Ethereum Bull Case – with Cobie, Su Zhu, and Hasu – Uncommon Core 2.0
Thanks to Matt Klein for creating this transcript!
Hasu: Welcome to Uncommon Core, where we explore the big ideas in crypto from first principles. This show is hosted by Su Zhu, the CEO and chief investment officer of Three Arrows Capital and me Hasu, a crypto researcher and writer. In this episode, Su and I brought on legendary crypto trader Cobie, who’s @CryptoCobain on Twitter to talk about the bull case for Ethereum and its upcoming catalysts, whether ETH can flip BTC and what advice has saved Cobie to survive several market cycles to date. Enjoy. Thanks so much for joining, Su.
Su: Yeah, you too.
Hasu: And our special guest today is Cobie, welcome.
Cobie: Hello mate. Hello, how are you doing? Thanks for having me.
Hasu: I’m doing great. Thanks. So you have a huge Twitter following and you have been forever basically in crypto, one could say you’re a real dinosaur but that considered, it’s just crazy to me that I didn’t know you until half a year ago. I only joined the space in 2018. Did you take a break or something? Or have you always been around all this-
Cobie: No, I think what it is, is you’re a serious person, aren’t you? You take this thing quite seriously, you write research and stuff and my account just tells jokes and honestly, they’re not even very good jokes. They’re low brow humor. So I think a lot of people see the account and ignore it thinking this account is like, why would I follow that? It seems it doesn’t even make sense most of the time. And then after a while it just ends up on their feed so often that they capitulate into the follow button.
Hasu: I don’t actually don’t think that’s it, but you’re very good at the self-deprecating humor, I must say. No, it’s just that, for these accounts that have been around forever, there are so many accounts that have a couple hundred thousand followers if they have been around for like in 2017, but it’s almost like an anti signal because some of them are just way too rich to care, they have stopped following the space, stopped learning. They’re just selling out but when I sort of found your account, I thought that it’s actually completely different from how you’d expect a large account from back in the day to be because your tweets are actually extremely intelligent-
Cobie: Thank you very much.
Hasu: I really love the humor but I’m also taking a lot away from your commentary.
Cobie: Yeah, I think a lot of the old accounts either changed hands or they truly lost interest and missed out on the run and there isn’t many people that were on Twitter the same time that I was on Twitter that made it through each cycle and capitalized on each of them. I think a lot of those people lost interest in the bear markets. They got wrecked, over leveraging themselves in a period of sideways and really missed out. So there’s a few of them like Angelo, he is a king and he is still half around now, semi-retired, tweets every now and again, currently 10 million underwater on Dogecoin or something but I think the majority of those big early accounts, that the account ownership has changed hands or they just lost interest in the space and now they’re bitter because they sort of missed out on the greatest bull run of all time.
Hasu: Yeah. It’s funny that you said that you said this. So tell us a bit about sort of who you are, where you’re coming from, but I’m especially interested in, how did you manage to sort of rekindle the interest for crypto, for so many cycles and for so many years, that’s the most fascinating thing for me about you.
Cobie: Yeah. So I had a bit of an unusual or strange life to be honest. I optimized for doing loads of stuff, I optimize for having as many experiences as possible because I believe that variety makes you younger in that every time you have a new memory, you do something new that doesn’t blend into the ordinary. You experience it more profoundly and more presently, extend your life in sort of a way of multitude of experiences rather than just the same thing over and over and over again. But yeah, I have a computer science background, did computer science at uni, dropped out of uni to play in a band for a while, went back and finished my degree, did tech startups and in parallel, did hobby crypto stuff all along.
Cobie: And I guess the reason I stayed interested in crypto is… I don’t want to be the dude that says I’m in it for the tech, but I find the tech side pretty interesting so I find that easy to slowly plod along and keep up to date with. And I find the cyclical nature of the market that we’ve had over the last 10 years has been hugely favorable to anyone that was able to address the reality and say, this is sideways, this is a period of pain. During this time, all you have to do is sort of grit your teeth and wait, rather than over leveraging yourself and getting liquidated on a candle that if you look at the chart, now you can’t even see anymore because it’s just like noise.
Hasu: Yeah, I know. I mean, I strongly relate to what you said about sort of making new experiences. That’s one of the things that really shows you how subjective… we experience time where when we learn something new, then somehow the passage of time seems to slow down. I think that’s one of the really beautiful things about life.
Cobie: Yeah, I think this is the reason that the guy that started Airbnb said he started Airbnb, but maybe it just sounds pretty, while not real.
Hasu: Yeah. We’ll definitely get into sort of your experience through the different market cycles and so on later on, and also pick your brain, a lot of things in the crypto space. But first, so I have a question for you, Su, because in October 2020, when we released our episode with light crypto and that did very well, it got a lot of attention and a lot of people are still listening it today and we still get a lot of messages sort of about what we said about Ethereum in that episode. I think at that time we were basically the peak bearish on Ethereum, especially you, and six months later, you’re now a super bullish. So what happened in the meantime?
Su: I think as traders, we sometimes use hyperbole just for impact but no, I think at that time there were a lot of inflows into BTC in the OTC market. That was around the time of the Saylor inflows. It was well before… I think the price was probably around 12K, 11K then and ETHBTC was around 0.031. It proceeded to go to around 0.024 before starting to bounce and I think, I mean at that time it was just the backdrop of the institutions are coming for digital gold thesis and this is something that I still believe if everyone comes together and says, this is the digital gold, then wow, we are… then yes, then Bitcoin will definitely separate from the pack and ETHBTC ratio would go down quite a bit.
Su: But I think to the contrary of that belief, you also saw a lot of interest in what Defi is actually doing to challenge the traditional financial rails and also you’re seeing Ethereum tokenomics improve and you’re seeing Ethereum community improve as well. So I think in that backdrop, I mean, we can go into it more later in depth about the bull case for Ether, the bull case for Ethereum but I do think the bull case has been stronger than ever at this moment.
Hasu: Yeah, I totally agree. And yeah, I think if we have sort of a high level topic for this episode, let’s make it the unpacking sort of the bull case for Ethereum, so let’s jump into some of the different catalysts and why you think we are more bullish than ever. So maybe starting with EIP 1559, so to both of you, how does EIP 1559 change the tokenomics of Ether and make it more attractive?
Cobie: Yeah, I mean, I don’t know the exact number if I’m honest, but I think it’s something like if 1559 and the merge were active already, there would be something like 800 new ETH issued yesterday and like 15,000 ETH burned. And the validators receive like 6,000 of those ETH in transaction fees, which if you annualize, works out as a 60 to 70% APR from staking. But if you take a look at those numbers a little bit more closely, 15,000 ETH burned is gigantic compared to the daily issuance now. At the moment, I think it’s about 70 million, go to minus everyday and about half of that is from inflation like new ETH’s issued. This is going down to 800 issued with so much supply burned, the pure really basic supply demand equation just becomes incredibly favorable to Ethereum, not to mention that the staking reward also incentivizes people if it gets to 60, 70%, I think it may get to like 50% and it incentivizes people that hold these to lock up their ETH for even longer, which compounds the supply demand issue even further.
Cobie: I think it’s massive and people are not truly factoring it in. And I think they’re not factoring in because ETH2 has become a bit of a meme, like “ETH2 soon ETH2 soon, the merge is going to happen soon” and it’s like 2021, I think the current year, and we still haven’t merged. I think people are going like, ” Yeah, this is not real. This is not going to happen ever. But the truth is EIP 1559 will happen in summer and the merge will probably happen later in the year. So they’ll both be a reality by the end of the year, I think.
Su: Yeah, I think philosophically, right, it gets back to the question of what did Satoshi invent? I saw this Vitalik presentation, one of the dev cons where he said he invented crypto economics, that’s what he invented. And I think that, that idea is I think a startling one, because what it would mean is that if there were a coin that managed to get its community together, to coalesce around its value proposition and also to transact and use it as the underlying chain that they work on, then that would be, I mean, basically Bitcoin is also that and so to sort of compare and contrast their valuations, you also have to compare and contrast how they function in their ecosystem and how they function, not just as a store value in the mythological sense or in the narrative sense, but in its ecosystem itself.
