Stocks Near All-Time Highs, Crypto Left Behind: What the Macro Tea Leaves Really Say

Transcript

Hi everyone. Welcome to another episode [music] of Bits and Bips, the interview. My name is Steve Ehrlich. I am the head of research at Sharplink and also your host for today. We've got another terrific episode, but before we begin, uh just a quick disclaimer. Nothing that you hear on the show should be construed as investment or financial advice. For full disclosures, please see unchainedcrypto.com/bitsandbips. And then finally, before we get started, let's take a brief moment to hear from some [music] of the sponsors who make the show possible. >> If you've been loving Bits and Bips, don't forget that the show is transitioning to its own feeds on X, YouTube, and [music] your favorite podcast player. If you're not already subscribed to Bits and Bips on its own channels, go there now and hit that

[music] subscribe button so you can keep up with our twice weekly live streams and macro meets crypto breakdowns. Bits and Bips will only be on [music] the Unchained feed for a few more weeks, so subscribe today to be ready for launch. You can get all the links at unchainedcrypto.com/bitsandbips. [music] >> All right, welcome back. So, today I have Steve Sosnick, the chief strategist at Interactive Brokers and a repeat guest on the show. Actu- Actually, Steve, I think you were my first guest on on this show. So, yeah, so really thrilled to have you back. You're one of the best people I I know when it comes to reading the tape and understanding the dynamics between um TradFi, crypto, how macro forces are colliding with geopolitical uncertainty,

etc. And we've got a lot to talk about today. Uh as we are uh as we're sitting down, uh there's renewed tension over the in Iran Strait of Hormuz, um skirmishes going on between US and and and Iran. Uh the Fed's preferred um inflation indicator is the highest in years. Gold is dropping, equities are up, uh yields are teetering, so a lot to unpack. Uh thrilled to have you with us. >> It's a pleasure to be here once again, Steve. This is it's I I always enjoy our discussions and looking forward to this one.

>> I appreciate that. So, let's dive right in. Uh I kind of set the stage here, but equities are still like near near all-time highs. I mean, how do you make sense of all this? >> Well, there's a few things going on and you know, they're not they're they're working in concert. I will say um to some extent um we can we can thank good earnings and that's always in my mind the best reason for a stock market to rally is uh the fact that in this past earning season, we've seen a you know, a decent number of I would even say significant number of uh of EPS beats and more importantly positive guidance. To the case in you

know, in some situations, you know, in let's say semiconductor memory stocks, um the guidance has been extreme. Um we can argue whether some of that guidance has been um extrapolated maybe a little bit more uh maybe maybe a bit further into the future than it than it ought to be. Uh but we will I I will stipulate that that there is a solid base behind um this rally. But, the magnitude of it we can question and you know, to a certain extent what we've what we've noted over the past few weeks, let's say since the end of March, is what I've been calling the ratchet effect about news from the

Persian Gulf. And that By that I mean, we seem to rally on each positive story about some sort of resolution to the situation, something that might reopen the strait. And so far as we're taping this, yeah, there was another good there was another positive story this morning coming out of Axios. Um but for the for the most part, basically we're 0 for however many there've been. I'm not sure I I lose count of how many there been. But and while oil and bonds tend to give back their decline well yields give back their declines and bond and oil futures give back their

declines when the stories don't come to pass stocks haven't really given back anything. They So that's why I call like a ratchet, you know, you move in one direction. >> One one direction, yeah. >> And so that's been a big factor and you know, what I'm wrestling with right now is as we're speaking is stocks are reacting positively. I literally stepped off the desk to go to the bathroom and boom we went from up you know, down to up very sharp. I'm like what happened? Had to be a good story. We had a good story, but they're not ripping ahead even though this is one of the more detailed and more substantial stories that we've gotten. So I do have to wonder how much of this either A is priced into the market or B is trade is basically traders exhaustion

and saying, you know, another one of these stories. They're not mutually exclusive, but how how we the market interprets them can lead to very different outcomes because if if it's largely priced in you have to wonder if it's a sell the news type of event. If the market's not reaction just because they're simply tired of of reacting to these that does leave room for further upside. So that that's a huge unknown right now. >> Yeah, it's hard to tell because I mean people like to think of good things happening and at this point in time I get the sense from people I talked to that worst case scenario is that things stay ossified where they are right now.

