Smart Money Finds Opportunity Post Catastrophe | Avi Felman, Jonah Van Bourg

Transcript

all the all the smart people uh with a lot of money what they like to do is they they like to look for for buying opportunities and let me tell you post catastrophe smart people are trained to look for opportunities all right everyone welcome back to another episode of Empire you've got uh two special guests today Santi is traveling uh big big December of travels for Santi today so we've got a Avi and Jonah stepping in and you guys might have noticed a new show on the Empire feed this week called a thousand X so we wanted to bring on uh Avi and Jonah who are The Two Hosts of thousand X to let us know what's going on but before we do that quick announcement that we have uh

we dropped permission uh permissionless tickets this week um ever as you guys know every two weeks we unlock 250 new tickets to permissionless they've sold out instantly both times uh hopefully by the time you're listening to this there's still some tickets available for you so if you want to head over to the website uh and get your tickets to permissionless go do that so Avi Jonah welcome to show guys hey thanks for having us appreciate it yeah of course of course so the way that I see it the way that I think about a thousand X is there was something missing in the market which was basically a podcast there all these crypto shows right the blockworks has shows like Laura Shin's got her shows bankless as the shows but there was a show that's missing which is really a show by Traders for Traders

um and so I'd love to hear that like that's how I think about it internally but obvi I'd love to hear you just explain like what I mean busy guy like why did why are you spending time building this podcast like what's your vision for it so the the funny part is um this is this is an entirely selfish thing I just really like talking to Jonah and I want to keep talking to Jonah and I want to keep finding excuses to talk to Jonah because he says a lot of interesting things so I was like great how do I get this guy to talk to me once every two weeks and just give me everything that he knows and I settled on a podcast I mean that that actually that actually is that actually is a decent a decent a decent chunk of it as Joan and I you

know we talk we talk pretty regularly and you know I think we have really really interesting conversations and um just I find you know that them interesting and I decided that it could be fun to do it in a in a podcast format and sort of just kick around ideas and then you know in the future we'll bring on we'll bring on some guests that people haven't really heard from publicly before the these These are mostly going to be you know we're trying to find new and interesting perspectives because one of the most important things to do is just broaden your mind find people that have done very cool and interesting and amazing things but maybe you just haven't heard their perspective before right so we're going to bring

these people onto the podcast and and hopefully ask him you know important questions and uh just to take a step back and talk about kind of Who We Are Jonah and I it's yes it's a podcast by Traders who are actually trading in the market but I think more important than that is it's a specific type of Trader right it's Joan is that a Joan is at a large firm I'm at a large firm historically crypto has not been approached in the most professional and rigorous way and I think both of us are coming to this Market with an angle of hey this is how the top of the top do it in

the traditional world let's figure out how to apply that to crypto and let's talk about that right and so I think that there are a lot of really smart Traders out there that get on podcasts all the time I think that there are a lot of really smart people out there I think what's just been you know a little bit missing is all of almost almost all the boring stuff right so we talked on our we talked on the last podcast about assessing counterparty risk right how do you how do you do that when you're trying to run a professional shop you know what do you need to think about what do you need to do and these types of conversations I think are just going to get more and more important over time and their conversations that aren't necessarily had out loud because a lot

of the time they're you know had had behind closed doors and so I think we can we can talk about that bring you know sort of a a professional approach to the crypto markets and hopefully people will learn a lot and and get better because of it because I think both of us have developed some pretty interesting processes for approaching the markets that are just different than your average Trader would nice so so it feels silly to sit here and ask you guys about podcasts I want to ask you guys about the markets actually which is uh and Jonah you said at this interesting seat right at the kind of at the center of a lot of trading and crypto um like head of trading at Cumberland I think is is like your your formal title I'm just curious to get your like broader framework for how you are

viewing the rest of this not just this year the next two weeks but maybe the next like 30 60 90 days how are you like what's your framework for approaching these markets yeah for sure I mean first of all uh you know I'm I'm I've only been doing crypto professionally for a year before that I was an oil Trader for 15 years and so you know I'm honored to be able to to talk to you Jason and to talk to a you know crypto Superstar like Avi every week so that's exciting uh how do you feel about that title Lobby I I like it less than Thundercat yeah because he's a young Thundercat I mean next to get the reference the the way I'm gonna try to think about these markets is first and foremost you know by talking to Avi and guys like Avi

