Ep 7 - May 1, 2024
Welcome to another episode of the weekly crypto check-in recorded on May 1, 2024. I'm your host, Robert Swartow. I'm joined by my co host, Andres Sundotte. How's it going, Andres?
Andres Sandate:Hey. Good, Robert. It's been a busy week, but, weather's beautiful here in Atlanta today. Yes.
Robert Swarthout:It definitely feels like a, late spring day here. It's getting warm earlier in the day, and the humidity has found its way to Georgia. So
Andres Sandate:Yeah. Well, what's your takeaway from, the last week in crypto?
Robert Swarthout:The market has not been exciting. And been a lot of sideways or down. Right? And, admittedly, it's kinda taking a breather, which has been great. Kinda gives you the ability to focus on other things that you might need to be doing.
Robert Swarthout:So Yeah. I am, this news this week maybe some may find it more interesting because it's more varied, and others may think it's less, less interesting because we're talking less about ETFs if that's if that's your flavor that you prefer. So
Andres Sandate:Well, it wouldn't be crypto if we didn't talk ETFs and, lawsuits and regulations, so we've got our healthy dose of that. But, starting out, the, 3rd straight week of, BTC ETF outflows.
Robert Swarthout:Yes. As collectively, as a group, they they finally have it seems like the market is, been fulfilled, in the sense, like, there's not tons of demand right now. And, you know, I it's healthy. It needed to take a break. It was on a crazy tear, out of the gate, and, you know, kind of our second bullet point there kind of shows just how crazy it was is, you know, the Ibit.
Robert Swarthout:So this would be the IShares, ETF, Ibit, ended its consecutive daily streak of inflows at 71 straight days. I think on the all time long, longest list, it is, like, 10th or 11th, something like that, which is pretty incredible. And those are all time, not out of the gate. It is certainly the longest out of the gate, at launch. So Yeah.
Robert Swarthout:You know, I guess, if if BlackRock needed another trophy to hang in the office, they could, make himself a trophy about this one. So
Andres Sandate:Yeah. It seems like a little bit of cooling off, in the in the market over the last, week or 2. Maybe a lot of the folks that initially, I wanna say, rushed out to get exposure to to Bitcoin, but that really were eager to buy right when the ETFs were approved, got their exposure. Now it'll be interesting to see, you know, the ETF analysts that, you know, that that follow this space say that it's it's not unusual for these ETFs to see outflow, so I don't think it's a a sign of the market's, changing stance of of digital assets, crypto, etcetera. I think it's more the initial adoption has happened, and now that sort of bell curve.
Andres Sandate:Right? I think we're moving up that curve bigger market, bigger dollars, but it's gonna take longer, for for the those people to move.
Robert Swarthout:Yeah. You know, right before these all launched in, early January, I remember posting on LinkedIn about my my thesis on what was gonna happen was there was going to be a rush in and then, you know, it would become less popular. People started saying, see, nobody wants these things. I, admittedly the initial rush in took a lot longer to finish than I had expected. But I think that we're in that sea nobody wants it stage.
Robert Swarthout:You definitely are seeing that pop up a little bit on crypto Twitter in a few places for more of the, the Bitcoin bears. But, but you, you know, it's not necessarily on our bullet point list but, obviously, when we talk about last week, you know, Hong Kong is approving their Ethereum, Bitcoin ETFs, to be trading soon. And and since we last spoke, it was, Allstrike announced there, year end is gonna have so there's certainly more jurisdictions coming online. They're not we said there's less capital in all those markets than we might see anywhere.
Andres Sandate:It's gonna be traded, you know, all over the world. Well, let's talk about our, you know, our required weekly legal check-in here. This time, the SEC looks to be not going after XRP or Ripple, Yeah. But, they've been investigating ETH for some time. It came out here in Yeah.
Robert Swarthout:It came out last week. It's been over a year. Apparently, investigation's been going on and, you know, it doesn't sound like that's that far out of the normal. Like, the SEC seems to take a while to build their case, and collect whatever evidence they can collect. So, you know, it's just it really, it's more of the same.
