously being a bit facicious, but like there wasn't a clear criteria for why you should buy or sell a token back then. Um, there were some things that you considered, you know, the team pedigree, the fundraising, that sort of

thing. Um, but after that, there was no like discernable reason why you should buy token A over token B. Um, now it's like if a company doesn't make money or does not easily explain how it will make money, nobody even talks about it, right? Uh, you know, I was talking to Jason backstage about this, but he something he said is that, you know, I own the consensus assets, but now there's a real bucket of consensus assets that people don't really stray outside of, right? So, you know, everyone wants to buy hyperl, everyone wants to buy lighter, whatever it is, right? like these are assets that make money, have a very clear, you know, revenue generation uh pathway and there's no games being played. There's no exotic, you know, this is how we're

going to like make, you know, the token worth a lot more. It's just, yeah, we'll keep building and more users will come in and there's more demand. >> Yeah. And sorry and one more thing I would add and this is very important too like I think in the past 5 years people generally um understood the low float high FDV game like they've gotten to know that like the market makers are going to [ __ ] us and they they got to understand that okay at the low flow initially the teams are going to like [ __ ] dump on you through active market makers over time and they've understood that boy I I should not buy a token at the like the day one when it launches despite all my K shilling me because they're getting paid by the [ __ ] team. Okay. So, but but that was

not that was not really widely known back in 2021. >> No, that's true. That's true. Hunter the Hunter Biden token would have bankrupted far more people in 2021 than it did today, [laughter] >> which actually didn't really didn't really affect the market >> that much, which is which is great. But >> did it launch? >> It it launched. Yeah, it launched and then it went straight to zero. And actually, they said that it is because there was only $5,000 of liquidity act added to the pool because a market maker messed up. But in reality, I mean, I don't want to get sued, but like it probably wasn't. It probably was a grift in extraction. That's what it seems like.

>> Yeah. >> And I I do I do want to ask about like the new people coming in to this industry, right? >> When you look at 21 and even up until like two years ago, 24 25, I don't think we were net growing. Crypto wasn't net growing. There's a lot of the same money that was slloshing around. Like when [snorts] you saw all of the games that were played uh during the EVM wars when new chains would just launch their own DeFi products, capital would just move from Ethereum to Avalanche to near based on whoever had the highest AP APRs at the time. But now there actually seems to be a net new interest in crypto for the first time in a long time. And I'm curious whether a you guys agree with

that and b like where where is that coming from? I mean Zah here maybe because you have a position at a consumer product you you can see who's who's coming in and who's actually using the stuff. >> Yeah. I mean basically the whole idea and this is like a like a hedgehog like thesis from way back when that uh crypto nativity had very little premium right that's basically the like we got the outcome we wanted which was bring in institutional capital bring in you know uh a serious you know regime change bring in regulation all of these things happened now the industry looks the way it does and it's very you know uh topheavy there's a lot of you

uh care about you know a few assets or a few um ideas and that's very much like just a designation of us maturing as an industry. I think when we see like for for our consumer app at plasma um when when we see like net new users any of these people like they don't actually care about crypto for them they only care about it in so far as it's a better form of money. Um, and we ended up not caring about stable coins or anything like that either because we're just like, well, why should anyone have to care that like they're using a wallet and it has this clunky architecture and it's really like, you know, bad UI and, you know, whatnot. Um, oh, I have to pick chains and all. It's like this is just dumb. We ended up just focusing on

like how do we make this like consumer product as good as we can for an audience that is maybe cryptonative maybe not doesn't have to care but at the end of the day just wants like a better consu like you know faster easier rails to exist on and I think that's much more of the new kind of entrance into crypto which is people who are buying ETFs people who are you know making private placements they don't want to care about knowing and being on CT and like being you know involved in all of the like zeitgeists of crypto to participate. They're kind of one foot in one foot out which I think the vast majority overwhelming majority of people that are coming in the next 5 10 years will be very agnostic. Nowadays it's you know a few years ago you had to run a

