Transcript 0:00 We have a deep problem that we don't raise enough taxes essentially to pay for social services spending and everything else, and there's no political will to deal with those, uh, things. 0:11 The things that are most at risk are long duration fixed cash flows in fiat currency, otherwise known as bonds. 0:18 There is no kind of good option, and therefore you need to think about the third way, and the third way is basically non-government currencies. 0:26 Is there one thing in the crypto market right now that you think the market is failing to price correctly? I have to say Zcash, what can be thought of as Bitcoin's Solana moment. 0:37 The last thing TradFi will understand is Bitcoin, which is hilarious because it's, like, by far the biggest and most established, uh, thing. 10 years, one asset and no selling: Bitcoin or gold? Bitcoin. Easy choice. 0:51 [upbeat music] Welcome to another episode of 51 Insights. 1:03 My guest today spent two decades reading markets for Wall Street at Lehman Brothers, Nomura, and Goldman Sachs, where he ran currency strategy. 1:13 Today, he leads research at Grayscale, one of the largest digital asset managers in the world. A week ago, he told clients, "It's time to buy Bitcoin." Zach Pandl, welcome to the 51 podcast. Thanks, Marc. 1:25 I'm delighted to be on your show and looking forward to this conversation. Yeah, likewise. Zach, I'm delighted to have you here today. There's so many different and interesting topics I wanna talk with you about. 1:36 I wanna start right away with what you told your clients last week, which is you gave them the green light to buy Bitcoin. The Fed had just hiked, and Clarity had just failed. Can you walk us through that call? 1:50 What did you tell your clients exactly and why? Yeah. 1:54 We've been offering that message, I think, the, the green light or the cycle bottoming, uh, message for, for a little, uh, while, and I still think it's the right, uh, story. 2:04 Like many other asset classes, crypto has long-run structural trends and shorter term cycles, uh, around it, and I think that that is an important thing to keep in mind when people are putting money to work, uh, in the asset class. 2:18 And we had a big drawdown from October of 2025 to June of, of this year, and the question was, where are we gonna find the bottom? What are we gonna see to confirm that bottom for the asset class? 2:29 And I think our confidence since the end of June has been rising week by week essentially that we found a bottom in the asset class. 2:37 The structural trends are still very much in place, and I think we'll get to that in this conversation, the demand for digital scarcity in a world of fiat currency risks, the value of public blockchain technology to upgrade our financial system. 2:52 All those things, all those fundamental drivers are still in place, but the price was really beaten down. There were some reasons for that, some leverage pressure on certain players, uh, in the market. 3:02 And I think we've gotten past those, uh, challenges, and price has rebounded, I think, as you said, in a healthy way, even when the news flow hasn't been perfect. 3:10 Fed rate hike, Clarity not passing, and yet we've seen a big rebound. I think that's a sign the market was oversold, and we're finding a, a durable bottom. So yeah, that's the message. It's a green light. 3:21 You know, invest for the long term, uh, in, uh, crypto for these long-term trends, but, you know, pick your entry points sensibly. And I think that's what we're trying to, uh, clarify. 3:29 This is a good entry point, a good time to make those longer term allocations to digital assets. Yeah. 3:35 Uh, and I remember very well end of last year we had a couple of guests on the show, and some of them told us they actually expect this cycle to be different. The four-year cycle is dead. This will be a prolonged cycle. 3:49 And I actually also read your 2026 outlook where you also said this is gonna be a different cycle for the first time. And now it looks like this is exactly like Bitcoin supposed to be. 4:02 It's this Bitcoin playbook down or low in June and then rising in October again. You think we were still in these four-year cycles that we've used to be or what's your view on that? 4:13 Well, it's always a little scary when, uh, you're a, a public-facing analyst and people go, uh, read the things that you've said in the past. 4:20 But I've been doing this for a long time, and, you know, get things right, get things wrong, and, uh, kind of more comfortable I guess, [laughs] you know, with, uh, with the getting things wrong. 4:29 Uh, look, I, I think, uh, it is a different cycle in, in, uh, a lot of ways in terms of the magnitude of the, the run-up and the magnitude of the drawdown and the timing of some of those things. 