Robert Swarthout:This SEC seems almost hell bent on trying to find anything and everything that they think may be wrong with this industry. And some of it, obviously, there's certainly been bad actors, but there's a lot of good actors that are kinda getting swept up in this, you know, this I wouldn't call it witch hunt, but something like that. You know, it's just unfortunate. And then, you know, if we kinda skip down a few bullet points, we have the the opposite of this happening. So Consensus is a company that is Ethereum focused Yeah.
Robert Swarthout:Cofounded by one of the founders of Ethereum, sued the SEC this last week, saying we want you to say that Ethereum is, not a security. I don't think that was the right tactic is or not the one I would have taken. In the middle of an investigation, you decide to sue them. Maybe it's proactive because they know it's coming, that they're gonna get sued. I don't know.
Robert Swarthout:Obviously, probably more will come out that may help that make more sense, but it's, admittedly more of the same in crypto. And it's exhausting talking about all this Allstate stuff. So Well, we
Andres Sandate:had this conversation offline, like, earlier this week where, you know, I I come at the space with, you know, fair amount of experience in in in alternative assets and nontraditional assets and just financial services in general. And, you know, it it just appears sometimes from the outside looking in when you're, you know, looking at the entire space, from sort of the macro that, you know, you you and could be the reporting. It could be the media. It could be the headlines, but it just feels like a lot of time the narrative of, you know, disruptive technology, transformational change, a lot of the stuff that you hear about technology disrupting industry, it seems like a lot of that gets lost in crypto and digital assets because there's so much wrangling happening in terms of, you know, litigation, regulation, and maybe that's just because the financial assets like, unlike AI, where maybe it's more of a societal discussion, less of a discussion about people investing, losing money, the moment you start talking about crypto, it introduces things like meme coins, which we're gonna get to. Mhmm.
Andres Sandate:Now all of a sudden, we're talking dollars and cents, and as a result, lot of good actors, some bad actors, regulation, discussion, litigation, it just it's unfortunate that, you know, so much of the the good gets swept up in, like you said, these ongoing lawsuits. And maybe that's just the nature of it because of the plumbing and the infrastructure and the foundational stuff that's getting laid down.
Robert Swarthout:Yeah. I I mean, there's there's a lot there. I and there's a lot of layers to this. Right? It's, you know, you have the projects doing their work, whatever they're whether they're on a certain chain or they're starting their own blockchains, and then you have the communities that form around each one of them.
Robert Swarthout:And then you end up admittedly with this tribalism that happens in crypto, and it's really between the communities in a public forum like Twitter, that are fighting back and forth because, you know, in many of these, I would say, it's simple minded views, they are saying how, you know, one coin's gonna rule them all. This coin's gonna, you know, rule the world. And that's just not realistic, and honestly, it's so shortsighted. So you have that and then you have the lawsuits and then that gets mixed in and and, you know, social media definitely doesn't help, any of this stuff. So it's just a lot of noise.
Robert Swarthout:So
Andres Sandate:it's Yeah. I mean, it's it's not like the Cola Wars. Right? Where where you have 2 dominant players, Pepsi and Coke or the airlines, you know, where there's, like, 12 major airlines or how many ever there are. Right?
Andres Sandate:So it's like they they don't they don't use the public forum or the public square of x or Twitter to sort of battle and hash it out. Maybe the other thing that's different is that in crypto and digital assets, like, the individual has a voice. Right? The person that has a blog or has a podcast or,
Robert Swarthout:you
Andres Sandate:know, doing what we doing, that's different. Right? You're you're you're just not gonna find that often in these more entrenched institutional spaces. And that, in some cases, for a lot of people is a good thing. Right?
Andres Sandate:Yeah. But it does lead to a lot of bad information, a lot of tribalism, a lot of infighting, and sort of frankly, for investors, a lot of noise.
Robert Swarthout:Right. And, you know, I think one big differentiating factor between the cola wars or whatever you wanted to to kind of replacing it, contrasting that with crypto is people in crypto are making an investment. I mean, your investment in I guess you could go buy Coke or Pepsi stock. Yeah. It doesn't feel the same.