I don't see much appetite from the US side to to really renew hostilities in any um any major form despite what President Trump says from from time to time and as much as he claims to not care about the electoral calendar that is something that I'm sure is on to on top of mind for him. Uh so maybe we're at worst-case scenario and this is where it's at. Um but I've read and I'm sure you have, too, we may not have felt the full pain of oil prices if the strait doesn't reopen yet. I mean, $5 a gallon gas plus, etc., could have a could have a damaging effect. We have to kind of see how that's going to fit. But I I think within everything you're saying, uh and this is not a secret, AI stocks,

semiconductor stocks, they're they're doing the heavy lifting here. Um they are producing solid earnings, as you said, which is a big departure from maybe like the like the dot-com boom of 20-plus years ago when a lot of it was just based on on hype and hope. But these companies aren't profitable, um they're extremely in debt, and there's still a lot of just faith, a lot of this upswing is based on faith that they're going to continue to deliver. And I found it really telling a couple weeks ago when Nvidia had another good quarter. I think they beat earnings for like beat earnings expectations for the 14th or 15th quarter in a row, and the stock I I think I think it went down a little bit despite a terrific despite a terrific quarter. So, there's a lot of hopium here, too. How

do you weigh that? >> Well, when it when it comes to earnings, let's say, in something like Nvidia, um you know, the bar has been raised so high, right? You know, so, you know, to sort of think of like the the pole vaulter, you know, who's who's got the bar raised up already, um it's very hard for the pole vaulter to clear it. Uh and I think that's what happens to some extent when you have an Nvidia situation where everybody everybody expects them to be better than expected. And to a certain extent with Nvidia, you do also have to ask the question, where where is where might fresh money be coming into into Nvidia? Is there anyone Is there anyone who is not familiar with the story already? Is there anyone who's

left to invest in it in a major way other than sort of general inflows of the market? So, I I think in that situation, you know, it's more of a victim of its own success than it is anything else. And so, you know, and so to some extent you take it case by case. And but you do raise the point there's two huge vulnerabilities to this rally, neither of which has raised their heads yet. But, number one is all you really need is for to to to really create a terrible situation is for someone like Alphabet or Microsoft or someone else to say, "You know what?

We've spent a lot of money here. We're not going to You know what? We're not going to continually throw more money at this situation. We're we're going to We're going to try to sit tight with what we have and see if that see if those investments pay off." That happens. Um you know, that you'll just hear like a big screeching of the brakes and that that could be problematic. The second parallel that I bring in here and you did raise sort of the dot-com era parallel is Um I'm going to throw some names at you and tell me if these sound familiar. Uh Global Crossing, Lucent, um Northern Telecom, um you know, Cisco, but Cisco's still around. These were the But these were the companies In in those days, every

the race was to build bandwidth. We needed bandwidth to support the internet. And I will stipulate that bandwidth proved necessary. I'll also stipulate that even the wildest expectations for how um life-changing the internet was going to be came true. >> Mhm. >> Yet, many of the companies I've rattled off and I haven't even rattled I haven't finished rattling You know, there's WorldCom, there's MCI, there there's a whole bunch of these companies. Um they they fell by the wayside. Why? Because they spent and invested wildly putting in this bandwidth, but it it wasn't necessary immediately and it took a long time for it to pay off and there was a lot of misallocated capital.

Um, and I do feel that that is something that we have to be um, cognizant of because no company wants to be left behind in this AI gold rush. And certainly the pick the the manufacturers of the picks and shovels have been the big beneficiaries in this. >> Yeah. >> Uh, that metaphorically speaking. Um, but um, you do have to you know, at some point they're not all going to be winners. It it it's just not going to happen. They they it's physically impossible, but yet you can't risk not taking your best shot because if you don't take your shot, well, it's the Wayne Gretzky theory, right? You miss on all the shots you don't take. So,

everybody's got to take the shot. Everybody's got to spend a lot of money. Some will spend it wisely, some will not. And there will also be competitors that arise that we haven't really that that either we haven't thought of or or honestly don't exist yet. Remember, neither neither Google nor Meta Facebook, um, existed during the internet bubble. They're post-internet bubble. >> Yeah. >> So, there it's a much more fluid situation and I think it's a little risky for the market to just sort of declare victory. Um, otherwise, if that were true, we'd be searching, you know, we'd be connecting via AOL and searching on Yahoo and um, you know, and and

and things would be very different in our use of the internet. So, these are the parallels, but you know, history doesn't repeat, but yeah, there's certain elements that are rhyming. >> Although I do certainly miss my AOL Instant Messenger. That was a that was that was a lot of fun back when I was in college. >> Yeah. >> Um, what I guess two more quick ones before we move on. Uh, talked about how a lot of this um, the the AI companies are doing the heavy lifting when it comes to to the S&P 500, Nasdaq 100, etc. Um, I'm sure it's not lost on you that the equal weighted S&P is flat basically since February, and we're wondering if and when we're going to see a a broader a broadening of of these gains.

