Why Josh Lim Is Optimistic on the Dynamics He's Seeing in Bitcoin

Transcript

Hi everyone. Welcome to another episode of Bits N' Bips, the interview. The show where we explore crypto and macro colliding one basis point at a time. My name is Steve Ehrlich. I am the head of research at Sharplink and also your host. Uh we've got a tremendous show for you today, but before we dive in, let's take a brief moment to hear from some of the sponsors who make this show possible. Bitcoin changed how money works. Satrea changes how Bitcoin scales. With a trust minimized BTC and a native stablecoin CTUSD, >> [music] >> Satrea enables Bitcoin capital markets with lending, privacy, Bitcoin yield, and more. Get started at satrea.xyz/unchained.

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 markets. Build real traction today at multichainadv.com. If you've been loving Bits N' Bips, don't [music] forget that the show is transitioning to its own feeds on X, YouTube, and your favorite podcast player. If you're not already subscribed to [music] Bits N' Bips on its own channels, go there now and hit that subscribe button so you can keep up with our twice weekly live streams and [music] macro meets crypto breakdowns.

Bits N' Bips will only be on the Unchained feed for a few more weeks, so [music] subscribe today to be ready for launch. You can get all the links at unchainedcrypto.com/bits and bips. >> [music] >> All right, welcome back. Um just one more bit of homework before we begin. Uh as always, nothing that you say or hear on nothing that you see or hear on this program is meant to be financial or investment advice. Please see unchainedcrypto.com/bits and bips for more information. And with all that said, I'm uh delighted to bring in my guest for today, Josh Lim, uh someone who is I believe a repeat guest on the first time on my one-on-one show. He is FalconX's global go ahead global global co-head of

markets. I can't talk today. Josh, really great to see you again. Welcome back. Yeah, thanks for having me. I know my title's a little little bit of a mouthful. Not not not your fault. For some reason I just have I'm having some trouble speaking today. Anyway, so I'm going to ask you questions. A lot going on in the markets. I mean you see this every day when you're watching what's happening at at Falcon X. I mean one of the biggest if not the biggest prime brokers in in crypto. And as I was trying to kind of prepare the show it I I myself I'm trying to make sense of what's going on.

I mean we saw some of the big indices set new records again yesterday, but the war in Iran is not over. Even Secretary of Defense Pete Pete Hegseth was talking about how the the country is ready to start firing again if I guess an anticipated two-week delay doesn't continue or isn't I guess effectuated and negotiated. I've had guests on the show in the past few weeks and I know you've seen it too saying that even if the war is finalized today, the damage to energy markets will take years to to recover which will lead to issues down the line. But equities again are at all-time highs. But that's not the the whole picture that we're seeing.

Gold still remains elevated above $4,800 an ounce. And most like long-term yields they're sort of staying where they are. They're not they're not moving up. They're they're not moving down. And that kind of paints a picture to me of a market that has not figured out what's going to happen next. Would really love to get your thoughts on that. Yeah, absolutely. And you know, like all of us actively trading this type of market environment it's it's difficult to you just have to be glued to headlines. You kind of have to be constantly reacting to things that are going on in DC and you know, on the ground obviously in the Middle East.

I think there's a bunch of countervailing effects, right, that are affecting Bitcoin price. And some of them are specific to Bitcoin and crypto, and others are related to the global kind of macro asset class, you know, just broadly all of the asset classes that people can trade in a macro portfolio. Um, I think it what if we kind of step back and look at the start of the war, you know, a couple of months ago, basically, you had uh inflows back into Bitcoin and into crypto specifically because of, I would say, largely short covering, right? You had a lot of macro funds that had

shed a lot of crypto exposures and and maybe even run a bit short relative to other risk assets, also even relative to gold. And you also had a bunch of early adopters of crypto who had sold, you know, above 100K. And so, generally speaking, not many of the traditional kind of long-term holder base of crypto was, you know, I would say, over-allocated into the asset class. And the war I kind of changed that and and flipped it on its head, right? Like a lot of people had to de-gross and cover positions. And then you saw like very dramatic moves in things that were in tradfi sort of proxies for crypto, right? Things like Circle stock. Now, there were other

things that were driving that, of course, like uh the advancement in the Clarity Act. You also had changes in posture from, you know, different uh political and and government organizations around stable coin yield and things like that. But, I think the fact remains like a lot of it was driven by sort of repositioning of you know, macro and sort of equity portfolios in response to the war. So, what what have we seen since, right? I think since then, we've seen a couple things. There's going into April, there's a definite seasonality effect where a lot of retail capital becomes available.