Su: And so from that point of view, it’s quite easy to see why EIP 1559 is hyper bullish because it represents an assertion that Ether is the native collateral of Ethereum, and that ETH will accrue value within this ecosystem and will try to be as sound as possible as something that people will hold. So, but I do think that there are also good arguments. I mean, they’re always having good arguments in the bitcoiner side that ETH is changing too much all the time. But I think that if you look at the stewardess or not the stewardess, but the stewarding of the Ethereum project, it has been done in such a way that it is generally protecting the rights of ETH holders. And as long as that continues, this confidence has only been increasing over time by people. So…
Hasu: Yeah. Right. I mean, people love to point out that ETH’s monetary policy has been changed a few times before, and then you have sort of erratic seeming difficulty bump where issuance tends to slow it down. And then all of a sudden the difficulty bump is reset and then issuance spikes up again. And it just makes for an incredibly ugly looking graph. And I actually thought that, sort of the ETH community sort of breaking, or if developers breaking this rule, that they would never increase issuance for the beacon chain, where they’re generally added a second issuance. I thought that also back in October that this would be perceived as more sort of breaking this narrative that you’d never increase issuance, only lower it, but it hasn’t at all so that was one of the things where I would say, yeah, I was wrong. I thought the market would pick up on this and it didn’t at all so I mean, personally, I’m okay with that. Totally.
Cobie: I think it’s interesting because a lot of the core Bitcoin maxi camp often cite this as a thing that’s bad about ETH and in many ways you can agree with them, right? If your goal is a political or philosophical argument around removing sovereignty, about having sovereignty and removing state from money, then Bitcoin is by far your best bet. It’s by far the most decentralized and the most difficult to change, like you saw with Bitcoin cash that large, highly influential participants in the ecosystem tried to make a relatively big change to Bitcoin and it was rejected. But I just don’t think those things are investment thesis. I think you can have that as your political belief or you can have that as your philosophical belief and you can also at the same time, take an unbiased look how the tokenomics of Ethereum change and say, Hm, that’s probably favorable for the price of Ethereum, which is completely disconnected from… unless you’re entirely allocating capital based on philosophical or political reasons, which if you want to do that, go ahead but I’m not someone that you should follow in that case.
Cobie: I think if you separate those two things out, I think it makes a lot of sense. So I agree with a lot of the Bitcoin maxi arguments, like Bitcoin is the most decentralized currency, not having a central financial planner that’s changing tokenomics makes for something that you don’t have to rely on a certain group of people. It makes it something that you don’t even have to trust because it’s going to stay the same all the time. But I just don’t think that’s an investment argument. I think it is something totally different.
Hasu: Yeah. I mean, on some level you would think that the goal of every coin is to basically just maximize the value of that coin for its holders and that’s how it wins. That’s how it wins. You know-
Cobie: So everything’s safe moon.
Hasu: You would think so, right, but something like safe moon-
Cobie: Everything’s safe moon was levels of sophistication.
Hasu: Yes.
Cobie: On top of it.
Hasu: I would say the other dimension is probably is sustainability, right? I mean, you can design, we have learned a lot about basically tokenomics and pumpamentals, from the first defi summer, I would say books will be written about sort of the 101 of how to pump a coin based on that. But not everything is like… the higher your pumpamentals, the lower the sustainability of the pump tends to be right. And I think that’s also something that on a very different timescale Bitcoin and Ethereum have to also look at and deal with, right? How can you really create the best economics as possible because the coin with the best economics for its holders will be the most sustainable, right? Tokenomics will be the coin that wins, ultimately, at least on a very long timescale. And I also think that EIP 1559 just dramatically improves the tokenomics of ETH and that’s why I see it as a very positive catalyst.
Cobie: Yeah. What I find more interesting than the pure tokenomics or the explicit changes to supply and demand or whatever is the attitudes towards these things from each… both of the communities, the holders, the developers and stuff. The attitudes towards how you should approach monetary policy attracts people that agree with the same thing. Right? So it’s like these sort of self-reinforcing communities where if you believe that like Satoshi, well, at some point was a central planner and he wrote the tokenomics for Bitcoin, and now they exist forever and they should never be changed. It’s like that’s set in stone, almost biblically. When people that believe that flock to this community and for people that take a lot more of the Facebook move fast, break things, change things when they feel necessary to be changed, they seem to flock to the Ethereum community.
Cobie: So what I find more interesting is how over time those individual attitudes will scale and will sort of grow the network because on one hand, as Ethereum ages, it may lose that sort of, yeah, we can just change things type of approach, and it might become a lot more boring and stable, but equally it might just be something that’s fostered into the developer community and just something that exists forever and for the rest of time, you have to read exactly what’s happening on ETH week to week because things might change from October to April.
Hasu: I definitely hope that it would. I mean, it’s good that they can sort of pivot into the better designs and that’s what we’re seeing right now so… but I would think that they have to tune it down at some point, sort of the iteration because already today, if you don’t pay… If you build a large application on Ethereum and you don’t pay attention to sort of the governance, it could just be that some of your competitors get a proposal into the next hard fork that sort of wrecks off your smart contracts. And this is something that should definitely not be the case, you should definitely strive for. I mean, I sort of like how Vitalik puts it, with its sort of the credibly neutrality. If you build on Ethereum then you should have the guarantee that your application is good for at least a few years at the very minimum.
Hasu: So moving on apart from EIP 1559, we talked about the merge, right? And this was basically accelerated by, so the miners getting angry about EIP 1559, threatening to stage a demonstration of power and effort for us that then didn’t happen, but still it sort of showed the community that’s accelerated so that the transition to proof of stake and as I understand, you’re probably following that closer than almost anybody because of your involvement with Lido, they said, can we talk about that?
Cobie: Yeah. Yeah. So I was part of the Lido team for the majority of last year. And now I’m part of the independent member of the DAO, no longer a member of the core team, but Vasiliy from the core team is one of the smartest crypto people I’ve met. Maybe just people, maybe I don’t need a prefix with crypto anymore, they have merged into the same thing and yeah happy to chat about it.
Hasu: Yeah. So Lido is a staking service basically, right? For ETH2 currently on the beacon chain, but then, I mean, for you, the merge is super relevant, right? Because it basically expands your market by a hundred X or something on Ethereum?
Cobie: Yeah. So the main goals behind Lido were initially to fix the staking user experience issues for Ethereum. So they designed it in a slightly non user friendly way, which is maybe just how they do things, but you can’t stake anything except multiples of 32 ETH. And when you stake ETH on ETH2… still like if you stake today, you spin up your own validator and stake today, you’re basically moving your ETH to ETH2, and you’re earning rewards that you can’t access until transactions are enabled on ETH2, which is some point in the future, maybe, whenever they’ve finished up their bits and bobs. So it’s like a very big commitment and other 32 ETH now is a decent amount of money so it disincentivizes or prices at retail.
Cobie: That’s Ethereum’s motto for 2021, isn’t it? Just pricing at retail, no matter what you do, you price at retail through, but it was initially to solve those two issues to create a two-way door for staking ETH and allowing you to stake smaller amounts of ETH. In the bigger picture, the primary goal is to solve the competitive equilibria between participating in DeFi, like participating in on chain lending and securing the Ethereum network. Mostly if you participate in DeFi today, you can get yields that are greater than the yield you’ll get from staking your Ethereum so any self-interested rational actor would take the higher yield available from DeFi than securing the ETH network and getting your 12% or whatever you get today. Lido allows you to compound those yields so you can stake your Ethereum, you get an on chain derivative of staked, an ERC 20 that represents your staked Ethereum, which you could then use in DeFi.
Cobie: So if you follow this train of thought, you can imagine that some point in the future, the new base currency on Ethereum would be staked Ethereum rather than Ethereum, because it can do everything that Ethereum can do except you get the base yield, you get the sort of risk-free yield. I did air quotations, no one can actually see me. Can they? You get the base yield on your ETH, and it’s already like ERC 20 wrapped for DeFi and stuff so that’s the core purpose behind Lido for anyone that is listening, that don’t know what it is or why it was created.
Hasu: And how’s that going so far? How do you see adoption using the beacon chain and especially adoption of the staked ETH token?
Cobie: Yeah, so I think about 7% of all ETH staked is staked with Lido, at the moment, and nearly all the other staked ETH is staked with either Kraken, Binance, [???] or stakefish so a lot of the big exchanges have gigantic market share and it sort of makes sense, right, because the way-
Cobie: Yeah. And it makes sense, right? Because the way staking was designed with these huge lockups and lack of liquidity, lack of the ability to un-stake was a perfect setup for exchanges to launch a centralized staking derivative, like you can un-stake within their own centralized market. So of course, they can provide a superior experience to solo staking or joining some pool. So I think Lido is the only, or a staking derivative, on-chain staking derivative is the only staking option that can match and is probably superior to exchange staking.