crypto only fund. Now every fund in the space is trading equities you know maybe a little bit prediction markets they do stuff on you know uh in crypto obviously. So the space has just dramatically changed its DNA to just be, you know, an asset class that's part of a larger portfolio than it is only an asset class. Nothing else that you can touch within it. >> I mean, I broadly agree. I think uh I think five years ago there were some um we're going to talk about it in a second, but five years ago there was this belief that crypto is the fastest force on everything. like that was before open AI launched and um both reseeking capital and really really smart engineers come into the space right um and then fast forward five

years we realized that none of this [ __ ] worked well there are a few facets that really worked but most things just kind of completely died and the facets that really worked I think we can all agree on is stable coins payments and degenerate gambling across all asset classes including RW and I and during this time AI happened. So we got a brain drain from the best engineers a lot of the best engineers and the capital become a lot more rationalized and they have now come to believe that this sector is one that is a sub sector of fintech but it has potentially another decade or two ahead of it of aggressively compounded growth. The state of this industry at least in my

opinion now is very similar to the web 2 industry back in 2003 2004 which is back in the days people have come to realize that internet is not good at everything that was promised in 99 but it was incredibly good at search e-commerce and uh social there are like four or five companies in China and in the US just became you know trillion dollar companies that count on 30% per year I think the same thing is happening in crypto and there are a handful of maybe five to 10 companies that you know they're just going to aggressively ramp for years to come with good management teams and the capital are buying them like they would be buying the Max 7s I think and uh uh and the risking capital today are you know similar uh in my

opinion. >> Yeah. No 100%. I think what's really interesting from my perspective is that for the first time crypto feels and the companies that are being built feel like they can be investments as opposed to trades. It's amazing. You look back and so many of the hottest projects back in the day were just these popcorn trades. They would go up 100x and then they come straight down. And that's because when people talked about fundamentals back then, what they really meant was annualizing 30 secondond revenues. It's like, yeah, we made like $5 today and you know, then we made $10 and now we made $100 and it's just going to keep going at that rate. And it just absolutely wasn't true. But today we finally have companies that are actually making money consistently and that you

can evaluate them along a longer term time frame. And so that makes it easier to really park your capital. And I think that's really important is that crypto has gone from a haven for traders to a place that really investors should thrive long term. I think if I look back, Bitcoin was kind of the only investment y that I was comfortable making and now there are multiple investments that I'm comfortable making in this area. Part of that is also, as we were talking about before, due to the fact that a lot of the trading money has gone elsewhere. One of the reasons that crypto had so much of a bid is because it was the best place to trade. Like now that's not true. When you have equities whipping around, I mean, you've got Sandis going up 15 20% a day and then

down 20% the next day. That's a great market to trade. >> And actually is sometimes easier to trade than crypto. >> Yes. And and >> there's less [ __ ] And and and to that point like there's a real question to be had now on whether this sector this like fintech sub sector has the highest IR in a any given period of time into the future. Like you could you could easily argue that biotech at a given point in time in the next few few years have the highest IR or AI does and maybe crypto does as well but only during a time where it has suppressed transactional volume and has this like mean reversion alongside multiple like expansion. But if you if you extend it out maybe 5 years, like I'm not really

sure crypto has like the highest growth potential. >> You don't think so? >> It's really hard to It's really hard to argue that it does. >> Why Why do you say that? Why do you say it's hard to argue that it has? >> Um like I I I would say that maybe AI now has an elevated valuation versus what it was historically. But you could imagine new sectors being born out of out of AI. You could argue it, you know, changes the facet of different industries and and you could argue that maybe it grows at 40 50% a year for years to come. I mean, the broader stock sector grows at like, you know, 30 40 EPS keer. Um, crypto may or may not grow at that pace once it kind of normalizes out of this bare market, >> right? Like like the the transactional

volume and throughput of stable coins may not grow at 40 50% a year. Let me think a step I could actually ask like do you think it's fair to characterize this industry as crypto anymore in the first place, right? And my my take on that is is maybe not, right? Like there's more dispersion in the market than there's ever been before. It's like well I think the keer for Bitcoin might look not so great maybe for hyperlquid or lighter or another revenue generating project like chip or grass or whatnot. It looks good and we we can start evaluating things on a company by company basis.