and trying to you know guys like you Jason trying to learn just through discussions um nobody learns to trade by sitting in a vacuum you know for people who haven't worked on trading floors they're very loud you know talkative places and and that's sort of one of the reasons why we're doing this podcast is to try to bring that conversation to a wider audience and Source some views from you know a broader audience uh and you know get them get them back into our own heads because you know in addition to us telegraphing what we're thinking and hopefully people can find some wisdom them and trading ideas and that like we'll hopefully be able to Source ideas from from the you know the audience as well so that's exciting in terms of how look how we're looking at the market right now you know as a liquidity provider uh and

a risk taker you follow the first thing you you follow is the volumes and right now volumes are down big like if you look at March or June as a reference month in crypto we're down 50 to 60 volumes wise so there's two interpretations number one would be this is it Sam bankman freed killed crypto you know we're it's just gonna you know hop hop in your igloo and get ready for a 2018 style winter of apathy and sideways price action um the other is hey this is a holiday period uh the drum beat of adoption is continuing like the devs aren't stopping what they're doing they're not like quitting and going to work for uh JP Morgan you know it Department they're not like packing up their their

bags and leaving web3 and going to you know work for some random random boring project like people are people are all in on crypto still volumes are still a massive order of magnitude bigger than they used to be uh even in you know 2020 so from my perspective um Avi and I talked about this on a thousand x uh effectively like who's the next seller if you can't really pin it down and you know you're starting to see some bullish price action against the backdrop of all this bearish news you know you're supposed to start thinking about getting pulled up here and getting long because if if this amount of bad news has just dropped and the price of Bitcoin and Eve is you know where it is

you know the price action signals signals bullish bullish times ahead both for volumes and for for price so that's kind of how we're looking at it yeah I want to get your guys's take on um like actually let me let me ask about the sellers like obvious I think I think it was you who mentioned in the in the podcast episode earlier today that dropped our yesterday a thousand acts like the first thing you do when you wake up in the morning is you think about who's buying and who's selling who are the who are the buyers who are the sellers so I guess can you just dig us it like when I think about that there are probably two names that come to mind it's the my the miners are are just have to sell Bitcoin um and then there are uh and then there are I mean like funds I

don't know if I I don't really understand the market mechanisms of like uh you know maybe are people doing redemptions for funds like funds have to close their books on on December 31st like does that people people love saying that Let's do let's do some quick math okay yeah tell me about math yeah let's say they're let's say there was 10 billion on January 1st this year let's say there was 10 billion held by crypto funds no Let's do let's do 20 billion let's say 20 billion was held by crypto funds okay well your average crypto fund it's probably down 60 to 70 percent this year okay so let's let's be you know conservative and say they're down they're down call it I don't know yeah sixty six six sixty

percent right and then let's take the fact that we've got probably most crypto funds are looking at 50 percent in terms of cash exposure right now right so if you've got 10 billion in in crypto funds and you're down six that you're looking at four four billion you've got 50 in cash you're looking at two billion of exposure do you think that every single person is about to redeem from these crypto funds okay if every single person redeems from the crypto fund you've got two billion dollars of cell pressure okay that's fine I mean yeah it's going to send us it's going to send us a little bit a little bit lower but Bitcoin trades billions of dollars a day if E3 is billions of dollars a day you know uh and then obviously the number is not 100

of people what's wrong so all right you know real quick what's up I said cleared that one up real quick yeah yeah I mean if somebody asks it just it just doesn't get done it doesn't matter Bitcoin like if we were asked to show a price for that we wouldn't be charging a couple of basis points but equally you know let's just say we charged down 10 from fair value like Bitcoins back to where it was a couple days ago on that right like who cares okay so fun fun redemptions funds closing their books I think I think the the key here um you know when I was saying that maybe it needs to be articulated a little bit more clearly sometimes I'm thinking about the actual specific type of person

so sometimes I'm thinking about the fund or the minor or the retail investor or your high net sometimes I'm thinking about that what I'm thinking about right now is really just more in aggregate it's more if you want to sell any if anybody has wanted to sell over the last month what are their reasons for selling uh probably FTX is a big is a big part of it the other dominoes to fall is another big part of it price action is another is another big part of it and macro is another big part of it no well all none of those things have changed over the last month so all of the reasons to sell have sort of dissipated at this point

