Today GΞR₿Z hangs out with Brian Russ to compare notes on the current crypto cycle, talks of bitcoin reserve currencies and ETH ETF’s, monetary policy, living on productive assets and so much more!
Show Transcript
Gerbz: This is when we were breaking above the previous all time high pre-halving which is incredibly unusual. Oh, we're getting rained on. Typical Boulder. I mean, I think it might be okay.
Brian: Might be okay.
Gerbz: I think it's an important number. And we're getting rained on, so we're gonna switch this up!
Gerbz: What is up crypto crew? Welcome to another episode of The BitLift Podcast where we don't only stack crypto, we also like to use crypto too. We use it as money. We use it as a new financial system and we use it for all the fun new things that are coming out on a day to day basis. We want to invest in the future of crypto, the future of Web3. So we're always tinkering to figure out what those things are and seeing if anything has the potential to take over the metaverse.
My name's Gerbz. Today, I just got back from an in person conversation with one of my good friends, Brian Russ. Him and I have both been in crypto for over 10 years now. We both bought Bitcoin back in 2013. We've seen a lot of cycles, a lot of wild rides, and we love hanging out and comparing notes. I mean, being a fly on a wall for a conversation like this is what I want to do with other people in crypto. So hopefully it's fun for you guys too.
We kicked off the conversation talking about just the cycle, where we're at in the cycle. We talked about the big kind of political event that went down this week, how it sort of invalidated the double top technical pattern that we've been creating in the Bitcoin chart. And boom, now we're back off to the races heading towards Bitcoin all time highs.
We talked about when those all time highs might be hit, when the top of the cycle might be hit. We talk about it all the time, but we just are constantly keeping a focus on that. But Brian also threw out some ideas around where he thinks ETH is going as well. Cause we talked about the ETH ETF, the potential of the ETH ETF. And Brian threw out some numbers and some predictions on where he thinks ETH is heading.
There's been a lot of talk about Bitcoin being used as a reserve asset for the dollar. Is this real? What does that mean? What are the sort of game theory and game mechanics behind governments getting involved in using Bitcoin to back their fiat currencies? A wild idea, but there's chatter about it. So let's dig into it. Let's think about how that could go down.
Brian and I talked about just living off of our assets in general, not even necessarily crypto. I'm talking about productive assets, things like real estate. Speaking of productive assets, ETH generates income. We talked about staking our ETH and how we staked our ETH.
We talked about so much more. Hopefully this is helpful. Just hanging out with Brian and I and seeing what rabbit holes we go down together. One of my favorite people to hang out with. So hopefully you enjoy it as well. Let's get cracking.
[00:02:37] Let's Talk Cycle
Gerbz: Alright, so let's us talk cycle. Here's, our, my little double top. I want to make sure to show the people what I was talking about. I tweeted you about this, kinda early on in it. And I was like, uh oh. It's looking like...and then it technically confirmed a double top. As far as breaking through the range that it was, that it bottomed out at in between the double top.
But then it just invalidated it quick and hot. And did we have, was there news because of that? Is that just the market saying, this is not a double top, and I want everyone to know it? Or was it just like Trump getting shot?
Brian: First of all, double tops in classical charting, they're super rare patterns. They actually rarely happen. One of the confirming factors that you want to look for is you see that valley in between the two tops? That should be separated by roughly six to eight weeks of time, and in this case it was. I think it was about eight weeks.
Gerbz: That's one month right there.
Brian: Yep. Exactly. So one, okay. So about four weeks, five weeks.
Gerbz: It's funny. It looks like an inverted head and shoulders actually. And in the middle, in the valley, is shaped like one.
Brian: Yeah, a small intermediate head and shoulders. Yeah. So anyway, they're pretty, they're super rare patterns. We don't see them very often. They're oftentimes mis- characterized as topping patterns or double bottoms as bottoming patterns. They're really, really tricky to trade because sometimes you will see a breakdown below the the valley low, which we did get.
Gerbz: Yeah. So this would be the breakdown that we had below the valley low, which is here.
Brian: Yep. And then you can see a bounce back into pattern from that, which we did see. Because we got multiple days of close back into pattern, I would agree with you that it's been invalidated. And if you just look at the momentum of the market, like it doesn't feel like...
Gerbz: This was almost a week here, like...
Brian: Yeah. And so, when I look at this pattern, like the most interesting thing here on your screen is all the kind of margin calls and stop losses that were triggered.
Gerbz: Yeah. Did we have a high volume here? It wasn't anything out of the ordinary, but it was hot. It was thick, yeah.
Brian: Yeah. So that's the thing that stands out to me the most from the chart and it kind of confirms to me like, one of the key factors that I think drove that entire sell off from the last time we met. Through to about a week ago when, maybe a little over a week ago, when we hit a bottom. You had a lot of leverage, implicit and explicit, in the market waiting, as we were expecting...
Gerbz: This breakout here.
Brian: It was imminent. And so you had a whole bunch of degens, you got a whole bunch of leverage, actually borrowed money. And then if you look at open interest, it was extremely high, near all time highs, definitely in "be cautious" territory. And so, how markets work is they rarely accelerate to the upside with that type of positioning.
They've got to shake out all that leverage. They got to shake out all those weak hands, you know? So to me, the most interesting thing when I look at this chart now is...
Gerbz: Shake it out and bounce back hard.
Brian: Shake it out. And then as soon as it's gone, the market reverses higher without all that leverage or without all those weak hands in the mix.
Gerbz: It's so interesting. I mean, early in crypto days, we had all of this like explosive volatility, but there wasn't leverage in crypto. Or in Bitcoin anyway, let's say. The fact that it's emerged over the last few cycles, that's, it's just something I'm like, I'm not in tune with as well as you are, having traded traditional markets for so long.
What's the difference now? Like, what am I missing? Like you talked open interest. I've, looked at those charts before. I'm not like, it's not on my screen all the time. Should it be?
Brian: I think it should be, yes. So, we had a lot. If you go rewind one cycle, right? Go back to 2020, 2021. There you had a lot of explicit leverage, right? There, it wasn't implied. It was actually, there was actual borrowed money. The difference is explicit leverage is...
Gerbz: Borrowed from people who didn't know they were lending it. But yeah.
Brian: Or knew, but thought that the other collateral was different, I suppose. And then implicit leverage is implied. So that can be implied typically through derivatives. So, futures and options, and that's where open interest comes into the mix. So last cycle I bring up explicit, that was the CeFi lenders.
Gerbz: Got it.
Brian: I mean, and it was DeFi as well, right?
Gerbz: Even like BlockFi, Celsius.
Brian: Exactly. I mean, they were lending, that was explicit. Three Arrows, those guys were lending money.
Gerbz: Yeah. We were lending it to 'em.
Brian: We were lending it to 'em. Exactly. We were the capital providers. Now in this cycle, that still exists, I think to a lesser extent relative to the total market value. But, you've got a whole lot of explicit leverage. In this case, I'm talking about open interest.
So that is, you know, futures contracts are levered positions. You take a small margin and you have a big exposure. A call option is very similar, where you've got basically explosive opportunities to the upside with that type of positioning.
And then there's dealers who will take the other side of those trades. They're typically hedged, right? So you can kind of track like how much open interest is in the market. With the traditional regulated products like Bitcoin futures or Ethereum futures, especially the Chicago Mercantile Exchange products, the CFTC requires disclosures around what the positioning is actually in those products.
So you can go, like for traditional products, you can go to FreeCOTData, if you just Google that, or go to FreeCOTData.com, I believe. You can kind of track it for things like the S&P 500, for gold, silver, other commodities, oil, etc.
Gerbz: Is there something you put up on your TradingView chart, though?
Brian: I don't know if TradingView has a tracker. We can check for that. It's a bit of a data aggregation exercise, I think, to get it for crypto. But it is useful, because you can kind of track where it's been relative to its history. When it's high, you know there's a lot of people who are levered long, and the market will rarely move higher with that positioning.
Gerbz: Ah, okay. So, we just flushed all that stuff out. And then the market, it just basically like went back to where it wanted to be, like very quickly. And so now it's on to whatever we think is next.
So let's roll back to, I've got a tweet that I've had pinned since, for months and months, a prediction I made like, either September of last year, but I think I then reiterated it March of this year, which is about how I thought like this whole kind of cycle length would go.
And that's where we made a call in the last, last time we hung out around that. So here's the chart that shows that. Here's my tweet. Basically, and I'm retweeting, or I'm sharing this thing that I talked about earlier where all I do is track the amount of time in the cycle. And based on like historically, how long it takes, like from the time of the halving to the top, you can just get averages of that. It's a very basic, it's not rocket science. I'm just like, how long do cycles last? This one's going to do the same.