Cobie: So I think the adoption has been pretty good because of that. There’s billions of dollars in Lido now, I think just over a billion dollars staked in Lido. And there’s a gigantic curve ball of ETH to staked ETH so that if you want to on-stake by selling your ERC-20 staked ETHs, you can do that with relatively low slippage. I think at the moment you lose less than half a percent by doing so.
Cobie: But you’ve also seen a lot of on-chain staking derivatives that have tried to do it, not reached a sufficient liquidity, and their users just get wrecked if you stake and then you try and on-stake, you immediately lose 15%. So I think having the liquidity around the two-way door is super important and I’m glad that Lido has been able to achieve that. And being the generally accepted staking solution early is pretty helpful. After the merge happens, the product gets much more interesting because you no longer have price risk when un-staking. You can stake, you can un-stake after the merge transactions are enabled.
Cobie: At that point, the product starts to come into its own, but it also loses the moat of competitors can now vampire attack you much more easily, competitors can provide better products, and the one billion in liquidity that’s in Lido is no longer stuck there by the properties of the merge. But in the future, I can definitely see a time where instead of… You have your optimism and your Arbitrum or whatever roll up takes market share, and in that roll up, you use staked ETH as your base currency and you earn a yield on whatever you’re doing in Ethereum, whether you’re trading, whether you’re providing liquidity somewhere. I can imagine that being the future. It brings the question of, why didn’t ETH build this native into the protocol? But…
Hasu: Su do you have any thoughts on the merge to ETH2?
Su: Yeah, I think I definitely agree that with staking derivatives on ETH, it’s going to be quite a lot of winner take all effects, because like you mentioned with liquidity, everyone wants to stake where everyone else is staking, that that’s how you ensure the liquidity process. If you go into a pool that not that many people are going into, you’re taking so much risk for zero gain. You have nothing, there’s no upside and only downside, right? So, that I think people should consider.
Su: I think also with the merge itself, it’s going to be really interesting to see what happens. There’s some people who’ve been asking, is there going to be a proof-of-work fork of Ethereum? Is there going to be, are miners going to protest all this kind of stuff? And I really do think if there is a fork, it’s not going to do very well at all, because who would support it at this point? And who would be incentivized to support it? It’s very few people, right?
Su: So, it’s very hard to see how the merge will get stopped by forces that be, that will say, I don’t like the fact that POW is being turned off, just because I think the general strength of the Ethereum ecosystem now is so strong with the application layer and with the status of the Ethereum foundation. And I think with the certainty they have on the roadmap now and that the community is behind it, I think there was a time a year and a half ago, two years ago, where people would have said, “You know what? Just cancel ETH2. Cancel proof of stake. Just do like 1.5x or a 1.x and then do proof of work plus roll-ups and that’s done.” Right? I think that there was a time where that was actually a popular view among very large ETH holders that that would be the right way to do things. And-
Hasu: Yeah, I agree.
Su: I think now that’s definitely shifted where there’s a resurgence of interest in this ultrasound money thesis and this idea that it sufficiently differentiates itself from Bitcoin by being purely proof of stake. So I think that you’ll hear that narrative a lot at that time where they can start extolling some of the benefits of being purely proof of stake. There are, of course, also downsides, but it opens up a whole narrative mind space I guess. So it’s going to be interesting to see how that develops.
Hasu: How would you compare proof of work and proof of stake also in sort of the eyes of the market, especially?
Su: Yeah, I think if you ask people two, three, four, or five years ago, there was a lot more respect for proof of work than there is now. It used to be that, it’s unforgeably scarce, it’s creating this unforgeable quality from the physical world. It’s bringing that cost into the system. But with the launch of a lot of these proof of stake networks, like Polkadot, Cosmos, and so on, Solana, it just has moved the Overton window so far to the direction of saying proof of stake is just one other way, one other consensus mechanism.
Su: And so that normalization of proof of stake, I think, has been… Actually, I mean, given the issues that EOS had with its proof of stake, with its delegated proof of stake network, there also was a time where it looked like the proof of work maximalists seemed like they had a good argument. And it could also be that proof of stake hasn’t even been around long enough to test some of the edge cases, but where it is now, the market is comfortable with proof of stake. Put it that way. They’re comfortable with high staking rates, they’re comfortable with the governance around them roughly.
Su: And so I think the market, in a way, views proof of work as a bit archaic, I think. That’s why you haven’t seen new proof of work launches. The main ones that have launched during this bull bear market, Grin, and the two Mimblewimble coins, Grin and Beam, they’ve absolutely collapsed. You saw the FPGA-based ones, like Kadena and those have also absolutely just not go anywhere. And so there’s also this idea now that if you launch a new proof of work coin, it’s an incredible waste. So, that’s been interesting to see.
Hasu: So the market definitely sees it as archaic. And so proof of work definitely has an increasing image problem, I would say. So with the rising, so impact investing and environmental narrative behind it. But that’s also just the mechanistic, the supply and demand argument behind it, because in proof of work, you do actually leak value out of the system constantly every year, right? Because you pay parties that are external to the system, that are not your own holders, whereas proof of stake completely eliminates that, right?
Hasu: So there’s just far less selling pressure. So I would say that even… Well, I increasingly think even if proof of stake… Proof of stake can be less robust, but it’ll probably still win, unless it’s far less robust, but there’s some margin there where it can be less robust, but still win, just because it’s so much more attractive for holders basically.
Cobie: Yeah. I do think there’s a big dynamic shift of the majority of inflation to miners versus the majority of inflation to large holders. It does make a difference who’s holding the stuff and who’s therefore going to be selling it. But honestly, I don’t know enough about the economics of the miners’ business. I always just see it here on Twitter or on some on-chain analytics Telegram group that the miners are dumping. That’s all I ever hear.
Cobie: But I was surprised that the data, someone said that after 1559 in the merge, Ethereum will have lower issuance than Bitcoin. And I was like, “Wait, Ethereum has higher issuance than Bitcoin. How is this possible? It’s so much smaller.” I was like, “Wait, this is super bearish.” That’s crazy. But it’s still crazy that inflation is so high. And that 50% of the reward per block is from fees. I think it’s over 50% of the average reward per block is not from direct mining reward, it’s instead from fees, which just seems enormous. 35 million a day or something.
Hasu: Yeah, right. I mean, now, this is something that people didn’t really see coming, right? Most people anyway, that nowadays miners earn revenue from three sources, the inflation, the transaction, the just, I would call them like congestion fees. It’s just people wanting to get into the block. They just want to be included. Doesn’t matter at what place in the block, they just want to get in.
Hasu: And then you have to MEV, right? So that the value from miners getting transactions in early in a block, making arbitrage in Defi liquidations, and so on, just getting to stuff early. And this has been growing at such an enormous pace and this sort of hyper charges the whole proof of stake narrative, right? Because proof of stake internalizes all the money that currently goes to miners and miners just found this unexpected, but huge revenue source that’s in itself bigger than the inflation and the fees combined on most days in like the last six months. And all of this money would then also go to stakers and that’s just such a powerful thing.
Cobie: Yeah. MEV after the merge is going to be pretty interesting, because of validators who can extract MEV are going to be able to compound their stake and earn more yield compared to regular validators. So you can imagine there’s going to be an arms race in a way, because exchanges are going to need to do this so that they can have a competitive offering on yield.
Cobie: Also the products like Lido, anything where there’s a pool, is in a good spot because the odds of proposing a block has a lot of variants. So pools extracting MEV together are going to outperform, I think. And then in ETH2, you know the slot proposal in advance about 10, 15 minutes, 12 minutes in advance I think, so it can be a literal arms race to paralyze who’s coming up with the best ordering, max MEV extraction, unique strategy as pools of pools services centered around all this. It’s going to be like, I don’t think people have thought about that enough. Maybe people have and I haven’t read a good piece on it yet, or I don’t follow the right people, but I think there’s an MEV arms race is on the way.
Cobie: And I don’t really know how to position properly for that yet. I think Lido has a pretty good position in that there’s a validator set of extremely high quality validators working in a pool together. And that… Yeah, I just don’t know how to position for that yet otherwise, but I think it’s going to be super interesting over this year.