Uh Goldman had an interesting report yesterday, more or less saying that there's uh like historically elevated levels of short interest on some of the more cyclical stocks. And if they get drawn up, that could lead to um just forced buying pressure that could broaden out these gains at least for a little while. And and that could sort of reverberate through the whole market. Do you have a Do you have a view on that? >> I I I haven't seen the Goldman report directly. Um I I am familiar with it from from your your commentary and and and from other reporting.

Um yes, it's it's plausible. If you have If you have a big Sorry, the doorbell just rang. If you have a um If you have a Okay. If you have a big um you know, short interest in in stocks in specific sectors, it does leave them quite susceptible. Uh not knowing the specifics, you know, are these stocks being shorted, you know, something like a I don't know. Is it you know, is it a Walmart which you know, which walk By the way, Walmart and Nvidia traded at the same PE prior to their earnings.

Um despite one having much higher growth, or is it I I don't know. So, let me just stipulate and say yes, heavy short interest is a risk. But the the flip side to that, of course, is um margin debt as a percentage of the stock market cap capitalization is also at a record peak. So, you know, on one side you've got you've you know, uh you've got the the dry powder of of short covering. On the other hand, you've got sort of um a record reliance on borrowed money to to you know, to to facilitate the market's gains. It's It's a very fluid situation.

And that I think And and and yet we don't really see people like displaying any real risk aversion. Um that that gets a bit That's That's a bit tricky. >> Yeah, nobody wants to be the one that missed out. Okay, one more question on equities and then we're going to move on to a few other sectors. Uh last week I I had another good friend of mine, Noelle Acheson, who's a crypto macro analyst on the show and and she made an interesting point that historically big IPOs have coincided with um sort of market tops and and that can be very hard to sometimes predict, but that's what we've seen in the past. Uh we have three big IPOs coming up focused on AI.

Um SpaceX is likely going to be the biggest in in history and then obviously OpenAI and Anthropic. Uh I'm not going to ask you to kind of get into the the nuances between the the various deals and and and kind of break that down. Uh plenty of time for that and uh as we kind of get closer, but I wanted to get your read on just the idea of whether or not uh some of these IPOs could signify market tops. One, uh this is a crypto show, one IPO that I know, I guess it wasn't technically an IPO, um it was a direct listing, but but one example that will resonate very well with this audience is Coinbase. When it went public in April 2021, um that was a local top during COVID and Bitcoin and

the market traded down for months uh thereafter. So, what are your thoughts on that? >> Yeah, again, without getting into the specifics, let me just say broadly there given the um reported size of some of these listings, um that's a lot of money That's a lot of money for the market to absorb. Uh you know, one of the positive factors, like a a big underlying scenario factor, is that um there's been generally a favorable supply demand relationship in equities, meaning that um

some combination of buybacks and private equity activity have have tended to reduce the amount of stock outstanding. So, you know, less supply, more demand, or even equal demand, that that that that provides a lift. That that's a positive for stock prices. This this wave of IPOs threatens to put that into retrograde at least for the short term. Yeah. You know, if we're talking about somewhere between 75 and 100 billion dollars as has been reported in in new in new stock coming onto the marketplace, um that could certainly be

um a bit of a a bit of a negative for you know, for stocks on a supply demand basis, uh particularly where in some cases you have um you know, some of these stocks um you know, which which are not necessarily particularly profitable at least from the early reads we've gotten with you know, at least from the >> That's putting it generously. >> That's that's can be a problem. This can be a big problem. >> Yeah. And it's it's funny, too. Uh this is coinciding I think the framing is really interesting, but it's also coinciding at a point time where there's a glut of money in the system. I want to make sure I get these notes right, but I think 120 billion dollars went into money market funds this month. Uh repo rates actually fell below um the bottom of the Fed's

target range, which again speaks to just a lot of cash switching around. Uh do you think that that's a little extra dry powder that might provide a cushion, or is this just like un um uncorrelated data points that that aren't that related to each other? Yes and no. I mean, you know, obviously the the money the more money sloshing around is a good thing. Um whether or not why it's sloshing around in money market funds is could be two different things. Is it because people are um concerned about their finances and and and that's that's the money they need to keep they need to keep out of