A lot of this comes in the form of tax refunds. You generally see some positive inflows into risk assets. And I think you've seen some of the charts of just how how much um uh the difference differences are between this year and previous years in terms of tax refunds. And there's definitely like a bit of an excess versus historical this year. >> Mhm. I think you see that kind of flow through in a couple of sectors, right? You see that in altcoins. You see some altcoin names that have been sort of persistent um high popularity and sentiment on Twitter names, things like uh Venice and Monad and Zcash. Those are some of the names

that have really outperformed in the last couple of weeks. Some of these names are 50 to 100% off their lows of the cycle. Um And then you also see just Bitcoin, right? Find and establish a pretty good floor uh from the low 60s and now trading back into the mid-70s. Um the one surprising thing, which is actually a very strong indicator in my view of the resiliency of Bitcoin and the amount of latent demand in Bitcoin is uh post the quantum papers that came out. Uh so, these came out sort of late March um from Google and Caltech.

Basically um describing an an order or two of magnitude improvement in the uh amount of qubits required to effectively crack the elliptic curve cryptography of Bitcoin. And what we saw was a brief sell-off, like very very brief blip, but generally speaking, it was a an entry point for a lot of people to buy more Bitcoin. Um That coupled with what we know is just a long-term, well, we think long-term secular factor of uh Michael Saylor and the stretch preferred stock being used to fund new Bitcoin purchases for the balance sheet of MicroStrategy, those are really the

main drivers in the last couple of weeks that have kind of driven Bitcoin to recover off the lows. Like you said, Bitcoin still has a long way relative to equities, right? And um other risky assets, which are effectively have erased their pre-war or their their sort of post-war inception losses, but I do think that, you know, it's a matter of time before Bitcoin and and, you know, it's true that some altcoins have already caught up, um Bitcoin catches up as well. Yeah. Uh a lot to digest there. So, let's just stick on Bitcoin um for now. Uh as we're I guess as we're talking uh I haven't checked the price in the last hour or so, but I'm guessing it's somewhere around 75,000 uh in in in that range.

Uh obviously it's a big climb up and and it's encouraging to a lot of Bitcoin advocates that had uh a really kind of latched onto the asset sort of finally fulfilling its I guess uh its mandate or its um or or it's sort of yeah, like its expectation of of being a a store of a store of value asset. Uh but we are hitting I guess what seems like a big sell wall. I mean, if you look at order books, there there's there's huge sell orders. Um also, if you look at some some advanced analytics like um those offered by companies such as Glassnode, um that 76,000 75,000 dollar range seems to be an entry point for a lot of people that bought into Bitcoin in the last

cycle, which also suggests that there could be um that could be an opportunity for some of them to say, "You know what? I'm I'm back to par. Time time to get out." So, I mean, what are what are you saying and um you mentioned how I actually yeah, let's just stop there. What are you saying right now? Yeah, I I think you're right. Like there is certainly a lot of overhang. Um it's not just from some of this transition from retail holders that are break even. You know, there there is a whole cohort of people obviously that bought Bitcoin post election, right? And saw those coins appreciate meaningfully as a lot of positive political

developments emerged especially around the US kind of regulatory environment for crypto. Uh but maybe didn't take profits, maybe saw themselves get underwater and now are very eager to get back out at flat, right? That's certainly one dynamic. Um but there's actually another transition happening that's important to call out, which is the transition of a lot of um previously run as companies previously run as Bitcoin miners transitioning to high performance compute. And that has also come with a de-risking of the balance sheet. Generally, some of these companies most of these companies were holding some Bitcoin exposure on the balance sheet, right? Whether it just came from

their natural operate mining operations or from an accumulation strategy. Uh and you've seen some of that, right? It's it's definitely resulted in a net transfer of assets from miners into effectively into that, right? And obviously the largest debt that's been active in the market is is Saylor's. And yeah, I think that's that's the other thing to really call out. There has been that persistent kind of offer on on on on uh Bitcoin. The other thing that we would note on the desk, I think you know, just from a derivatives perspective, right? Bitcoin vol is actually very cheap at the moment or you know, it's optically quite cheap.