That's all I did, and that's where my prediction came in. But when we started breaking out pre-halving, so the halving is this orange line here. I tweeted this the black line here is where I shared my initial tweet. This is when we were breaking above the previous all time high, pre-halving, which is incredibly unusual.
We were breaking above $69k, if you remember back to that moment. And it was weird, we've never had something like that happen, pre-halving. And my tweet was, "All time high would be epic, but 7 months ahead of schedule. If I had to guess, maybe we set a small new all time high here but we don't hold it."
And that's basically exactly what happened. We set a new all time high, didn't hold it. "Maybe we putz around until the halving on 420, and then we dump." We putzed around until the halving, we did have a dump. Maybe this was like flushing some, some open interest. Flushing some leverage here.
Brian: We had a double dump, actually.
Gerbz: Double dump. And then we tried again, but we've been putzing around. And then I say, "Maybe we retest the one trillion dollar range." I've talked to you a bunch of times how I always keep tabs on this trillion dollar thing. No one pays attention to it. I think it's an important number. And we're getting rained on, so we're gonna switch this up.
So where were we? We were talking cycle. We were talking about our semi prediction from last cycle or from last time we met. And we're talking about how I like to just I think the cycle just rhymes as far as timing goes. Every time, it's like six months after the halving we break the previous high. Six months a year after that, it's like reaching towards the top. I don't think this cycle is gonna be any different.
We even saw Peter Brandt, one of his little predictions that he made where he measured the time from the bottom of the previous cycle to the halving, and he just puts that forward. And it kind of calls the top the last three cycles almost to the week.
This is a very similar as a kind of prediction that I make. And it basically just called for us to not really truly break out until six months after the cycle, somewhere around December of 2024, would be kind of like the breakout. Let's call it, breaking out of $70k into $80k on its way to $100k. Like, that shouldn't happen I think until the end of this year.
But I also called that we might, since we're breaking out a little early, we might retest that trillion dollar level. Which is a just a level that I like I keep an eye on. No one else keeps an eye on it. It's also a moving target because more bitcoins are mined every day, but that trillion dollar level last time I looked at it was $53k. We sort of smacked it last week and bounced off it pretty hard. So everything's basically on track for the prediction that I've kind of been, I don't even like calling it a prediction, it's just like my plan.
Because you've got to have a plan even when it's going to be wrong, but you've got to do something. So the something that I'm doing is expecting a breakout later this year, expecting a top Q3, Q4 2025. And that's what I tweeted out last time. You thought I was interested in that $53k number, you smile every time I talk about a trillion because it's just a random number, but it seems to hold up.
Brian: Oh, yeah. Yeah. No, I mean, actually it was a, great call. If you go back, in fact, you should go back and pull a clip from our last conversation.
Gerbz: Oh, yeah. Let's do it!
[00:11:44] Flashback
Gerbz: You look in this last cycle, how, how much we respected this 1 trillion number. Like to me, this, what this says is like the entire, like the narrative of this cycle was, "is Bitcoin a trillion dollar asset or not?"
Are we in price discovery? Because like, from a technical standpoint, like we, we have, we're heading new highs. You think the trillion's done, $53k? I mean, look at that run.
Brian: I could see us retesting into the fifties, but it would be a wick that would get bought. What's your, what's a trillion dollar market cap? $53k-ish?
Gerbz: Yeah, $53k.
Brian: So to me, like you've got, if you, if you're underexposed Bitcoin, you want to have limits set between $53k and $60k, you know, all the way.
We talked about this 1 trillion market cap level. Last time we were together, we said the market felt like it had a big move, right? Be cautious here. And if we did get...
Gerbz: A giant move. I mean, all of early 2024 was like ripping from $30k to $70k.
Brian: Yeah, I mean it doubled in a hurry after the ETF approval. You had a little ball around the news, but then it doubled. and yeah, last time we were together, we talked about be cautious, expect a pullback, and we identified that, that level. That was your level at $53,000, trillion dollar mark in the sand. And I went back and listened to our last conversation actually. And specifically we said, look, if you don't have your whole Bitcoin position on here, limit buy orders from $60K all the way down to $53k.
And if you look where the market bottom on this last sell off, it bottomed at $53,499. So that's some real alpha here, had you taken that advice on The BitLift Podcast.
Gerbz: Oh, it's also like we have such a large audience that obviously all those limit orders are what just...
Brian: Market moving.
Gerbz: Yeah, exactly. funny. Okay, so that's, where we're at.
[00:13:25] Current Events
Gerbz: And this bounce, obviously may be attributed to a trillion, may be attributed to events. Current events. We had some events this week. Trump got shot. Everyone's freaking out. How do you think about events? You know, you have this plan, but you can't plan for events along the way.
So, like, the only thing you can plan for is the halving. And hey, we can plan for the election. I threw that on here just to kind of see where that is in perspective of kind of the cycle moving forward. How do you think about events when it comes to your overall cycle plan?
Brian: So, typically events are short term noise. That's how I think about events. We might get a market moving event, and then almost always the market will retrace to where it was before that event happened in the subsequent weeks or sometimes months that follow. So I don't put a whole lot of weight into events. The one caveat being if an event signals a major fundamental shift, in the foundation of the market.
And in this case, I think if you look at the assassination attempt on Trump and the increase in his odds of winning the election later this year. That is, and, this comment needs to be taken separate from your political preferences but it is positive development for the crypto market.
I mean, the Democrats, this administration between Gensler, Elizabeth Warren, Biden, they have been working to put a stranglehold on this sector. They have not supported innovation and development of this technology in the United States. And for whatever reason, Trump may be politically motivated by supporting it. I don't know how, I don't have a sense for how much he actually understands the industry or cares to incubate it here in the US, but he's speaking in that way.
If he's elected as president of the United States, Gary Gensler will no longer be the chairman of the SEC. We already know that. And you'll see a much more favorable political environment.
So while I would say the event. It's just noise in the short term. In this particular instance, actually, it shifts the odds of a much more crypto friendly administration, and I think that's clearly bullish for crypto. And that's probably one of the reasons why you see such a big bounce this week following the assassination attempt.
Gerbz: Yeah, so it's not even necessarily, it's not a Trump thing, it's an administration shift change. It's a red country kind of a swing, a conservative swing, and historically that just has been better for crypto. That makes sense.
Brian: Yeah. I mean Trump spent some time meeting with some of the largest Bitcoin miners that are headquartered here in the United States. I think he met with Marathon, I know he met with Riot, and I think CleanSpark as well. And he made a comment at one of his rallies that he wanted every Bitcoin to be made here in the United States, you know.
Gerbz: That is great. I love that, quote, by the way. That's so good.
Brian: So there's support, there's support politically for the sector under a change of administration, and because of that you see the market responding.
Gerbz: So yeah, we're seeing a rally. Later this week is the Bitcoin 2024 conference, and all of the chatter on crypto Twitter is that there's going to be an announcement by President Trump that he wants to incorporate Bitcoin into the US strategic reserve.
This is, this goes along with what you were just talking about how most events, they just they might just reverse. But, this would be a fundamental shift in a massive way. If this is like a previous President announcing that the US government is going to start backing its dollars with Bitcoin, even if it's in a slight way.
A few months ago Robert Kennedy went on a little rally. He came to ETH Denver, he went to, did a little crypto tour, as you mentioned Trump just did. And on that little tour, he talked about backing the US dollar with a basket of other reserve assets, which he said it should include Bitcoin.
He wanted to start, he's like, let's start with 1 percent and spread it out across various assets. But he included Bitcoin in that 1 percent of the thing, so it's like a start. This idea that Trump could be actually like getting orange pilled here. I mean, he's got orange hair. Maybe he's, maybe he likes it, man. Maybe Trump likes Bitcoin. What do you think?
Brian: Yeah, that's, I think it's super interesting. That is a pocket where he would actually be able to influence some control, right? I mean, the President elects the Secretary of the Treasury, who ultimately has responsibility for the currency, for the dollar.
And so, yeah, if you go back to, we all know the history of the dollar. If you go back to pre 1971, the dollar was backed by gold. Yep. Today it's, it looks and feels more like Terra-Luna's stablecoin, you know, like, Paxos Gold.
Gerbz: Yeah, treasuries are the Luna, and dollars are the UST.
Brian: Yeah, exactly. Now, of course, that's an extreme exaggeration. But, we do still hold a ton of gold in strategic reserve. Yeah, apparently, Apparently it's there. So yeah, it makes sense that we would have a diversified pool of assets, behind the dollar.
You know, I think the counter, the counterfactual to that though, in my opinion is Trump, if you look at his base, like his constituency, it's, it is a largely a working class, you know, blue collar, and very heavily involved with manufacture, export type of activities within our economy. And so that sector tends to really benefit from a weak dollar. And so I think the counter here is that yes, perhaps there'll be some things that are explored in terms of reserving the dollar to perhaps to stabilize it or, to combat inflation.
