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very fired up for this one. That means that this intro will be a little different than usual as we're introducing two guests instead of one. I can't go on my little spiel and intro the guests like I used to. However, today's guests are crypto veterans who are the CEO and CIO of Zerocap, Australia's only full service digital asset investment platform. From tradin to insured custody yield an fund management. You name it
they offer it. I'm very please to welcome to the crypto new podcast Ryan McCall and John d Wet. Fellas, welcome to th show
Hey Matt, how's it going?
Thanks, Matt. Good to be here man.
Great to have you guys on, please do bear with me here we haven't done the one host and two guests yet so I'm going to try not to single either of you out and I will more so just ask questions and help with the flow the convo and I will let you two choose who goes to what but I do have to ask to get a kick in. Australia what's that like right now? Still never been. On the bucket list. Have you guys recovered from COVID? How's everything look in there?
Yeah, look, it's not so bad at the moment. Really. You know, looking out the window here. In Melbourne. It is cold and raining. So I guess that's not great. But you don't get to COVID things are more or less, you know, back to normal. Where we are is a bit straight with lockdowns and whatnot. But it doesn't seem to bother people too much.
So good. Matt, the good thing is all the restaurants and bars have been opening up. So we've managed to get out and celebrate a few milestones in the business, which has been huge.
And you get to build some of that employee morale and you know, some team building and teamwork. People actually can put a face to the name instead of the crazy zoom calls.
It's definitely been a little frustrating. In the last couple of weeks, actually, we just moved into a bigger office. But we had a bit of a snap lockdown and couldn't move in. So that sort of rain on the parade a little bit. But we're back in now and getting the team together, which is great.
Mate it sounds like signs of a bizarre time. One of our staff members from here Nolan, we didn't meet him for the first six months last year because of COVID.
Holy crap.
Yeah. But you got to adapt and now we've managed.
100% Well, here we are. I'd love to be doing the worldwide circuit and being in Melbourne right now and interviewing you guys face to face with a couple pops. I know for me, it's nighttime for you fellas. It's mornings, I have a old fashioned in front of me and you probably have a couple of coffees or a couple teas. So its crazy how the world works. I'm
13pm. And for you guys, it's you know what, 12 hours ahead is just craziness. So yeah. Anyways, I do want to start. I've only had one Australian on the pod. That was dcl blogger. He is an NF guru and a decentraland Guru as well. He's been the only Austra ian on the pod and I'd love to sk just to sort of kick it off. Tell me about the crypto sla h blockchain scene in ustralia. What's that like?
It's really healthy. We've got a couple of different communities I guess both in non for profit and also for profit, that really keep the blockchain community fairly close. From an institutional level one of the banks are starting to look into different blockchain technologies. Back in I think it was 2016 2017 our big four banks out here started adopting hyper ledger and doing some testing.
So there seems to be a really innovative kind of blockchain community and seen out here, where it has lagged is kind of real and large scale adoption from the traditional space. So we're still in that wait and see nervous about banking, still trying to fill out the AML laws for crypto businesses. And, you know, a large part of our business is trying to advocate and really get toward scale
traditional adoption. And but in terms of the community, there's there's an amazing community out here that is fairly well funded and really gunning to compete with the likes of US blockchain firms and European blockchain firms.
I love that, that makes me happy. Whenever I hear the parts of the world are absolutely buzzing in the blockchain community that's always good. And that is much needed for mass adoption. But he also talked about that latency period where a lot of people and moreso institutions perhaps are very, you know, cautious in regards to getting into the blockchain and crypto space and sort of more specifically
Bitcoin. That's where Zerocap comes in, you guys offer a myriad of products that are mostly faced and mostly for institutional investors. So let's just roleplay here for a second. Let's say I'm some big do double G, I'm some big Dawg and I have a massive fund. And I'm only doing the classic investing. I'm not dabbling into any crypto, any blockchain, nothing like that. Super
classic, super traditional. And I'm in an elevator with you to lads, and you have 30 seconds, we're on floor uno, we're going to floor I don't know 30 40 we have a 30 second pitch and I'm like, Hey, you toward the zerocap lads. Why should I get into crypto and how can you help me? What would that pitch look like?
Here's the pitch. Right? By investing in cryptocurrency, you essentially get leverage without leverage, right? So you can choose how much you position size and basically gain volatility in a portfolio that you wouldn't be able to gain without leverage in other asset classes. Why would you invest with us would be the pitch in the elevator because that's what we're gunning for. Right? Well, most funds don't have a mandate to invest
directly in crypto. So we have a fully regulated unit trusts where they can purchase units and actually get exposure to underlying cryptocurrency. So we like to see ourselves as a regulated access point. But more than that, you know, our thought leadership and ability to structure portfolios is really what a lot of our current investors, family offices, institutions most interested in.