Robert Swarthout:Right? I mean, like Yeah. Admittedly, there's this, there's a there's a tinge of gambling, when you're buying a crypto, at least the way that most of the people are approaching their, their investment decisions and or lack or lack thereof of decisions as pure bets. So it's just, you know, I foresee a future or I hope to see a future, where you know we kind of get past this and it's more you feel like it's more like an equities type market where a lot of that tribalism goes away and it's just purely based upon what the companies quote unquote or projects are doing versus all the other crap that's happening.
Andres Sandate:Yeah. I I I I'd say one last point I would make on this is, you know, when we when we were all stuck at home during COVID, and people were not out and about, and, you know, people were sitting around on their computers. There was a lot of stimulus money. There were Mhmm. There was a lot of this day trading and, you know, you saw these main stocks really take off, and you saw you know, it just coincided with Robinhood launched and the the whole trading, just culture, like, got huge.
Andres Sandate:Right? And and that happened in the early 2000 or late nineties during the dotcom, but it really exploded during during COVID. And we saw a lot of people, and they even made a movie. Right? A Hollywood movie about it.
Andres Sandate:Was it was Seth Seth Rogen, I think?
Robert Swarthout:Rogen. Yeah.
Andres Sandate:He was he he's he played one of these, you know, day traders. And I bring all that up because that that's the closest, I think, analogy to what you're seeing now with some of the investors that are piling into, and I know we have a headline later, into these meme coins. It almost feels like retail investors are looking to make that super quick buck, and they're they're there's literally, like, very little of any diligence, homework, research, whatever you wanna call it done. They don't care. They don't care that you care.
Andres Sandate:They just are looking to, you know,
Robert Swarthout:flip Make it your buck.
Andres Sandate:You know, flip flip a dollar, take out 3, and let somebody else deal with it. And I think because of the the nature of this market, for people that want to play it that way, it it is so far away from the institutional, like, research approach, right, that, good, better, and different. But that's that's where we're at in in terms of the market evolution. And, and so, you know, people can't go, flip in and out of private equity. They can't go flip in and out of real estate.
Andres Sandate:They can't go flip in and out. I mean, they could, I guess, theoretically play the stock market, but even that is not as, you know, wide open as as these meme coins.
Robert Swarthout:And there's regulation on that.
Andres Sandate:All of
Robert Swarthout:a sudden, if you do 2 month trading, you get labeled day trader, and there's restrictions in your account. Like Yeah. You know, that that, you know, is part of, you know, the SEC and the different, regulators kind of putting their paws on things and making some sense of it. Not to say that could necessarily happen to crypto, in that sense, but, there definitely needs to be some guardrails put around
Andres Sandate:some of this craziness. Speaking of guardrails, the next headline, the DTCC, is
Robert Swarthout:Yeah.
Andres Sandate:Announced they're no longer allowing crypto as collateral. Maybe we should explain what the DTCC is. Yes.
Robert Swarthout:So that is, an organization that does the settlement effectively, from
Andres Sandate:equity and type transactions. Yeah. Transaction settlement effectively behind the scenes. We're making sure, you know, accounts are are matched up, and they transact in just just about every type of major security.
Robert Swarthout:You know, there's it says so the news headline here, and I'll follow it up with something that's not necessarily exactly about this bullet point, but they're not allowing the, collateral to be, or crypto abuse as collateral. So that's more likely specific to ETFs. I don't know of any place that you can get a traditional, say, margin loan against crypto in, say, a brokerage account. You certainly can do that in offshore crypto exchanges, but not necessarily onshore. So I don't know.
Robert Swarthout:It just seems odd that they're doing this now. You know, maybe there's a reason why they're doing it. It wasn't clear if if there, is beyond just their headline. And I literally, it was effective almost immediately, so this is already in effect at this point. So, the the the part that I'll follow-up with this on is there's you know, as part of my research around the commercial use of crypto, the DTC comes up quite frequently, about they're certainly looking at tokenization and just what crypto can do to help streamline.