But I think the Trump administration is going to want a weaker dollar. Because that benefits the US manufacturing sector. It makes our goods more attractively priced in foreign markets for a lot of that export activity. So for a variety of reasons I wouldn't expect that to be a market moving thing in terms of the size of reserves, whether it's done with gold or it's done with other fiat currencies or it's done with some Bitcoin. I think Bitcoin is a stretch, frankly. But just the fact that there's conversation happening around it and the fact that crypto has become a major political issue.
I saw a statistic that something like 20 percent of swing state voters not just own cryptocurrency, because a lot more own it, but have declared that crypto is like a single issue thing for them.
Gerbz: Wow, yeah.
Brian: So this is, it's, fascinating to me that we've gone from Operation Choke Point, right? The SEC suing everybody, like literally the federal government trying to shut this thing down. To now, it becoming a major influence in the election for 2024. And I think it just speaks volumes to the power of the industry, the cooperation that's happening within the industry, there's major super PAC out there, Coinbase is one of the main sponsors of it.
And the fact that, look, we still have rule of law. We still have democracy. This country is still for the people by the people. Estimates that I've seen, there are 80 million Americans that own crypto. I heard Mike Novogratz out on that, and he said that there are estimates that there are 65 million people who own a dog. So there are more people who own crypto than who own dogs, so coming out against it, like the current administration has done, is sort of like, coming out and saying, we hate dogs, like, vote for us.
Gerbz: No one should do that. No political candidate should go against dogs. That's ridiculous. Yeah, dogs are red and cats are blue. Yeah, man, so much to unpack there. I think it's also interesting, this is an election year, and this swing, is it just purely because it's an election year? Would we have still been seeing all this, Operation Chokepoint type activity had it not been an election year?
And it really does show like you said, like this is a democracy. Our vote apparently does still count. And that's still what as a politician, that's their job is to get out there and get votes. And if that's all it took, like it's kind of funny that we might have this election, but then it might reverse again because all of a sudden it doesn't matter anymore.
They got the votes, they got in. And maybe they don't let, maybe they like crypto only long enough to get into office. And we've seen candidates do that before. So that's a little disheartening, but let's see.
Brian: Yeah, I think it's possible. I think you saw a slight shift within the current administration. It sort of felt like some backdoor conversations were happening around the time of the ETF approval slash denial time window for Ethereum, we should talk about that.
But you saw like a pretty dramatic shift there, and so it felt like maybe the administration, the current administration, was starting to recognize that this is a major political issue. But that doesn't seem to have staying power with them. And I think also, they've done so much to damage this industry in the United States that the trust probably just isn't there.
So, I mean, my opinion personally is if the current administration stays in place, that is probably a negative for the industry and I don't think that they can be trusted to put sound regulation and guardrails in place so that this technology can be incubated here in the United States. If there's a change, I think there's a better possibility of that happening.
[00:21:55] National Debt, Inflation, & Productive Assets
Gerbz: It's funny, we used to talk about how the worst thing for Bitcoin would be a sound dollar. It's like, that's its biggest competitor, so to speak. Is there any money that's even trying to be money that's competing with the dollar at the scale that Bitcoin is today? I'm not sure that there is.
But let's shift that, now that we're in 2024 into 2025, a dollar backed by Bitcoin? Ah, now that's, not a competitor anymore, that's like a partnership, and I could see that. I mean, if there's even a flinch at that being a true thing, governments around the world are going to notice that. And we always talk about the game theory around Bitcoin and how if governments are like publicly stating that they're mining or that they're stacking or even confiscating and holding. Like, other governments have to do it too, it's that's the way the game is played. They have to compete.
Brian: Yeah, a hundred percent. I mean if you think about it, there are really only a couple of truly neutral reserve assets that are even available for governments to hold on their central bank.
Gerbz: What would those be? Obviously gold.
Brian: Gold and precious metals and Bitcoin, I think is the only one that's large enough and has a trillion dollar market cap now. It's large enough. It's distributed enough that I think it gets into that conversation. You know, and that's a really big deal. You do see some countries around the world holding it, like El Salvador is a good example, holding Bitcoin as a strategic reserve. That's a big deal. I think you'll see more countries follow suit.
So yeah, I mean, what options are there? All the fiat currencies are kind of constructed in the same way. They're not backed by anything. They have massive amounts of debt, aging populations and they're inflating. So there's not a whole lot of assets that you can back your currency with to stabilize the volatility. So I think Bitcoin does get into that conversation more.
Gerbz: It's funny, we don't consider this an asset, but what the fiat monies are backed by is our personal time, energy and hard work. They keep printing because they want us to keep working harder. That's literally the treadmill, the rat race defined.
And like when you go to the bank and you get a loan, or you mortgage your house, the first thing they want to see is your paycheck stubs. Right? They want to see that you've got a job, that you're a productive citizen of America. You are their asset that they're backing. Like, that is the way money works.
People don't think about it that way. So, at some point in my journey, I went down, I had an epiphany around that. And it just opened me up to what Bitcoin's all about. It's like, oh, I don't want to be your asset. That's not why, that's not why I'm here. Anything I can do to detach myself from that, I'm for.
I think it's like the ultimate freedom to do what you can to detach yourself from that system. So that's what makes, in my heart, I'm a Bitcoin maxi. I love all this fun stuff that's going on in crypto, I love that we're building new financial rails, other things to do with assets. But in my heart of hearts, Bitcoin's where it's at for that reason.
Brian: Yeah, and I think another dynamic here as it relates to kind of like the troubled backdrop for fiat currencies, I actually just last night was putting together some data on this. You have to stay with me cause it's a little data intensive.
But yeah, if you think about, the situation that governments around the world are in is one with just too much indebtedness and aging populations. And so a realization that I've had very recently is that there's so much debt in the system that the amount of interest expense that has to be paid every year is actually well in excess of the growth of GDP.
Gerbz: Yes.
Brian: So what's happening is that after we service our debt, there's less of the pie available. So on a real basis, we're actually contracting. And so the way that we combat that so that we don't live in a period, like a, just a period of a perpetual depression, is that we expand the money supply. And there are implications for doing this, but the simple math...
Gerbz: Which just increases the debt.
Brian: That's correct. By printing more money, it makes the problem worse. Yes, correct. And then you hope for some kind of productivity miracle that will pull you out of it, right?
Gerbz: AI, save the day!
Brian: I don't know that AI is going to be big enough, but it helps, right? Everything helps. So, like the numbers I was looking at, so if you just index gross domestic product to $100, say GDP is $100, it grows nominally, let's say, at about 4 percent a year.
Gerbz: Would you define GDP as American productivity?
Brian: GDP is the total, it's a decent proxy for it, it's the total value of all the goods and services that are produced and sold in the economy in a one year period.
Gerbz: Got it, yep.
Brian: So, if you say that GDP is $100 bucks, and it grows at roughly four percent nominally, so you get $104 dollars of...
Gerbz: After one year.
Brian: The value of the economy plus its production for one year. The amount of public and private debt in the system today is 350% of GDP.
Gerbz: Uh huh... against four?
Brian: Well, and that's the debt balance, right?
Gerbz: Oh, balance.
Brian: Yeah, that's the debt balance. So you gotta calculate interest expense. Exactly, yeah. So if you assume an average interest rate of about 5%, it's actually higher than that. I mean, the US federal government debt is now approaching four.
Gerbz: The US doesn't get a good deal?
Brian: Apparently not.
Gerbz: Yeah, probably better than us, but yeah.
Brian: But this is public and private. So this would be the federal government's debt, the household sector, and the corporate sector. That is $350 compared to $100 of GDP.
Gerbz: Wow.
Brian: You with me? Okay, so then if we take an interest rate of let's just say 5 percent on the 350 bucks, that's about $18. Okay? So you have $18 of interest expense.
Gerbz: Annually.
Brian: Annually, yep. And you add $104 of GDP plus its growth to service that. So if you take the difference, it's like $13, $14.
So the economy, after we service the debt, is actually, in real terms, after debt service, it's shrinking by 13 or 14%, every single year. And then, you know what else I did?
Gerbz: Unless we print 13, 14 percent more, or we work 13, 14 percent harder.
Brian: Bingo. We're doing number one.
Gerbz: Yeah.
Brian: And to prove that...
Gerbz: I know I'm doing number one. I'm not working 14 percent harder.
Brian: Same, and to prove this out actually, I went and looked at like, when did this debt problem become a really significant debt problem? I went back and looked at the size of the central bank balance sheet, the US Federal Reserve balance sheet, beginning in January of 2008 through to July of 2024, where we sit today.
And I calculated the CAGR, the cumulative annualized growth rate, and it, and you won't believe it. It's a shocking figure, it's growing at 13.1 percent per year from 2008 till 2024.
Gerbz: Okay, so what's growing at 13%?
