Why 'Ethereum Is the Industry Standard' for Tokenized Assets: Bits + Bips

Transcript

Hi everyone, welcome to our episode of Bits and Bibs the interview. My name is Steve Ehrlich, head of research at Sharplink and also your host. Uh we've got a lot to get to today, but before we begin, let's take a brief moment to hear from some of the sponsors who make this show possible. Multichain Advisors is an emerging technology growth firm that has helped create 50 plus billion dollars in enterprise value for 80 plus clients over the past 4 years. They're the partner to help navigate build real traction today at multichainadv.com.

Quick note before we get into today's episode. Bits and Bibs [music] now has its dedicated feed. We're spinning off from the Unchained feed and moving to a new podcast and YouTube [music] channel. So if you want to keep up with our weekly live streams and macro meets, crypto breakdowns, make [music] sure to subscribe to Bits and Bibs directly. We won't publish there until March, but subscribe today so you can be ready for launch. Be sure to [music] subscribe to the new feeds at unchainedcrypto.com/bitsandbibs. >> [music] >> So one quick disclosure before we begin. Nothing that you hear on the show is financial or investment advice. Everything is for informational purposes only. For full disclosures, please check out unchainedcrypto.com/bitsandbibs.

Now, very pleased to bring in my guest for today, Jim Ferryoli, the director of crypto strategy and research at Charles Schwab. So welcome, Jim. Hey Steve, good to be here today. Yeah, yeah, great great to have you too. You've got a really extensive background in the crypto space and traditional equities industry. So it's going to be a lot of use today. We're going to be discussing everything from how the Iran conflict and and fears of heightened inflation are impacting crypto markets, what it means for things like the debasement trade, and and some of the some implications for I think some of the formulas and frameworks that you've put forward in recent weeks on how sort of you and other traditional financial entities are valuing crypto assets. So so it's fun to

get into, but before we do, I'd like to just give you a brief moment to introduce yourself to the audience. Sure. So I've been covering crypto at large financial institutions since 2020. My background is in equities formally. I joined Schwab in August of last year to to build out a dedicated crypto research product for them. You know, but I have a bit of a different perspective you know, from a traditional finance background in that I was an equity investor. I also worked on an equities trading desk briefly and and prior to that I had some experience as a financial advisor.

And so I really like to combine what's going on in the macro with what's going on with on-chain positioning and then ultimately look looking at the fundamentals of different blockchains. And so again, it kind of lends itself to that equities background. A lot of people in the traditional finance space they they they view it purely from a macro perspective. So maybe taking a traditional macro model and and plugging in Bitcoin and Ether and and seeing kind of where the pieces lie. So again, just having a bit of a different background there, it's different perspective, but ultimately that's what makes a market. There's lots of different ways to view any asset. And you know, that's why there's always someone buying and someone selling.

There's different ways of looking at them. Yeah, terrific and and we always like different and interesting and and diverse perspectives and you kind of bring all of that. So let's get right into it. A lot of your research is focused on trying to like build out fundamental models, finding the core drivers of value for for assets, but as you've pointed out in a number of your reports, crypto is very much still a momentum play and a highly correlated one at that. So I'd like to just kind of begin by asking like what is your take of of of what you're seeing right now where the price of Bitcoin and other assets are are ping-ponging with whatever's happening to the price of oil and and market sentiment based on the last thing that President Trump said.

How are you sort of approaching this particular [clears throat] period of time? Yeah, so I view the entire crypto asset class as a risk asset. There's a very narrow set of circumstances where it's a risk free asset or a safe haven. And you know, if you go back to spring of 2023 when you had several large financial institutions experience bank runs, right? You saw Bitcoin rally. That's the very narrow area where it's you know, worked as a safe haven, but traditionally it is a risk asset. When you have a risk-off day in the market and you have equities selling off, more often

than not you're going to see the crypto market selling off. And so I think that makes sense. Bitcoin's about down 2% today right now following yesterday's press conference. And I think that makes sense. You know, there's a lot of debate as to you know, what drives Bitcoin. Is this thing a hedge against debasement, right? Is it just kind of non-profit you know, profitless tech? And I think that the you really got to separate what the short-term drivers are and those are the things that are going to whip around the Bitcoin's price and the crypto market's prices on a day-to-day basis from the long-term. And I think that's a fair thing you can do for any asset class and so treating it like any other asset

class, it shouldn't have just one single driver. And so today is a risk-off day in the market. You know, the S&P, Dow, and Nasdaq are all down. And you know, so so is the crypto market. We're seeing yields are up in response to higher oil prices. Again, so you're you're seeing um the crypto market down. And I think that makes sense in this kind of perspective. Mhm. Yeah, let's dive a little bit deeper into Bitcoin.