Robert Swarthout:They their business could be revolutionized overnight and they're I it feels like they're trying to be ahead of the curve, not traditionally a plan to run to excuse me, trying to play catch up. So you know it's, the I we talked about it last week potentially the NYSE allowing, 247 trading. I think the DTCC wouldn't need to be on board with that. That certainly is probably multiple people need to get together to allow that to happen, and, you know, tokenization, would certainly allow the plumbing to kinda be there for some of that to happen. So
Andres Sandate:Yeah. You know, you you sort of put yourself in the shoes of these executives, and the and the teams running these organizations that have the potential to embrace the technology, and it it it almost as if there's, like, a recognition that the technology could work, but the change involved like, the process of making the change is so substantial from how things have historically been done, all the systems, all the people, all the operations technology that's either gotta get rewired, get replaced, you know, be disrupted is so significant. You know? It's, it's no surprise that a lot of this stuff is moving slower than people maybe, like, you and I on the inside are saying, but the tech's there. This could be done.
Andres Sandate:Right. Yeah.
Robert Swarthout:I think that there's you know, you may have a scenario where the executives say a DTCC or be like, yes. We're all in a crypto. Let's go forward. But then it obviously, they're not the ones gonna be implementing it. Right?
Robert Swarthout:They're just the ones making the decision. So, like, the teams behind the scenes doing it, have to pick that mandate up and run with it. And admittedly crypto is a, is a young person's game. So, you know, what what are the teams behind these companies? You know, you know, where are they at on the age spectrum may be harder or easier for some teams to pick it up, and that's just one facet to look at it on.
Robert Swarthout:There's the contractual pieces of the current systems, and, really, they need to do it and it never and people never notice because if they notice that means something went wrong, in all all likelihood and that would be much bigger of an issue for the markets as a whole not just crypto. So
Andres Sandate:Sure. Yep. Yep.
Robert Swarthout:So let's jump back to our, meme coin, thing you mentioned earlier. You you brought this headline up to me yesterday. It's, you know, the meme you're right. The meme coin market, is dominating, crypto market as a whole. Yeah.
Robert Swarthout:Not not Bitcoin, but just generally out in alts. It's the one that makes the news, the biggest changes in, you know, valuations and all that kind of stuff. And it's, appears to be pretty easy to launch one of these things.
Andres Sandate:Yeah. I you know, for me, the like I said, this this kinda goes back to sort of the, you know, the wild west, I guess. The the the cynic or critic of crypto is that you have a lot of the meme coins out there, whether it's named after a pet or it's named after, you know, some some celebrity, the the reality is is because of no regulation, because it's still, possible for, basically, a technology company to spin up a company and allow you for less than 2 or $3, a JPEG, and a couple of other checkboxes to launch your own, you know, coin. There has to be zero liquidity, meaning you don't have to put up any capital. It can just start trading.
Andres Sandate:It's it it just it almost defies sort of belief, But I guess when you step back and you say, okay. This is you know, there's 10,000 of these, you know, tokens out there. Now you start to see why. And and I think what seems to be maybe even the bigger conversation and narrative around this is that this is where a lot of re you know, this is where some retail investors are electing to participate and play.
Robert Swarthout:Right.
Andres Sandate:And Like, they
Robert Swarthout:like to gamble.
Andres Sandate:Or gamble. Like, whatever Yeah. You call the activity. Yeah. But the idea is, you know, you're trying to find that kind of proverbial diamond in the rough.
Andres Sandate:Mhmm. You know? It's like going to Vegas, bet it all on black, and, and just see where the the, you know, see where the, the roulette table sort of ends up. And I, you know, I think when you look at investment from the standpoint of utility it's the fur you know, it's one of those things where it's, like, the furthest away from from the conversation around a lot of these meme coins. So, it's just kinda where we are.
Andres Sandate:I don't know if you've you know, you probably have more history following these market cycles in crypto. You know, have meme coins always had their moment where they've sort of run up like this and, there's been frenzy?
Robert Swarthout:They're not it hasn't been, obviously, since the beginning of crypto. At least from my recollection, it really started, with Doge, and that was in 2020 when everyone was locked up at home. It Doge existed before then, but it never really had we hate to call this traction, but or awareness in the market is maybe a better way to describe it. And it certainly took off then. And then, obviously, the peak of Doge was, or Doge frenzy was when Elon went on Saturday Night Live and, you know, talked about it.