Brian: The size of the central bank balance sheet.
Gerbz: Ah. Oh, so it's just eating the difference.
Brian: Precisely.
Gerbz: Like, exactly.
Brian: So we are using the central bank balance sheet as a proxy for monetary expansion, printing money. So we are expanding the money supply by 13 percent a year, and our economy is contracting by 13 percent a year after it services the debt. And those two numbers just happen to be the same.
Gerbz: What is on the central bank's balance sheet?
Brian: Principally US treasuries. Secondarily, mortgage backed securities. So when the central bank does quantitative easing, that's the federal government buying bonds, or sometimes buying mortgage bonds for the private sector, and housing them on the central bank's balance sheet, on the Federal Reserve balance sheet.
That number has gone from about seven, eight hundred billion dollars in January of 2008, to north of seven trillion dollars today. And, even though they're in a temporary period of running that balance sheet off, they've only, it's only declined by a few single digit percents and they are already having to taper the amount of sales that they do. And so the size of that balance sheet is going to start to creep back up.
Gerbz: So central bank balance sheet is acting as a buffer for just this unfortunately exponential, which that's why this is such a big issue, exponential contraction of our economy and expansion of the dollar supply. Isn't this something that, did this happen in Japan or something? I just don't know, is there a corollary there, like some, at some one point, Japan, the Japanese government owned most of the public sector equity? Was that a thing? We haven't started, does the government own Google and Apple stock yet, or is that basically what's next? Where are they going to pull from next?
Brian: The US federal government does not. The US federal government has owned private sector stocks and equities in crisis periods.
Gerbz: Yeah, like car companies maybe?
Brian: Exactly. So yeah, they invested GM, Ford. TARP was money that went into the banking sector. Insurance companies. The federal government actually had an equity interest in those companies and actually has subsequently sold them. So they don't own them today. But those were part of bailout packages.
Yes, this did happen in Japan. There was a massive asset bubble in Japan in the late 1980s, and then it blew up. And to prevent a depression in Japan, the Japanese government basically took all the bad debt and put it on the Japanese government balance sheet. That's the same thing the United States...
Gerbz: Did they take equity for that?
Brian: No, they just absorbed the debt. But, subsequently, they've gotten more and more experimental with their monetary policy. And today, the Japanese central bank is a major owner of equity. In fact, they're a top ten shareholder in almost every, if not every, Japanese ETF. So they have continued with more and more experimental monetary policy to inject more and more yen into the economy and stabilize the system following that deflationary bust.
Gerbz: Is that some, a path the US you could see going on as well?
Brian: I do, and actually there's a tie in with our last conversation around, what could the United States use to reserve the dollar. We could go into the equity market. We could buy Apple stock. We could buy Google stock. And we could use, that could be part of our strategic asset reserve that underpins the dollar.
Gerbz: When does it happen? Do we dump first and then they step in? Probably, I would imagine. They're not going to buy at the top. And to keep it up, like there'll be some sort of event or maybe they'll manufacture an event to cause that, right?
Brian: You saw it during COVID actually. So, during, so it's interesting because there are some rules that prevent the central bank from doing this today. They're actually not allowed to do this today, it is strictly prohibited. However, they had a workaround to this during.
Gerbz: Crisis moments or something?
Brian: Yeah. Well, it wasn't a crisis. Like it wasn't a "couldn't do anything cause it's a crisis" kind of thing, because that doesn't quite exist. I mean, there's some powers that exist that way for the executive branch of the government, but for the treasury and for the US Central Bank, they are limited in terms of their powers.
But what they did during COVID, when they shut the economy off, is they stood up a Special Purpose Vehicle, and they used that as kind of a loophole.
Gerbz: SPV, I've heard that a bunch.
Brian: And the Special Purpose Vehicle was like a shell, and that acquired the bad debt. So that was buying high yield debt. Yeah, that was buying junk bonds, essentially, and high yield debt in the market to stabilize the credit markets in the face of the crisis.
So, they can do, essentially, the message is, they can do whatever the hell they want to do. If there's a crisis, I agree with you, you probably need that to happen.
Gerbz: Because I think it just gets, it gets the people on board if there's a crisis.
Brian: Exactly.
Gerbz: Wow, that's some deep shit. I mean, we know, we've, all seen the debt clock. I think I saw the debt clock when I was a kid, we talked about that. Obviously that's still a thing, but it's still ticking. And it's not ticking down. But you know, every politician for every election I've lived through has also talked about what their plan is for minimizing it. It just never happens.
Obviously, we've had COVID, we've had the financial crisis in '08, we've had these things. I just don't foresee us not having reasons to do it. And as far as like, beyond holding Bitcoin, what do you do?
Brian: Yeah, I mean, I think you need to own assets. That's your best defense. And really what you want is productive assets.
Gerbz: Which Bitcoin is not. Let's talk about that at some point.
Brian: Correct. Yeah, so I think traditionally you want to own productive assets. So it's like, you don't want to own, think about it in terms of real estate. You don't want to own vacant land because that doesn't generate any yield. You want to own apartments that you can rent out. That generates a positive yield, right?
I mean, that's going to be, that's going to be the greatest, the best buffer. So if you think about the numbers that I just walked through, you've got a 13 percent average debasement that's happening every year. So my opinion, this is controversial, if you're earning a 13 percent return on your portfolio, you're breaking even. In real terms.
Gerbz: That's a huge number.
Brian: So you have to beat 13 to make any, real money. So then I go next to, okay, well, I want to own productive assets. But I also want to own high beta assets. Beta is essentially means sensitivity. So I want to own assets that have a high degree of sensitivity to this monetary expansion that we know is occurring right in front of our face. And so if I go back and I look at...
Gerbz: What boomed in '08, what boomed in COVID?
Brian: Yeah, and I think if you just go back and look at what is the cumulative annual return for certain assets over the last decade, nothing beats crypto. In 11 of the last 14 years, if you look at Bitcoin, Ethereum, and Solana got into the mix around 2017.
So if you look at those three assets as part of the global asset mix, and then you look at every other asset, you look at S&P 500, NASDAQ, real estate, bonds, gold, everything. Crypto was the best performing asset in 11 of the last 14 years, and the cumulative annual growth rate of Bitcoin and Ethereum is close to 150% per year. So again, past is no predicator of the future...
Gerbz: Of course. Yeah.
Brian: However, it has done the best job of protecting you against this constant debasement that's happening and there's, and in my opinion, the market's picking up momentum, there's no reason to believe that it's gonna stop being a good tool for them.
Gerbz: And that just reminds me how you have to invest in areas that have growth potential in order to get beyond the norm. If you want the norm, then you just invest index, and indexes aren't returning 13 percent right now.
But people see that as the base, what you're saying is no, the base is much higher than that. Someone's actually probably making the diff there. I don't know who they are or how they're doing it, but they know what they're doing. That's probably why indexes aren't performing at 13%, or maybe they would if there wasn't some massive middleman there. What are they eating? Probably like 5 to 10 percent of it in some way, shape, or form.
Brian: Yeah, and by the way, this is, this is another one of those try to stay with me on it, but I think it's a helpful way of putting it into context, actually. You can think about this in terms of the real estate market, actually.
Okay, so there were years like 2020 and 2021 were boom years for real estate prices. In fact, many real estate prices went 13 percent or more than 13 percent in a single year. You can look at your house and say, okay, did I make it 13 percent better? Did I do renovations that improve the value of it by 13%? Did I add 13% more square feet?
The answer to all those questions for most people is no, I did absolutely nothing. I sat on the house, but it became worth 13 percent more. How is that possible? The only way that's possible is because it's actually the value of dollars that are declining in real terms relative to the value of your house.
So it's a denominator effect thing. And when you think about it this way you start to understand, okay, it's actually the declining relative value of the dollar that's driving most of the move in asset prices.
And then just to go back to, Bitcoin as being frankly the best asset, you can take any other of those major asset classes, look at S&P 500, NASDAQ, bonds, gold, real estate, everything. Chart it against Bitcoin. So instead of doing S&P 500 divided by dollars, which is the typical chart, do S&P 500 divided by Bitcoin. It's down 99% in the last 10 years.
And you can do that with every single one of those assets and the story is the same. So, to me that's the conclusion that, this is why I hold so much of this asset, because it's done the best job of protecting you in the face of this obvious debasement that's happening right in front of our face.
Gerbz: You talked about like a productive asset versus an unproductive asset. This is something I was just talking, having a conversation about this with someone recently. My tax advisors and a lot of people around me are in real estate and they are like, they can't believe I'm not in real estate for lots of reasons.
And I'm like, I just, I don't want to be a landlord. That's just not a business that I want to get into. I realized you could technically do it passively. You could get like administrators and whatnot, but it's just not a business I want to get into. I'm not interested in it. I don't want any of my time or energy siphoned into being a landlord. That just sounds, it's not my, it's not my vibe.