I want to kind of expand it to discuss the broader debasement trade that I think we've been seeing over the last several months or so. There was I guess I don't know if respite is the right word, but a couple weeks ago Bitcoin actually quote unquote like tried to uh it seemed to be playing that safe haven role when we saw sell-offs in gold and and also ironically I mean some of the tech stocks I think went up after they were getting battered for a while after after AI, but it had it actually been outperforming gold for a little while. I'm interested in your thoughts like when that happened, what did you make of it? Was it simply a matter of gold being so overbought that there was naturally going to be a reversion to the mean or is is the Bitcoin as a safe haven narrative has

that kind of been pushed to the side yet again because of the dreary mood of markets today? Yeah, great question. So again, I don't really see Bitcoin as a broadly as a safe haven really just in narrow circumstances. I do think it is a great hedge against monetary debasement. You know, Bitcoin was launched in 2009. It trades at almost $70,000 today. If you look at the amount of debt the US has printed in that time, if you meant look at the amount of monetary inflation and the buying power of the dollar, it's done extraordinarily well. Is it volatile in the short short-term?

Absolutely. But I think it still is really maintained its position as a hedge against monetary debasement. I think one of the the issues is sometimes you know, in any asset class when a narrative takes hold, the narrative kind of diverges from the facts. And so for so long Bitcoin was compared to a digital gold that people started kind of putting this like risk off putting it in the risk off trade basket where if everything's going down, investors are going to have a flight to safety in gold and if Bitcoin's digital gold, it should benefit as a flight to safety

asset. And I don't think that's correct. If we think about why people consider Bitcoin as a digital gold, gold is a supply constrained asset. It is a hedge against monetary debasement in that right? The the the new supply of gold increases something like 1% a year. For thousands of years humans have put it been putting you know, seen it as a store of value. And so Bitcoin in that sense is a digital gold in that it's a supply constrained asset. You can't force more Bitcoin out, right? It's it's programmed into the blockchain how much will be released, when it will be released. Um and people have ascribed a value to it.

And so that's the you know, that's how I consider it a digital gold. Is it a safe haven? No, not not right now. And if you look at the you know, the the trailing correlations to credit spreads, you'll see that when credit spreads widen, most of the time Bitcoin sells off. And so it's a risk asset to me, but it can also be a store of value and a hedge against debasement. The the two aren't exclusive. Stocks are a great store of value against debasement as well. They've been one of the best ways to protect the the value the buying power the buying power of your savings for a long time. And

they're still risky. They sell off, but over time they they tend to go up. And so again, it's sometimes narratives get separated from reality. I I don't think Bitcoin should be perceived as a safe haven except maybe in the narrow circumstance of you know, there's a run on banks or there's a question about you know, the the global financial system. And then in that sense, it could, right? And and this is why Bitcoin was launched It, know, in the depths of the financial crisis as an alternate currency with its own monetary system that's not linked to traditional central banks. And so again, in that narrow case, sure, but beyond that, it's probably a risk asset.

It's kind of interesting cuz I obviously I've spoken with a lot of people about this topic and and and you clearly have as well. Often times people lump in the safe haven asset and sort of like the antidote or the the basement trade in one bucket. You're you're clearly trying to delineate the two. I want to kind of just maybe go a little bit deeper into it. I mean, one question I have, I mean, the US debt is I don't know you might not know the number off the top of your head. I mean, it's over 30 trillion. It's like 40 trillion, close to it, yeah. Yeah, yeah, yeah, something like that. And I mean, it I don't know if it's doubled or gone up like double digits like in the last 10 years or so.