Robert Swarthout:People thought he was gonna say he was gonna use Doge. It's SpaceX and all these crazy things obviously didn't happen. But, you know, just generally, the meme coin market, I like that it gives people interest in crypto, but that's where my, fondness of it stops. I it to me, it's a huge distraction, and it it gives the space a, in my opinion, a bad look. Yeah.
Robert Swarthout:Like, we're a bunch of gamblers, a bunch of kids gambling on stupid stuff, and there's there's so much more promise and stuff going on in crypto than I think what the meme coin tends to let the average investor that's peering into the market look like. So
Andres Sandate:Yeah. Yeah. It's it's it's for me, it's, you know, when you think about, like, financial advisors and those people that are starting to put client assets into Bitcoin, I think that there's, you know, clearly different segments of the market. My perception, and I could be wrong, it's not based on facts or any particular data, but the folks that are participating in a lot of these meme coins and they're buying, it's retail, it's individuals. They've got their, you know, experience in crypto.
Andres Sandate:They know how to exchange and trade and buy and do in and out. These are not people going to an adviser to ask them, you know, how to do this. So I guess if they lose all their money, you know, my takeaway is that's on you, man. Like Yeah. If if if you put money in this stuff and you then expect the government to bail you out, like, I I that's where I have a that's where I have, like, a hard stop.
Andres Sandate:I'm sorry. You know?
Robert Swarthout:Yeah. I you know, meme coins aren't gonna show up in any serious place that Wall Street touches. The closest that they may ever get to, would be Robinhood. And I'm pretty sure that Robinhood allows you to buy and sell dosh. They're doing some of it.
Robert Swarthout:So it's you know, obviously, they're catering to what they think their market is there. But
Andres Sandate:Yeah. Yeah.
Robert Swarthout:I can't wait to, close the, crypto chapter of meme coins and kind of move forward. So
Andres Sandate:Well, the other thing that I, you know, wanted to ask you about that I saw some headlines around in the last week or so was just the conversation around how, you know, AI has captured so much attention, is getting significant investment from at least the major tech firms, and you see that when they come out and report quarterly numbers. How much is that entire movement of AI and just the the amount of talent, capital, etcetera, moving into the space, how much is that overshadowing a lot of the stuff you see happening in crypto? It's more of a question.
Robert Swarthout:Yeah. I you know, I don't think it's, like, you know, such a black and white thing. I think that obviously you had a the crypto VC frenzy that was 20 2020 and 2021, probably in the beginning of 2022, coming out of the summer of DeFi. Right? Like, that was you know, if if you said you're doing anything with crypto, you immediately could raise money, with with probably a one slide, pitch deck.
Robert Swarthout:Obviously, I think we're probably a year into that version of AI right now. Like, if any company if you look at, like, their new product releases, so they just use the word AI all over the place, and half of them probably aren't even using AI. They're just using it to try to, like, try to be, quick with marketing. But, you know, markets go in cycles. You know, it's this is more of a pendulum that swung really hard one way.
Robert Swarthout:I I believe that crypto is here long term. AI is probably here long term as well, but it's just you know, I I look forward to I know we're gonna be doing a, a, excuse me, a Firestone transaction type situation. Yeah. With the VC and crypto and just kinda get his take on it. Right?
Robert Swarthout:I mean, like, he's in it day to day, and the idea that, you know, it's not like I can't imagine he's not writing checks at all right now. Maybe it's slower, if he's not writing checks right now. Either his fund is already committed or he may not be doing his job. Like so we'll see. Yeah.
Robert Swarthout:Yeah. So do do
Andres Sandate:you have a take on I'm curious. Yeah. Yeah. I mean, I think that a lot of, I I I had a show yesterday with a VC, and we were talking about Fintech more broad. Okay?
Andres Sandate:But his take was that a lot of VCs will go into areas. In this case, this VC is a Fintech VC. So they're very focused in Fintech. They don't do digital assets, and they don't do crypto. They specifically look for, kind of SaaS businesses and specialty finance, like Fintech lending businesses.