in a place where they can find it. Uh which to certain, you know, which one one of the the economic statistics that came out this morning was was that uh personal income was personal income growth was zero. >> Yeah. >> Uh which meaning that people are are losing purchasing power. Uh so, you know, to some extent consumers have not have not been acting all that well. You know, again, Walmart we saw go down. Today Dollar Tree is zooming. What does that tell you about consumer mindset? Now, if you believe in the K-shaped economy thing, if if that if that money if that money into money markets is coming from people who have disposable income to invest, that mitigates against the supply demand discussion that we

were talking about. But it's it's very tricky to parse out. I I I'm always a bit um I don't know, reticent to sort of say, "Oh, this you know, to use the cash on the sidelines argument." Because sometimes that cash is is there and it's not it's not leaving. >> Okay. All right. Well, that's a good point. And um and since we talked about new data that came out, let's just briefly talk about uh inflation. Uh so, PCI uh headline was I think 3.8% in April. Um core was with 3.3% the highest in years. It was a little bit I think below analyst expectations, but but still historically high.

Um what is your read on on all of this and its associated impact on consumer behavior? I know spending went up, but I think it was just like a tenth of a percentage point. So, so so relatively small. And um just staying on the like our last train of thought, what does that mean for the the psyche of the consumer and and the investor and like you said, it might depend on what income bracket you um you currently reside in. >> I I mean, you know, we got a little bit of a surprise last week in that the um the Conference Board Consumer Sentiment Survey was was um was a a positive surprise, although the Michigan numbers that have been coming out just are sequentially worse.

Worse and worser for lack of you know, for to coin a phrase, I guess. Um the the and when you can dig into the Michigan numbers well, because they break it down pretty um effectively. Yes, there's a partisan aspect to them. Uh you know, Democrats feel worse than than Republicans, but independents are pretty feeling pretty crappy, too. Um and they've had some graphics in there that um indicate that affordability is really a big big issue for people. You know, one of the things about even when inflation is moderating, it's telling you the prices are going up, just not as quickly. They're not coming down.

>> It's a common misperception. I >> Very common misperception. I think that's where a lot of people really feel I I think that's a big messaging problem. Um it was a big messaging problem for Biden when he was seeking re-election. It's going to be a big messaging problem for the Republicans as in the the midterms because people hear inflation is coming down and they think, "I go to store, nothing's cheaper. Everything's more expensive." >> Yeah, prices >> Literally what they're telling you. They're just telling you it's not it's it's not getting bad as quickly as it was.

>> It reminds me of a similar misperception in crypto where people say Bitcoin is is like deflationary. It's not. It's inflationary. It just um it issuance rate decreases, but but it's not deflationary. The supply is still going up and it will go up for another 114 years or so. But, please please continue. >> Just more slowly. But, that's But, that's the same It's a It's the same misperception, and I and I think the problem you have uh from a political and socioeconomic point of view is the people who are least likely to understand that nuance are the ones, in many cases, feeling it the hardest. Because one of the other things in the consumer sentiments surveys is um

how miserable you are tends to correlate uh inversely with how educated you are. Um not not 100%, but you know, there there there are statistics that show people with um you know, with lower levels of education feel worse about affordability than people with higher levels of education. Mhm. But, not [clears throat] exclusively, and everybody I think feels miserable about it. So, uh we have to work through this. And the situation in the Persian Gulf is doing nothing to help um affordability or inflation expectations.

Um and so, uh yes, the PCE number this morning uh on a monthly basis going on a the core PCE, which is the Fed's uh preferred target, going up .2 as opposed to .3 uh was indeed a good data point. Uh but, what we saw was that we didn't really see much of a rally based on that. We saw stocks come off their lows a little bit, but before the Axiom story, stocks were still uh these stocks still had a minus sign in front of them when I when I'm talking about broad indices. So, it's uh Obviously, we want positive inflation news.