Um, I'm curious like your take on on that. I mean, I feel like every time that I've said that, then the entire market explodes and like everything goes up 300% together and everyone looks at me and they're like, I hope we're wrong. There was no there was no dispersion. Everything just moves a bitcoin. But I'm curious like >> like if you're allocating today, how are you thinking about it? >> I have a view, but you can you can go first. I can go first. >> I would agree. I think crypto is probably like three three use cases now. there's like store of store value with you know bitcoin maybe you want privacy tokens I don't know um there's the second trunch which is trading lighter hyperlquid that sort of thing um and then there's a third use case which is

stable coins payment infra that that sort of universe outside of these three things and then you can put tokenization somewhere you know of assets somewhere here that's infra that's not you know an asset class that you can necessarily uh go and and and you know uh back in a in a sense but I I think the the promises of crypto have been delivered broadly. I think people really wanted it to be something else. But it is financial infrastructure, >> right?

>> That was like the original goal was to create financial infrastructure. And financial infrastructure can be bucketed in again three categories, you know, uh sovereign immutable money, uh trading infrastructure, and you know, the movement of money. >> Wait, so we're not going to be tracking coffee on the blockchain. >> Yeah, correct. Right. like the Denttocoin dream is like unfortunately not happening, right? Like we're I I think crypto's delivered on every one of its promises. I think people just wanted it to be something different and they wanted it to be a lot sexier and that's just not a part of the game that we were ever meant to do. I mean, Ethereum delivered on its promise.

Bitcoin delivered on its promise. The newer applications, wallets, whatever you want to call it, have delivered on their promise. I think exchanges are probably pretty upset because they wanted this like to keep running forever and like make money. Um, so you know that that kind of died out and I think as a result people wanted something more to speculate on but the original intent was always financial infrastructure which has been delivered >> and is is growing and people are backing and like >> there's not a single payments company that's coming out these days that isn't doing something in the stable coin space >> and is also not raising you know multiundred billion dollar uh multiund million dollar raises right or in the trading space. So >> it's all happening. People just don't like the outcome so far.

>> I think one reason that people don't like the outcome is is also that it's hard to figure out where to put your money, right? Yeah. So, if if stable coins like absolutely blow up, where are you making your return? And that's a core question. I mean, are you buying Circle? Are you buying Coinbase? Like, you can't really buy Tether. Maybe you can like sneak your way into their fundraising rounds, but like most people can't do that. >> Yeah. And so the question becomes, as crypto eats the world, where does the opportunity go? Like can you put as an investor, where do you put your money to work?

>> Well, I think um I have a personal view on that. I I think you buy Stripe, but it's it's hard buy. >> I think you buy Stripe because because it's um it it was growing at maybe 15 20% previously, but it grew 40% first half of this year. >> And >> and is that because of crypto or just in general? It was it was because of aic payments but it was also but but it was also of them integrating crypto in many facets. And by the way like at any given like it does like maybe 1.8 to2 trillion of transactions million dollar transactions at any given point the float that stripe has on platform is like 15 to20 billion dollars. So a quarter of circle if they want to do stable coin they could become like a quarter of circle tomorrow. They chose not to for a lot of reasons but I think

stripe is a really good exposure if you want stable coin. But to the broader point, I think Bitcoin is fundamentally different than the rest of, you know, like the hyperlquids of the world. Um, and what is the keer of Bitcoin going forward? I don't know, but is it going to be faster than AI? You could argue they are actually opposites, opposite orgonal trades. But for the rest of the sort of the hyperlas of the world, how fast are going to compound? They're going to compound at a pace at which the world adopts you know this fintech technology onto trading payments as stable coin payments and it's going to be coming at a pace I don't know if it's going to be faster than the pace at which AI gets adopted.