4:41 Uh, but it is remarkable [laughs] in some, in some ways that the pattern resembled, uh, the four-year cycle so, so closely, at least on the way down. 4:51 Uh, now on the bottoming and the way up, we've started to break apart from that historical cycle. The, the cyclists, uh, would've said we would've bottomed maybe in November, uh, of this year. 5:02 You know, the bottoming was in, uh, was in, uh, June. And so I think if you were too wedded to the cycle, you missed some of this, uh, upswing, uh, in the last couple of months. 5:12 I think where I come out on this, uh, topic is it's a good reminder that these are commodity assets primarily. You know, Bitcoin is a commodity. Ethereum is a commodity. Solana is a commodity. 5:25 There's lots of different things in digital assets, but the big assets are, are commodities. 5:29 And when you look at commodity markets outside of, uh, digital commodities, physical commodities like oil, gold, price of copper, they tend to have these types of patterns as well. 5:39 Uh, prolonged cycles or what a, an investor might say, persistence or momentum, uh, in the, in the price, autocorrelation, uh, in the, in the price. 5:49 And, and so it's important to keep those things in mind when you're deploying capital, taking risk, uh, in the, in the asset class, and this has been a good reminder of that. 5:59 I think it's also a good reminder for deploying capital for the upswing. You don't wanna wait necessarily until at any point, uh, uh, in the future. 6:07 You wanna take these opportunities in the down parts of the, of the cycle, uh, to give yourself the best chance of making attractive, uh, total returns, uh, over time. 6:17 So I don't think we're gonna sing to the, uh, halving cycle, the four-year halving cycle, you know, going forward, but I think the industry will always have cycles, uh, because they are commodities, and that's just how commodities trade in all parts of finance. 6:32 Mm-hmm. Yeah, makes sense. A- and Zach, when you speak to your clients about this upcoming cycle, uh, what do you tell them what is different than four years ago? What are some indicators that you're looking at? 6:46 What are some macro factors, some, um, catalysts maybe that you're looking at that are different this time than four years ago? 6:56 Well, I'm gonna answer that, but I'm gonna first say that the most important thing is that everything is the same in the sense that these are long-run mega trends driving, uh, users and investors and value to the asset class, and they're-- You can think of them as kind of two things. 7:14 They're, they're really intertwined, but two things. One is macro demand for scarcity. 7:21 You know, we have b- big problems, big imbalances in the macroeconomy, most important of which is unchecked government debt growth in the United States, which is the world's most important currency. 7:34 The dollar is the m- most, most important currency. And the other piece is a new type of technology. 7:39 Public Bitcoin created public blockchains, and we have learned that those can be used for many other things besides digital scarcity, stable coins, tokenized assets, perpetual futures, de- decentralized finance. 7:51 Those are the things that are driving forward the asset class for more than a decade, and those things continue to drive forward, uh, the, the asset class. 7:59 So the most important thing we tell people is the trend is, is in place. It's been in place for more than a decade. It will remain in place for, for more than a decade. 8:08 So that's, that's the first thing people wanna know. Now, what, what's the-- what is different, the most important thing to say here is risk. Risk changes over time. 8:20 It declines over time, and that allows more types of capital to come into the asset class. And how does the risk change? Well, one important way is investment products. So the ETFs have been a huge innovation. 8:36 The ETFs package custody, liquidity, tax solutions, staking, account types, uh, into a single instrument that allows a different type of investor to access digital assets, to access Bitcoin, to access Eth, and that doesn't wanna deal with self-custody and, and the s- you know, staking complexity and the tax complexity that come with investing in crypto. 9:01 Other types of risk decline, you know, volatility, quality of data and analyzability, uh, of, uh, token fundamentals, the breadth of users and applications and activity taking place on blockchain, uh, tech. 9:16 So those are the kind of key messages that we give. Of, of course, we talk about zillions of other, uh, things, but the most important thing I try to get across is the mega trends are in place. Digital scarcity, 9:27 blockchains for financial services, they've been in pla- Those are the same things that have been happening for the last ten years will continue to happen for the, the next ten years. 9:36 And the question for investors is: When is the risk level appropriate for you? You're-- There's so many different types of investors and, and for some people, crypto is almost not risky enough anymore. 