Uh but, the problem is the law as you alluded to earlier, the longer the situation in the Gulf persists, uh the um the worse the aspects are. And we're also seeing inflation and thing you know, you're seeing it in other commodities like copper, uh which is that's a direct result of the data center build out. So, a lot of a lot of moving parts, few of them moving in the right direction for affordability for affordability for consumers. >> Got you. And and just one quick note, I probably should have done this earlier, but this Axios story that you're referencing I just have it up here. Basically says that negotiators on both sides reached an agreement on I guess a 60-day um

MOU to extend the ceasefire appears to leave a lot of the big nitty-gritty details um for another day's negotiations, but I guess it is welcome news especially since there have been fights fighting going on the last couple days around launched I believe a ballistic missile at Kuwait and nobody wants to see a return to to all of that. So, I can understand why people are are relieved I guess for lack of a better term, but but as you said in the very beginning Steve we've seen this many times before and nothing is nothing is done until it's it's done. So, we'll just kind of have to see what happens. We've seen this many times before and nothing is nothing is done until it's

it's done. So, we'll just kind of have to see what happens. Uh we have to go to a break, but I do want to just ask you one more quick question before we do. And he's got a lot of pressures facing him. He wants a president that wants lower rates, but certainly seems that that's off the table at least for now and and perhaps at the next meeting I guess next month his primary goal would be to maybe prevent rate hikes. I mean what do you what do you what are your initial thoughts with with Warsh coming in at this particular time? >> You wanted a quick question. >> [laughter] >> We all right, how about how about how about this? Let's let's take a break and then and then we'll come back and answer your question.

>> Yeah, that that that requires a little more nuanced answer. So, yes, we're up against a break it would be better come back on that one. Thank you. >> All right, we'll be right back. >> Is my crypto working as hard as I am? Honestly, that's the question that got me into staking in the first place. I work hard for my money. It should be working hard for me, too. Now, you can boost your earnings this Coinbase One member month. Until May 31st, any newly staked assets will get a 40% boost for 60 days. That's extra passive income. Coinbase One is the ultimate membership to make the most of your money. As you know, this is how I make the most of my money. Zero crypto trading fees, 3.5% APY on USDC, boosted staking and lending rewards, and up to 4% Bitcoin back with

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>> All right, we're back. Didn't mean to leave all of you in suspense, but uh Steve, floor is yours to just kind of give your your two cents uh on Kevin Warsh and what he's walking away with. >> Yeah, you know, the the the Kevin Warsh situation as with anything Fed related is is is not the easiest thing to parse, especially against the backdrop of price pressures emanating from the Gulf. You know, think about where we were just, you know, in February and before before the the missiles started flying. Uh we were the markets were pricing in um two full rate cuts by December with a 50% chance for a third. Give or take, you know, that that that that extra rate cut chance, you know, sort of fluctuated

between 35 and 65%. So, let's call it two and a half rate cuts priced in. So, that would be about 62 basis points. Two times two times 25 is 50 plus another half, 62 and a half basis points. We've now uh flipped. When I looked earlier this morning, uh we were talking about call it a 70% chance for a rate cut for rate hike by December. Um with a full with a rate cut fully priced in for March of 2026. So, when you look toward the end of the year, you know, with with 62 and a half before and call it another 18, there there's, you know, roughly 80 basis points and change at the front end of

the curve. That's monstrous and and yet some and yet stocks are up. You you could stocks can rally when rate cut hopes fade, but that's what the if they're rallying because the economy is so strong. I would argue this is not a route, you know, the the these rate expectations have have moved not because of a of you know, a wildly uh stronger economic picture, but what we have seen instead is prior to in February, you know, January, February, we were concerned about a slowdown in the labor economy. Remember the Fed's dual mandate, full employment and stable prices. So, there was a there was, you know, there was a genuine

debate of, you know, inflation is coming down, maybe not to the level that the Fed wants it, but if the if the labor market requires cuts, which side of the dual mandate will the Fed err towards? And the consensus was that they would err toward cutting rates to help out the labor to help out the labor economy and say, you know what, we're we're good enough on prices. Well, that mentality has flipped pretty much 180°. The last few labor reports have been solid enough to to take a lot of that labor market worry off the table.

Um that's not necessarily cold comfort for, you know, new graduates who are having trouble finding jobs or some people who feel they've been displaced by AI. By all means, you know, I'm not saying that this is a a super robust labor market, but again, when you're talking about 4.3, 4.4% unemployment, you're also saying that 95.6% of the people who want a job have a job. So, you've flipped on labor and now you've flipped on price pressures because, you know, clearly the situation in the Gulf has has raised energy price pressures and and is starting to leak back into the core to a certain extent as well. So, now the question is, do we stay stable or does or do they

have to or do they have to raise? And at the last meeting, we had four dissents. One was Dr. Myron who dissented in favor of lower rates. I think he was, you know, in his short relatively short tenure as Fed governor, I think he was 100% dissenting in favor of lower rates. Um That that was his prerogative, but his his seat was because Chairman Powell didn't leave because of the legal issues. Um Kevin Warsh took Dr. Myron's seat. The other three dissents came from various Fed FOMC members who want who were advocating to remove the easing bias from the Fed's statement.