Hasu: So, the validators that currently work with Lido, largest ones, do you have any insights into if they are already preparing and thinking very hard about how to extract the most MEV after the merge?
Cobie: Yeah, I don’t know. I think it’s also going to be interesting because I don’t entirely understand how the roll up stuff is going to interact with it as well. I think we’re going to see elimination of a lot of the unsavory MEV pretty soon. But yeah, on the question about the validators, I know some people in Lido have been thinking about it, some of the people at Paradigm have been thinking about it a lot. And I think Lido and Flashbots are chatting to each other.
Cobie: On a per validator basis, I’m not sure. I know p2p.org has some special software in a bunch of the networks and that’s why they offer a higher yield for a bunch of the protocols than a lot of the exchanges do. So I think it’s like, if you stake Polkadot with p2p.org versus crack and you get double a p2p.org or something, but… So I’m sure, yeah, individual validators are working on it a bunch as well.
Hasu: Okay. So we discussed EIP 1559 and the ETH2 merge as potential catalysts for Ethereum in the next six to 12 months. Su, do you think that the launch of any particular layer two solution or even several of them together does also represent a viable catalyst?
Su: In what sense of catalyst? Can you explain?
Hasu: Do you think that it would just allow Ethereum and DeFi to do stuff that are currently not possible? To me it seems like many people are actually priced out of using Ethereum right now. And that also is what explains the rise of Solana, the rise of BSC. Do you think that those people would “come home”?
Su: I think actually there will be a lot of use cases that can come back to Ethereum once there’s layer two scaling. I think with ETH2, it’s too far to say. It’s too far in the future to say what the UI/UX impacts will be, because they can create new problems easily just as quickly as they solve old ones, as we know about Ethereum. But I do think that it doesn’t even matter if people come back because I think what BSC showed, I had a tweet that was saying, “BSC is the most bullish catalyst for Ethereum I’ve ever seen,” is that you… It showed that actually the Ethereum ecosystem, it got it all right. It has, Etherscan is great, MetaMask is great, everything is great. EVM is great. Developers can use it, they can audit it, they can deploy safely, relatively safely.
Su: It solved all those questions. And especially given that Binance had tried to do it with Tendermint before and it didn’t go anywhere at all, it really showed the network effects of Ethereum in a huge way. And it showed that with, let’s say a 10x increase in throughput, you can get 100x increase in usage. And so it just makes it that much more likely that the smart contract vision for the world comes into existence I think, because it’s proving to the market that there is this demand to act on chain, even if it’s less decentralized for now. So…
Cobie: Yeah, I completely agree with that. If you think about it from a product point of view, right? You are seeing product market fit of EVM with users. So I totally agree. I see the rise of BNB and BSC as hugely bullish for Ethereum in the long, long, long run. Also very bearish for Tron, what were they doing? It was all available for them.
Hasu: They had the right idea, right? Right idea, wrong-
Cobie: They didn’t do anything. The flip side of it is one thing I think BSC is incredibly good at is this sort of… Binance are also incredibly good at marketing, right? They’re good at marketing. They’re good at saying outright, “Welcome to the greatest casino of all time.” The stuff that’s popular on BSC now does not even have the pretense of being legitimate a lot of the time. Some of it is simply, “We designed the tokenomics in the hope that this will go up so we can all get rich together.”
Cobie: In some ways, honestly, I find that a little bit more honest than a lot of the 2017 participants, but BSC are also incredibly good at marketing, they’re incredibly good at saying, “Come here, these things are going to go up and you’re going to make some money. And if Ethereum, I genuinely believe that BSC could be entirely centralized, sent back and forwards on a Google Doc or something. And a lot of the clients on there would have performed basically the same. So as new things are built, I think Binance can just integrate whatever is centralized in it, so they can just go, “If Solana does well, let’s slap some Solana in there. They can do whatever.”
Cobie: So I think their strength is access to new market participants via directly marketing to them, because if people are interacting with BSC and BNB, they’re using Binance, they are acquiring a user for a company which is then, that user has a lifetime value for them and stuff. So I do think that’s a bit different from Ethereum. And while I see it in the long, long run as super bullish for Ethereum because it’s clear part market fit between EVM. It also, I don’t think you can say if Ethereum had the scaling today, all those users would have been boarded onto Ethereum instead, because Binance are still going to be doing their marketing, they’re still going to be pulling people over and Binance is still hugely incentivized to pull people onto a chain that uses BNB as collateral.
Cobie: So, I think it’s interesting. I think it’s interesting how that part of the ecosystem will… How that narrative will be written over the next few years, because so many things on BSC are just going to zero. So many things are just like a Ponzi or it’s a meme, or it’s going to zero. And a ton of those users will get burned and then are they going to blame Binance for that? Or are they going to, they’re just going to exit Crypto entirely? And then how are the regulators going to approach something like this? Tons of basically illegal security is being launched on a relatively centralized chain where there’s like, what? 10 to 20 validators or something? It’s not super censorship resistant, should Binance have a fiduciary responsibility to be interfering or whatever.
Cobie: I don’t know how any of that’s going to play out. It’s going to be very interesting. Honestly, a lot of this space, you just kind of got to sit back and be like, “I don’t know what’s going to happen.” I’m just trying to watch it all so that when they make the movie in 10 years, I can be a consultant and I get to meet the new Leonardo DiCaprio and don’t go on the red carpet and go, “Look at me.” That’s my primary motive.
Hasu: Do you see, is there anything in DeFi that you guys are waiting for in terms of that really gets you excited that’s about to launch in the next three to six months?
Cobie: Loans that are not incredibly over collateralized, but I don’t know anyone that’s doing them. I don’t know if it’s about to launch, but I think that will be interesting because everything’s so overcollateralized. I think that’ll be interesting.
Hasu: Do you use recursive borrowing on Compound, Aave and Maker?
Cobie: No, I’m too simpleton.
Hasu: Okay. But you can, you can do like three to four x leverage, right? Today, if you want? You just have to leave it in the protocol?
Cobie: Yeah. Other than that, I’m not super sure. I think a bunch of the upgrades are going to be interesting. I think Uni V3 is going to be interesting to see how it plays out with Curve and with SUSHI and stuff. It’s not DeFi, but I’m excited about Arbitrum or Optimism or whoever comes around and launches, because I don’t think people are properly quantifying the scaling benefits that roll ups will provide.
Cobie: So I think roll ups is like 100x increase in throughput and ETH2 in shardings are only like a 50, 60, I can’t remember the exact number, I think it’s 65 or something, increase in throughput, but those two things stack multiplicatively. So roll-ups on top of sharding is like 6,500x increase in throughput. And the ETH2 roadmap is like, move to proof of stake, sharding of data but not of computation, and then eventually full sharded transaction processing, which is like, that’s going to happen in 2030 or something. I have no confidence full sharded transaction processing is… I think it’s years away.
Cobie: So full on- chain scaling, like sharded applications, on ETH2 is still years away. However the roll ups on top of sharding of data, I think is going to be pretty soon, like next year early, I don’t know what the term from ETH2 is, but it means you get that 6,500x increase in throughput pretty soon comparatively. So I’m pretty excited for Arbitrum or Optimism or whichever ZK one actually ends up beating them to market because they’ve taken so long. Those are the things I’m most looking forward to. But yeah. Su, what about you? What are you looking forward to? And also, if any of them are still fundraising, can you slip me a intro?
Su: Of course. I mean, on the DeFi side, I think just DeFi perpetual swaps, DeFi leverage trading, I think is… I mean, dYdX obviously with layer two on StarkWare, I think that’s definitely one to look out for. I think there’s also a number of other ones that are good that people should just try out. A lot of them are in liquidity mining phases right now, so you’re going to get paid to use them. And I think in general, those have all worked out very well for early users. So it’s something for people to look at.
Su: I think on the roll-ups point, I 100% agree. I think people really don’t get how much scaling can come from roll-ups. I think that even if they didn’t do ETH2 sharding, there would potentially be ways that you could do a kind of network of roll-ups and that would already be enough scaling for Ethereum.