And the people, they're, like, "Oh, we're, earning like a certain percentage on the low end, maybe like 5 percent on the high end, maybe 10, 15 percent" or whatever. But then when I look at like asset values increasing, I could also have just bought apartments when they first told me to do this 10 years ago. I could've just bought apartments, not rented them out and still been crushing it.
So, this idea of like, it has to be a productive asset, I'm not sold that it does during this stage to get that little extra, juice, that little extra income. I don't know. I feel like asset prices are just keeping up with things fine. Like to get an extra 5%, is it worth it to rent out your assets? I don't know.
Brian: Yeah, I mean, you're speaking to that denominator effect, right? Real estate is a unique asset class in that it's very easy and relatively safe to buy it with leverage. So that's what makes real estate really unique. So if you go and buy S&P 500, if you want a hundred bucks to S&P 500, you probably got to put a hundred bucks in. I mean, you can use derivatives, but I wouldn't advise that unless you are professional.
If you go to buy real estate, if it's an investment property, you can probably get a loan for 75 percent of it, 70 percent of it. Maybe if you want to be really conservative, 50 percent of it. So whenever the return of the property is, you got to keep in mind that you're only putting up half or a quarter of the equity. So you've got to multiply that return by...
Gerbz: You're paying what today, 7% to mortgage it and then it's obviously increasing in value beyond that.
Brian: To offset that, yeah. So real estate is one of those unique assets where it does work.
Gerbz: Yeah, sure. Oh, it's definitely working. It's working for everyone involved right now.
Brian: But the problem is if you want to, remember you got to beat 13%. So in your example, those real estate guys, they were making 5 percent to 10 to 15%. Okay, but in real terms, that's nothing in my opinion. So you got to do better than that.
To do better than that, you got to take on more properties. To take on more properties, you need more capital, so to get more capital, you need more leverage. So there's more risk inherent in that. I'm not saying Bitcoin, Ethereum, crypto aren't risky. They are, but it's just a different risk profile. So just keep that in mind as well.
Gerbz: Yeah, I was just tweeting out today something around like volatility does not equal risk and that's something so important. People, that's what people are afraid of Bitcoin because of that. They're like, "Oh, I see!" when they have a look at the chart on CNBC. You know, "it's so volatile!" Like, you want it to be volatile. If you want it to go up, you need volatility. Like, you got to take the down with it as well and not sell at the bottom. But it's a different, that's, how it works.
Brian: A million percent. I mean, I have a saying embrace volatility.
Gerbz: Yeah. Now in your whole portfolio, maybe not, right? That's why we diversify. Maybe diversifying doesn't necessarily mean just to spread out your risk. It means spread out volatility levels. Maybe even, it can mean a lot of different ways of diversifying. But yeah, not being afraid of risk I think is important.
Brian: And I think one other thing I would share is cause I have a embrace ball attitude across my entire portfolio. Again, I'm trying to beat 13 percent and it's not easy to do.
Gerbz: No.
Brian: The best hedge fund managers in the world have generated maybe low to mid 20 type percent returns, and it's getting tougher. But just a word of caution as it relates to volatility.
Volatility and leverage don't mix. So if you want to invest in highly volatile assets, don't borrow. If you, so if you want to use a lot of leverage, something like real estate is a low volatility asset. That's why that works. If you want to invest in something like Bitcoin, the vol profile is four times as high as the S&P 500. I mean, it's, extremely low.
Gerbz: Is there an LTV where it makes sense to do that though? A loan to value ratio? If you're gonna borrow, if your liquidation level is like $10k, can you borrow into your Bitcoin?
Brian: I don't think you should. No, I still don't. Until the market matures, I don't think so. I mean, we still saw, go back to the 2022 bear market. What was the price decline? What did we get, an 80 percent price decline? Yeah.
Gerbz: It's been 80% a few times.
Brian: So, to me, it's like, no.
Gerbz: Don't do it.
Brian: Yeah, don't do it.
Gerbz: Yeah.
Brian: Yeah. It's too volatile.
Gerbz: I agree. This idea of a productive asset reminds me of something else I shared this week. I was thinking about like, wallets, and I was thinking about holding Bitcoin. This making Bitcoin productive in some way. Like, have you seen a way to do it beyond lending? And will we see a way to do it beyond lending, because you just said that's what you're looking for. I want productive assets, and that's what everyone's wants. Bitcoin is just not that. Are we gonna get that? Do we want that?
Brian: Yeah, that's a great question I mean, to me I put the coin in a unique category. Really gold is really the only other asset, maybe silver, but gold is really the only other asset that serves this type of purpose where, and this is why Warren Buffett, by the way, is super negative on gold. Because it doesn't pay a yield.
He'd rather own productive US companies like he does, Berkshire Hathaway. Or he'd rather own a US treasuries because they pay a yield at least. But the fascinating thing, and by the way, he's like one of the greatest investors ever in the history of at least our lifetime. But if you go back and chart, go back to the beginning of Berkshire Hathaway to today, and chart a comparison between Berkshire Hathaway equity and gold. And they've basically given you the same performance, which is pretty astonishing. So that tells you that as epic as he is as an investor, the vast majority of his returns have come from just positioning around this debasement fairly well.
In my opinion, if you have an asset that has a limited supply and gold, you can argue about how limited the supply is, but it's fairly limited, at least we understand the inflation rate. And Bitcoin is another good example, and you've got the benefits of being able to self custody it.
Gerbz: Of course.
Brian: And your purpose of owning it is either to protect you from the debasement or as some type of insurance policy for one reason or another. You don't want to go out and lever that. You don't want to borrow against your insurance policy. Because you're going to get margin called.
Gerbz: Which I hear all the time, people borrow against their insurance policies.
Brian: You're going to get margin called right when you need to call on that policy.
Gerbz: That's right.
Brian: So yeah, so I think it's something where it's the one asset where, look, you take your ETH, if you own it, you can stake it, any other proof of stake protocol. Stake it, clip the yield, that's great. If you want to do some DeFi stuff, go do some DeFi stuff, stay in ETH land.
Gerbz: So ETH is a productive asset, that's what I was going to parallel a little bit. And I mean, they just converted it into one, which brings its own set of risks that may or may not be a positive thing. We don't, we never had a productive crypto asset at the scale that Ethereum is before. It's only been like this for like two years. Or one in a year.
So, now it is productive. It's yielding 3 ish percent, not 13, but the other 10 is definitely coming from the asset value itself.
Brian: Oh, yeah.
Gerbz: Does that mean, people who are looking for productive assets, they should have more ETH than they have Bitcoin, because they're looking for that little bit of juice?
Brian: So you also have to, it's a very good question, you also have to look at the real value of the yield. So when you say it yields 3% or 4%, whatever the staking reward is, that's the nominal value. Nominal value of the stake. So that means that's just, that is the amount of ETH that you're paid in exchange for staking.
However, the offset to that is the number of Ethereum in circulation sometimes it expands. Sometimes it contracts. Sometimes you're burning more in transaction fees than you're creating to pay stakers. But, you have to look at the relationship between those two.
Because if you're growing the supply of Ethereum, the total supply, let's say just to pay the stakers. That should have a neutral effect, there should be no benefit to you for staking because the expansion of the supply destroys the purchasing power of Ethereum, and the yield that you get on staking offsets that. And so it's just a wash.
Now if Ethereum's in a period where transaction volume is very high, fees are very high, and a lot of that's being used to burn, and so you've got a reduction in the circulating supply of the token and you're getting paid a yield to stake it, then you're definitely earning. That is a productive asset. So you have to look at the relationship between those two.
Gerbz: I've heard the term nominal, but I didn't know that's specifically what it meant, but within a good example there too. What would then be an example of the fact that also, and this is what I talk about all the time, people look at that 3 percent and they're like 3%?
But. ETH is gonna double, it's gonna triple, it's gonna quadruple. All those slivers that you've been earning over that time, that means your yield is doubling, tripling, quadrupling. Is there a terminology for that? Is that phenomenal? Yeah, I, don't know. I don't have a way to explain that that's really resonating with people yet.
Brian: It's a very good point that, you made this point in the bear market. You said I'm only earning 3%, 4%.
Gerbz: I wanna stake it the whole bear, that's the best time to stake.
Brian: But if ETH 5X's, my 3% is worth 15%.
Gerbz: Exactly.
Brian: Then that's a very good deal. That's getting you above that 13 percent threshold. I don't think that there's like a hard and fast rule for it. But, and I don't think there's any terminology aside from just think about it in through the lens of compounding. I mean, if you're a long term, if you're a long term holder of this asset and you think that it's going to go up by 13 percent plus a year, and then you can stake and earn additional yield on top of that, just go pull up a spreadsheet and do some basic compounding. And like 10 years, 15 years, 20 years down the road, you'll be blown away by how profitable it is for you.