But I mean, I know there were a couple of soft recent Treasury auctions, but people are still seem to be willing to buy US debt. Ironically, in like tenuous economic environments that were sort of the culprit of, but um it seems like a little bit of what you're trying to say is that Bitcoin maybe isn't like a a traditional safe haven like gold during like maybe periods of acute market stress, but it's kind of like the doomsday safe haven. And I wonder like what are some of the markers that would signify we're there. I mean, run bank runs theoretically, I guess it should be impossible if there's FDIC insurance. I know like that technically isn't a safe that's technically not something that can just

um save every bank. Uh and in a world where like the US theoretically should not default as long as Congress agrees to to pay our debt obligations, how do we get to that situation where and I know it might be a bit of a long tail risk, but how do we get to that situation where Bitcoin as sort of like a doomsday safe haven really would be necessary? So I don't know if you necessarily have to get to that situation. I I can use my imagination and come up with a lot of different scenarios to get there. I don't want to you know, necessarily put them out into the world, but um Speculate wildly. That's what this is for. What I think about like when we're in there for Bitcoin is I think over time, right? The supply of Bitcoin is

going to continue to decline the new supply. And the adoption is going to continue to grow. And so eventually, you know, if you think about like the the three core long-term drivers of Bitcoin, it's money supply growth, Bitcoin inflation, which we know, and adoption. And so adoption is going to continuously be a smaller portion of of the of that pie. And so if you just think about that then, in the future Bitcoin just becomes a function of money supply growth and Bitcoin supply growth. And so there's always going to be this permanent mismatch. And so I think you are there when Bitcoin really just starts to trade more like a stable asset

over time that maybe grows at the pace of money supply and it's not very volatile. And it's almost interesting in that type of an environment, a lot of people like to compare crypto and Bitcoin to a stock or a commodity cuz it's volatile, but maybe when you are there, Bitcoin is then a stable asset that grows maybe like 6% a year cuz that's about what money supply has grown over the long term in the US. And so that's what I would say like when you are there, um you don't necessarily have to see the world end, but it's just Bitcoin's become so adopted and it's so stable that it's just over time kind of this boring stable asset and it becomes more like a a uh

a perpetual tip almost as opposed to a commodity. Got you. Okay. Um I just want to sort of tie a knot on the discussion about the current um >> [clears throat] >> the current economic landscape right now. Uh now I mean, tech stocks are are still struggling, but the market did not seem to digest President Trump's comments very well last night. Um although frankly that that seems to change um day day by day. Um what else are you seeing? Are there one or two charts that you're paying attention in particular to? Could be crypto, it could um be a more traditional asset that's really kind of going to be a signal of what to expect in the coming days.

You know, it's it's tough to say. I I think broadly the crypto market is behaving like the crypto market. Right? Everything that's not Bitcoin is just trading directionally in the same direction as Bitcoin, but you know, higher volatility. And Bitcoin's actually um I think very interesting here because over time we know Bitcoin is a low correlation asset to other asset classes. If you look at a multi-year horizon, the the highest correlation it has is to equities and it's like 0.3. That's very low. There's not there's not much predictive power there. Um and so in the short term it can get correlated. And over the past couple

years it was very correlated specifically to to stocks that were in the momentum basket. So like your AI stocks, your private credit stocks, which is sometimes when you see it compared to like the software sector or private credit, right? People are like, oh, it's a proxy for this. It's just over you know, a a three-year period it was you know, Bitcoin and a handful of stocks really carried the market while the rest of the market didn't really do that much. And so so again, in the short term it was correlated. But it's pretty interesting now that um its correlation to stocks is actually quite low. Its correlation to bonds is quite low. Its correlation to commodities is quite low. And so that's when I think is an interesting time to really be looking at Bitcoin

specifically. Um it's about three times as volatile as the S&P 500. Again, I consider it a risk asset, but if you think right, you're going to have a broader macro related sell-off whether the market prices in a recession due to high oil or whatever cause it is, you get a surge in unemployment, um tech companies decide to stop their cap ex spending and that sends the market that like whatever it is, I suspect Bitcoin will likely fall with the market, but I don't know if it will kind of fall three times as far as the market in this type of uh scenario. And that's what's interesting because when you then get a a kind of re-acceleration in risk assets, I think

that um higher volatility will still work to the upside. So I I think it's it's kind of a an interesting risk reward here right now in that it's already down about 50% from its highs. Um so a lot of like the the bad news is priced in. A lot of the leverage has been wiped out. And so sure, it could go down lower, but it might also go down, you know, a similar amount as an equity would, right? And and ultimately you would get the trade-off that you have more upside once things turn around. And so that's what I think is interesting. In terms of a a particular chart that I'm looking at, I'm not looking at one specific thing. Um I I I broadly like to look at kind of, you know, risk assets, you know, kind of safe havens,