Su: And I think the other big point to add too is that in 2017 and 2018, there were already talks about layer two with…
Su: In 2017 and 2018, there were already talks about Lira too, right? With Raiden and with plasma and these kinds of concepts. A lot of those teams and those team members later on joined a for-profit commercialized, layer two companies and solutions. I think what was missing then was that the application demand and the application quality wasn’t there yet. And the users weren’t there yet. So people didn’t know exactly what they’re optimizing for, what were the pain points, what was going on? It was all research, right? It was all more theoretical. Whereas now, there’s so many different implementations and there’s so many teams competing to be the first to market, to win applications, to win mandates.
Su: So now you’re in the very free market phase. You’re in the very competitive phase of Ethereum layer two, and that’s incredibly bullish for actual deployment. There’s not a chance that roll-ups don’t get deployed in a big way in the next year, right? There’s zero chance. Whereas in 2018, despite all the hype about, Casper FFG, plasma, all this kind of stuff, it’s just all an idea. It’s an idea in someone’s head. So applications have driven the infrastructure, now.
Hasu: I agree. That’s what was missing back then, that you had actual application demand. And now, is there a sort of breaking at the seams? Because there’s way too much application demand for the little infrastructure that we have. And that just creates this huge incentive to improve the infrastructure and then deploy it in sort of a rapid manner. So I’m really looking forward to that.
Hasu: Personally, I am a bit more hesitant to call any of this really scaling, because I’m still not a 100% sure how Ether will actually look and feel when we’ve transitioned to this sort of asynchronous execution model, right? Where all of a sudden stuff that you do on one roll-up that’s sort of atomic you’re used to today, but once there’s something that touches the base layer and the roll-up, that’s no longer atomic. Once there’s stuff between two roll ups, that’s no longer atomic. So how do you think about sort of the move to the asynchronous execution model?
Cobie: I think the problem is that it is now inevitable because since roll-ups only use the chain only for data and not for computation, and they’ll be able to use the sharding of data pretty soon, and you get that 6,500X throughput quite soon because of the combination of those two things. By the time base layer scaling happens on Ethereum, no one’s going to care. It’s going to be two or three years away. And it’s going to be a performance decrease versus the two things that stack that we’ll have this year or next year. So I just think it becomes inevitable. And I’ve read that even ETH core now is saying, “okay, what does the Ethereum look like if you build a roll-up centric roadmap for how you build a Ethereum.” So to me, it just seems like it’s an inevitability now, but beyond that, I don’t have any strong opinions.
Su: I have a question for you actually a bit off topic, but do you think that if Ethereum were to “flip” Bitcoin, that Bitcoin / USD would still be able to sustain levels and people would still buy Bitcoin as a store of value? Or do you think that that would be challenged substantially?
Cobie: I think “the Flippening” is now inevitable, but I think it’ll be incredibly temporary. So I think you’ll have a massive blow off top. I think the ETH blow off top will be either slightly before or slightly after the Bitcoin blow off top, and at the ETH blow off top it will temporarily “flippen”. I’ve never felt more confident in the trade in my life, not financial advice to listeners, but, the reason is that the total addressable market of things for Ethereum is just gigantic. So even if Bitcoin gets to the store of value, it’s digital gold narrative, gold, the market cap of gold, a total addressable market of gold is still lower than the total addressable market of everything, of all money.
Cobie: And when the internet launched, and people got the internet wrong thinking it’s an additional channel, now you’ve got TV, radio, and internet, rather than realizing, no, the internet is just a new medium for all channels. You have TV on the internet, you have radio on the internet. It creates new mediums. The macro vision for Ethereum is that for all of money. Whereas, the macro vision for Bitcoin is now digital gold store of value.
Cobie: When you talk about crypto equities, or stable coins, or whatever, people never go, “oh, is that on Bitcoin?” You automatically assume this thing’s built on Ethereum. Great Britain’s doing a stable coin trial and Path messaged me and was like, “do you think this is going to be on Ethereum?” Unless that’s what you default assume, it’s not going to be on Binance smart chain, is it? But that is your default assumption, this is probably going to build on Ethereum because right now, 90 odd percent of things that have usage in the crypto ecosystem have built on Ethereum.
Cobie: Maybe it’s less than 90 now, because Binance is super popular at the moment. But even Binance smart chain in a way is built on Ethereum because it’s just the same source code. So I think “the Flippening” is inevitable. I think in bull markets, Ethereum hugely over-performs. In bear markets, Ethereum goes to zero while Bitcoin does pretty well. It performs better on the downside. So I do think we’ll see a very temporary “flippening”.
Cobie: I think Bitcoin will be able to sustain USD values because I think the narratives for the two things are very different. I do think you’ll see a bunch of institutional adoption of Ethereum soon. I read a report through the day by a guy called Alexander who runs a fund that works with helping institutions get access to crypto, and it was just all about Ethereum and saying, “it’s a first-class peer of Bitcoin in their eyes now”, but yeah.
Cobie: Yeah I do think there’s going to be a bit of a move from, I think it was you that said it to me, you’re going to start to see some cold wallets moving and taking allocations to Ethereum. And there’s a lot of people that are underexposed with Ethereum. But also I think a lot of the people that have bought Bitcoin have not bought it to sell the next one that comes along, they took 10 years to buy Bitcoin. They’re not going to go, “oh, wait, we bought the wrong one, let’s quickly buy this other one and dump all our Bitcoin.” I think a lot of the people that are holding Bitcoin now, are in the “we’ll never sell” camp. And worst case scenario, they’ll go, “we should also allocate to Ethereum, take another 1% out of that treasury” or something.
Cobie: But that’s on a really short timeframe. So I was like, “a “flippening” happens, Bitcoin, doesn’t go immediately to zero.” It probably sustains well, and de-flips and everyone goes, “ha ha”. That was what Bitcoin’s back or whatever. On a longer timeframe, I do think the bare case for Bitcoin is Ethereum. I struggle to see, without it performing similarly or without the bear market safety, what the narrative sustains as. Because I think the majority of crypto markets is no one trades on reality, everyone just trades on what everyone thinks reality is. The post-truth era has gone too far in the crypto market, everyone just trades on narrative now and it has become super important.
Cobie: So I do think if you have a “flippening” that sustains or Ethereum largely gains on Bitcoin, I think that becomes troubling. Temporary “flippening”, no problem for Bitcoin / USD, but if the average price of ETH to Bitcoin over the last sort of five years has been about what it is now, right? Probably if you average the price out over. If that changes significantly, and if it goes to 0.1 instead of 0.04, and sustains over a longer period of time, I think stuff like that starts to damage the narrative of Bitcoin a lot more than a temporary “flippening” does. Because a lot of people, I think have got scared out of buying Bitcoin. These institutions, family offices, and stuff, they got told not to allocate to Bitcoin by JP Morgan and Goldman Sachs either because they were dishonest or naive. And now, come 2020-2021, they’re considering taking positions because they’re seeing Elon doing it.
Cobie: Now, all of the people that told them not to do it are saying, “oh, actually yeah, we’ve taken a position in that now.” But they see the price of Bitcoin as far too high or the bull case scenarios for it go, “well, maybe I can get triple out of this, and if I’m getting a triple, I can go participate in some risky stocks where I don’t need to do a bunch of additional reg compliance stuff for it to be possible for me to get exposure. If I’m going to do the funny money, if I’m going to do the weird internet money, I need more than a three X.” And then they start looking down CoinMarketCap, or CoinGecko or whatever. So in some ways, I think it’s kind of funny that they got footed of the greatest borne of all time. And now they’re digging through CoinGecko to find the shit like, “I’ve missed my gains, I need to pick up some, I don’t know, what’s this Cardano thing.” But in the other sense, it makes it bullish for stuff that still has a ton of market cap upside.
Cobie: So yeah, again, I think it’s going to be interesting how it plays out. But I do think “the Flippening” is inevitable, but I think it will be very short.
Su: And the reason you think it will be temporary, or short-lived in this, I guess this time, is just because you think either will not be able to sustain that momentum and there’ll be too much selling back to BTC? There’ll be too much selling to USD or-
Cobie: Yeah, I think for “the Flippening” to happen in this cycle, unless this cycle is the Supercycle sponsored by SuZhu, if it’s not just up for the next three or four years, and it takes three or four years for ETH to flip, then I’m like, “yeah, cool. Maybe you’ll have a sustained “flippening” then.” But in that case, the writing’s going to be on the wall for three or four years during this uptrend that signals a market share evaporating and moving to ETH. If you have a 2017 style, we’re currently at like 0.05 or something, and then three candles later, you’re at 0.15, you’re just going to have too much selling pressure, too many people that are at a decent profit, too many people saying, “it’s not different this time. I’m taking profits here.”
