Comfy Sunday Spaces v30 - Victory Lap + Q&A

And I'm happy to go into a lot of detail about at a microstructure level what it does when you have one of these big liquidation candles But I would say that's really what set things off and since then the market has been healthy It's expanded far outside of Bitcoin. I think that what's going on is only loosely based on macro or politics or any of this I think it's sort of a you know momentum slash relief slash everybody's happy to be making money again kind of weak so I think that's pretty much it And you know the market can get positioned in such a way Kyle sort of brought this to my attention where we were trying to figure out in the event of an AI Unwind Which happened with the leopold stuff But even in the subsequent weeks after where that trade gets a lot less interesting where people think about scaling back risk What are some of the trades that people had put on to hedge Their long delta on the AI side. So what does that mean right like you're a trading firm A lot of people have very simple trading strategies where they say hey, I'm bullish Salana I'm gonna get long Salana the investor who thinks that he has quite a bit of quite a bit more of alpha Right says hey, I'm gonna get long Salana and I think actually a theory and will underperform Relatively now we know in crypto correlations are a bit more difficult as the market isn't necessarily tethered to like sectors or industries or fundamentals at times And so it can be very dangerous to put on trades like this, but in Traditional finance the most obvious thing would sort of be hey You know, I want to I think Uber's a great product and I think lift is shitty and so I'm gonna long Uber short lift That ended up being a fantastic trade as the market caps of diverge Considerably since they had their sort of private market funding rounds in their subsequent IPOs and so We were trying to think about what assets are on the side Of the short leg to sort of balance out some of the delta's and and we kind of came to the conclusion that maybe Bitcoin had been Bitcoin had has been an extremely poor performing asset for the past You know 18 months for the most part really since the election we haven't had you know that much Interested Bitcoin and then obviously in the later half of 2025 after 1010 the market really never fully recovered And ever since then it's sort of been a slow bleed down But it sort of made sense and markets are sort of self reinforcing You know Soros and descent who you know will direct will dive more into later has a theory of reflexivity And now we would commonly refer that as momentum But you know this theory of reflexivity which he talks about is that you know the the more an asset is going up The more likely it'll go up more sort of these things are self reinforcing You know the the more bearish people think Um a certain currency may be the poor the monetary policy that affects into the market then they get you know steeper financing costs But the important thing about reflexivity that people forget a lot of people quote the momentum side But he talks about in the Alchemy of finance Hey the maximal point of opportunity is when everybody thinks a certain way And that's what happened with Bitcoin recently where everybody was saying oh my gosh, there's quantum risk This asset is dead this assets a dog gets under performing Volatility super cheap nobody's even trading this look everybody's left crypto to go trade AI stocks Even the volumes on hyper liquid show this and It's tough to do as a human because you're sort of conditioned to Believe in group think and you're sort of conditioned because it feels safe to agree with the crowd But if you want completely asymmetric returns and you want to be Early to trends or you want to have position that is sort of Uh counter to the masses and that is a trading style you think you would be exceptional at you really have to think about Am I in the mainstream of thought here which can also be extremely profitable because AI has been the mainstream of thought since Basically early 2023 whenever GPT launch and if you had just long AI stuff you would be a fantastically wealthy person But you know our style of trading is more about extremes and thinking about you know Where is the maximal point of opportunity and you know That's what we discussed last Sunday where we we were amazed that you know Bitcoin calls 520 days out were trading at basically 40% implied volatility and they were pricing a 7% chance that Bitcoin would double in the next 520 days Which is kind of crazy if you looked at the basis which is the perp funding rate on a lot of these contracts They were flat in fact sometimes they were going negative pal on Bitcoin where you were basically being paid to long Bitcoin because short Bitcoin via perp was such a crowded trade and so you know when you add all of these factors you can still be wrong right it was probably Maybe less likely, but still a very likely probabilistic outcome that Bitcoin could have experienced a significant vol event to the downside could have traded down 20% right and so You know, it's not that Necessarily, you know, we're geniuses or that you know, we're the best traders in the world We don't claim that at all. It's just this is kind of tactically where where we excel And so yeah, and you know things get crowded right it's very easy to enter a trade especially when everybody wants to take it Which is you know sort of shorting Bitcoin compressing volatility, but once a lot of people want out the exit to or get smaller and smaller Imagine people running out of the theater, right You know when you walk into the movie theater that that doorway feels really large But if there's a hundred bodies all trying to move in the same way and sort of panicking at the same time the space gets kind of tight and so And plus people know that and then they'll try and sort of trade against it. So anyways This is sort of how we were thinking about BTC back to Fed policy call what's been happening with rates we talked a little bit about it Last week, but give me a little update on on what happened in the intervention right so so rates have been backing up what that means is that the yield that is paid basically for for government debt is Getting higher and higher so that is if you buy government If you buy government debt You get more yield, but it also means that when the government sells that when the issue new debt It becomes expensive for them because they have to pay more yield And it's kind of like the market telling you that they're not as interested in the debt as they were before And that in order for them to be interested the market clearing price is getting more favorable towards the holders of the debt And less favorable towards the issue of the debt and so the government hates us, right? They have a lot of it so when the cost of issuing debt goes up this is bad for them and Uh, it gets bad for them in in reflexive