commodities, things like that. Um credit spreads, just get a a broad picture of kind of where the market is. And there's just really nothing that stands out to me that's a super correlated or or a great predictor of what's going to happen with Bitcoin right now. And I I think Bitcoin also has kind of its own narrative going to it right now. We've just um obviously we've gone through a deep bear market. Uh people are calling it another crypto winter. Um and and again, so it has its own narrative. Absent a narrative, any asset is just going to trade on what's going on in macro. So Bitcoin, while it's not a good narrative at the moment, it has its own narrative.

So it it kind of has its own idiosyncratic risk. Got it. Okay. All right. Well, this is a great place to to pause and so we'll going to do that. Take a brief moment to hear from some some of our other sponsors. And when we get back, we're going to dive a lot more deeply sort of the way that you actually conduct or build valuation frameworks for different digital assets. Multichain Advisors is an emerging technology growth firm that has helped create over 50 billion dollars in enterprise value for more than 80 clients like Piff, MoonPay Commerce, and Wormhole. They've worked with some of the largest and most impactful companies in the space. They're the partner you want when you're navigating markets and trying to break out from the noise. They

help navigate TGEs, go-to-market, BD and partnerships, capital markets advisory, PR, media placements, KOL activations, and more, driving execution from launch to scale. Their results are measurable. To learn more and start building real traction today, visit multichainadv.com. Quick note before we continue with today's episode, Bits N' Bips [music] now has its own dedicated home. We're spinning off from Unchained and launching a standalone podcast and YouTube channel focused on the Fed, macro, AI, and how it all collides with crypto. If you want to keep up with our weekly live streams [music] and macro meets crypto breakdowns, make sure you're following Bits N' Bips directly.

We won't start publishing until March, but getting set up now means you'll be ready on day one. [music] You can find the new Bits N' Bips channels at unchainedcrypto.com/bitsnbips. You can also find us by searching Bits N' Bips on [music] YouTube, Apple Podcasts, Spotify, or wherever you listen. All right, welcome back. So Jim, you spent a lot of of time over the last few months kind of putting together various sort of relative value frameworks for sort of figuring out prices, good entry points for for some of the largest digital assets out there.

Could you just very high level um for anyone who's unaware, explain what relative value metrics are and how they apply to crypto? So, a a relative value metric is um, you know, for example, a price to earnings ratio for a stock, right? You're two different companies, they they might be two different things, and you're just saying on a relative basis, like, okay, is this company trading at a high premium relative to how much it actually earns compared to, you know, company B. And and so, that's the idea of relative value. We're not necessarily tying it into a enterprise value for

cryptocurrency. We're just saying point in time, like, hey, this is more expensive, this is less expensive. And and so, again, it goes back to having a background in equities and how how I think about the space. So, you move on from the macro, you move on from what's, you know, kind of on-chain positioning, and the next thing you get to is like, okay, well, what should I own Bitcoin? Should I own, maybe, Ether or Sol or XRP, right? Just thinking these are kind of four of the largest, kind of most commonly held cryptocurrencies.

Aside from, you know, maybe why you're owning them, you know, once you've made the decision of like the exposure you want to get, how do you determine if something's expensive or cheap? And it's funny because the crypto market should be the most fundamentally driven market on earth because every single thing that happens is available on a public ledger that anyone can see at any time, and it's probably the the most inefficient market, you know, anywhere because it it it trades broadly on momentum and people's feelings. And so, um, looking at kind of the different use cases for different types of blockchains, um, I came up with a way to kind of quantify, like, when is this expensive, when is it cheap? And so, starting with

Bitcoin as as the largest and all this, Bitcoin was originally created, uh, really as a payments network with its own native currency, but over time it's really been adopted as a store of value. And so, we look at the the the fundamentals of Bitcoin. There's a monetary uh, um, value associated with producing Bitcoin, right? That goes back to the proof of work blockchain. And so, we know that there's costs related to uh, energy and mining equipment, and over time they can rise and fall. And in general, they tend to go up over time. You know, but when markets are selling off, whether there's

weather, you know, the the the marginal cost down. And so, um, what I look at, there there's two different metrics. There's efficient miners, those are the ones that have the best equipment, the lowest cost sources of energy, and then the inefficient miners. Inefficient miners maybe have a little bit older equipment, maybe a little little bit higher, um, energy cost associated with mining. And so, I like to look at the efficient miners um, at as their cost of production. And you can see that Bitcoin's historically kind of followed a pattern where it'll trade up to peaks, you know, multiples off this cost of production, but typically when it sells off, it it settles around the inefficient miner cost of production.