Cobie: And then that selling pressure just turns into three candles back in the other direction. But in crypto, and maybe in all things, I don’t know enough about other markets to be honest, but in crypto things grow in bubbles. So you have these huge parabolic bubble run-ups, and what’s important is where the price settles after that parabolic rise. If you have a parabolic rise and then you have the new floor settling 100%, 50% above the previous floor, I think that is way more important than did the peak flipping the market cap for seven minutes or it was actually for two days or whatever. I just think that stuff’s vanity and its stuff for people to argue about on Twitter. It makes a good talking point, but it’s not that interesting because it’s like a day of points that existed for a matter of hours. If the floor establishes significantly higher, then it gets super interesting. It means the demand for ETH versus Bitcoin, now versus several years ago, has substantially changed. And if it can sustain that for a year or multiple years, I think that’s way more interesting personally. Cause DogeCoin, Dark, Vergecoin, or whatever that went to infinity didn’t it. DOMA, they went to infinity once.
Su: True.
Hasu: So Su, I assume you’re a bit more bearish on Bitcoin after a potential “fippening”?
Su: I’m undecided actually. I mean, I think that there’s kind of two ways to look at it from my point of view. I think one is that even if it “flippens”, that Bitcoin has its unique value proposition and it has potentially a different set of buyers who kind of more objectivist in nature. So they just view it as, “okay, this is the canon, this is the first chain, so I just collect it and I don’t think too hard about it, OrangeCoin good,” kind of mentality. And I do think there are a lot of those people.
Su: I mean, you saw how little supply moved as we went from 20K to three and a half and then back up to 60K. A shit ton of supply is not moving. These guys are just not there’s literally exist no information, no they’re anti Bayesians, right? There’s no info new information that would make them sell it. And that is actually very powerful, and Bitcoin kind of has that. And so that’s, I think the bull case, and also I think, then being the biggest proof of work chain, there will be proof of work advocates who countries with cheap energy costs. That kind of game theory will be interesting. If Bitcoin were to dip because of these people selling, because Ether “flippened” it, who’s to say that some of these governments won’t bid it up and then be like, “okay, now we all have Bitcoin rights.”
Su: So, that is kind of the big bull case for it not to go down. I think on the other side of it is that the biggest advantages that Bitcoin has right now are one; it’s the most liquid way to trade crypto, and two; is that it’s dominance as a pricing pair, it’s dominance as something that as a treasury asset of crypto, right? So that does get seriously challenged if it’s no longer the most liquid and the largest, because then people will say, “well, why don’t I denominate in Ether instead? Why don’t I, trade Ether pairs as people do on Uniswap, or why don’t people trade back to Ether, and hold Ether as a store of value if it’s more liquid anyways.” And so losing that liquidity advantage is very dangerous for Bitcoin in that sense, because I started to play with this kind of idea that Ether is almost more anti-fragile than Bitcoin; because Ether can exist in kind of hum along happily for years at 10 to 30% market cap of Bitcoin.
Su: It doesn’t matter, right? As long as it serves some purpose for itself and for its people, whereas the question is, can Bitcoin hum along at like X percent of Ether? 50% of Ether? 20% of Ether? That gets harder because its value proposition, one of its biggest, is to be the biggest coin. Once it is not the biggest coin, you really do need that kind of very strong holders to say, and that may or may not happen at the prices that people think. So I’m of the view that if “flippening” were to happen, it would actually. I think the last one was a very temporary one in the backdrop of a big scaling debate, the Bitcoin Cash going to .4 .5, XRP / BTC going to absurd levels. And I think that kind of in like the history doesn’t repeat, but it rhymes way.
Su: I almost feel if it were to happen this cycle, obviously there’s no cycle cause it’s just a Supercycle, but just speaking in those terms, if it were to “flippen”, then it will kind of be much stronger this time than last time, just because of the way the history is, just my intuition about history kind of makes me think that. And because the hype will have been validated in a way, the product and the narrative would have caught up with the hype. So I think that that kind of reflexivity is harder to break on that upside then last time where it’s much more chaotic, I think.
Hasu: Yeah, I’d say that. Also great points. I strongly agree. I would add on top of being just the biggest coin, that being one of the reasons why people hold it, I would say a lot of people also hold it because they think it’s the lowest inflation asset that you can have, right? It has zero inflation after all, but I feel like it’s almost a new paradigm where people didn’t consider before that if a coin, that the race to the bottom doesn’t stop at zero, actually. You can go below 0% inflation, and why should a coin that has 1% deflation not be preferred by the entire market over a coin that has like 0% deflation? 0% inflation? And I personally think that a lot of people in Bitcoin are like genuinely scared about this proposition.
Cobie: Yeah. It’s interesting. I often think with a lot of the people in Bitcoin, anything that you organize into a bunch of different categories and some just philosophically believe that you cannot have that active centralized planners that Ethereum has of the few teams that closely collaborate together into a monetary system that’s going to provide the world that they want to live in. I think when you have a bunch of people that got in that 2017 time got completely wrecked by buying rubbish and now they only really follow a Bitcoin, I think everything else is a scam. And they don’t really keep up with the information enough to know what’s changing. Because people talk about “the Flippening” as market cap, right? Is Ethereum going to be bigger than Bitcoin on market cap?
Cobie: But there’s a bunch of other interesting metrics as well that probably don’t have high correlation with price now, but show adoption in other ways. And the two Ethereum performs the worst is Google search interest, which is 15% of Bitcoin; and market cap, which is about 30% of Bitcoin today. And on everything else, the Ethereum does is really, really, really well. And the most interesting one is, if you think about the amount of USD settled every day on the ETH chain, it is multiples, multiples larger than on Bitcoin. Partially because you have so much stuff built on top of ETH, so you have all the stable coins built on top of ETH. The majority of stable conductivity happens on Ether. I know there is some on Bitcoin, but the majority of it happens on ETH. You have all the tokens and all the tokens have gigantic market caps and everyone’s sending them around and stuff, but-
Hasu: And the arbitrage between them, that’s probably about 30, 40%, what-
Cobie: Yeah, it’s just gigantic. And if you look at, there’s a site that has a “flippening” metrics, “flippening” index that maps all of these together and how they trend together. That has been steadily moving up for a long time, like a couple of years. And at some point it seems to me that market cap has to follow this, these user adoption metrics if they keep trending in that way. And it’s probably not highly correlated, so it’s probably not fast, but it would make sense to me. I hadn’t really thought about what Su said, the narrative for Bitcoin as being “the big store of value, doesn’t do much else. If that’s taken away by ETH, that is quite bad for Bitcoin.” I hadn’t really thought about that too much. If you go to CoinGecko and Bitcoin’s number two, it feels like super, super, super bearish for Bitcoin.
Cobie: I hadn’t thought about that too much. I also agree with Su that 2017 is regarded as, “we don’t talk about that. That was just crazy. Like chaos, that didn’t really happen. Everything was irrational then.” Whereas now, it seems a lot more like it’s less, it’s frothy again now, but it’s been less frothy as we’ve risen up and institutions are allocating and the trading volume isn’t entirely 95% retail like it was back then. I also believe that if the BNB frenzy was happening on ETH now “the Flippening” would have already happened.
Hasu: You know, there wasn’t always a link between stuff like trading volume and the settlement sort of that happens on ETH, or the arbitrage, until basically EIP 1559 and the merge, which then internalizes all of that revenue that is generated as a result. And so it puts it into the ETH token. And I think that is in my view, that is basically the catalyst that is needed to finally translate all the numbers way through. It was already performing better than Bitcoin into actual price appreciation. That’s my guess.
Cobie: Yeah, totally makes sense to me. Totally makes sense.
Hasu: I have one last block of questions and because I feel like we should more leverage the fact that you are such a large trader and you have survived through so many market cycles and lean a bit on your experience. So how would you describe, what’s your approach to trading? How do you survive for so long?
Cobie: Yeah, so financially survived, but man. My health, my self respect, my friendships. For me, I think-
Cobie: For me, I think it’s a few things. My whole approach has been to survive. My thesis was always, if this thing is really going to be a big deal, if the last eight years is going to happen the way it happened… then the best thing to do is to take it slow. Because the implied price, to the future implied price is so gigantic, it’s a chasm of difference. Just being exposed to this market will be enough and outperforming the market by two X or three X, will be a phenomenal increase in net worth. I didn’t realize it would go like it did with such massive boom and bust cycles. I was really shocked that the 2017 cycle went so high and then went so low again afterwards. I thought as the market cap got bigger, things will mature and it would become less volatile.