So um to be fair you know if you're buying these hyperlquids they are at best series B series C startups so naturally should have a faster growth rate than Nvidia. So maybe you get a higher return that way, but as a whole, maybe you don't get a higher return on owning those things versus buying, I don't know, Cognition or, you know, like Prometheus at whatever Crisis B, CC valuation. But that that's my that's my argument. >> I do have a theory on this specifically, which is that historically it actually paid very well to buy the secondary company, the lagards in crypto. it paid very well to buy the competitors because there was so much jostling >> for the first place and I think that that's changing

>> that is >> right now where the winners are just continuing to grow and just eat market share and so you have to shift your mentality from okay uh there used to be very low switching costs in crypto because everyone in this industry was an early adopter and when you're an early adopter your mindset is I'm going to use every new product that comes across my table now the set of participants in this industry are different and they're much less likely to be early adopters. Actually, they're more likely like I wouldn't necessarily call people on FOMO like early adopters of onchain usage and they're probably more stuck there than somebody using a wallet on chain four years ago when it was a lot more difficult to onboard and use, right? And so now we're in a market where the

winners are going to keep winning. >> And so it's very possible that like the largest companies are the ones that have the highest growth rates going up, right? And that's something that I think I'm starting to wrap my wrap my head around and and allocate. I used to always try to buy the bait the betas and now I don't do that. >> Yeah, to be fair, you can still do that like the lighter the variational like there are some because there's so much risk capital maybe they they still pump but but >> I mean it's hard it's hard for me to >> market has a lot to grow. >> Yeah, >> for sure. >> Yeah. I I think uh one of the biggest sins that crypto committed in the last cycle was mostly perpetrated by venture capitalists when they started backing competitor projects just because they

couldn't get allocation into like the tier one and that like completely destroyed the market because then now you have like a worse team than like let's just say like product A like you have unis swap and then there's product B that's like a worst deck that comes out. It ended up fragmenting so much capital and so much so many people lost money in the pursuit of like picking the best one that net the space is worse off. There wasn't like active competition. It was just like investors coming in being like okay we missed this trade. Let's find the next one and immediately fund it. And that was obviously like a big problem that we had from that cycle. It kind of died down. Now you have to buy the category leader. That's also why venture capital in crypto like is completely dead as well. Um it's not a

growing space. Is that is that like you would say that venture and crypto is basically dead? >> It's basic it's like virtually dead from every metric because there's no like the the few cryptonative funds that existed that were large scale they all have multimmandate now to do more than just crypto. >> What are they mostly looking at now? >> I you I really don't know. I mean the only thing that I end up hearing is like payments companies. And the problem is like I mean again I've been in the space now for about a year and a half on the payment side. I I I'm I'm not an authority on this, but like they also are not an authority on this. I don't even know what they're underwriting, you know? So, there's only a handful of quality investors left in the space.

Most of the other ones that like kind of, you know, are now moving to like multi- uh multi-asset class or, you know, obviously butchering the mandate quite a bit. I I I think that ended up hurting the market quite aggressively back then. Ironically, like in the last four years of traditional venture, like Thrive Capital is probably like the best known fund in the world at this point in that world and like they do one thing which is they top blast the best company that exists. They'll do the $29 billion round for OpenAI because they're like this is the best company, we're going to go fund it and like that's going to be that. Um, and I think Crypto Venture started to understand this a little bit too late. When companies are now coming out, the best ones just immediately get

bid. there's no room for like someone else coming in and nobody really wants to buy the secondary asset or trade or whatever anymore. Um, and I I don't like the light or hyperlquid example because these are both very competent teams that are, you know, really trying to build like a core product. But there's obviously like a long list of like, you know, copycats that are derivatives of these that end up not actually materializing. >> What do you guys think the next major problem to solve is? like what is really going to break us open? We can fix this and then we can suddenly onboard new people. Like what is is is is there a major problem that we still need to solve or is this just like slow steady growth and we're going to get there and

it's just a march. >> I think we're kind of already there. >> I think it's up for the industry to execute. I mean, maybe the SEC and the the Clarity Act could do more, but you already have buybacks not being security. So, if a company's ramping, they could just turn this into a cash uh value occurring vehicle. Very good for the industry. Um, tokenized stocks and RWA is pretty much legal. So, every player who is serious ramping aggressively in that area. So, now it kind of comes down to creativity and consumer products. bring more products on chain and then aggressively growing the customer base. I think like the