If you look at uh measures of longer dated volatility, we're trading in the sub-50 ball range, which historically has not happened for for quite some time. And I think that is also a reflection of just a lack of conviction in holding Bitcoin, you know, up much further beyond here, right? There is actually a lot of overriding happening in the market and not a lot of buyers coming in to pick up those options. Yeah. Again, lots to unpack there. So, just just one I don't know if you have these numbers off the top of your head. If If you don't, I don't either, but we can include them in show notes for people who want to learn, but can you maybe sort of just quantify the selling pressure coming from these Bitcoin

miners? I saw a report, I forget who put it out, saying that this is the first year I think almost like 70% of mining revenue is going to come from HPC as opposed to Bitcoin mining. And And many companies are I mean, Mara, I mean, the big ones, small ones, they're all if they're not getting out of Bitcoin mining in their entirety, they are selling down a lot to they can build out for these massive HPC contracts that they are consuming. I know Saylor, you mentioned sort of the runaway success of stretch. I think they had another raise like another billion, billion plus, or something last year last week, I mean.

So, he is absorbing all the Bitcoin that's being created, plus I guess some of the sell pressure that's coming from these retail investors or or these dads. So, I don't know if you can sort of talk about when that overhang from the from the from the miners might might end, but I think maybe if if you are able to kind of just quantify that a little bit for for some of the listeners, that would be helpful. Yeah. I I think, you know, I I don't have much more to share beyond just like what's publicly available in public filings, but yeah, if you if you look through the numbers and you look at what is being sold, it's on the order of single-digit billions

across all of them public miners. And if you look at what Sailor's buying, it's it's kind of roughly the same amount, right? It's it's basically like you said billion dollar a week type of flows. So that is actually what is driving this range bound dynamic if you think about it, right? There's there's an offer that's working above a certain price and then there's a bid willing to come in when there's a sell off and it's really keeping us trading in a very tight range. That's why I think you do get some moves that come when liquidity pauses. And why is that happening? It's really because like large headlines are hitting the tape, right? So big big sort of geopolitical news hits, everyone kind of winds out a little bit and maybe some

of these programs that were actively buying or selling also pause. Yeah, and I think that's what's driving That's what's driving these like large kind of 5% gap moves, let's say, and then you get sort of a reversion back into the middle of the range. And I guess just from like a systemic point of view, I mean, I don't know precisely when actually we had a guest on John Todaro a few weeks ago for from Nydam. We walked through all of this. Like the minor capitulation economics and the transitions and all that type of stuff. I mean, I don't know when perhaps that selling pressure will abate, but but when it does, I mean, as you mentioned like that that's a big overhang on the price and you would imagine that Sailor's going to keep doing what he's doing. Others all of a sudden there's a lot more bid for

for for a lot fewer Bitcoin out there in the market. So that is interesting to to watch. I want to focus a little more on derivatives cuz you started discussing that in your previous answer, too. One of the trends that I've been seeing is that [clears throat] this is in many ways spot spot driven either through like some of the ETF inflows or then again, I mean, could be tax refunds for Bitcoin, some other some other alts, but if you look at the big the big run ups in the spot price, but as you mentioned um vol is is very cheap right now.

Um Longer dated vol is actually much higher than than shorter dated vol, which is sort of the inverse of how things are are supposed to go. And and funding rates are are negative. What all that suggests that there is still some bearish positioning in the market, especially among the smart traders. So maybe you could expand a little more on on what you're seeing and sort of how you reconcile, I guess some of this growing spot demand with a lot of institutions and and professional traders that I guess don't seem convinced that the market is really ready to surge again.