Um which the market has sort of done for them. Um last Thursday evening Christopher Waller who had been one of the more dovish members of the Fed, some might argue was because he wanted the job that Kevin Warsh got. Others might just argue that, you know, hey when the facts change my so the so does my opinions. I I will not editorialize further on that. He came out He came out basically saying he wants the easing bias removed as well. Um and what what Kevin Warsh is going to have to deal with here and what markets are going to have to reckon with is a he's one when it comes to setting policy he's one of 12.

>> Yeah. >> And it's not clear that it's not clear that there is a consensus by any means to start cutting rates immediately. Um the other question that you have which is sort of a broader question which is we're not going to get an answer to for for a little bit is um that he he he's a known quantity in the fact fact that he's been a fact he's been on the FOMC before. He was a Fed governor. But he was one of the more hawkish members at the time. >> Yeah, that's >> And so which Kevin Warsh do we get? Is it Is it the relatively hawkish member who, you know, in some ways you know, voted against a lot of the monetary stimulus that it that occurred in the wake of the global financial

crisis or is it someone who told the president you know, what he wanted to hear and that I'm at going to advocate for lower rates. One of the ways he's going to try to do that is I think to change the benchmark. I think he wants to use a trimmed inflation measure rather than core PCE because that would smooth out some of the some of the uh higher price influences. Um but you know, he's going to have to convince a room full of skeptics at this point. And also remember markets have a eerie way of throwing real-world tests at new Fed chairs. They don't happen very often, so it's not like a statistically significant thing, but if you look back um a few of them have gotten real-world

tests early in their um tenure. And we will learn soon enough how he handles it, uh but it is it it's not smooth sailing. Um you know, it's going to be he's got he's got some difficult he's got some difficult things to navigate, particularly when it comes to um deriving a consensus from what appears to be a fairly skeptical uh committee right now. >> Yeah. Something we we talked about last week, too. I mean, sort of trying to uh What's the word I'm looking for? Like like like trying to make sense of like the the two the Dr. Jekyll Mr. Hyde the hawkish dovish Jerome Powell. And uh um one of the things that stood out to me during some of his confirmation hearings was kind of pointing out how he wants the

Fed to move away from like I guess something more akin to fiscal policy and just focus on monetary rates. And that's sort of how he's trying to thread the needle with that. And uh I I uh I mean, just given the light of all the QE during the great financial crisis and the trillions of dollars added into the economy during COVID. I mean, the ratchet effect you mentioned the Fed balance sheet has just been going up and up and up. And every time it seems they try to reduce it, something happens that forces them to either pause those or have it go up. So, we'll have to see. All right, let's um let's turn to crypto. Uh we have about 10 minutes left and I want to get your thoughts on what's happening cuz it it's pretty fascinating. As we're talking right now, I think Bitcoin is back up above 73,000.

ETH is is right around 2,000. Um these are both up I guess a couple of maybe uh 100 bips something like that from from lows earlier today uh before that Axios story came out and um and there were real fears about renewed renewed fighting. So, but enthusiasm for crypto is still I think it's it's muted from what I can tell. I mean, implied volatility just hit a 9-month low for Bitcoin. Uh we're not seeing a lot I'm not seeing a lot of positioning for for sort of like convex movements one way or another and I'd love to get your thoughts on what you're saying.

>> Yeah, I mean, crypto has been crypto [laughter] to a certain extent the simplest answer would be crypto's been dull compared to tech stocks. You know, I think I think to a certain extent there's a there's a you know, if you had to draw a Venn diagram between you know, crypto crypto enthusiasts and tech investor enthusiasts, tech traders, um there's probably a pretty big overlap between those between those two circles. Um and so, you know, and and and momentum-based trading or momentum-based investing has been a huge feature of recent markets.

And so, quite frankly, compare if if you're look you know, if you're looking at your portfolio and saying, "Okay, my crypto's eh it's not doing much. Um you know, and and tried to rally, let's call it from 65 I'll use Bitcoin from 65 to 80 and that didn't really pan out and meanwhile, you know, I I bought I bought you know, Micron Micron Technologies and that's up however many zillion percent. Um where am I going to want to go with it?

Um and I think that that's a big that's a big issue. I also do think that looking down the road, um if I were going to you know, look for excess liquidity um to invest in some of the IPOs that we discussed earlier. Again, I would think that the that many of the people who would be thinking about investing in those IPOs, at least from the individual side, not from the institutional side, would would be people who might view their crypto positions as something that they could sell to buy those IPOs. Not advocating for it, but I think these are these are pressures that I think crypto is facing.