where like if you're holding crypto and you didn't sell yesterday what makes you wake up today and decide to sell that crypto what makes you do that and the answer in my mind is really only one is if price goes up then you can exit a bit right it's like okay so let's say you let's say you're underwater and you're sitting there and you're like okay now maybe bitcoin's 19 20K I can sell a little bit maybe you bought 15 16k and what are you aiming the buyer if you bought 15 16k what are you looking for you're probably not looking for 18 you're probably looking for 20 or 21 or 22 I mean that's too too small of a move for your average buyer so what I'm saying is

at this current state looking at the current market with ethit 1272 and Bitcoin at 17.5 I don't see where the mass amount of selling comes in I'm not saying we can't go to 17 I'm not saying we can't go to 16.5 but I am saying I think it'd be weird and unexpected for us to go to 14 before 20. that's my view right that that would be that I think that would require in my mind you know this is an opinion this is not a fact but I think it would require Finance going down or usdt going down or something insane and crazy that is very unlikely to happen to happen yeah you need a new trigger I think one other feature to get to get people to sell otherwise you know you have to ask

yourself the question why haven't they already sold right yeah and in terms of who would buy like you had over a million depositors on FTX people depositing and you know earn products like what Celsius was running and you know Voyager and a couple of others who you know once owned Bitcoin and eighth and now they own nothing right they own a claim that's worth you know distressed claim on what used to be Bitcoin or eth it's now lost somewhere so in some bankruptcy proceeding so there may actually be a deficit of crypto if even one or two percent of those people decide to go and repurchase the Bitcoin that they used to have you know these these bankruptcies could result in some buying I I do want to I

do want to point out one additional risk factor which I didn't uh mention which is obviously sellers can come from correlation trades so if macro you know if the s p keeps going down then big one and and these can keep going down but I want to point out something fun which is uh so I'm we're talking right now it's 12 30 p.m Eastern uh from 9 30 Market open to now over the last three hours s p is down 1.3 percent and eth is down 30 bips so what that tells me is it tells me there are a lot more Sellers and equities than there are in crypto right now and I think you know partially it's because

there's a lack of sellers but partially it's because people are buying and you know you always have to ask the opposite question it would be it would be rude and incomplete of me to not ask who's the buyer can't just ask one side and I think I have a lot more answers for who's the buyer uh because 17K Bitcoin or that's a level that you haven't seen since 2017. people are going to look at that and they're going to say this seems like it seems like a reasonable price seems like a good deal you look at if at you know at at 12 at 12 uh 70 and you say to yourself well oh after the biggest exchange blow up of all time Heath is still at 1270 maybe there's some value here and I need to start allocating right I think all the

smart people uh with a lot of money what they like to do is they they like to look for for buying opportunities and let me tell you post catastrophe smart people are trained to look for opportunity that's always what happens yeah all right so then let me go go ahead go ahead no that's all that's all I was going to say let me let me turn that into a question then which is it feels like the last several months people have been positioning themselves for the downside it's like okay I think there's greater risk in the system there's still leverage in the system you know everyone's asking that that kind of funny question like what's the contagion here does this now make you think obviously about like all right let me flip that around how do I position

myself for for the upside are we there yet I'm I'm positioned I'm I'm you know uh you know I'm I think I'm positioned accordingly to the way that I've been the way that I've been speaking uh you know I you never you never want to take excess risk and you always want to make sure that you have invalidation for your for your Theses and you have a plan for getting punched in the face but it's you know my my view of the market and not I've been cautious for a while I think if you if you listen to my previous podcast you know over the last six months I've I've been I think I've been a voice of moderated caution as opposed to outright bullishness I think this is the most bullish I've been on our podcast since 2020.

so you know my my my view here is that post catastrophe you need to be looking for opportunity not betting that it's going to get worse right and you know you can and I'm not saying I'm right it could get worse another Domino could fall but if you're not looking for opportunity now when you look for opportunity it's silly to look for opportunity when bitcoin's at 30k or at 60k and not look for opportunity when Bitcoins at 17. that's that's a silly way to approach Market I think that's actually a good little plug for our podcast Avi I mean at at this point if you listen to crypto commentators the Talking Heads you know you tend to get a lot of you know crypto euphoric people who you know believe