Yeah, let's unpack that a little bit, right? So I think on the vol side, what you're seeing um in Bitcoin specifically is an oversupply of overriding and basically like yield generation. Um so you do see a bunch of uh overhang in upside strikes, like basically call options. People are selling those and willing to monetize them as the price of Bitcoin goes higher, they're selling uh more Bitcoin in against those call options, right? So I do think that dynamic is driving and the you know, the lower realized vol is driving some compression in the back end of the curve as well. That's why it's like historically at a low level.

Um but at the same time, you know, there's only so much lower that um December vol, let's say in Bitcoin can go, right? In the high 40s. You have to remember there's going to be a a very large, probably historic midterm uh election happening later this year. And uh there is a bit of a steepness in the curve, like you said, the back is is higher than than uh the middle of the curve because of the risk of some um large event that could have a meaningful impact on the whole crypto industry, right? And in the later half of the year. So, I do think that's like a a phenomenon we'll have to see how it plays out and um historically that that has realized like the summer months usually tend to

have a lower volatility um and then, you know, going into an election year you have uh a large event in Q4 effectively, right? So, yeah, that's something to watch. I would say uh the other points that you made around basis and um the the funding rates, I think that's actually interesting that we have to remember how funding rates are calculated actually. It's the difference between perpetual swaps and spot. And if you think about what is actually being purchased in the market today, it's actually all being funded by cash, right? Upfront. And it's all being funded by cash from strategies sale of stretch preferred shares. So, if spot is is what is being purchased, then obviously spot is going to lead the

market higher. And so, you have a dynamic where perps are actually lagging like fewer people are actually taking leverage to go long uh Bitcoin. So, um that that's, you know, actually a kind of a healthy phenomenon, right? That it's it's spot leading the move um and it's fresh cash coming into the market. So, I am actually optimistic like that's that's a good sign um rather than something that should be taken negatively. Um just uh two more quick ones and then we'll take a brief uh brief pause. One, um this type of setup uh and sort of the divergence between what we're seeing in spot versus the sort of like the neutral to perhaps slightly bearish setup in derivatives. Are there any historical precedents in um crypto's recent history that

um bring familiar? >> [snorts] >> I think so. I mean, it it all feels to me, you know, I mean, crypto's the most cyclical asset class in the world, right? So, I it feels a little bit like the post um 22 crash um environment where a lot of folks were still getting their bearings again and kind of rebuilding balance sheets and things like that and that resulted in a historically low implied volatility environment. Like maybe some of your listeners will recall there was a very persistent offer on Ethereum. There's like a large Ethereum overriding program. That was like actually the the the biggest phenomenon in liquid markets in that time period in like 2023.

Um but yeah, that that's that's kind of the environment we're in today, right? I would say less so on ETH, I think more on Bitcoin, perhaps also on SOL. But I think, you know, there is there is sort of a lack of conviction or maybe just more of a conviction that we'll be in a range bound market for at least the immediate future until we get more, you know, perhaps more clarity on the Clarity Act and also more clarity on what happens in the midterms. I'd say we're we're going to have a big problem if the Clarity Act ends up passing into law something other than the Clarity Act. Although I guess maybe it'll be easier so that we don't have to keep apologizing for using Clarity twice in a sentence. Um all right, we're going to turn to alts and a couple of other

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We're talking with Josh Lim, co-head of co-global head of markets at FalconX. I'm never going to try and say your title again. I've already messed it up twice. Anyway, you're We spent the first part of the discussion covering like what's happening with Bitcoin and how traders are aligning from a macro perspective given this sort of tenuous peace deal or peace or pause in the fighting between Iran and the US and Israel. I want to expand the conversation a little bit now to focus on alts. You mentioned a couple of alts Josh that have been doing well, but to begin I'd like to begin with with ETH.