You know, also now, the other feature is, you know, let's go back to the digital gold argument, um which, you know, we could that's a whole other topic for debate, but um real gold, the yellow stuff, isn't exactly ripping ahead either because it these are for the most part, unless you're doing some you know, relatively sophisticated stuff with with crypto, um these are non-interest bearing assets. And interest interest rates have as we just discussed, have gone up substantially. And so when you have a situation where um you know, where

nominal rates and you know, the money market rates that you were referring to have increased substantially, and you're holding a non-interest bearing set of assets, um that's not that's not necessarily a favorable backdrop. You know, so I think that's kind of why we've seen crypto sort of get a little left behind. They're they're it's it's it's not the sexy flavor of the month right now.

>> Yeah. >> Tech stocks are. And and and I think it's suffering as a result of it. >> Yeah, it's making me think of of a couple of different I I guess a couple of different things. It It's an interesting juxtaposition and we're going back to some of the AI-related IPOs that are coming down the pike in the next few months, etc. And then, you think about I mean, one of my former employers, Kraken. Reportedly, they've delayed their own IPO. I think Ledger is another one that's that's delayed it uh citing I think like market conditions.

Uh Granted, there's different market conditions for for SpaceX and OpenAI and Anthropic, but you could also make the argument um that they're almost they're so big and they're almost immune to any market conditions at at this point right now because there's going to be so much demand. So, it's um it's interesting there. And then, um I mean, billions of dollars in outflows from from crypto ETFs. And I I think I saw something might have been the FT today. I'm forgetting the ticker, but uh I think it was like one like hyper-focused AI ETF like Micron and like only like two or three other stocks um beat Fidelity one of Fidelity's like crypto-related ETFs um to like over $10 >> DRAM, DRAM, which is the the Roundhill Memory ETF.

Um depending how you measure it, it either it either became the the the the most successful IP ETF launch in history out surpassing IBIT or or you know, or or was neck and neck. It depends how you measure it. It depends how you measure it. But bottom line is um you know crypto got That was a huge boom for crypto. I mean, you had sort of the perfect storm between easy accessibility via ETFs um and um and an administration that essentially was outwardly touting the benefits of crypto. That That was as

good of a scenario as you could come up with. The downside of that ETF adoption is I I think I termed it as, you know, normies own crypto now, too. Um, and it hit me when I was invited to speak at a crypto conference here in Connecticut, and I looked around the room, and I was around the average age. I thought I was going to be like, you know, grandpa going into going in there, and it was and it was a lot of people um, who'd gotten into crypto via the ETFs. The the the good thing at the time was that led to huge inflows, and obviously price increases.

>> Yeah. >> news now is to a certain extent, they're crypto tourists. Um, they they can then say, you know what? I bought, you know, I bought you know, insert name of crypto ET ETF or ET, you know, ETP here. Um, I bought this. It did well for a while, and now it's not, or I bought it at the highs, and it kind of I I I mistimed it completely. Um, you know, let me move to some let me move to something else, you know, that if if these people if if if it was bought by performance chasers in the first place, um, it's going to be sold by performance chasers as something else outperforms it. And and that's not

that's not me taking a view one way or the other on crypto as a long-term investment, but that's just that I I do think that is a very important consideration. You you can't discount you can't dismiss the importance of money flow, and for better or worse, um, you know, the the the the the huge success of of crypto ETFs was such a boon on the way up, uh, but now this is the, you know, the the the the flip side of that trade. I'm not attributing it specifically to that, but it it to many investors now, it's one more sector among their speculative momentum-based um, investments. And also think, by the

way, of the popularity of some uh companies like IREN and NBIS, which have largely changed from uh they basically changed their business model from data centers, you know, from from uh from Bitcoin mining models to AI data centers. Yeah, and computing powers uh you know, also I'm not going to say fully fungible, but it's migrating. >> Yeah, and uh I didn't mean to interrupt you, but we've done um entire shows on on that change on that transition. I had um I think John Todaro from from Needham. I don't know if you know him.