Interesting. I'm very keen on the whole family office thing, because there's so much bloody money in family offices, and it seems like they're always going the traditional route and are very, very risk averse. Does that conversation differ from perhaps a hedge fund or a PE fund who might have, you know, a little more wiggle room to work with? Like, tell me what, what does that comvo look like?
It's interesting, you know, part of our hypothesis in when we started the business was that crypto would eventually go the way of traditional finance in terms of, you know, the kinds of investors that it attracts, portfolio allocation, the infrastructure, the service providers, the products, etc. And, you know, one thing that I think we were wrong about actually was, you know, family
offices appetite for risk. And, you know, we built our business around, you know, safe access points, trying to reduce volatility where possible, but, you know, the conversations that we're having with family officers at the moment, they're really into some some riskier and more exotic stuff. You know, staking and yield farming and you're looking for these crazy yields that you can get, you
know, 30 40%. You still have family officers that are interested in just pure Bitcoin exposure, of course, and the journey for all investors, regardless of you know, whether it's the mums and dads or the family officers, it always starts with Bitcoin, then you learn about Ethereum and then you learn about you know. You ever learn a bunch of stable coins and then you get into DeFi
and all the weird stuff. Yeah, it's been really eye opening for us, actually, that the appetite for risk that these family offices have,
I was going to say, like family offices are really interesting kettle of fish, because when you start a business, everyone wants to get in front of family offices, and they're a bit of a mysterious bunch, like quiet hard to crack. But when you get in, then you're part of the ecosystem, you know, and we're very lucky to have have one of Australia's largest family offices backing our business, they have an equity stake in us. So we're part of that ecosystem and information
flow. And they are, like super, super nice people and crews to work with. And they're actually a lot less formal than you'd think, you know, we hang out and go out for falafels and kick back with these guys and have learned a hell of a lot about that world. So um, yeah, it's, been a hell of a journey, actually, with this family office.
I love a couple points you guys brought out there? One thing that Ryan said, I believe, Ryan, you talked about getting 30 to 40% via DeFi and yield farming, I want to go back to that. But in just one second, but more on the family offices. How do you get into
that circle? Like I have a mate who he must have a list of I'm gonna save 1500 family offices across Canada and United States of America with direct dials of the CIOs and legit managers and sort of gms and owners, CEOs, you name it, the whole C suite and decision makers, he has direct dials and emails to them. He can probably sell this thing for a couple, you know, I'm gonna say 10 20 grand a pop? Because like that's a great return right there. How do you get access to something like
that? Is it just going into one guy or gal and hoping you crush that initial relationship and get referrals? Like, how does that work? What do you do?
Yeah, look, it is a really relationship driven business. And, you know, we were pretty lucky, actually. We initially set the business up, like I said earlier with this hypothesis, around working with high net worth family offices and institutions based on where we thought the adoption was going. And, you know, we build the business for, I guess, for a market that didn't really exist at the time or a demand that didn't exist at the time. But you know, that demand has
obviously come now. And we were just in the right place in the right time. You know, there weren't a lot of, and there still aren't really a lot of players in Australia that were specifically geared towards that market. And we had a warm referral, just a really good relationship with a buddy, who was connected to someone that worked in a family office, that family office was doing some scoping, you know, investigating their first crypto allocation
and got referred to us. And, you know, of course, the family office was investigating a number of different firms, both onshore and offshore. And, you know, because we were really structured to specifically cater to that type of client. You know, at the time, there were a handful of retail focused
exchanges. There are a couple of like, pure OTC desks, and there weren't really any fund managers that were working in crypto at the time, but, you know, we really had a bit of everything, really, sort of a full service model for that type of client. So we ended up winning that business. And from there, you know, once you're in, you're in, it is really trust based, and we've had a lot more warm referrals from that first family office. You know, a lot of these
families tend to co invest. I guess, you know, if someone has done their initial due diligence on a firm like us, you know, that's obviously ticking a big box for a lot of other families. So yeah, you know, your buddy there who's got a list of 1500 odd families. You know, I imagine he's built out over a few years. But, you know, the hardest one is the first one, and it does get easy from there.