Cobie: And I still believe that, however Su is now telling me, we’re going to have a super cycle where it’s going to go to a billion in a single daily candle, so maybe I’m naive still. But rather than taking a, “Go from net worth of a hundred quid, $100 for any Americans listening, to $10 million in a year.” It was always instead, “Try and play it safe, accumulate as much Bitcoin as possible and play the long game.” And positioning that way, I think was really helpful. I’m naturally quite bearish.
Cobie: So I struggle to believe in anything, I can always find the flaws and why things won’t work. That’s naturally how my mind works. Just like, “This sounds dumb, this sounds stupid. This is never going to work for these reasons.” That’s my natural disposition, which I think is quite helpful in crypto markets in some ways, as long as you’re able to confront that and out-trade yourself and recognize that that’s your natural disposition and say, “How do I modify this instinct within me, in order to be profitable?”
Cobie: A way better natural intuition in crypto is, “This is going to infinity, I’m going all in. Because the people who have done that over the years have done very well.” But because I felt I’m naturally bearish, I’m naturally skeptical, it means I’ve tracked altcoins a lot like musical chairs. I know intellectually that they’re going to go up because of market participants believing these things about them, and the froth and people wanting exposure, and everyone’s kind of playing chicken with their money. So I understand that, but I also inherently believe that, “It has no value and therefore, I need to ride this and exit safely.” And a lot of the time I’m new to, that meme where it says, “Newton, X is happy” often that’s me, but I just don’t re-enter. I’m like, “You know what? If I get a three X or a four X or a five X, and it goes like a hundred X, I’m happy with my five X cause I’m playing a 10 to 20 year game.”
Cobie: Like, “You have some money, you still keep investing, you still keep doing stuff.” And that’s the game I’m playing. I’m not trying to participate in the casino of putting it all on a single horse and maybe making a hundred million in a single trade and then exiting. While I’m sure that feels great, I don’t think the people that do that even then walk away, they just keep gambling. My approach has always been, “Take it steady, try and outperform the market respectably a little bit, but don’t try and 10, 20 X outperform the market every single year.” A lot of the time it’s not possible and you’ll just chop yourself up. In the bull run years, it’s incredibly easy to outperform Bitcoin by a factor of 10. Even just holding some of the altcoins alone, you would have been able to do that.
Cobie: But in the bear market, you just have to accept the reality of the world that right now, it’s much harder to make money. You’re not going to get the revenues that you earned in the bull market, the year after the bull market or the one after that and the mission is to survive through this whole thing. And I think with people who’ve done that have done a really, really well. And I think it’s also why you see so many of the biggest, most influential funds or investors in crypto, got started in 2017, 2018, because surviving the down periods, they were pretty brutal. In 2019, I just said, “You know what? I’m not going to do anything, I’m not going to trade. I’ll keep watching the market, I’m going to go do some traveling and have a rest.”
Cobie: In 2017, I had very little sleep and when things get like that again, I want to not be burnt out. I don’t want to have wasted a year margin trading myself to death to outperform by 30% in a bear market, it’s really not worth it. So I always optimized for keeping myself occupied and having other things to do. After the 2017 run, I built a startup and built something that adds value to the world and try to keep myself really, really busy. And then the bull run comes around and I quit and focus on the bull run, and try to out perform by a decent chunk. But I genuinely believe it’s all about playing it safe.
Cobie: Keeping your leverage down, keep your exits safe and sustainable and just play it safe. Everything goes up a million percent, all you need is exposure to the market, that’s literally all you need and you’ll do fine. But people that don’t make it, are the people that try and outpace and they have a sense of greed around it. And they go, ” Shit I wasn’t positioned properly for this bull run. And if I had positioned properly, I’d have this amount of Bitcoin or this amount of Ethereum. So to get back to that amount of Bitcoin or Ethereum, I’m going to have to up my leverage to five X and trade perfectly for the next four months.” And they put a bunch of pressure on themselves, which makes it impossible for them to trade anyway.
Cobie: All those people will get ruined, I haven’t seen a single person make it in a scenario like that. Every single person I’ve seen make it has been, “I’m doing all right, I’ll keep doing all right. I’m going to keep it chill.” And I’ve just done that over the course of eight years, or three years or five years or how ever long we’ve been in the game.
Hasu: What do you say to people who only joined half a year ago or something, and now feel they’ve missed the train?
Cobie: Yeah. So every single bubble I always thought, “Oh flap, that might be the last one, that might be the last time we get to do this.” In 2013, it went up so fast. And I got into crypto in 2012, early 2013. It went up so fast that I felt, “Oh, wow maybe I’ve missed out. And then bear market, zoom out, think about longterm thesis and stuff.” So I think everyone always feels they’ve missed out. But the level of crypto adoption now versus the level of crypto adoption if this becomes a global consensus currency or a base money in the world, is dramatically different, right?
Cobie: At the moment you’ve got Ellen going on the Ellen show to make fun of NFTs, and Saturday night live making fun of Ethereum and stuff in little skits because it’s new and it’s weird and they don’t really get it. And you have relatively little adoption. Institutions are buying crypto for the first time over the last couple of years that’s only just really on their radar. And the big banks are only just going, “Yeah, maybe this thing is legitimate by the way, sorry that we FUD’d you out of it for… You could have been very rich if you’d ignored us.” All that stuff is just starting to happen.
Cobie: The most bullish cases for crypto, the upside is still really far away. Bitcoin wouldn’t just be flipping in gold, wouldn’t just be taking the market cap away from gold. It would be realizing what gold would have been had Bitcoin never existed, which is multiples larger than gold is. Ethereum’s most bullish possible cases is, “Ethereum is no longer speculative, it’s just a utility that you need to interact on this consensus computer that everyone in the world uses in order to not trust each other,” which is maybe a little bit dark, but whatever. The upside for even the majors is still super, super high on the medium to long term timeline.
Cobie: In addition, I like to continually think that things can get better. And what we have today is not the best thing that we can ever have and therefor I believe that new things will built. If you were in crypto in 2012 or 2013, it is still possible that you missed out on Aave, you missed out on Synthetix, you missed out on Uniswap, you missed out on Curve, you missed out on Chainlink, everything that was built over the last few years, because you were early to crypto. But you need to continually pay attention to innovation and the way the space is moving, in order to take advantage of those things. And the amount of information asymmetry and the amount of new information daily that’s generated by an open source community that has direct financial incentives, is gigantic.
Cobie: And that gigantic amount of information makes a bunch of opportunities for people who are willing to dig in and are willing to become independent thinkers about, what is going to be important over the next sort of five years or so. So if you’re joining today, I have two main messages I think. One is, you’re not going to go from $1,000 to $5 million in this cycle. Some people might, some people will, there’ll be a couple of people that do. We just saw someone on SafeMoon do $200 into $42 million, I don’t think he sold. But some people will do that, but it won’t be the average. Now, if you’re willing to stay engaged over the next sort of five years or so, those sort of returns I think become a lot more reasonable, if you play your cards right.
Cobie: So you’re not going to become an instant overnight millionaire in this cycle, please stop trying, reduce your leverage. Genuinely don’t margin trade at all if you just joined crypto. The second message is, I think it’s going to be slightly harder than it was back then in some ways, because back then there wasn’t overload of information. There was Bitcoin, and then there was a bunch of stuff that was crap, that pretended to be good. And then 2017 came around and things got a bit more confusing. Ethereum came around and alternative project started to get a bit more credible.
Cobie: Whereas now, there’s so much stuff happening and the complexity of the products has increased a lot. So I think it’s harder to have exposure to the good stuff early, because you need to do a lot of work to figure out what the good stuff is. But because that work is needed, there’s a bunch of opportunity as well. So you’re not going to become overnight rich, you need to stick in a space for a bit longer, try not to lose interest. And yeah, it won’t be as easy as just riding Bitcoin upwards. But there will be things that would reprice much quicker than Bitcoin repriced, that if you’re willing to do the work, you can get exposure to. Sorry. I said the same answer, like four times now.