Now, in deep bear markets, it can get down to your efficient miner cost of production, and that's what happened back in February. Bitcoin intraday hit $60,000, which was right around where efficient miners were producing Bitcoin at. And so, you know, in in your deepest bear market scenarios, like that might be a better bottom. Um, but again, thinking about it from an equities perspective, you never necessarily, you know, if it's maybe a stock trades between a 10 and a 20 price earnings ratio, that doesn't necessarily mean it's always going to get to 10 times.

Sometimes it it'll get to 12, 13 after derating, and that's still if if you think there's enough catalysts, you think there's a reason to own it, or if it's just the type of a compounder that it's an industry leader and you kind of want to be like a core uh, holding in your portfolio, you know, you say, well, hey, 12, 13 times is cheap relative to a 10 to 20 range, and so I think I think that's good. And so, like again, that's why I I think using the inefficient miners it is better because on a maybe one to two-year basis, you're more likely to get down to that level versus once every couple years, maybe you get to the kind of the the efficient miner cost.

>> Interesting. Yeah. And and so, that framework there, it's a store value, it can get overextended in the short term, and, you know, and and so, that that kind of helps put those things into perspective. Okay. Uh, in a again, not financial advice point of view, natural question everyone will have is, where is that metric today? I don't know if you have it at your fingertips to just give us a sense of it. I would imagine it's very near the inefficient miner. Um, It's it's below. It's it's still pretty close. Uh, so, efficient miners uh, cost of production it it's it's gone up to about $65,000.

And so, it's actually trading at something like 0.75 inefficient miners production, and really at the efficient miners cost of production. And so, again, you look at kind of historical bear markets, they've typically bottomed out at this level. They've typically bottomed out near the 200-week moving average, which back in February was about $60,000. I think it was slightly below. And the other thing I look for in kind of these like cycle chain, you know, these like cycle um, um, uh, where you are in the cycle type questions is, what are the miners actually doing? And the reason the cost of production falls is because miners with less efficient equipment are temporarily shutting down.

And so, the difficulty adjustment uh, gets lower and lower and lower. And typically at bottoms, once that troughs and it's adjusted higher again, again, that's another sign historically that the bottom's been in, and that did happen. And so, again, like it makes me uh, relatively comfortable saying that this is a a pretty good area if you want to open a new Bitcoin position. The worst may be behind us. I mean, it doesn't Yeah. Bitcoin could still go lower here, but just relative to maybe over the past couple years, we're at a place that's historically been a solid level of support.

Interesting. I I want to move on to some other assets, but but at some point in the future, maybe I I'd love to hear how the a lot of minor miners, especially the efficient ones, they're transitioning into like the HPC world and how that can impact pack everything, but I'm I'm sure that's a much bigger question. Uh, let's let's talk about ETH. You have a different type of relative value metric there. I I think it was sort of your, um, I guess your approximation of like sort of like the Buffett coefficient. And I'd love to Yeah, please go ahead.

Yeah, so in in equities, the the Buffett indicator is when you divide the market cap of the S&P 500 relative to the GDP of a country to measure, you know, how value, you know, how expensive are, you know, the top 500 companies relative to the actual economic output. And so, when I think of smart contract platforms like blockchain, like Ethereum or Solana, I think of these as decentralized micro economies. And normally you wouldn't kind of do competitive analysis against, you know, two economies like that. You would just kind of look and say, like, okay, you know, country A is growing, expected growth its economy this much this year, country B is expected to grow the economy this much.