Gerbz: It's double compounding because the ETH you're earning, you can restake it and that is compounding because ETH is compounding.
Brian: Well, that's why compounding is so powerful. Because you're getting the return, but then you're reinvesting in that return as well. That's why the numbers get so big in the outer years.
[00:46:45] ETH ETF
Gerbz: Uh huh. Alright, so we're talking ETH. We gotta talk ETH ETF. When was Bitcoin ETF? Do you remember?
Brian: Right around March.
Gerbz: Oh, the halving was here this guy here maybe, or this one?
Brian: This pop right there was on the day that it was.
Gerbz: January 2024. Yeah, January 11th. Okay, let's flip over to ETH. This is Kraken, because it's longer. let's go weekly. Oh, I threw the halving on onto the ETH chart, I've never done that before. I don't know why I never thought to do it. Just for funsies.
Brian: I like it.
Gerbz: Let's see here, let's go January 2024. I mean, Jesus, that was a magical time for ETH as well. It went from $2200 to $4K, like pretty damn quick. So we still haven't won Bitcoin ETFs, maybe this was like a buy the news, sell the event kind of a situation. We've been, ETH has been chomping around sideways.
If we ETF here, where are we in ETH right now? I've been hearing a lot like the ETFs are not going to be able to stake their ETH, which is really good for stakers. I'm a staker. I don't want all of Wall Street staking, it's just going to it's going to dilute my yield, right? So, it's kind of nice that maybe millions and millions of ETH are not going to be able to be staked because of this ETF. They'll find a route around that at some point anyway.
An ETH ETF, how bullish is it? Whenever I see, the Bitcoin ETF was like we already have that in the rear view. We saw how bullish it was. So, whenever I see a moment where people expect something to be bullish, because it happened before, I just throw in the towel. I'm like, there's no way it's gonna do the same thing. But maybe I'm wrong. Maybe it's reverse on the reverse psychology there. what do I do?
Brian: I, think this is a case that I wouldn't overthink it, maybe it's just because I like simple thinking. The big move you saw on Ethereum after the Bitcoin ETF launch was something I was calling for because my view is the market is forward looking. As soon as the Bitcoin ETF gets approved, the market is going to say ETH is next. You see it with Solana too. As soon as ETH starts trading, then the market is going to say Solana is the next ETF that will be approved. And there's already applications that are in.
Gerbz: I've seen them.
Brian: But my opinion is the same that it was for Bitcoin, actually. I don't think it should be any different. So, I think you should expect volatility on the launch. And by the way, just so people know, the ETFs are expected to launch next week, Tuesday.
Gerbz: Next week Tuesday being when?
Brian: Which is July 23rd.
Gerbz: 23rd. Good.
Brian: Yeah, I know. Yep, July 23rd is the expected launch date. All the S1s, which are the final documents that need to be filed, are in final form and filed with the SEC, and so we are ready to launch, for a date of July 23rd. And that could shift, but that's the expectation as of now. I think you will see some volatility around the event, like that's just noise.
Gerbz: In either direction? Who cares?
Brian: Who cares? Just like with Bitcoin. Bitcoin popped first, and then sold off, and then doubled. And to me, that's probably what you see here. I mean, my personal opinion, this is a big call, but I'm willing to make it. I think ETH's going to new all time highs, within the six months that follow the launch of the ETF. And probably faster than that. Yeah, and the reason I think that is because...
Gerbz: Being $4900, $5000 plus. But we're gonna break out of $5000 or do what Bitcoin did and poke at it for a while?
Brian: I, well, I don't think it'll be some sort of major top and then it reverses down and we go...
Gerbz: Oh, sorry, that's the wrong number I just threw out there. That was the, that's ETH's one trillion dollar number. Yeah. Because I just like to...
Brian: About $4700-$4800.
Gerbz: Yeah, exactly. $4800.
Brian: Yeah, $4800, that was like November of '21?
Gerbz: And that's not far off from here. We're at $3500.
Brian: Yeah, so it's not I guess. I mean that's, it's a pretty big directional call for six months though. I do think we're gonna see new all time highs.
Gerbz: Within the month?
Brian: Within six months of launch.
Gerbz: Six months.
Brian: Yeah, I mean, I think you'll see noise in the first few weeks just like we saw with BTC. So expect that, maybe a couple of months it could last. But then, you know, once that noise settles down, give it kind of three months, six months, and I think we'll see new all time highs.
You can go and look at the amount of capital that's flowed into all the ETPs. ETPs are exchange traded products, many of which exist for both Bitcoin and Ethereum in other jurisdictions, not the United States. And you can see that the amount of capital that's flowed into Ethereum and those ETPs is about the same as the amount of capital that has flowed into Bitcoin on a market cap weighted basis.
Gerbz: Sure.
Brian: So keep in mind, Ethereum is what, 25, 30 percent of the market cap of Bitcoin?
Gerbz: Yeah, I got it right here. Ethereum is $420 billion Bitcoin is $1.3 trillion.
Brian: So yeah, call it 35 percent of that.
Gerbz: Yeah, there you go.
Brian: 30, 35%. My opinion is you're going to see 30 to 35 percent of the amount of capital that went into Bitcoin into Ethereum.
Because you'll have the retail guys that are probably driving most of it. The institutional guys who bought Bitcoin, it's not just a Bitcoin thing. I mean, remember, institutional investors are, their mantra is diversification. If they're going to allocate to the sector, they don't want just a little bit of Bitcoin. They want a little bit of Bitcoin, a little bit of Ethereum.
Gerbz: It can even be waiting on Bitcoin because they want to allocate to multiple.
Brian: It could, yeah. I think it's probably fresh money that comes in because the Bitcoin ETFs launched so recently. But yeah, but that's my view. And if you look at those numbers and some, kind of math around what the price impact of that will be, I think, yeah, I think you've got to do all time highs in Ethereum after the launch.
Gerbz: Yeah. I mean, and your timeframe lines up perfectly with mine, my timeline, which is breakout at the end of the year of Bitcoin. And, you know, Bitcoin leads, ETH follows, maybe because of the ETH ETF, now ETH leads, that would be a funny thing to watch. But we're starting to get to that point in the cycle where there is a flippening, and we keep an eye on that all the time.
Let's pull up the Bitcoin-ETH chart. I haven't fired that guy up in a little bit.
Brian: Yeah, it's a really interesting spot.
Gerbz: Yeah, it's starting to consolidate. I mean, it's been consolidating for a while.
Brian: We went from a downtrend to a sideways trend. We talked about that last time we were together. And it's still moving sideways.
Gerbz: This is the line that we drew last time I sat across from you. So, here we are. Nothing, it's been volatile, but we talked there's reasons for volatility. not a whole lot going on. But we're gonna break this, and ETH will start to take the lead in the cycle.
Brian: I do think that's right, yeah. That's my expectation. I was early on that call last time, I thought it would have happened by now. But we need, the market needs a little bit more time here. But I do think eventually you'll get that breakout.
[00:52:32] Is It Too Late to DCA?
Gerbz: Do you want to be like, you want to be all in, I think, at that point. I don't, so I talked to a lot of people about averaging in to crypto and, you know, it's hard to do at certain phases of the cycle. Like, when we're in boomtown, it's like, this isn't "average in" time. This is like buying any dips you can, because this whole thing's gonna end at any moment.
And, but during the bear, that's dollar cost average time. I feel like maybe when ETH flips Bitcoin as far as ETH is kind of like outgrowing Bitcoin, is what this chart would say if ETH started to outperform here. That's kind of like, all bets are in. That's the time when I'm like, all bets are in on Bitcoin and ETH.
It now becomes like altcoin mania and it's time, whatever you've got left is kind of scattered about. Place bets on black and red. But, yeah. Do you want to be all in here? Are you still averaging in here? I know maybe you're already positioned the way you want to be, but if someone was newer to crypto, how should they maybe be approaching that right now?
Brian: Yeah, I mean for me, I'm a seller here. Not here, but into moves higher. I'm a seller, I'm not a buyer here. I'm not buying dips here.
Gerbz: Yeah.
Brian: I'm fully allocated.
Gerbz: You're fully allocated now.
Brian: I'm profit taking when sentiment gets stretched. So right now, like fear and greed is probably, I don't know, around 50. I haven't looked at it a bit.
Gerbz: Yeah, we got it right here.
Brian: It was at 30. Yeah, like two weeks ago.
Gerbz: 57. I know. They chart it, don't they? Whereas, fear and greed index here, yeah. So I mean, we just bottom 'em down hard and then boom. We know what happened there. When was the bottom?
Brian: How low did it go?
Gerbz: Bottom here was 37. And that's when, And it's the bottom here in October. It's almost the exact same spot.