industry is like going into this high keer mode um which is all the more conducive to buying the leaders who are crushing. I think >> yeah I disagree. I think there's a lot of things to get way better. I think you know the interaction on any like crypto related uh infra or like front end is like zero. Um, I mean, we're literally trying to solve this problem in a way that I I think makes sense on the consumer finance side. Um, and I think like countries are starting to adopt, you know, let's just say stable coins or digital rails um at a at a much faster rate, but I think the reality is that like this stuff is just so much better than

what exists out there for most people, for most countries. It's just how we interact with it is going to dramatically change. That's obviously like you know the the whole MMO of you know our company at plasma um and and what we want to kind of evangelize and put out there but I think it applies also for the lighters and hyperlquids and all the trading and tokenized stocks and you know rwas like the the the the usage should feel completely the same to any user who uses a bank or a you know brokerage or anything like this. It should be a very familiar very simple to use system that is doing all of the leg work in the background. Again, we are financial infrastructure. We're not as a space. [snorts] We're not uh you know, we're not building a messaging app, you

know, we're not we're not doing things in the in the in the public sphere in the same way. >> 100%. I mean, candidly, my answer to this is marketing. Like that's marketing and perception is the last major thing that we need to change in my personal opinion. Like how do we get in front of new people is not we're not solving it by getting a faster blockchain. We're not solving it by even having a better user experience. Right now, I think the user experience has caught up to where it needs to be. It literally is just about getting in front of the right people. And you're seeing this now uh with people like, uh, Pump, right, and FOMO. They're employing these new techniques, uh, UGC uh, marketing. They're pushing out on

new channels on Tik Tok, on Instagram, and they're actually getting in front of new people and onboarding them in creative ways. And that's kind of the last major thing that we need to do is I think for a long time crypto had a perception problem. And now it's about fixing that perception and getting people to use a product that is already better, but it's already more fun and that already ends up with you probably saving and making more money at the end. >> I just thought that's a much easier problem than what was before, which is it's >> 100%. [snorts] >> You can't be a security if you're a legit guy. You don't want to be at the SEC's crosshairs and then like you cannot tokenize a stock or you go to jail. you know you cannot do any of these things but but now you can and the

product and the marketing like I think those are all blocks and tackling and uh solvable and and what what that means as an investor for me is that okay this is great like it's it's wide open so let the best team win so just buy the winners own all the betas and just and just chill um at least that's that's me >> with our last minute here >> I want to ask you guys if you have any favorite projects in crypto that aren't hyperlquid or lighter. [laughter] Like anything that you're looking at that you're like anyone listening here needs to go research this later.

It's not financial advice. >> Yeah. I mean, you know, the the the company under my name is is kind of an interesting one. Um, go check it out. But I think outside of that, I I really like the lending space. I think that's going to be a very interesting space to watch. new new competition is coming in and I think that's going to be one of the larger faster growing consumerfacing applications that are you know that that it's going to work as a you know financial plumbing for for consumerf facing applications uh in the coming months. So I think that's that's probably the space to watch.

>> Uh I'm starting to do work on layer zero. >> Okay. >> Um >> I've heard they're good. I've heard there was a recent podcast about them. >> Yeah I've heard >> or a 1000x. >> Yeah. This guy Aby Felman did a pretty good job interviewing the founder, >> I think. So, yeah. >> Yeah. Yeah. Yeah. So, I'm I'm I'm still doing work, but uh I mean, Brian shipped for a very long time. He grinded. He never gave up. >> And um I don't know. The tech he built seems to be in a pretty good position to what the world needs with all the tokenization going on chain. So, I don't know. I'm still doing work. >> Amazing. All right. Well, guys, thank you so much and thank you to the audience for listening to us ramble for 30 minutes. Uh, we appreciate you and I

hope you have a great rest of your day. >> Thank you guys. Thank you.