9:47 [chuckles] They look for a really early stage, really frontier, really high volatility, and they, they are put off by the idea that we can only offer 50 to 100%, uh, vol assets, uh, in the, uh, in the asset class, and they wanna go look for something else. 10:00 For other assets, the risk level is exactly right. Now, the products are ready. The vol is appropriate for their portfolios. Now is the time. 10:08 And for other investors that are ultra-conservative, uh, you know, it's, it's not-- It's still too risky, and it'll-- You know, you're gonna have to wait another decade or something [chuckles] before they're interested in owning, uh, these assets. 10:17 So, so that's really the conversation with allocators. We talk to so many different types of allocators, but that conversation is always the same. It's about: What is the-- What is driving the asset class? 10:27 What is the risk level that fits for you? Yeah. Very interesting. Uh, you mentioned digital scarcity. 10:32 I, I de- definitely wanna talk about this later as well, Bitcoin compared to gold, and then you also mentioned blockchain for financial services. 10:40 We're gonna talk about this too because there my question will be where the value will accrue. 10:44 But first, something that I remember that's different about this cycle versus the last one is that last time the Fed was lowering rates, and I remember that was a big narrative at that time that people said, "Cheap money. 11:00 People are buying speculative assets, including Bitcoin." And this time the Fed is hiking rates. Do you think those things are actually correlated, and why is Bitcoin rising when the r- Fed is hiking rates? Yeah. 11:16 So the level of interest rates is definitely a variable that matters, so there are other, uh, variables. 11:22 And how, how you should think about this is Bitcoin and gold are non-interest-bearing currencies, and so when the interest rate goes up on fiat currencies, and the most important fiat currency is the dollar, it raises the opportunity cost of holding non-interest-bearing currencies. 11:43 Uh, so this is how currency markets work, uh, whether you're comparing the dollar to the euro or to the Mexican, uh, peso. 11:49 Interest rates, typically real interest rates are, are, a very important, uh, fundamental driver, and they're a fundamental driver in cryptocurrencies, uh, also. Now, why is Bitcoin going up, uh, anyway? 12:02 Well, there's other variables. 12:04 What I would encourage people to think of is like the, the big structural force that matters for things like physical gold and digital gold or Bitcoin is the risk of structural inflation or debasement from unchecked deficits. 12:21 We have a deep problem that we don't raise enough taxes essentially to pay for social services spending and everything else, and there's no political will to deal with those, uh, things. 12:32 So unless we have massive tax increases and/or massive social spending cuts, we're gonna keep having a rising debt, and investors need to k- build that into their thinking, uh, their forward-looking thinking about the value of the dollar. 12:47 That's the mega trend among a couple of other things, but that's a, a mega trend that's driving interest in gold and Bitcoin. Around that structural trend, there's lots of other things that matter. 12:57 If I had to rank them, I would put interest rates, the kind of cycle around interest rates pretty high on the list. Other things on the list would be the kind of risk-taking cycle or risk appetite in markets. 13:11 Uh, you know, how is the stock market doing? How... What is the health of the economy? Other shorter term things matter. Fund flows, you know, ETF, uh, flows, uh, liquidations in, uh, in futures. 13:22 So all of these things matter, and they drive kind of longer term and shorter term cycles. So interest rates matter, 13:29 but Bitcoin has been, uh, going up even with the Fed rate hike because, number one, that kind of structural trend's still very much in place, and number two, some of these other shorter term things have been cutting in the right direction. 13:42 And if I had to specifically focus on the last few months, I would say the most important thing in the last few months has been MicroStrategy, or now known as Strategy, has been getting its balance sheet stabilized. 13:55 It's a levered intermediary in the Bitcoin market. 13:59 There was pressure on its structure, um, particularly on its stretch product, uh, and it has stabilized that situation, I think doing all the right things, selling some Bitcoin, doing a good job with, um, investor expectations management, and that is why, uh, Bitcoin specifically has rallied, uh, even into sort of not that great of news recently, is that this particular issue, a kind of shorter term leverage related issue in the market has, has stabilized. 14:25 So like every asset class, whether I'm looking at the Japanese yen, let, let's say, there's the structural drivers, you know, there's cyclical drivers, there's leverage and financial market dynamics. 14:36 All those things apply, uh, to crypto. What we try to do at Grayscale is just help our investors sort of see the full picture and kind of weight these variables, uh, for their own risk-taking. 