And then the dominoes fall. Let's go back to that yield farming. Where the heck are you guys snagging 30 to 40%. Spill the beans, let's go spill the beans. Where is it?
Look, here's the thing, right? So we're not offering the yield farming as a product yet for our investors. We're running our proprietary capital on some yield farming protocols. And basically, we're in a test and learn period. Now business, you know, we move fairly quickly, when there's good opportunity with measured risk. We honestly still think as a product, you know, running hardcore yield farming is a
fairly risky business. And, you know, to Ryan's point, the family offices definitely have more of a risk appetite than we initially expected. But at the same time, they haven't been liquidated or dumped on you know, on a government's protocol yet. We kind of have to come in as a measured you know having real measured approach with these guys before we launch a
product. But internally you know you can get on Terra and 20% on leverage stride so Terra is like a US dollar stable coin it's one of these algorithmic stable coins. So that's the easiest way just to dip your foot in in the DeFi yield farming space. Why earn obviously from Andre Kanye on medically yield farms like that's a really interesting automated protocol that's worth
having a little tap at. In terms of the super high stuff, you know, we've got things like iron finance that has its own governance token, I think it's a Titan, like you can jump in there and yield farm stable coin to stable coin, right, so you don't have huge issues around a permanent loss. And you know that the moment I think the yield is something like 500% per annum. But here's the kicker, and as much as I love and we all love the DeFi space and think it's going to make huge waves in
traditional finance. At the moment, the only way you can offer those kind of yields is by having the liquidity to get out of the token and that liquidity is only there because at the moment people buying that particular token. Now what you do start to get is a potential House of Cards right where everyone's gunning for these yields, but the sellers are waiting there to get out on those 500% per annum you know
yield curves. Now those yields are only yields when you realize that the profits right so you know someone really interesting DeFi guy we talked to you here in Melbourne, who's been a great part of our business over the years actually, he basically said you know, these DeFi protocols, all of them go to zero, except for the top five at the moment in yield farming because they're literally just churn and burn kind of
protocols. So in summary, like you can get in and out and share between different defi yield farming, you know, venues that pop up at the moment. But you've got to be super disciplined and diversified and basically continue to move.
Wow, you two just made my head spin there. I'm just trying to think of all the different avenues in which I can even, mind you, I don't have a whole lot of cake but even selfishly where I can put my money on the zerocap team, you must have a multitude of traders who are looking at different algos and using different algos every single day to find the best sort of pools to get into and the best farms to yield
from. What does that process look like is, you know, I'm not asking for the golden ticket. But I'm asking for as much of the secret sauce as you can get.
I mean, as I mentioned, like we're in the test and learning phase. So our algo team, excuse me, our algo team hasn't even built an algo around this yet right. At the moment our prop teams pretty much traditional our algorithms, trading futures basis curves, and PR funding, right. So at the moment, we've basically said and the whole team writing the traders and non traders who've said, go to town, here's some of
our stable coins. Go learn as much as you can, you know, go break things, don't lose too much money and come back with some real learnings and I think those learnings are less about you know where's the opportunity now? The learnings are more around where's the scalability you know, and what will be great product in the future. Because if you can start to pick a few little gems like that, you know, we can build robust low risk products for our traditional
investors. In answer your question, though, you know, if I was coming into yield farming now and just wanted to have a little bit of a play, I would definitely look at buying finance stable coin stable coin, because as I mentioned earlier, you know, you don't have to worry about things like impermanent loss, you don't have to, you know, you can pretty much pull capital, whatever you
need. But I would just absolutely hazard to say like this stuff is super risky, you know, everything with those kind of return profiles. There carries a requisite level of risk. So do not bet the house on it and you know, bet on any one protocol would be my suggestion.
Good to know. And while we're talking all about this, just for our listeners who are unfamiliar with yield farming. Would one of you gentlemen mind giving you a very brief and quick to scription on what exactly yield farming is?