Hasu: No, that was a great answer. Very valuable advice. So before we wrap things up I’ve been curious, so based on the beliefs that we discussed today and the strategies, how are you both positioned for the next three to six months? My audience always loves it when asked this question. So starting with you Su.
Su: I think Kyle in our recent podcast, recently as well just mentioned that we’re quite overweight Ether, we are definitely very overweight Ether. I think we should be one of the largest holders in the world of ETH right now. And the main debate that we have is just, do we want to sell that 0.1? Do we want to sell it a 0.15, .2, never sell? And obviously when I say never sell, I mean as a trader, so it doesn’t actually mean… We can be doing a podcast in two years and we’ll be talking about why Ether is a scam. But no, we’re very overweight ETH.
Su: I think application layer, we’ve done some investments into some Solana based ones, also BSC. Applications continue to be very bullish on. I think it’s been a bear market a bit, almost. In between all the froth, it’s kind of been a bear market in ETH DeFi. Stuff like Aave is still 30% off the high, stuff like Sushi is 50% off the high. So I do think that with Layer 2, with resurgence of ETH, these projects, will get the attention again. So I think on the ALT layer one side, I do think that there’s quite interesting stuff happening there as well.
Su: I generally see the next few months being a little bit bearish Bitcoin dominance. I just see it as something where, you’ve had the Saylor narrative a few times and you’ve had the digital gold narrative a few times and there’s big sellers at three X all time high. So from all those things happening, the OGs have gotten comfortable and deployed out to ALTs. The newcomers are coming in and they have not a bone of maximalism in their body, right? They come in and they’re just straight skip the first five coins and just go from there.
Su: That’s definitely the flow that is coming. Some of the retail Fiat on-ramps that I speak with here, the flow is 75% ETH verse, 25% Bitcoin. So, the retail flow is strongly pro non-BTC and I think institutions seeing this price action, they also want to participate in it and that kind of will just add fuel to the fire. So I think I see at BTC .05 as a key psychological level, I think when you break it, people are going to be like, “Okay.” That kind of really gets people’s attention. So that’s generally my view and my positioning.
Cobie: Yep. Very similar. Su and I spoke about this on Twitter DM not long ago, maybe a couple of weeks ago. I don’t even own any Bitcoin anymore. First time in my life, since 2012, 2013, where I don’t own any. I re-balanced a lot, but I’ve never entirely re-balanced out. And around December of last year, I started entirely re-balancing out of Bitcoin into ETH just for the merge and the EIP 1559 stuff. I’m hugely overweight ETH as well. And exposure to the DeFi stuff that I just think is like a staple, has underperformed a little bit recently, but I just feel comfortable sort of back-holding that kind of stuff.
Cobie: I try and position my portfolio in a way where it’s not mentally taxing for me, where I can just baghold it and I can go get drunk or if I’m away from the internet for a week accidentally, all of a sudden, I know that I am not going to come back and be like, “Wait, I’m poor now, what?”
Cobie: And it’s just whatever, I can just hold it and I can feel fine about it. The only other thing that I’ve been doing a lot of is, I’d taken a lot of exposure to seed rounds of things, either where the vesting is relatively short and I’m like, “It’s a bull market, things are getting frothy, short vesting, I will take that.” I’ll do the, Alameda like “Accept your thing and sell it fine.” So I’ve been taking that and also anything where I’m like, “This is genuinely a good project where it might have a four year vesting, but in four years I can still see this existing as a thing.” So I’ve been doing a lot of that, just because I’m a bit scared of heights on a bunch of things at the moment. So I’ve reduced allocation to stuff where I just can’t tell myself I believe it.
Cobie: “I believe this is a viable thing or I can’t get a thesis behind it working.” I’m more than happy to miss out on profits and I’m sure that I will, because I think the market is relatively detached from reality at the moment. There’s been a disappearance of shared objective standards for truth. The fact that Maps.me can be at a bull market when it literally doesn’t even make sense. It’s an offline maps app with a DeFi wallet in it. The majority of the users of Maps.me, use it because you can’t use maps online, that’s the primary use case is like, ” This is better than Google maps for when you’re offline.” So they’ve added a DeFi wallet like, “When you’re offline in the middle of the forest and you need to quickly access your vaults.” This doesn’t make any sense to me, and now it’s in a bull market.
Cobie: So I’m sure I’ll miss out on profits for when I can’t figure out a thesis that makes sense. But at this stage when everything is up 20 X, 30 X or whatever, the instinctive bear in me tends to transition to a protect sort of scenario, where I only hold stuff that I can… Later in a year or two, if I lose all my money, I can at least explain to you how I lost it. And I say, “Yeah well, I held these things. I believed they were good for these reasons and that’s how my investment didn’t work out.”
Cobie: Whereas if I’m holding Maps.me and I have to explain to someone how I lost all my money. And I’m like, “Well, this offline maps app didn’t do very well in the DeFi market.” Everyone’s going to laugh at me. So I’ve moved a little bit into that sort of protect pattern now, except with seed rounds where no one else got in at a cheaper price, and it seems like a fair bet in this sort of market.
Hasu: Basically shame minimization strategy.
Cobie: Yeah, exactly. If you’re married and you lost all your money, what would you tell your partner? And you don’t want to say, “I lost it all because I believed that they were going to put this token that got made by an anonymous developer, on Binance Smart Chain. It was going to get integrated and it was going to be the primary way you buy electricity in a Tesla.” I don’t want to say that because I don’t believe that’s true and my partner’s then going to leave me. But if I say, “I thought the fees that were earned by this protocol where out-sized versus the fees earned by this other protocol and the market caps meant that this one was a better bet. Plus I thought that the liquidity locked in this protocol will be more sticky through the market I expect over the next 12 months.” At least I can take something away from that and learn something from it and do something better next time.
Cobie: I think it’s really important in a market full of irrationality and froth, to remain an independent thinker and remain at least true to your thesis, and make moves that you can at least back and believe in and learn from if they go wrong. And sometimes you can’t learn anything, right? It’s like sometimes the learning is…
Cobie: Okay so Hasu just message me to say he lost a little bit of the ending recording, and none of us can really remember what the lesson I said was going to be. So I’m here recording a post podcast to announce that you kind of got rugged. We didn’t talk for too much longer anyway. And I mostly rambled about the simulation heuristic and its application to crypto markets and how often the outcome we expect is the one we can most easily imagine. And that tricks us into not betting enough or not betting all. Or tricks the unit biased kids into thinking there’ll be billionaires or tricks people into selling early, whatever your natural sort of tendency and disposition or expectation imagination is.
Cobie: Honestly, I don’t think it was a very high quality rambling as you’ve just witnessed in this follow-up ramble. If I’m going to make some closing remarks, since I’ve got the opportunity to record my own closing of the podcast. I’d say that everyone I’ve seen do extremely well, both in this space and in the non- crypto world too, have two common traits. Their exceptionally curious, and they have high conviction in their own analysis or their own talent or their own view of the reality of the world. These people are often resistant to being told, how to think about the world, how to think about certain ideas and they’re meticulous about what’s true and what’s not true, and what’s real and what isn’t.
Cobie: And that combination of endless curiosity and high conviction in your own beliefs or analysis, allows people to make bets, dig in to follow through with their bet, recognize when they’re right or wrong and learn from why. It’s much harder to learn from something, if you don’t really understand why you made the bet in the first place. And it’s impossible to hold high conviction in bet when the analysis is somebody else’s work and you’re underwater and you’re feeling stressed.
Cobie: So I think conviction and curiosity are both muscles that you can train over time by changing your circumstance and approach to problem solving on new information. If you’re doing stuff with your time now that does not cultivate your curiosity, you should change that and figure out ways that you can force your curiosity to be more present in your day-to-day life. Some old trader or gambler or whatever said something like, “You can’t win if you don’t bet, and you can’t bet if you wipe out.” So before I say goodbye, I’ll remind you to reduce your leverage, play the long game, remain curious, keep learning, make small bets learn from them, repeat et cetera. Thanks to Su and Hasu for having me on, I’ll be off. I’m going to go back to Twitter to write some jokes. Up only. See you later.
1 Reply to “#24: The Ethereum Bull Case w/ Su Zhu, Hasu, and Cobie [+transcript]”
Thank you. I am brand new to cryptos, 77 years old, and all in with gold. You’ve opened my eyes, despite terminology I don’t understand. I’m looking forward to more insights from you. Grateful for it.