It's typically when Bitcoin rallies it sort of brings the whole market up behind it and then the markets are just past it once we rotate into an alt season. This time it does seem a little bit different though. Bitcoin has been grabbing headlines for finally sort of fulfilling its prophecy as as digital gold or the store value, but um close watchers of crypto will know that um ETH and and even um like like I think BNB and and some of the other major alts have been outperforming Bitcoin. Uh and I know like ETH has outperformed Bitcoin. I think somewhere like 5 or 8% or something over the last month or so, which to me at least is unusual um in tenuous environments where crypto is looking to find its footing. So, I'd

really love to kind of get your sense on what's happening. Um what do you see on your desk? Yeah, sure. I I do think ETH is um coming out of a period where there was uh a little bit of a hangover from the voracious dad buying last year, right? Uh and you know, that did create a lot of new narratives around Ethereum. Ethereum is a substrate for uh stable coins in particular. Uh that was like a very popular tri-fi narrative around ETH and um how it you know, ultimately accrues value.

I think what's actually happening now is that it's ETH is like recovering from uh that hangover in a in a very different way. And I think the different way is it's sort of like a counter positioning itself versus Solana. And um it's it's sort of getting its groove back in a way, right? Like Solana has had such a tremendous run in the last couple of years, especially post um the issues that it had around FTX. Um it it you know, gained a lot of um traction again as a platform for meme coins and for speculation.

Um there were >> down to it dropped down to like like low single digits, right? Or I mean it And yeah, exactly. Exactly. It definitely in the teens. Yeah. But but yeah, and then it it and went all the back to uh 200 about 200, right? So, I think what we're seeing is just, you know, a little bit of give back there, right? And then those inflows are coming into Ethereum. That's kind of what we're seeing on our trading desk. And the question is why, right? I think the reason is you have some of the narrative starting to fade around Solana. And you know, that is coming through on you know, some of the speculative

applications that are building on there and you know, the the kind of like lack of maybe retail participation in crypto today and some of that retail capital is obviously migrated to stocks or even if they if it stays on chain, it's probably more in RWAs and tokenized equities and and HIP-3 perps, things like that. Mhm. But, you know, there's there's still a persistent sort of undercurrent of DeFi happening on ETH, right? Always.

ETH can still You can always count on ETH as being like a reasonable place to deploy new protocols, new RWA tokens. And you know, we ourselves have a a token that we launched on Ethereum that is a tokenization of a part portion of our balance sheet. And that that's actually gained some good traction because it's proximate to things like Morpheus and and looping strategies there. So, you know, I think that's kind of what we're seeing is like a little bit of that narrative that's always been there for Ethereum kind of get a new resurgence and then you you kind of see some of the narratives that were driving Solana's huge run up start to to fade away a little bit. Now, I will say like Oh, yeah, go ahead. I was I was just

going to to add on. I'm just curious how you're seeing Solana trading behavior, like how usage of the network is I guess recovering or or or remaining resilient after the Drift hack. Yeah, I I I think like, you know, there's always going to be staunch supporters of this network and there's there is always like a strong hoard of builders building on it, right? And I think the one thing that Solana's got to refocus on, I think they've done a decent job of kind of refocusing on this now is being that stablecoin transport layer. And I think, you know, there were actually very strong signs of

that adoption post some of the turbulence last year, October of last year. Solana was actually very very reliable as a means of transferring USDC collateral across venues. And the people who were able to move it on Solana and had, you know, stablecoins on Solana benefited enormously in terms of meeting margin calls and things like that in a way that was difficult with Bitcoin, right? Or or even ETH with some of the network congestion. So, there's there's clearly some advantages there.

I think some of the narrative and mindshare has gone to things like hype and to Canton, right? Like, I think you probably were around for Digital Asset Summit a couple weeks ago in New York, which was largely dominated by banks and asset managers. I I was I was around for those summits back in 2015, 2016 when R3 and Hyperledger and and Digital Asset first launched. That's right. That's right. Yeah, it's 2.0. Yeah, this is my third This is my third permission blockchain cycle, I have to say. That's right. That's right. But, I mean, it's I mean, the that narrative is stronger than ever, but it's happening on new chains, right? So, I think that that's sort of something that we have to