Sure. So, yield farming is basically providing liquidity to decentralize exchanges. Basically, I'd say if you look at a traditional market, like if I want to go to an FX deal, I've got Aussie dollars, Matt, you've got Canadian dollars, we would generally go to a bank or an FX dealer, right. And they would be a middleman for that transaction. Decentralized finance is really around removing middlemen. Okay, now, in the FX deal, the bank actually plays liquidity
provider. So I'll go to the bank, and I'll be like hey I want Canadian dollars, they'll give me Canadian dollars. And then a few hours later, you'll give them a call from Canada and say, hey, I want Aussie dollars. And they'll basically house that risk. And there's a centralized function for that. DeFi is all around getting rid of the
middleman, right. So when you get rid of the middleman, you need the liquidity from somewhere, the same function the banks would have played in the FX deal, all of a sudden, you now have peer to peer opportunities for people to actually provide that liquidity. So it allows you and I to put Canadian dollars and Aussie dollars in that example, but in the DeFi space, it's around putting binance dollar, you know, and usdc on a DeFi platform, and that's what the liquidity that they use to
facilitate transactions. So when you look at that, you become an automated market maker, and you basically earn a clip on transaction fees as part of that pool. Now, in isolation, the yields wouldn't be massively high, just owning transaction fees, but they need to incentivize liquidity, they want to incentivize you to come into these pools. And the way they do that is by offering new
governance tokens. Basically, when you're providing liquidity, they need to incentivize you right to provide that liquidity. So the way they do that is a few these governance tokens, and those governance tokens have a value of their own. So these 500% yields per year, most of that cream is in the governance token and the value of the governance token. Now that, you know the problem with that is the governance token only has as much value as the market
determines. So when the DeFi space is pumping, and everyone's buying those governance tokens tend to have huge value, you know, but when the whole thing's dumping, you can be held holding governance, that you can't get out of now. It's not a huge deal when you've got really liquid governance tokens in the larger platforms. But it can be a problem when you get into newer platforms with governance
tokens. You don't know the founders, you know, there's limited liquidity and when everyone's running for the gates all thing goes to zero.
And when people are yield farming, essentially they're hopping from protocol to protocol, searching for the best yields.
That was awesome. Thank you, gentlemen. That can be a bit of a gamble. And speaking of gambling, we want to give a quick shout out to our sponsor, coin poker.com. Folks, you've heard me talk about coin poker and their ambitious team many times on this podcast I absolutely love the platform. It is very quick, very clean. They offer instant and secure transactions and Ethereum Bitcoin USDT and their own currency $CHP which is almost like a stable coin and hovers at its great price, and still has a
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right now. You got Stanley Cup Finals, hockey playoffs basketball playoffs, mid season for baseball, and like I said, the euros which is an absolute treat, head on over to coin poker.com and give them a try. Ryan and jon, you guys have an incredible team of traders and I bet they are absolute sickos on the poker table, confirm or deny.
Confirm.
Yeah, you know, when we're hiring traders, actually, we, you know, we'll often get a lot of people applying that are poker players. You know, poker players probably make the best traders.
Yeah they're in their head. They're also friggin smart that like they have, I don't know, jack Queen on the table, the other guy's got whatever, and they're just doing all the calculations in their head and they have it down to science, whereas I'm here I'm using nothing but qual and they're using nothing but Quan. And that's why I don't win poker.
You know, the biggest connection point between poker and trading is position sizing. Like poker players know when to bet and when not to bet and how much to bet right and trading, it's just a game of knowing how big to bet on every deal. And that's all statistics, you know, and getting a real feel for the market or getting real feel for the plays on the table.
imagine you to in a job interview, it's like you have a trader crossing out the table and you just whip out a deck of cards, give him some chips, and it's like, well, if you can beat us in a game of Texas, you got the job.
Yeah, that's not gonna be too hard to beat me.
You know, we're actually hiring at the moment, right? So we ask lateral questions, try and get super innovative answers and just see how these guys think. Right? So one interesting one we asked the other day is how many baseballs can you fit into 747 jumbo jet?
Oh boy
How would you answer that? It's interesting question that. You've got no calculator, you've just got to give us your thinking and given number.
How many baseballs? Well, I'm trying to think. I'd say me, I'm about I'm six feet bucks 75 on a good day, Buck 80 on a bad day. And I'd say I'm about I don't know. 100 baseballs maybe? And you can fit on 747? Probably 1000 of me? I guess maybe, I don't know. 1million, 2 million baseballs? I don't know? Do you guys have the answer to that?
That's a good answer. A really good answer. That's actually one of the better answers we've had by longshot in interviews.
Like, how would you size that up? Right? Like, I have no clue how big 747 is, I had just tried to find a unit of scale that I know the size of and there's no better unit of scale than myself.
That's how we were thinking about it as well.
I was thinking so economy probably has 300 people, you know, business probably has 100 you can probably fit 3x the people in business to fill it up with humans, 2x the people in economy to fill it up with the economy size people. You know, therefore you have like 300 people in business and 600 in economy, that's like 900 people. And then you've got storage, so maybe another third for storage.