Brian: And that's the spot, that's probably right around the time that Bitcoin was testing that trillion dollar market cap, and that's when you should have been buying. So to me, if you weren't fully positioned, first of all, number one thing you should do is listen to The BitLift Podcast.
Gerbz: Woo!
Brian: Get your alpha. Because, had you bought that dip, you would already have a 50 percent return on your position buying it. No, not quite that high, maybe a 30, 35 percent return on your position. If you would have bought the low down to $53K we're already trading at what, $67k today?
Gerbz: Yeah.
Brian: So that's a big, that's a big move. If you're under positioned here, yeah, I think buying dips is fine.
Gerbz: Yeah. If you're still, you want to get in, like, how do you do it? Okay. Buy the dip, right? And with a limit order. This is what, and it's so hard. What would you say to someone who, they had that $53,000 buy order in for, how long was it? Months.
Brian: Yeah.
Gerbz: And they heard all these things were happening in crypto and they were reading the news and Bitcoin's super bullish, and all this stuff happened since then with like in the political realm, right? With all of these new bills getting passed and everything.
It was like, oh my god, I could get left behind. How do you wait for that $53,000 to trigger knowing that it might not? It's one of the hardest things I know for me. I'm not a trader, but even if you're a long term investor, you got to trade every once in a while. You got to buy and sell, like occasionally. Those moments, I feel like you don't flex that muscle enough. And then all of this, and like, it's, weak. It's hard. How do you think about that?
Brian: Yeah, I mean, we talked a little bit about it last time. I mean, I think if you're trying to put a buy, I think use limit orders. To me, that's how you, and you cascade them. So that's what we talked about last time.
If you were under position, we said cascade your limits from $60K all the way down to $53K. If you would've done that, you would've got 95 percent of your position on because we bought them at $53,499. And it's the same thing on the way up. It's like, you'd never know the top. So you gotta DCA, dollar cost average, in and out.
And so to do that, like you just want to set, like if you think the market's going to $120,000 Bitcoin at the end of this cycle and you think to yourself, well, maybe it only goes to $85,000. Well, then you want to kind of pick the midpoint, right? So you could have limit sales at $85K all the way up to $120K for the amount that you want to profit take on the cycle.
It's like, none of us know the future. None of us are smarter than the market, myself included. You're never going to time the exact bottom or the exact top. I've never done it in my life on any asset ever, and I've been trading for a long time. So yeah, dollar cost average is a good way to kind of average down your low, your entry price, and average up your exit price.
Gerbz: And this isn't an advanced tactic. Like it might seem like it, but like with a one hour like little Google-fu, you can learn how to place limit orders properly, get them all in on your Coinbase account, and then sit back and wait. Like, it's not hard to do is what...I think people are intimidated by the way I describe, like the way that I put on a position or take one off. Like it's not something I even do that often, but when I do it, that's the way I do it, and it doesn't change.
There's not like very sophisticated tools for it. Just use a limit order, learn how to place a limit order. You can cancel a limit order after you place it too, by the way, put one on at like $10 just to feel what it's like. It costs nothing to put on a limit order and take one off. Get comfortable using the tool. I think it's like such, so friggin important, if this is your first time doing something like that.
Brian: Yeah, 100%. It's a little trickier with ETH if you're staking, right?
Gerbz: Oh, sure.
Brian: Because you've got to un stake in order to have the liquidity to place the order.
Gerbz: Oh, but people who don't know how to do a limit order, they're not staking yet.
Brian: Fair.
Gerbz: That's, like stage two. Yeah. Let's get some ETH first, then we'll figure out how to stake it.
Brian: Fair enough.
[00:57:29] ETH Staking Talk
Gerbz: Yeah, and you're staking your ETH still?
Brian: Yes.
Gerbz: Yeah, I am too. I was chosen to be a, or my, one of my validators was chosen to be a key decider or something. Do you know about this?
Brian: That's cool. No, what is that?
Gerbz: I'm gonna find the terminology for it, but there's, you can propose a block. That's when you kind of get like the biggest juice. You get a tiny bit, for testing, you get a little bit of yield every day doing that. When you're chosen to produce a block, that's kind of the biggest.
But there's also like this, you can be chosen to be a ring signature validator. You're part of a little club, and you get paid a little extra for being part of the club. And it happens for like a day or two. It happened to one of my validators the other day. I was like, oh cool.
Brian: I love that.
Gerbz: I think it doubled or tripled how much yield I would have earned for that day.
Brian: Okay
Gerbz: Something I just never seen before, that was fun.
Brian: Hey, compounding Yeah, PC yield matters. Yeah, I don't, solo stake because I don't have the hardware for it and it's kind of outside of my world of expertise, theoretically. But I do a dedicated staking, I just use a third party to run, to spin up the smart contracts.
Gerbz: Yeah. So it's not liquid staking either, it's dedicated.
Brian: Correct.
Gerbz: So you don't have liquidity.
Brian: No, I don't have liquidity.
Gerbz: Do you know. I mean, if you wanted it, could you get it?
Brian: Oh yeah. I mean it operates the same exit queue as going through the solo staking exit queue.
Gerbz: I call it a, dedicated is probably a one term, cloud stake, which is similar. Maybe slightly different actually.
Brian: Well yeah, I mean I'm doing it through cold storage, but yeah.
Gerbz: Yeah, totally, I am too.
Brian: It's cloud, but it is cloud because you got a deposit to the smart contract, so it is cloud.
Gerbz: And like we were saying earlier, if you got an empty apartment, rent it out. If you got some empty ETH, stake it.
Brian: Precisely, and you don't have to have 32 by the way. I mean, you can use pooled, every, just about every operator offers pooled staking. And you can do that with a liquid staking. Lido is probably the biggest protocol that's offering liquid staking. So I'm sure you've talked about that.
Gerbz: I have. I was going to look up, let's check out the exit queue or the queue right now.
Brian: I think it's still just a day or two.
Gerbz: Yeah. Someone messaged me out of the blue because they were like, they saw that the queue spiked really hard. It must've just been one monstrous...
Brian: Temporary....
Gerbz: Event. Yeah, they messaged me like this day. It was like, the exit queue was like a couple days all of a sudden. They were like, "When are you gonna keep an eye on this?" So it's pretty flat. we're looking at the queue here. This is the all time. Let's maybe go into 30 days.
Yeah, I mean, it's never been, it's totally flat right now. So you can exit immediately. It says up here The wait time for the entry queue is six hours, to exit is one minute. So you can exit in a flash. I've always said that at some point this monster entry queue that we saw when it all kind of initially fired up, I think this is going to flip at some point. This red line is going to start going up, whether it's instantly or whether it takes months to reach there.
I'm going to, I'm going to probably unstake whatever ETH I plan to sell ahead of time. Just so I'm ready and liquid because volatility is coming and I want to be prepared. And I want to put my limit orders in, like we just talked about. That's what I was trying to make a connection there.
Brian: That's a good strategy.
[01:00:20] Altcoins
Gerbz: All right, cool. I guess maybe lastly we've talked all blue chip. Where you at with alts right now? You got any alts? Have you added any alts? Are you looking for alts? We're talking altcoins, we're talking shit coins, we're talking bets. Things that, we're not going to get our 100x on Bitcoin, we've already got that. Where are we going to find our 100x moving forward? Are we still looking for 100x opportunities?
Brian: Yeah so, altcoin markets have been a rollercoaster. Last time we recorded a podcast, I think we said be cautious. There's been some big moves. Like, I had at that time taken profits on a lot of my alts that had big moves.
Gerbz: Yep.
Brian: And I held onto some others that got, that have still had big sell offs. But they're a tiny percentage. I mean, these are yeah, one, two, three percent of my portfolio. You know in aggregates. So they're very very small. I think, you know kind of right here right now with the sell off, it's an interesting time to be adding.
So I think this is a good spot to be accumulating because you know when we looked at that ETH relative to BTC chart, and my view is that when Ethereum breaks out relative to Bitcoin, you break out of that trend, we're probably getting into the back half, maybe back third of the bull market and we should expect some pretty massive outperformance from alts.
Now, this is contrary to my own portfolio and the fact that I own some alts, but what I would like to see instead is probably more of the same of the deep kind of bear market that we've seen in alts in the last few months. And the reason for that is because I think there's a lot of kind of bogus projects out there that offer very little utility. They're kind of manipulated markets in a lot of way. The projects themselves are not that interesting, and there's a ton of money that's sloshing around.
And I would really like to see the cryptocurrency market, broadly speaking, mature to a point where it starts to put a lot of pressure on these projects that don't have proven product market fit just yet.
Gerbz: Yeah.
Brian: I mean, I think that's a lot of them. So that to me would be a sign.
Gerbz: Proven? There's very, that's a very small camp.