keep in mind is there are new entrants that are trying to to gain market share away from existing players. Yeah, and and that kind of fits into a question that I've been wrestling with too for a while. Like like people are going to wonder when's the new alt season going to happen. Uh it won't necessarily have the same um fingerprint as as previous ones because as as you said there are new places for especially retail to speculate. There's We didn't mention prediction markets, but that that's a big one. And then nowadays, I mean just looking at the volume that hyper hyper liquid is doing like in terms of like gold and especially some of the oil contracts, um I mean that volatility is is absolutely massive. And uh and and many alts I mean they'll run up and then they'll go down and then they'll they'll stay there. So

it I I can certainly understand like retail traders that have gone through at least one or two of these alt cycles, maybe they want to try something maybe they want to try something new. Um you guys I'm sure are tracking all of this. So maybe just as a way to move the conversation along a little bit, um how have you seen traders on your platform leverage um things like like like perps in uh traditional commodities on on hyper liquid or or some of the other platforms and uh to the extent that you can share I'd love to understand like what types of strategies like are um there was a really interesting article in Bloomberg a day or two ago about some new market neutral strategies that are leveraging price disparities across platforms and things like gold and and

copper. Uh and there might even be a bit more of a basis trade in commodities than there is in crypto because it's so compressed. So >> [clears throat] >> what what do you how are you seeing traders on your platform use hyper liquid and some of these more like tokenized stocks or tokenized commodities? Yeah, absolutely. And you know, this is something that is a bit of a hallmark of hyper liquid that it is transparent and on chain. So you can actually trace, you know, activities of of large trading uh counterparties on chain um for better or worse, right? And I think that is something that gives people some comfort because it's uh transparent and and you can control risk that way like by understanding how much leverage is in

the system and how much um risk of liquidation there is. But at the same time, it's also resulting in situations where um you know, it's very visible when someone puts on a large trade and the market can kind of hunt it down, right? So, I would say this, look, there there is enormous demand on our side from our client base to access hyperliquid and other on-chain venues to trade A W A assets 24/7. That's like undeniable, that is a real value add for hyperliquid. I mean, even not just crypto degens trading, but you know, even even tradfi institutions are taking cues off these weekend markets to figure out where things will trade um on

Monday, right? So, I think that's true. I think um we've seen uh actually inflows. We were one of the first prime broker platforms to enable hyperliquid uh access to our DMA clients, and also to empower them to uh cross margin that across uh centralized exchanges like Binance, um and you know, utilize margin financing across those those uh venues. And I think that has actually fueled a lot of these types of arbitrages that you mentioned. Um there are disparities between people who can only access DeFi venues and people who can only touch centralized exchanges, and that's causing uh some sometimes momentary dislocations, sometimes more extended

dislocations, and funding spreads. Um I think the article that you mentioned highlighted one that uh strategies that are effectively trading the roll, and this is obviously very common in traditional markets where you have commodities indices that have to um transfer some of their portfolio, you know, their basket, their reference basket from front month to later months as those front months expire. And we're starting to see people start to implement those types of strategies on hyper liquid uh perps that reference these types of rolling indices.

So I I think there's only going to be more of that. Not only is it going to be used as this price discovery tool, but there's ample arbitrage opportunities for sophisticated traders and investors who have been running these strategies by the way in DeFi for for decades, right? Um >> So do you think I'm sorry to interrupt. I'm just just want to tie a bow on this. So do you think like alt season's in the past or sort of uh uh Are we going to see similar types of alt seasons again or in this new world where everything is commoditized everything is tokenized and potentially available to trade 24/7 liquidity's going to go there and maybe crypto focus is really going to be on some of those blue chip assets those

blue chip platforms that have more legitimate use and are not purely tools of speculation. I think it's it's basically the token market that has to catch up to where equities are, right? And I think with Clarity Act and with other legislation that's going to create a path for tokens to become securities, that is actually kind of the long-term future for all coins. That could be sad news to hear for some of us who've been in the space for many years and you know view tokens as this novel sort of capital formation tool and speculative tool.