So all of a sudden, you've got 1200 people how many baseballs can you fit in the person, you know, looking at your body weight, etc. And then you just have 100 but um, there's, it's really just how you think about it. You know, like another person did a blog where like well, a seat holds one person. And if you like made a seat a box, how many baseballs can you fit in the box? And then how many boxes can you fit in the
747. But this kind of stuff. You know this makes great traders and makes great staff members to be honest because you want people who can think outside the box. The real opportunity is not looking at a text box and trying to figure out how to make money you know, the way that traders in the 90s deer that's looking into the future I'm trying to figure out whether weird and wonderful opportunities to draw alpha.
I love that. One of I guess staying on topic. One of the probably the most unique interview questions I ever had was the interviewer across me He's like do you know the hiring test or just the business test or the friendship test where you'd never be a friend or hire someone that you can't have more than one pint with? Like, yeah, I've heard of that. Like my grandpa told me that long ago. He's like, how many pints would you have with me? Like I don't
know. Like, a lot. He's like how many pints will take until you blacked out and were absolutely you know, done. I'm paraphrasing here and I'm sitting there across the table and mind you I was young, I think it was 22 at the time and I'm like, do I give him the honest number like am I getting judged right now? Like how do you, what would you guys say there? Would you give the honest number and say I don't
know 20 maybe? 24 on a good day like what do you say there when someone's like how many pints does it take you to blackout?
Yeah, it depends what I've had for lunch that day. You know if you've learned this you can drink a lot of pints
Oh, that's good. Okay, back on topic.
I think you still in the stages where the hangover is not so bad where we're getting on now when the hangovers started really buzz. Around the 10 I reckon by a long shot.
Well, I'm 26 but I remember getting after like really putting on a booze bag when I was 18 19 wake up the next day and it's like okay one coffee and I'm good to go even now if I put on a booze bag next morning, it feels like I hit by a you know Brinks bus or a Brinks truck. So yeah, it has been getting worse. But back to the show here. I do want to talk about Bitcoin. You guys were actually featured in an article
not too long ago. And you talked about how Bitcoin has considerably fallen in price over the last month and a bit. However, the fundamentals have not changed and I know that your team had some analysis in regards to the continual exposure of Bitcoin over time outweighs and outperforms a traditional portfolio with bonds, equities and commodities. 10 times out of 10. I want to know, again, going back to the whole How do you pitch a family office, how do you pitch a PE firm or a VC? How do you go
about doing that? How do you pitch them and show them that just dollar cost averaging with Bitcoin will far outweigh any other investment you can do? What does that look like?
Yeah Matt we've taken a couple of different approaches to this right, both at a quantitative level, and also from more of a macro economic and sentiment level. Right? So from the quants side, which is what a lot of the family offices and the insiders understand, like, if you add Bitcoin to hypothetical portfolios over the last 5,6,7,8 years, you improve risk adjusted returns right and the magic
numbers around 5%. Then if you take Bitcoin and Ethereum, right, 70% Bitcoin 30% Ethereum, and you take what they call an efficient frontier approach, which looks at the optimal allocation of two risk assets as part of a broader portfolio. And you again, improve risk adjusted returns even more, because Ethereum and Bitcoin both have unique correlation characteristics themselves. So from a quantitative perspective, it makes sense, you know, earlier in the show, I mentioned
leverage without leverage. That allows investors to position size as a smaller amount as part of a larger portfolio and still attain the kind of leverage you'd get, you know, when you're basically margining up on different stocks and other assets. So quantitatively, it makes huge sense in a portfolio. Then we talk about at a fundamental level, right? So fundamentally, you know, what
does Bitcoin offer? Well, it offers an asset that will never exceed 21 million coins, in a world where quantitative easing, doesn't seem to ever, potentially never stopped, you know, like we made taper QE now from the Fed and other central banks. But the next crisis, we're going to be printing more
money, right. So this is a real hedge at a fundamental level, against quantitative easing and stimulus in the system, and stimulus that, frankly, is not backed by any real assets right after the gold standard disappeared last century. And then we look at it from the the macro perspective, and you just have to look around. So inflation now is actually really starting to take hold. And, you know, you've got the Fed saying that inflation at the moment is
transient. And we're not going to be seeing large scale inflation over the next year or two. But you just have to look around like we went to the shops yesterday, and stuff is more expensive, you know, it's happening year on year, and you can't flood the system with this kind of liquidity and fiscal stimulus without seeing rises in
prices. You combine that with supply chain shortages, and all of a sudden, you've got a macro environment, where risk assets correlate, and you really struggle to find good hedges. Now, I don't think the markets actually pricing in inflation yet, you know, there are some value stocks starting a term we've got commodities starting to move. But until inflation really takes hold, and people are paying seven or eight bucks for a carton of milk, I think that's when it's really going to
move. So Bitcoin from a macroeconomic perspective makes perfect sense because it's a hedge against that inflationary element of money that we spoke about before and inflation in society. All of that has an Umbrella Movement of institutions investing, you know, we're gonna get more ETFs coming out, and they're going to be retail access points. So this has really been our thesis, you know, there's an unbelievable foundation for this asset into
the future. And it's still is really, you know, at the moment, it's still at, it's under a trillion dollar as an asset class. It's still outperformed from a market cap perspective by Apple and very large companies out there. And we really see this as a fundamental financial system that is still underpriced and still holds long, great value in the medium to long term.