ways because as their expenses on debt interest goes up The creditworthiness of the government or the the willingness of people to lend to them goes down And so a lot of bad things come together Now the government has been running what's referred to as a deficit which is quite simple It just means they spend more than they make for a while Um, it has gotten particularly bad since covid we had enacted a bunch of policies that never really got undone Um, this is something that i think people have been very concerned about because It is not uncommon for a nation like the us to run a deficit But typically if you look through in history it happens in two different kinds of scenarios One is like you're at war and it doesn't matter It's like a temporary thing and you have to win a war And the other time is that you're battling a deeper session Which is that things have temporarily halted and there's mass unemployment and you really need to step in and smooth things over Um, since covid neither of those have happened like the country has been flourishing The economy has been great asset prices have been soaring across the board And we're still running these big deficits in fact july was the largest Single-month deficit that we had run since like i think it was the summer of 2021 so like proper proper covid times And What's really squeezing things here is that every big tech company you've ever heard of Is issuing tens of billions of dollars of debt right they're all trying to finance AI They've all run out of their own cash flow to finance it with And they're going out to the market and they're borrowing money space x is going out and issuing huge debt Google did metadid amazon did Intel did sk hynics is issuing equity like all of these guys are going out and and doing massive massive massive issuance And it's all what's referred to as you know corporate credit It's competing basically for the same dollars that buy government debt And so now you've got a limited pool of fixed them and come investors And they're all saying look if all of you guys want to get funded you're going to have to pay us more favorable prices It forces government rates to back up and so the treasury is getting very concerned They they did what's We're referred to as a twist The twist means that they are attempting to change the compensate or the the composition of how they issue their debt So they're saying look like we issued some really shitty like 20 30-year bonds Turns out the there's isn't a ton of appetite in the world to buy 20 or 30-year bonds on the US government One of their biggest holders Japan is kind of doing some they're having some issues and we're willing to like support their currency just on the off chance that they buy more of our debt Um and and now we're gonna start issuing more short short term debt in order to issue less long term debt And all of these things are making the bond investors very nervous this is It may seem subtle, but this to a bond investor seems like very erratic very like skitzo behavior Right, this is not something that like a country or or a treasury in a position of strength that be doing And so what ended up happening for the crypto markets to sort of bring this back to crypto Is that when this last announcement happened it in bolden somebody god knows who To take a massive bitcoin long on spot and they said look like this could be any number of people right? There's been a lot of guys who have come out and Been doxed as these massive macro funds that take these big positions Paul Tudor Jones being among them Stanley Drucken Miller being another And they could very easily read the morning paper and say like fuck it call up their guy and say buy me two billion dollars at bitcoin this afternoon And whoever it was basically forced the mass liquidation but they were Um emboldened to do this like they got the confidence to take a trade like this because of what's going on in macro almost certainly No, that's that's very well put um It's sort of Interesting that you know the way that a lot of people think about markets In terms of you know bit as spread and it's very orderly and there's a bunch of market makers and a bunch of venues debt especially sovereign debt is far different Like this is not an orderly market at all. This is a very a liquid Very strange highly regulated market and so Fedon Prevention is unusual they have a lot of tools in the toolkits. I believe they only Intervene for the tune of about four billion to sort of signal to the market that hey we're willing to do more And the goal is to get rates down um the goal is to get long in rates down and again Guys just because the short-term interest rate May Get slammed down and there may be cuts does not mean that long-term interest rates may react the same way You can see big divergences in the yield curve and so Okay, but why is this relevant for us um You know the the dream of Bitcoin and we're gonna take a step back and sort of talk about You know the the asset itself like a lot of people have looked at Bitcoin as a risk on asset A common thing that gets cited by like trader friends of mine that are in tradfire like when I go play in a poker game They kind of say like oh look at the correlation between Tesla and Bitcoin You know, it's like one to one. It's like okay. Yeah pretty risk on assets Tesla also sort of Devoid of fundamentals to some extent more just the Elon premium I don't mean that in a negative way Elon is probably one of the best capital allocators of all time and You know they sort of say oh, it's a risk on acid and so but Yes, and no right Bitcoin and the reason why I Purchased and owned Bitcoin in the past prior to having a real Understanding of trading and market mechanics was I wanted a way to opt out of the financial system During the administration of 2012 to 2016. I saw a lot of spending I saw a lot of things happening. I saw the deficit going in the wrong direction And I was very young at the time, but I was like this asset makes sense to me Because it's a way for me to just opt out and There's Bitcoin the risk on asset and there's also Bitcoin the literal tangible Escape hatch from the modern financial system and this isn't like a bull post This isn't saying that everybody should own a ton of Bitcoin. I think that Funnily enough when you understand expected value if Bitcoin is going to go to tens of millions of dollars Sort of the really hardcore Bitcoin Extremist think then Ironically, it's fine as one percent of your portfolio There's really no difference if Bitcoin is going to like 100 x in a year or something or or 1000 x in you know a year or two years theoretically the value of you holding You know one percent or ten percent or fifty percent is very similar because at that point You're kind of denominating in something else And so you know There are a lot of end games where you know Bitcoin is extremely interesting Bitcoin as an asset right now is probably The cleanest way other than oil to