But these are micro economies, and again, all the data's available, so you can see. And so, I look at um, the sum of all fees generated across the Ethereum network and the Solana network, right? And so, this isn't looking at um, applications that are built on layer two, so it's not just the base network as well. And if you sum up the trailing, you know, one-year fees, that's an an equivalent of GDP, right? GDP is the total output of all goods and services produced, right? And so, whether you're using some sort of application for trading or lending or just I'm transferring someone some Ether, whatever it be, I'm creating fees to do this, and so the sum of that is my

GDP for a decentralized economy. And then you can look at the market cap of Ether at any time and see is this expensive or cheap relative to where, um, you know, the rest it historically has been. And so, I think that's a great way to quantify whether, um, one smart contract platform is maybe more attractive than the other. Um, now, right now, there's not there's no one's really doing forward estimates as to like, oh, we think, you know, this type of activity is going to grow this much next year or this much is going to grow or whatever. Um, but over time, I think that's something reasonable that you would ex- expect people to start pricing in forward expectations of economic

activity on these platforms. And then, you'd probably start looking, you know, as your denominator, forward estimates of GDP. I think right now, just using point-in-time trailing metrics is the best way to do it. But that that's the best way to kind of, in my opinion, value, like, is this attractive or not? And what I found is, you know, Bitcoin doesn't necessarily always reach a peak before these other altcoins do. But when you get these altcoins to the top of their range, I mean, that can be a good sign to, maybe, if you're a more active investor, reduce your exposure and add somewhere else, or maybe shift back to Bitcoin, or or just take some off the top for a gain. So, I think those are very helpful because they

they've actually traded in in some reliable ranges over the past couple years. Now, history's kind of short on all of this and things could change, but that's that's generally how I think about both, you know, Ethereum and Solana and really any smart contract platform. Yeah. It's interesting you did this. I mean, I I published a story in Forbes a couple years ago. Probably was my best read and besides the Sam Bankman-Fried cover and but definitely my most controversial. It was 20 billion dollar crypto zombies. I published it in 2023 in the spring. I remember that article.

And and I did something similar to to to to what you what you had. I mean, I looked try to come up with a a few valuation metrics frameworks to put out the eliminate the noise. Like we didn't count a number of active wallets because that can be so easily gamed. We didn't look at like transfer volume because frankly that had a lot to do with just moving assets between exchanges and platforms. We looked at like active developers. We looked at TVL, which I know is something that you pay attention to. And then we basically created I mean, sort of like a like a price to sales equivalent. Almost like what you did market cap to fees.

And like looked at ones like like XRP. I mean, some of these numbers were I mean, the numbers in an abstract don't mean much, but some of the numbers are just like astronomical especially in relation to some of the other like even like a tech equity like Nvidia or or something like that that might have like a price to fee ratio at the time of 36 and XRP was 61,000. But it but like but like Ethereum, I mean, the number would seem really high. Solana, the number would still seem really high, but those weren't zombies because there was clearly activity happening there. So, it's I I get the relative value aspect of it and trying to figure out like where they are in these cycles because because of the momentum. But I'm curious like how you also just account for the fact that these are momentum plays

and if you had to sort of put into buckets like 90% momentum, 10% value or or like how would you fit with that? And I wonder too like at some point like when do we have to assume that some of these tokens are mature enough that they really like it should really be almost like 90% value and 10% momentum. I mean, there's blockchains out there. I mean, some of the ones I called out in the article, I mean, Tezos or Algorand or I mean, XRP was a big one. Now they're transitioning to smart contracts. I mean, they've been around for almost 10 plus years at this point. And when I heard back from some of those teams, they would say, "Oh, well, we're still early our fees are super low on purpose to drive growth." But at some point you

kind of need to get that growth. So, like how do you how do you respond when you get questions like that? Yeah. So, so I just quickly and this is a the the the biggest issue with the crypto market is like protocols don't die. >> [laughter] >> They're always just kind of like floating around forever even if no one uses them. But um That's literally why I called them zombies in the story. And and and so the what I think about is beyond so right, if you're thinking about fundamental investing, you want a valuation where you want a way a way to empirically compare these things. And you brought up a point that some of these price to sale metrics or market cap to GDPs, right? They're super high and you would really if it was a stock, you would never consider something like,

"Oh, this trades in a range like that." But that's relative value because if you think of stocks, there could be a stock that trades, you know, it's a good stock. It's, you know, maybe a a GARP growth company that trades between 20 and 40 times earnings. And it's a great company. And then you might compare that to another stock that trades at 10 to 20 earnings because it's maybe a little slower growth. It's been around a long time. You know, I mean, but you wouldn't say like, "Oh my oh my, this company trading at 20 to 40 times is so expensive because it's at 20 times." Right? It's that's the low end of its range. And so I think like what even when you do this with cryptocurrencies, even if you get large numbers, which for some of them I get were quite large.