That was a great spiel there. Thank you for that. Also I agree with everything you just said and me firsthand, I bought a steak a couple days ago well, not me but I'm in quarantine right now because that's what happens when you go back to Canada mandatory two week government quarantine. Thank you Trudeau. But someone bought a steak for me and brought to the house and that steak would have been $13, decent cut of beef last year and it was a $24 steak. I'm pretty
sure it was on sale too. And that's just one aspect of the supply chain beef. So I completely agree with you. I can't wait to go to the grocery store again. Been in quarantine haven't had the chance, but can't wait to go to the grocery store and check out the prices it's gonna blow my socks off. Bitcoin is extremely volatile, as we all know, and that is part
of the barrier to entry. If you can put on the big boy and big girl pants and put up with the volatility, you have access to an asset class that is up on average, I believe 200% a year, which is definitely enough to write home about. With that being said, Bitcoin took an absolute shit over the last, you know, month and over the last week has gone back up to the 40k mark. I don't know if either Ryan or john, let's take this
question. But if you have any idea of why it went from about 60k USD to 30 and now back up to 40 if you have any technical analysis, qual, quan you name it. Anything you have for me, I'm all ears. I'd love to know what are your thoughts on that?
The most basic answer right to this, i'd stepped into an Uber the other day like a couple of weeks ago. And my Uber driver told me to buy Dogecoin.
I love this theory, and this theory is so true at time and time again. Okay, keep sorry, all you keep going?
No, you know it right. So Jesse Livermore reminiscence of a stock operator. I think it was from this book, actually. But um, yeah, he sold all of these stocks just before the big crash early in the 20th century, because his hairdressers were basically telling him to buy stocks heard
I've heard the same story, actually from apparently was Joseph Kennedy, who said that his shoe shiner was telling him what stocks to buy. Yeah, but it's the same thing, right?
It's the same thing. And we've got mania and hype. And you know, like, when, when you've got an insane amount of, you know, in quotation marks, weekend's or investors that are coming in on leverage, and basically, not prepared for downside moves, you get liquidity cascades. And it's a real shame, you know, I said, we were talking as a team the other day, I would have loved Bitcoin to have gone from 5000 bucks to 20,000 bucks over the last year,
just a steady growth curve. You know, people would be swinging from the bleachers on what a great asset This is, but instead, you know, the media's kind of turn now a little and the crypto markets melting down, and bitcoins got no value anymore. You know, so the reality is, when you get a huge inflow of that unleveraged capital, when you do start to get downside or getting overly long market, you then get a squeeze, right? And that's what
we saw. And, you know, I don't want to use the word contagion. But when you look at the alt coin market, when it started to move, you know, then we started to see Bitcoin and Ethereum start to go because people start to hedge. And there's basically outflows. The move is exacerbated, because then all stop losses start getting here. And, you know, I think we had like, just on the 11th, we had like 11 billion in, what was, no
500 billion in liquidations. So there was just a lot in one day, you know, and that tends to lead to exacerbated moves to the downside.
It's important, though, you know, the way that we talk to our investors about this, you know, Bitcoin and other cryptocurrencies, generally are a medium to long term investment. So, yes, there are short term volatility. But, you know, coming back to what we were talking about earlier, and how Bitcoin and other cryptos
fit into a portfolio. But over the long term, it actually reduces volatility in a portfolio because it's an uncorrelated asset class, you know, so you don't want a portfolio full of things that are all moving in the same direction at the same time. And you can also reduce volatility, just by reducing your position sizing, and that's why, you know, as jon said earlier that number is around 5%, in terms of, you know, your overall allocation. So, yeah, it's taken a beating, you know, over the
last month or so. But again, the fundamentals haven't changed. So, yeah, we shouldn't be making any knee jerk reactions.