Andres Sandate:So pretty narrow lens. And and what he saw happen in their world, and I think you could make the same argument happened in crypto and probably is happening in AI is VCs that are a little bit more general will put capital to work in a specific area, that helps, number 1, tell a story to LPs if you're out raising money. You're getting into these hot startups. So, you know, 2, 3, 4 years ago was, oh, we're investing in digital assets, web 3, d DeFi, crypto. Now that's moved to AI.
Andres Sandate:Do they have a specific domain expertise? Do they have an edge? How long have they been doing it? Remains to be seen. But here's what happened with Fintech.
Andres Sandate:A lot of the companies that went in that weren't really looking at these SaaS businesses that were lending as lending businesses. They were trying to put valuations on them as SaaS businesses. They woke up to the reality that when fed the Fed raised rates, and we went from a 0% interest rate environment to now, right, we're at, 7, 8% on, you know, a lot of different consumer loans. Like, those models blew up. And they're they're the SaaS valuation and the valuation on just a brick and mortar traditional lending business, if you look at the public comps, they're totally different.
Andres Sandate:And I would I would say that a lot of these Fintech businesses are not gonna get, checks from some of these VCs because these VCs are gonna say, well, the the exit multiple is not gonna be there. It doesn't make sense. The math doesn't work. I could see some of that same type of thinking happening in crypto, and also in AI, in a different way. But I think that just not to pile on the VC space, but it's just like you said, things move in a pendulum.
Andres Sandate:And so people are gonna move to where where the opportunity is, and it feels like everybody's moved out of crypto, web 3, DeFi, except the folks that are really pretty hardcore. They're probably gonna be the ones that are gonna make money, and those sort of spectator types have moved into other areas like AI and robotics and, you know, the the next hot area for different reasons.
Robert Swarthout:Yeah. You know, it's the challenge with any market that VCs invest in or businesses that VCs invest in more specifically is they there may come a time, like you're saying, where VCs don't find them interesting anymore or they can't justify putting more capital in. Doesn't mean it's a bad business. It may need to be kind of right sized, but at the same time, it's a,
Andres Sandate:it's just not gonna grow at
Robert Swarthout:the most They're not gonna grow and they're likely going into business. Right? I mean, that's that's the reality for those, sadly. It's just you know, as as an aside, that's why I love to see bootstrap business so much because you think about revenue, you think about all the important things upfront. You don't worry about hiring people initially and trying to spend a bunch of
Andres Sandate:money. I mean, the the narrative in VC up until a few years ago was, you know, grow, grow, grow. Now it's, you know, get to profitability, right size your business, you know, cash flow, etcetera. So Yeah. Alright.
Andres Sandate:Lastly, Steve Z sentenced to 4 months.
Robert Swarthout:Yeah. He, the prosecutors had asked for, I believe, 12 to 18 months, something like that. And his, his side, they asked for 6 months of House arrest or or house arrest or something like that. Basically, no no jail time. So he ended up getting 4 months.
Robert Swarthout:Immediately, I'm surprised. I I would have never guessed it was less than 12 months, but this happened, I believe, late last week. And to me, this is we can officially say we're closing the chapter on this point this part of crypto. Like, SPF's already in jail for a long period of time, not long enough in my opinion, but then CZ kind of got the opposite treatment. He probably worked with investigators a lot more than, Sam did, and and he'd be lying the way through the process.
Robert Swarthout:So Right.
Andres Sandate:And and he being the founder of Binance, which was a major exchange and a competitor to FTX before its implosion.
Robert Swarthout:Yep.
Andres Sandate:Now he's the non now he's just the chairman or founder. He can't run the company, so he's effectively you know?
Robert Swarthout:But I, recently learned that, his girlfriend wife is, a high level exec there. So it's kinda like Okay. I don't know. I'm just, again, kind of ignoring it, ready to move on What did you say? Close the chat.
Robert Swarthout:Closing. Yes. Yeah. After closing.
Andres Sandate:Well, a lot of good headlines. Again, lots of interesting things happening as always. It's a good check-in.
Robert Swarthout:Yep. Well, thanks for joining us on this episode of the Weekly Crypto Check-in. If you want to stay updated on future episodes, you can find us in any podcast player by searching TEE TIME Crypto Capital OR Weekly Crypto Check-in. Take care. Take care.
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