But you know that that's kind of where the market has to go, right? Like there's already a just a broad constant you know the concentration of mind share and capital into a select handful of tokens that are linked to revenue generating protocols is already happening, right? We all know that you know if you're if you're new uh you know liquid fund manager and you're not holding a hype like that's you know you're you're out of consensus for sure, right? So I think that's only going to keep happening and you know, and that is a that is sort of the unfortunate reality is like a lot of the tokenomic models for all coins in the last few cycles are are not really conducive to positive returns on the tokens themselves, right?

They're they're highly inflationary and things like that. So, there's I mean that that's the this is the ultimate backlash against that is is now people want to hold equities that, you know, generally have a positive drift rather than something that has a negative drift, you know? See, it's funny. I mean, I I understand sort of the sense of nostalgia and perhaps like a bit of a like a melancholy tone for for what you're saying here, but I mean, I mean, you know this and people have watched or listened to me for years know, I mean, I spent years at Forbes and at Unchained trying to point out altcoins and zombie coins and tokens that really had no business ever existing except to offer someone potentially a liquidity event.

So, like I understand speculation does not have to be a four-letter term, but specu- speculation and capital formation are very different buckets for me and maybe just a little bit of speculation belongs in one. So, so it is yeah, so I I I understand I understand the sense of nostalgia that sure a lot of people will feel, but this if this is more firmer footing for crypto to really grow, we'll all benefit. All right, we have about 5 minutes left, but I wanted to save a little bit of time because you put out a really interesting post on sort of the the quantum threat as it relates in particular to Bitcoin, but but as we've discussed and on the show and and people have seen everywhere,

the risk it might have it might vary to to certain degrees based on blockchains, but it is something that all major chains are is going to have to deal with. And and you I thought that a really nice job of kind of encapsulating the problem as you see it and and in particular you pointed out how it's not just like a a technological issue, but it's also sort of like a community communal issue cuz the tech the tech Excuse me. Um the tech solutions it's easy to see a path forward, but I think if I'm characterizing your your post or your threat correctly, um Bitcoin by its very definition is is is um kind of remains in stasis. It It's It's

hard-coded, and and that's its value proposition. So, when you have to do big things, um when you have to do big things, it can be difficult. I mean, I think you referenced um the block size wars and the hard forks from like 2016, 2017 when Bitcoin Cash was created. Um I mean, I lived through all of that and had no idea how it was going to go, and that seemed to have kind of have a bit of a happy solution because everybody got extra coins, and if you didn't like Bitcoin Cash, you could just sell it and and get rid of it and thank you for the extra money and go buy more Bitcoin. Um but I think the case you make is that in this in this situation, it may not be that simple. So, um with that very long run-up, please please share your

thoughts. Yeah. Yeah, I think um the this isn't an easy topic, right? It requires a lot of specialized knowledge, but I what I wanted to um highlight in my thread is just how these things will impact tradeable markets for uh those of us who touch the liquid asset class every day. And I didn't I didn't see like a lot of discussion around this previously, right? I think people the general dismissal of the quantum concerns are like it's actually very easy for the community to reach a consensus and migrate to post-quantum signature schemes and and and those types of new cryptography that are quantum resistant.

And that's of course entirely true, um but like you said, uh and I mentioned in the thread, it's it's not just a math problem. It It's a um a social consensus and political and governance problem, too, right? There's like a fundamentally those of Bitcoin around it being immutable and around it being sovereign and the fact that you're holding your coins means that no one can take that away from you or change its um its fraction of the network. And the fundamental thing here that has to happen with the Satoshi coins and other sort of coins that are held in um P2 um pay pay to pay to public key addresses is that those coins, unless someone is actively controlling them today, um are

going to basically always be vulnerable. Um because anyone could come in and crack the private key. So, I I I think it's like it's sort of not a solvable problem except by social consensus. And and we um and even that will probably result in some sort of hard fork. Um you know, if you assume that there is still some sort of core community that believes in the uh you know, the initial sort of ideological roots of Bitcoin. May maybe not, right? Like it's it's possible that a lot of those people have moved on to other crypto assets, other crypto projects. And it's possible that the majority of holders in the space now are are institutional investors, right? And Yeah. it's true, right? That that's it's

a lot of the assets are being held in in ETFs. But if you think that there will be a schism, I I kind of do think that there's going to be some some very staunch resistance to it that um that will be negative for the price of Bitcoin. And then you have all sorts of implications for the derivative markets on top of that. Yeah, it's a really fascinating debate um because I I mean, the whole mantra code is law. Um like that should theoretically, I guess from my opinion, mean that if code is law, if someone's able to crack Satoshi's private keys, uh finders keepers, I guess.