Again, it's a way of kind of anchoring your perspective about where it is today first where it's been throughout history. And that's the important thing so because the other thing you have to consider and and you you went there was like what is the fundamental debate about this asset? And that's huge in every other asset, right? If you're a fixed income investor, you're debating with other investors about, you know, what you think growth rates are going to be or inflation rates are going to be. If you're an equity investor, you're, you know, like what's the earnings going to be? What are margins going to be? Are they launching a new product? And so you have that. And XRP was a great one because it was originally launched in 2012 as a competitor. It was supposed to

be like a commercial Bitcoin, you know, where you could transfer money quickly. It was a store of value. It was decentralized even though it's not all that decentralized. And right? And now they're changing to this, "Oh, well, you know, we're a stablecoin, you know, a smart contract platform." And A in equities, investors hate that. You get these deep value guys that come in and they want to like do turn around and have a an active stake in it, but generally people like clear cut like this is what's happening. And so that's one of the things that's that's starting to impact. And one of the assets that the debate has actually had a really big impact on has been ether.

You know, for for several years now there's been the debate about whether it can scale. Layer twos were introduced to kind of address that. There's been network upgrades to address that, but then Solana came along as a competitor that can do fast transactions. It's very scalable. And so if you look at the price action during the latest crypto bull market, ether lagged everything else and it wasn't until last summer when you had ether treasury companies starting to form that the price actually started really reacting. And so again like you can look at at valuation as a tool, but valuation is not predictive and it shouldn't be predictive. It's only part of the picture. And so I think ether's actually a great case where fundamentals are

starting to matter more. Again, it needed a new narrative to make it to kind of breathe some life into it. And I think, you know, I I personally I I I think ether is or Ethereum rather is very well positioned to kind of take the smart contract network I mean, market share. They're already the largest in terms of total value locked. They're the industry standard. They're the first ever. If you're launching an application or you're tokenizing assets or you want to accept tokenized assets, you want to always have the biggest network. I mean, that's like launching an app. You want to be on the the iPhone, right? Or you want to be on the the if you're launching a software, you want to be on the biggest cloud network providers. And

so there's no reason why it shouldn't be the same for cryptocurrencies. But that that specifically one where fundamentals are clearly starting to have more of an impact. It's the investor debates are having more of an impact on it. And so I think that's important. The market though it is it's all momentum driven, right? So, even if you like you you you do a deep dive into like the fundamentals for Ethereum or Solana or any smart contract platform, once the rest of the crypto market cap goes down, those things go down too. And and ultimately, I think the issue there is historically and really still today, all the usage is still tied to where the crypto market

cap is, right? As the market cap the broader market cap is going up, you typically get more money put into stablecoins, right? Because that's usually seen as the primary, you know, you convert your fiat to stables and then at some point you convert that to a volatile cryptocurrency. If you look at Ethereum specifically, it's like 50% of the the fees generated last year were were from stablecoin usage. And then about 20% was from liquid staking and 20% lending. And again, those are products that's use case is tied to the crypto market cap. The larger the market cap is, the more likely you are to want to, you know, stake your ETH and be able to then use liquid staking so you have kind of

access to it. But then again, the higher the market cap, the more likely you are to want to lend on it instead of selling. And then the final chunk of that is trading. And so again, it's a speculative market. Things are going well, you want to be in there trading different cryptocurrencies. And so it hasn't like it's just inexplicably tied to wherever the crypto market cap is right now. But tokenization is the interesting thing because it changes that. It's any financial institution can asset can tokenize assets. They can put it on, you know, a smart contract platform. And that shouldn't matter about, you know, what the rest of the crypto market's doing.

And so I think we're at an interesting point where as tokenization grows and every single financial institution on the planet right now is figuring it out how they can tokenize some sort of their business either because they think there's ability to maybe reduce friction or they just want to be able to accept those assets, right? These the crypto market cap's growing. You want to meet your customers where they are. If you have customers that are transacting on these things, your goal is to capture assets so you have exposure to them. And so as that grows, it's actually interesting because now there's a a different narrative. There are different fundamentals that are not just tied to the broader crypto market cap. And so it's a really I think interesting time for smart contract platforms.