Brian: Yeah. So macro wise I would like to see that because to me it suggested a level of maturity of the market that we haven't seen. And then frankly in the beginning part of this year, we were going the opposite direction with the memecoin mania. So, I don't have high hopes that's gonna happen. Instead, I think you'll probably see another alt bull market, and you don't want to get sucked into that thing after those assets double, triple, 10x, or
Gerbz: You missed it.
Brian: You missed it. So, the time to be buying is now, when the sentiment is really negative, and the prices are really washed. You should be buying here. Now remember, keep it 1-5 percent of your portfolio max, and kind of write it off. That's what I do. As soon as I buy an alt, I write it off and say I lost all that money, you throw some money in, it's gone.
Gerbz: And maybe even set like a price target. Like, I don't set price targets with Bitcoin for example, I time the cycle as far as like timing goes, not price targets. But with alts, if you 10x your alt, sell the fucking thing.
Brian: Yeah. And there's a lot of narrative stuff. Like, look, I don't think we're, I don't think we're done with the narrative driven market.
Gerbz: That's what I was going to say. What narratives are we? We are not done with the narrative markets, that's right. We haven't seen them all yet. There comes a chapter where narratives are coming hot and heavy, like something new every week. We're all going down some new rabbit hole. We've seen, we've tried that a little bit with Bitcoin L2s for a minute. There's some things popping up, but not at the level we've seen in the past.
Brian: Yeah, I mean there's some infrastructure stuff.
Gerbz: Yeah.
Brian: That there was a narrative around, right? There's plenty of infra opportunities, data availability, right? I think AI is a narrative.
Gerbz: EigenLayer AI, of course, yeah.
Brian: Yeah, AI's got a bunch of tokens that, I think there's, it's all a narrative thing. There's no, you know, no product. There's no indication that anything's going to be successful or workable there.
Gerbz: But memecoins is a narrative in general, I guess?
Brian: And there are funds. Like, Grayscale just split up an artificial intelligence fund. They're buying liquid tokens. Memecoins, another thing, where memecoins that are launched on certain ecosystems, those ecosystems are now setting up funds, those L1s, to buy those memecoins and put them into their treasury or what have you.
So, yeah, so I, I think that stuff will still go on. My advice to the market is if you want to participate in that, buy it when there's blood in the street, like right now. Don't chase it.
Gerbz: Yesterday.
Brian: Yeah, don't, yeah, a little late. But I mean, you got some bounces here, but there's still a pretty, there's still a pretty deep sell off.
Gerbz: Yes.
Brian: Don't chase it after the move already happens, you're gonna get burned. And the other, the last thing I'll mention here, which is a real serious problem that people need to be thinking about I'm on the distribution list for a lot of the big hedge funds in the space, so I can tell you from first hand experience that these opportunities come through to me all the time and they're always a no because I think it's dishonest.
But the hedge funds and the venture funds in the crypto space get early discounts to a lot of these token launches. Sometimes they're already publicly listed launch tokens, and those protocols or projects need to raise additional capital. So they'll go to like a Pantera, or they'll go to a Polychain, venture fund. And they will offer an extreme discount.
Sometimes 0.10, 0.20, 0.50 cents on the dollar. And those venture funds will have a short lockup period, sometimes it's six months, sometimes it's 12 months, sometimes a little bit longer. And then they'll dump those coins onto the market, and it's just a guaranteed arbitrage profit opportunity for them. Not guaranteed, but pretty close.
And so it's, you gotta be really careful of that because I think even at these sell off prices, the venture funds can dump their bags onto retail and still make a nice profit. There's all these dynamics in alts, you got to be really careful. That's why I say a small percentage of your portfolio, know that you're probably the last one to buy this thing, and unless you've got some really short term thesis, be very careful. And just know that, yeah, the market structure and dynamic is set up against you. So be really, really careful, and don't chase tops.
Gerbz: Don't chase tops. I like it. I think, yeah, there's actually a really cool app called Unlocks, it shows you projects that have publicly disclosed whether or not they have these investors that were early, and when the unlocks investing schedules are. For every project, it breaks down when those unlocks occur.
So as part of my checklist for when I invest in a new alt, I just go check when the unlocks are happening. I don't want to get caught buying right before a massive unlocks about to occur. So there are ways to detect it, but the checklist for deciding whether to go into a new project or not is long. And like on next week's pod, I'm literally, I already recorded it, it's like my checklist for everything I go through when I'm deciding whether to buy a new alt.
Because I just went through it on an alt that I just hopped into. So I was like, all right, it's time to really clean up what my process is because I haven't been doing it a lot. Like last cycle, I was doing it a ton. I haven't seen a lot of opportunities that I liked, frankly. Even at the very early stages of doing discovery that I thought were interesting, Maybe the only thing I've been eyeing is like Web3 stuff.
I don't think we're done with NFTs, I don't think. I still think the future of the internet will be decentralized in some way beyond what it is today. You mentioned infra, like not just L1 and L2, but what does the internet infrastructure look like? I'm talking like Filecoin, Arweave, like file storage stuff, ENS.
Look at how fast, check out Arweave. I don't know if you follow that, it's been on my list forever. It's up 11 percent today. It bounced so hard off of this recent, that's 20 to 30% in the last couple weeks. Broke out pretty hard here.
I like ENS also here. I just know it's revenue generating, it's been around a while, and there's not another naming system in crypto. Like, this is the one that we use. And I mean, it's just, it's a bullish looking chart here.
Web 3 is a narrative, I haven't allocated to it, but I'm keeping an eye on it. Nothing exciting though. You mentioned Coinbase is your best alt.
Brian: My favorite alt.
Gerbz: Your favorite alt.
Brian: Yeah, it looks like it's threatening another breakout here.
Gerbz: It sure is. That's a nice looking... I mean, is this a massive bottom?
Brian: Oh yeah. I mean, my call at 70 bucks was that, it was going back to the IPO highs at 400.
Gerbz: Did that immediately.
Brian: We're $257 today, so we're not that far off that $400 price. I mean, to me, in this bull market, it always made sense that Coinbase would retest those prior highs when they have so many revenue streams. Base is just another one. If you look at the amount of activity on their L2, it's incredible.
Gerbz: And is it generating, are they like pocketing the revenue, the fees?
Brian: Yeah. That's my understanding, yeah. And then on top of it, it's reduced transaction fees for their user base.
Gerbz: Totally.
Brian: And another big part of the Coinbase thesis is if you look at a traditional tradfi brokerage that's been around like forever, take like Charles Schwab. Like a really, really successful one. They're all public. You can go look through their filings. They have like maybe 5 million customers, something like that, and they're growing a few percent a year. Coinbase...
Gerbz: Has tens of millions already.
Brian: Coinbase has a hundred million, a hundred million registered users. Now, the active's closer to ten, I think, right now. But still, it's massive, and it's growing, extremely fast. There's all sorts of new revenue centers. Go look at who the custodian is, and the clearing agent for every Bitcoin ETF, and now the Ethereum ETFs. There's a couple of the funds that aren't using Coinbase, but like seven of nine are using Coinbase, or something like that.
So, I'm massively bullish on this company. They've become the gold standard for centralized exchanges. They charge really wild fees to get in and out on their retail platform. It'll cost you one and a half percent in, one and a half percent out. It's crazy.
Gerbz: Dude, flip that switch people. Use the advanced interface. It's one switch and it saves you like a whole percent.
Brian: I don't understand why people do it, but tons of people do it, and it generates a ton of revenue for Coinbase. So yeah, I'm still massively bullish on Coinbase. We talked about it a couple of episodes ago.
[01:09:49] Conclusion
Gerbz: Cool. All right. Any future topics, other topics, predictions you want to throw out before we do this again?
Brian: My big call is probably next time you and I sit down to do this again, we'll see new highs in Ethereum. That'll be within, like I said, kind of three to six months post ETF launch.
Gerbz: Yeah, maybe we should do this more often because as you mentioned, every time we do this, it's a bull market. It's a great day. Bitcoin was banging on $67k, it broke it. There it is.
Brian: Yeah.
Gerbz: And let's see. Get this crap out of here. 2021 all time high was $69k and we're back at $67k. Do I think we break out here into $80k's? I don't know if we're there yet, but triple top, maybe it's a triple top.
Brian: Well, your big call is Q4, let's say. We need a little flexibility on that. So, any other big calls you want to make, or is that the big one that we don't really see any acceleration to new highs until Q4?
Gerbz: I'm twiddling my thumbs, I'm waiting, but I'm keeping an eye on things. If it happens sooner, I'm not going to be mad, I'm allocated, I don't have any limited orders in ready to go. But I do have friends and people I talk to all the time that are like, looking to get in, and I'd love for them to have a chance, still. So, I think there's Just do it, yeah.
Brian: Yeah. Just do it, there it is.
Gerbz: Alright, cool man. Cool.