that this is the future and they sort of have kind of a mentality that crypto can't go lower equally you know you you read the news you know there's a lot of no coin or haters out there who just say that it's all scam it's you know it's but you know those people are equally sure of themselves in the opposite direction I think you know what we're trying to bring to the table is a little bit more of a balanced take and like Avi said you know when the price goes down like suddenly the math starts to look a lot more attractive to the upside and I think what's interesting about this particular sell-off relative to the one that happened uh back in May when Luna blew up that that was a blockchain collapse which you know you could argue it was baked into the white paper and the code

and you know you should have seen it coming from a mile away sure but I think that was a moment when the market realized like hey we need to be suspicious of blockchains um this one like Bitcoin and Eve didn't stop processing blocks they just that there was just a company in the Bahamas that blew up you know very very different story so I think as people watch the SPF news and watch them go to jail and start to disaggregate his particular actions from what you know blockchains mean for society I I think uh I think I think you have some room um to sort of disaggregate the current price action in the post FTX sell-off from you know crypto bearish factors you understand

kind of what I'm getting at here I do I do let me yeah Avi let me ask you something because you're around in the in the last cycle and and basically every cycle is Fault every cycle falls the same thing which is just pushing further out on the risk Spectrum so like you would you would hypothetically think that this next cycle looks like bonds then equities then Bitcoin then eth then alt l1s maybe then then apps and then and then the ponzis and then that's the top do you think that do you think this next cycle looks the same foreign yeah I don't think humans change and that's just pushing further out on the risk Spectrum yeah yeah I think I think it just it it's gonna have it's going to have the Hallmark I mean I think cycle is probably a misnomer um just because I don't think that

there's you know I think if you look at how Bitcoin has traded over the last 10 years since Inception it definitely has created in a cycle format with boom busts I think moving forward that's going to happen it's just going to be more muted right and that's actually what we saw this cycle we went up we went up less right and that's just the nature of you know one it's it it's it's funny it's like uh uh what is it I think it's a cube the cube rule right it's in in engine in engineering so you can take if you take miniature scale models and you and and you just make them bigger and bigger and bigger and bigger sometimes at some point they

actually Break Even though when they they work with their miniature right because you kind of Hit the upper bounds of what physics will allow you to will allow you to accomplish and the same thing is true Bitcoin it's just like it gets to a certain point where it's just too big to do the same things that it was doing before um and I think that's probably true here but that being said you know tops in crypto will look like tops and crypto have before which is that people go down the risk Spectrum but it's just true in like Market Cycles too right like you look at you look at the tech tech boom uh ended the same way this time that it did last time with a lot of a lot of crazy stuff getting funded so you know it's interesting another lateral uh from the commodity

space you guys have ever read this awesome book called The Prize about the history of crude oil it's you know it's the Bible for every crude Trader at the beginning of the book there's this chart in uh you know inflation-adjusted terms a chart of the price of crude oil from its Inception in the late 1800s until the present day and there's spectacular volatility like what Avi was talking about the very beginning when you know much like crypto you could slap a price on this emergent technology you know hey is it just crap that bubbles out of the ground and maybe it's tar or hey actually you know like some Yale chemists can turn this into kerosene which can be used to light and heat a room like is it one or the other is it useless junk or is it the future and the

price would do these like huge huge oscillations and uh you know then it kind of calmed down for a little while and the Cycles got a little bit tighter in the amplitude lessened uh but the trend was sort of up and I think that's a really interesting lateral for crypto at this early stage uh Jonah how do you see folks positioned right now I mean you said in the middle of a lot of this like smart crypto money yeah I mean people are okay so you've got a couple different buckets of Traders right now and here's what they're doing one one bucket is institutional investors fairly passive they're waiting on the sidelines right if they jump in that they're not really looking at like hey it's a low price this is the best opportunity because if they jump in and it goes down another 50

they get fired meanwhile if it three x's and they buy then when all their peers are buying it's a safer bet and they don't get fired so that's sort of that that group's incentive so they're just waiting on the sidelines their plans are pushed out a little bit group number two you have the Avi Feldmans of the world fast money as we call them uh those people are starting to get involved you know dangerous obviously yeah exactly I mean if if you're if you're an active Trader and you follow price action and macro correlation you're looking at crypto here and more often than not like that group is saying like this is you know this this is a movement it's gaining geopolitical relevance like this is this currency uh you know as these