No God no. And yeah, just to echo your point there. Paul Tudor Jones also just said that Bitcoin allocation and everyone's portfolio should now rise from 1% to 5%. And when you're with a couple bill that 5% is a lot more than my measly 5%. So good for ptj hope he keeps on the Bitcoin train. This recent price rise is obviously great. Everyone in the space loves to see this when Bitcoin rises. Everything else usually does. It's just great for the market. Nothing better for the
market. But Are you guys familiar with the stock to flow model by I believe it's 100 trillion USD, that is his symbol on Twitter. You guys familiar with that model?
Yeah.
And have you seen it's going back on track. We were almost out of it when It hit about 30k USD right back up to the 40. And it actually followed that little dip and it's going right back up. My question for you, too, is where do you see Bitcoin at the end of 2021? And will we hit 100k? By the end of the year?
Yeah, it's interesting, you know, we've followed the stock to flow model fairly closely. It's traditionally used in the commodity space, right? So it's looking at, for your viewers, or listeners who don't know, it looks at the production output curve, like the rate of production of an asset. So if you look at gold, that's how much gold is actually pulled out the ground every year as a function of the total amount of
gold in supply. So with Bitcoin, right, that starts to flow model actually becomes more scarce every four years, because the production supplies halved, every four years. So, you know, I think it's a hugely valuable mathematical value proposition, really, because it's mathematically designed to become more scarce over time. And I think a lot of people miss that. It's like, oh, they'll only be 21 million in
circulation. That's true. But they'll actually be less produced every year, all the way up to that 21 million points or less mined every year. Where does this leave us to the end of the year? Okay, so, earlier this year, I put out a statement with our investors that Bitcoin would hit, sorry, it was actually in September last year, I said Bitcoin, I think it was Bitcoin would hit 50,000 by the first half of the year and 100 grand by the end of the year. So I hit
the first milestone. I was in terms of what would have to happen now for it to hit the 100,000 towards the end of the year? Well, I think we need a combination of three things. Fundamentally, we need some really strong news flow. Now that El Salvador news is huge, by the way. And if we weren't in a current little blow off, I think it would actually be busting Bitcoin through all time highs, because this is like way
beyond Treasury. This is like a country that's essentially adopting this as part of their economic makeup. If we get a few more fundamental news items like that, this year that really show long term sustained fundamental growth. That's the flow in my view. Then you want to see things like on chain data will really start to move. So exchanges, outflow from exchanges, indicators, like the number of active Bitcoin
addresses start to change. And then I think the final kicker to really get it above 100 grand would be the inflation narrative. So from a macro perspective, if we start to see inflation really kick over the next six months, and the Fed and other central banks with generally follow the old, good old fed reserve, if they start turning around and saying, Hey, we were wrong, this could not be transient, and were tapering stimulus and raising rates. I think that will be the kicker
together above 100 grand. So really, you need a congruence of factors at play for those kind of inflows to get above 100k. Through I feel the same way that I did in January this year. You know, like any blow off, you get a little beaten up.
A couple bruises on the knees. Yeah.
So I think we'll go above all time highs again. But I think we would need a congruence of those factors to get above 100 grand by the end of the year. I'm still a betting man. So I'm saying yes. But it's not as bad as it was this year. Yeah.
That was one of the things.
I think it's falling for around about 85 or maybe 90 by the end of this year. So you know, if that model continues to ring true, then yeah, we're going to get pretty close to 100k this year.
That was just great. I want to go back there and touch on the second point. And that was on chain metrics. Can you go into a little bit more about that? Because you hear that term? And you see that term on Twitter, you know, on CT crypto Twitter all over the place, on chain metrics, this on
chain metrics that. Wow I can't even speak, that's a little bit of a tongue twister, but can you just give our listeners a brief explanation of what people mean when they talk about on chain metrics and why it's such an important sort of aspect to look at?