Um walked me through I mean, the economics of that and uh and I mean, it makes perfect sense. I mean, you're you're you're buying an asset that uh you're you're producing an asset in Bitcoin that uh from their point of view, it it's not moving up um exponentially anymore. It's getting uh hash rate keeps going up. It's more competitive. It's more expensive to mine. Or you can go like turn yourself into some sort of like hyperscaler, get a 10-year contract from Google for an ungodly sum of money. Like, what are you going to do? I I certainly get that. Uh but it it does it it makes me think all this I understand the points of view you're saying here and uh again, none of this is financial advice, but it does also I think this could have a good a

cleansing effect for for Bitcoin. I mean, we and crypto in general. We've spoken about um I see like me like on other guests on the show. Uh there's a lot of other there's a lot more competition for that sort of like highly risk-on money. Like, there's prediction markets. There's AI stocks. There's there's lots of other places, not just altcoins. And um in certain ways, I I think you almost need to have um some more uh you need to have a real sense of purpose when you invest in crypto today because it's not the sexy thing to do. Uh I mean, people on this show will know. It means it's you're um there's a common saying you're not really a crypto person until you've seen your net worth drop by 90% and then have it go up like 300%

thereafter. Uh the normies you said, they may not have the stomach for it, but it's happened to me multiple times and and and plenty of long-time listeners who just once you get through it once like you're like you're you're hardened, but uh it looks really scary on the way down. And I I think sometimes that that comes it makes me think of like a like Howard Marks or Warren Buffett in the sense that like you have to really uh put your money in when everyone else is bearish. I mean Howard Marks did it um in the distressed credit space and and he made a fortune fortune out of it. Uh BlackRock, I mean they launched their ETFs in I mean they filed for them during a during a crypto winter when uh Gary Gensler was still SEC chair.

So I mean it was not a popular thing to do and and they did it um in the against the backdrop of a highly crypto skeptical regulator. So we'll have to kind of see what what what happens, but uh certainly there's a lot more competition for the money that would just automatically go into crypto and I think some of those ETF news that we spoke about encapsulates it perfectly. Uh so we are just about the time although I know we probably could have go for another 45 minutes or so. So I just want to ask you um like one or two quick closing questions. We talked about a lot today inflation, gold. We didn't even get to what's happening with the rising dollar and and the flattening yield curve. Um sort of the divergence between equities and um and kind of like like

geopolitical uh I guess uncertainty. What is like the one thing that you're really going to be watching over the next few weeks? >> Um I I think number one uh right now is you know what I alluded to it at the top of the show is how does the stock market react if we get a peace deal. I mean if we don't we just sort of model along again and at some point at some point traders get tired of it, but I think the question that the To me, the number one question that was that really jumped out at me today is and and and I don't have I wish I had an easier answer is are we in a you know, are we in a buy the rumor sell the news scenario where a peace deal gets is a

negative or is it just, you know, or market or markets not reacting better today because they're sort of skeptical of it, which means they can rally further. Those are two very divergent outcomes from the same from the same potential piece of news. And I do hope I'm of course rooting for something that that that brings that about. Um you know, and I think you know, and and there's a and then I think once we get past this because equity markets particularly are terrible at geopolitical events. Um commodity markets are best.

Um and notably at least when I we started the show, um oil was not down today on this news. Oil was off its highs, but not down. Commodity traders are best. Treasury traders are next best. Um equity traders are somewhere deep in the back of the pile. Um because, you know, the others are are less focused they're more focused strictly on supply demand. Um or inflation expectations as opposed to stories. They're less easily distracted. Um and so, you know, I think that we're going to have to see how that all plays out amidst the backdrop of a flattening yield curve as you mentioned. And that again is because um that took a big Christopher Waller is

the one to to largely thank for that because we've seen the inflation expectations rising and pushing up the short end of the curve, but it was pushing up the curve sort of parallel. Uh the Waller talk, you know, flipped it a bit because because of if the Fed's going to be more sensitive about inflation expectations, uh that changes the back end of the curve. And ultimately, uh let's see what happens in the midterms. Don't forget that we've from an equity point of view, we've had two down markets, two down years in the last 10 or 12. Uh I've got to be exact, but those were 2022 and 2018.

Um those were both midterm election years and you have a new Fed chair. So, while we've had a very successful year in equity so far, um I I I think it's not necessarily right to just assume that the path is is ever upward. Um and I do get I'm a I'm a little concerned by the lack of vigilance, by the lack of risk um aversion that I'm seeing right now. >> Got it. Okay. All right. Well, that's a great place to end it. So, um thank you once again for for joining us. Uh Steve, thank you everybody for watching and listening. Um that's it from from me and Steve, but don't go anywhere because Laura's up next with Ether 5 founder Mike Selgazi and Security Alliance's

Isaac [music] Pacha, who are asking whether Manuel Arros is right that all DeFi is unsafe. Stay with us.