orwellian hemispheres get erected between East and West like Bitcoin is kind of a shoe-in for Global Reserve currency it's it's down what from the all-time highs it's outperforming Equity like buy right up so that group you know they range from like big macro hedge funds like the tin foil hat wearing like gold bug crowd like those guys those guys are you know thinking about getting long hair or already long um and then you have some you know crypto native participants and as Avi said like the typical crypto hedge fund is you know if they were lucky enough or intelligent enough or you know had enough foresight to get their assets off of FTX like the altcoin investing strategy that minted you know Millionaires and billionaires in 2021

has been a very treacherous strategy this year so a lot of those guys are down big and they're they're kind of constrained in what they can do and their volumes are down that's that's sort of a basic overview yeah I know both you guys have to hop into sack so I've a lot two two last things I want to get you guys takes on and then and then we can wrap this up one is um just leveraging the system not a if you look at the last cycle is like very I mean Genesis had like 51 billion dollars of loans outstanding but at the top yeah I'm just curious how you guys see uh like Leverage there's just there's not a lot of it out there it's just not easy I know the leverage has been wiped out and I know it's like very like credit driven cycle last time but

like moving forward how do you see Credit in crypto moving forward and I see it from the C5 players or is it like all D5 credit like what does this look like well in the short run the up the absence of Leverage sort of means that people aren't going to have to trade when they don't want to if you're like if you're levered up or if and then credit tightens up you're forced to trade at the worst possible time that's what we saw over the course of the last six to eight weeks now that that's kind of cleaned itself out like you know you you're not going to see as many Force sellers in terms of where like borrowing and lending coin is a fantastic business if you do it intelligently and you know I would be shocked if you know people from avi's you know parent companies

were all the you know of golden tree and and similar you know extremely well respected credit funds don't start to you know get involved in lending at some point and you'll have C5 lenders come back but done right as opposed to done by you know poor Risk Managers uh who do crazy things with the the coins that they're loaned also I think you know on chain is where lending is going like Ave is a fantastic source of liquidity um and that's only going to grow because of its transparency and its utility and it's a D5 primitive that has like a in my opinion a very big role in the future of crypto Trading yeah are there anything to add there no I think he nailed it cool last thing Avi this this one's for you is um you

guys have been pretty active in sushi I'm just curious how you think about trading trading around governance events so we don't trade governance events when it comes to Sushi we're just by we bought it we're holding it you know we're waiting we're waiting for our thesis thesis to either play out or for us to lose faith and neither of those things have neither of those things have happened yet you know I really like the sushi team I think that they're doing a fantastic job you know there was a there's a recent there's a recent proposal out um to something that was interesting and I'll talk about this for two seconds is there was a recent proposal out to uh redirect

revenue from being paid out to the holders of sushi swap to the treasury of sushi shop and it kind of caused this stir in the community because people are like what are you doing taking money away from token holders and the answer is well if you only have a year of Runway left in the treasury and then after a year the protocol might die well it actually makes sense to stop paying out what is effectively a dividend right when companies try to grow they're not going to be paying out massive dividends they're going to be reinvesting it and that's really what this is is Sushi swap is saying hey guys so we've entered we were in really good times in 2021 and because we were in really good times we do it all normal companies do which is we pay out a dividend to people

and now that we're in a really bad time we actually want to take our take our money and reinvest it because we think this is a great time to reinvest in our in our protocol right so that's really what's happening it's just normal smart course of business um and so you know we try to just stay abreast and stay involved with governance and and there's some things that happen in governments that are good and there's some things that happen in government governance that you know is bad and you know you you just I think that's probably the next real way to generate Alpha in crypto is to pay attention to what protocols and dials are actually doing um and so we do you know outside of

sushi pay attention to governance pretty pretty actively because there are a lot of opportunities that pop up when people in Dallas do smart things there are also opportunities that pop up when people in Dallas do dumb things right and so you I think the the the takeaway here is that you just have to start paying attention yeah yeah I completely agree we um we've been writing about is is this the uh gray shimmy remodel is that what is that Sushi's thing the gray shimmy remodel so it's uh it's that that's a token economic revamp there's a uh there's a proposal a signal proposal up right now to redirect

um basically protocol fees where did that go I don't know our analysts were talking about like I think Jared dropped something in the Discord about Grace Shemia I don't know I gotta go read about it so anyhow awesome guys this has been great um I promise you guys we'd keep the short and sweets all honor that promise but yeah congrats on the launch of a thousand X podcast um Santiago will be back next week guys so excited about that and uh Avi Jonah any last words here thanks for uh welcoming us to the blockworks family stoked to be here yeah I appreciate it [Music]