Sure. So the blockchain is a public facing chain, obviously, right? So you can look at chains of transactions and get real insights around the flow of Bitcoin. So when you look at unchained metrics, you look at how active wallet addresses are you. A lot of the data now can point to exchanges. So you can figure out how large the volume of unchained movement is into
and out of exchanges. And what's interesting about this is when you look at big OTC desks or the flow of liquidity, when there's potential indicator, which has been really consistent in the past, of selling pressure is a sudden inflow of Bitcoin or Ethereum, to exchanges. And the reasoning is exchanges, get hacked, right. So people are not putting Bitcoin on an exchange just to hold it there. But they'll hold it on their cold wallet or insurance infrastructure, if they're just
going to hold. So if there's an inflow on exchanges, that can be an indicator of short to medium term, bearish moves, because there's potential selling. And the same goes for outflows from exchanges. So you can measure that you can also measure things like wallets that hold above 10,000 Bitcoin, right, that haven't moved in seven years. If those start moving, you know, there's and there's a trend of really large whales starting to move assets, you know, begs the
question as to why. Most of the time, they're not moving it because they just want to move custody providers. That kind of movement can indicate a potential to sell in the short to medium term. So there are some great provider data providers now, glass nodes, one that we look at really often that you can map out, you know, how active addresses are the movement of funds between really large wallets, how much fun is actually going on to exchanges.
And that can give some great insight into short and medium term moves.
Again, just incredible. We have a transcript of every single episode on the podcast, and I'm definitely going to - I always listen to every episode, I try to read every one but I always listen to every episode. And I'm going to read this one as well, because you've provided so many golden nuggets for the average Joe or Jose like me at home, to really study on. Is there a list on Zerocap where I can or resource center or learning hub where I
can have access? Or at least you know, get sort of a bit of the secret sauce that you guys give? Like all the all the stuff you've just mentioned in last 50 minutes? Is there a resource center where I can get access to this stuff?
Yeah, definitely, we've got an insights section on the website. And we've also got a newsletter that you can sign up to there, where we publish your weekly market wrap, which is produced by our trading team, and overseen by john. So yeah, once a week, we publish just a bit of a roundup of news of what's happened over the last week, but then, you know, technical analysis and some of that on chain data that we just spoke about. And some things to look for, you know, over the
coming weeks and months. We do also put together some some articles and research pieces that we publish, you know, once or twice a week just on, you know, various interesting topics or, you know, education pieces. You know, like when there's things that happened like adoption in El Salvador, you know, we'll talk about that and what we think the implications of that are
Amazing. Gentlemen, this has been really insightful. I really appreciate both your time. And wow, just always love, absolutely adore conversations like this because I learned so much and you know it almost, not almost, it does fire me up. And I just want to learn after this. And I thank you for that, I sincerely do. Before we depart, any questions for me? Or is there anything that I can help you with? Anything you'd like to know?
So yeah, like just get yourself out of isolation there and jump on a plane down to Melbourne and then we can see how many pints you can drink?
You have my word. I do have a couple buddies there that I would absolutely love to see. But yes, that will be done. I have two vaccines and I think in the last three weeks, up to five negative COVID tests as per requirements for the lovely Government of Canada. So I am 100% COVID free but still in quarantine. And you can't win
them all. I'm also about 100 meters away from one of the nicest golf courses in Ontario and I'm just sort of drooling every time when I look over at it so you can't win them all. But gentlemen, it was absolutely great having you on. Before we let you go can you please tell our listeners where they can find you, each respectively on social and where they can find zero cap on social.
Yeah. So you can find us at zerocap.com. From there you can find links to all our socials. We're pretty active on LinkedIn. And you'll see us putting out some more content on Twitter and YouTube soon, but zerocap.com is where you can find all those insights.
What about socials for you to guys?
Yeah, well, we're not super active, you know, on the socials, the twittersphere is a little bit noisy and aggressive. And, you know, we prefer to just publishing our material through, you know, the insights and the weekly market wrap that we were talking about earlier.
Hey, that works too. That definitely works too. On a separate note, though, I would definitely follow you two. And there's not a doubt in my mind both, you would get up to that five digit follower mark within a couple months if you started buzzing on Twitter. Ryan and jon, absolute pleasure, really appreciate you guys coming on. I learned a lot and had a blast, and I hope you did too. So thank you for that much.
It was great, Matt. Really appreciate it.
Good on you, Matt. Thanks. Hey, let's start again soon.
100%. Folks, this was Ryan and Jon from zerocap. I had an absolute blast speaking to them. And I hope you had a blast listening. As always, we drop on Monday, Wednesday and Friday mornings, that is Eastern time. If you're listening in Australia, it would be Tuesday, Thursday and Saturday mornings, or I guess evenings rather. But nonetheless, if you are listening, it would mean the world if you could subscribe to
us. Appreciate you love you hope you have a wonderful rest of the day or week and we will see you all shortly. Thanks again and have a good one. Bye.