Uh it almost like harkens even if like morally they may not that may may seem right. Uh Uh it reminds me a lot of kind of the the debate within Ethereum surrounding the DAO hack and and sort of like what what to do there and uh and and anyone I mean most people watching and listening to this will know what happened, but it was not amicable at all and it led to a split in the chain that um I mean Ethereum managed the Ethereum the version that essentially returned rolled back history returned the the the tokens to the the original holders maintained its status as the dominant chain and Ethereum Classic hasn't really um sort of built up to be a to be a real

competitor, but um it was very um it was a very antagonistic time there and and and I remember that we weren't sure what was going to happen. So, it is really a fascinating setup to see what's going to happen with Satoshi's coins. Maybe it'll force him, her, or they to come out of hiding and do something so that that those 1.1 million Bitcoin don't all of a sudden become liquid or get hacked or whatever cuz as you mentioned, it could have an impact on the price if suddenly all those tokens become liquid and someone just decides to dump it on the market. Um there's there's a lot that we don't know. So, I guess to just tie a bow on this, uh are you seeing any noticeable behavior among traders on your platform to sort

of de-risk themselves from this? I know in one of the Google papers that was cited, I believe they mentioned Algorand as one of the as as one of the blockchains that I'm not a computer scientist by any stretch of the imagination, but it had apparently made itself quantum resistant or quantum upgradable. Like are you seeing any um discrete movement into or away from certain tokens because of this quantum threat? Yeah, I I think a lot of the trading that's happening right now is rotational. It's really like uh traders trying to move away from things that maybe perceived as uh vulnerable and to other uh you know, other chains that are designed or marketed as quantum resistant. Um, now, like the reality of

it is like the technology is still up for debate, you know, like even people cite Ethereum as as a kind of a forward-thinking chain when it comes to quantum migration, but there are still actually probably more vulnerabilities in the smart contracts, um, you know, the thousands of smart contracts that exist on chain versus, um, you know, Bitcoin's, you know, the the elliptic curve problem for Bitcoin, but that is, uh, it's kind of glossed over, right? Because people say like, hey, there's there's more of a, um, social consensus element within Ethereum that enables them to move faster and change quicker.

So, I think, um, yeah, I I think I think that's kind of the what the what we're seeing the flows. Now, I called out a couple things that you would want to watch for, and I don't think those have meaningfully, uh, shown like red flags yet, but there are things you want to watch for. Like, you want to watch for, um, the differential between traditional markets, downside protection versus crypto-native downside protection, right? At this point, like most of us who trade crypto traffic in, uh, crypto-native venues, right? Whether it's like purely on chain venues like Hyperliquid and, um, and Deribit, uh, or sorry, Hyperliquid and and like Uniswap or or centralized exchanges like Deribit, Binance.

There's going to be a more of a divergence in my view between those and the traditional markets like the IBits and the CME's and even the bilateral trading that happens between banks and hedge funds. Um, that will reflect a different market than what's happening in crypto as we get closer to the Q-day, which is when, you know, quantum computers become relevant because, um, when you're hedging your exposure, you're going to want to hedge away from crypto. You don't want to face counterparties and institutions that are not entirely, uh, you know, founded and, you know, heavy concentration in crypto.

So, that's what I'm watching for the most is those types of signals. Right. All right. Well, we're going to have to leave it there. Um Josh, as always, thanks for joining. Always enjoy our conversations. Um thank you to everybody for watching and listening to this episode of Bits and Bips the interview. Um that's it for us, but stay right there because in a few minutes Laura will be chatting on Unchained with uh Nader Al-Naji about his SEC and DOJ cases, how they both got dismissed, and why the way they dismissed is so significant. So, stick around.

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