That's pretty that's actually very interesting. I mean, sort of use case that is not tied to just momentum, but but something that's completely like asynchronous to um to all of it. So, it's pretty interesting. I guess two quick follow-ups and then we and then we we have to start wrapping up. Do you have any I mean, tokenization is growing, but it's still just a drop in the bucket of of like the broader like global capital markets. Do you have a sense on like how big it might get how soon and and which blockchains do you think are poised to to benefit the most or win sort of like the the the tokenization race wars?

Yeah, I think as I said before Ethereum is the industry standard. It has the leading market share. If you want to launch tokenized assets with the the broadest kind of access, you're going to be on the Ethereum network. That's my perspective. Now there are the private blockchains and I understand why some firms are using them. You may not want all your financial transactions broadcast to the world. And so I think those will you know certainly do well. They'll have their use cases, but I really think that Ethereum is the best positioned here.

Solana, you know there have been some issuances on Solana. It's positioned well for maybe payments where you want like rapid large scale transactions. You know But ultimately it goes back to kind of industry analysis and competitive dynamics. And if you're going to tokenize something, you're going to want to be on the biggest network. Or if you're going to accept tokenized assets, you want exposure to the biggest network. And so Ethereum has the lion share of real world world assets excluding stablecoins. And once you include stablecoins, there's it's so far ahead. There's like $350 billion in tokenized assets total including stablecoins. It's just the next largest competitor I think is like

$80 billion or something. So it's If you're going to want to be in that space, you want to be either on Ethereum or accepting assets that are on Ethereum. Got you. Got you. Okay. One one more and then we got to wrap. Uh I've been getting this question a lot. I'm sure you have too. The the quantum risk. What are your thoughts? What do you say when you get inquiries? So this is like the this is like your the crypto bear market. The doom and gloom comes out. Um The crypto boogeyman. Yeah. I'm I really I'm not that concerned for a number of reasons.

First, um crypto coins specifically um to hack Bitcoin, there's going to be a lot of more legacy financial institutions that are at risk before it. Um I follow some well-known cryptographers who have been involved in since the early days of Bitcoin. I won't name names. I'm not an expert on cryptography, but they are. And and they seem to be of the mindset that it's less of an issue. Where I stand on it, I do think the network will when it's needed, the network will upgrade. Um there's this debate as like what about kind of some of these older wallets that are not accessible.

This is the way I if I take the ferry to to New York City right now and $100 falls out of my pocket I lost it. I don't get it back. I don't get to go to someone say I lost my $100. So if the rest of the network upgrades and there's maybe wallets that are no longer accessible that can't be upgraded and you lose them. It's unfortunate, but it's lost money. And and so it's I I really think when it when it comes time, the network will upgrade itself. Uh the developers involved in this, you can look at all the other blockchains and see what they're doing. And this is all open source information. If someone comes up with a good idea, you can just take it and implement it. Sure it'll take some time. Um but I think it's really less of a risk. It's just

Bitcoin's gone through a big bear market and so anyone's going to come and they can and kind of shoot arrows at the thesis right now. Um there wasn't a lot of talk of quantum risk when Bitcoin was at $126,000. It's pervasive at $60,000. And so I think it's just a sign of the times and where we are in a bear market. Um I don't see it as much of a risk in the short term. In the long term though, it's this is indisputable. Every single encryption throughout history has been cracked at some point. And so at some point it will happen.

It's just the network will how will the network upgrade and and deal with it. So I I really don't see this as an existential crisis at all. I appreciate you saying that because when I get asked that question too, I almost get the same answer verbatim. I'm not a cryptographer even though I know a lot of people who are and are much smarter than me on the issues, but frankly like my livelihood, your livelihood are tied to crypto markets. So surely it would be bad for us if all crypto got hacked and and blockchains became useless, but frankly if you break the encryption that that protects crypto, there's much bigger problems in the world like like weapon systems and and banks and all sorts of things that would need to be

fixed first. So I appreciate you saying that. All right. Well, Jim we have to wrap here, but really enjoyed it. We'll have to have you back. So that's that's it for today's episode of Bits and Bips the interview.