14:47 And just like cur- regular currency markets, cryptocurrency markets have a lot of moving parts. Mm-hmm. Yeah, and speaking about currency markets, at SAC you ran, uh, currency strategy at Goldman Sachs. 14:58 What did the FX strategist in you see in Bitcoin for the first time when you came across that new asset class? Yeah. 15:07 Well, I have to admit that I didn't think it was tremendously interesting, like the first half a dozen times that I heard about it. 15:14 [laughs] I think you hear about, uh, Bitcoin, you know, early, and then when the price goes up a lot in, you know, 2013, and when the price goes up a lot in 2017. But I think it... 15:24 Like, I wasn't ready to kind of fully embrace the, uh, story, uh, you know, first time around and, you know, we 15:31 thought about it and wrote about it those, uh, times, but I wasn't really ready to abandon my career [laughs] and go all in first time. Look, I think it's, um, it's two things. 15:41 One is, you know, my, my life as a macro strategist on Wall Street, um, e- economist, uh, uh, working on, on Wall Street is about thinking about what's happening in the economy and translating that into markets. 15:56 That's the core role. What's happening to growth? What's happening to inflation? What's happening with government policy? What does that mean for bonds? What does that mean for stocks? 16:03 What does it mean for interest rates? That's the nature of the job. And 16:08 I came to believe essentially that over the course of my career and looking forward to the rest of my career, the number one macro trend that matters is this debt problem. 16:19 Personally think that of all the things that matter, and there's a long list of things of course, that you're supposed to put that thing at the top of the list. 16:25 This is the most important durable trend, and investors need, in- including myself, need to think hard of like what does that mean for your money? What does that mean for your assets? 16:36 And it got me like thinking harder and harder about this, uh, question. What are the options? Is the Chinese yuan the thing I'm supposed to own? Is the euro the thing I'm, I'm supposed to own? 16:45 And when you do that kind of comparison in, in global currency markets, what you find is that everybody has those problems. 16:51 There is no kind of good option, and therefore, you need to think about the, the third way, and the third [laughs] way is basically non-government currencies. What are those things? You know, those are gold. 17:02 Those are Bitcoin. And when you kind of think hard about 17:05 th- those topics, I think it's inescapable that there is so much more happening in Bit- in like, let's say, in Bitcoin or really in digital assets, in crypto, in public blockchain technology than there is in anything else. 17:20 I, I think once you study Bitcoin deeply, I, I, I think everybody that I have ever met [laughs] that has gone through this experience, once they study Bitcoin deeply, they're overwhelmed by 17:31 the topic, uh, by the magic of public blockchain technology, by the innovation, uh, in the space, and I had that same experience, that I kind of thought hard about the macro and then studied Bitcoin, uh, deeply and then just realized, wow, this is the trade. 17:47 Like, this is what I should be doing with my time full time. Uh, and th- you know, that's really kind of what pushed me over the edge. But it started with that simple process that I was doing in my prior life. 17:56 Think about the macro. What are the big important things? What are the assets, uh, that matter? And then, you know, I went down the rabbit hole as people in crypto, uh, say and, uh, have never come out. [laughs]Yeah. 18:09 And you're saying that rising debt is one of the biggest issue for you. A lot of people call this the debasement trade, right? Yeah. If you look at the debasement trade, 18:20 what options are you looking at outside of Bitcoin? Yeah. 18:24 Let me just say first, I, I, I just want to m- make a comment before answering your question, which is, like, the word trade makes this sound like it's a shorter term thing. 18:35 In my opinion, these events, uh, uh, started in place about 18 years ago, which was the beginning of the financial crisis. You know, we already, uh, November... 18:46 September 15th, 2008, so we've passed the 18th birthday, of the Lehman Brothers bankruptcy. A, a, a g- a good example of one of the key events in that period. 18:56 There were other big events, but that's when quantitative easing started. That's when the Troubled Asset Relief Program, the TARP, uh, started. 19:04 So all of these kind of trends, putting the US dollar on a path towards debasement, let's say. Populist politics, maybe you could say, also began at that time. Uh, all of these things began 18 years ago. 19:17 So we call it the debasement trade, and I don't mind that terminology necessarily, but, but I think it misleads a little bit on how structural and durable and long-lasting what's happening, uh, is, is going to be. 19:29 What are the other things that you're supposed to do with, uh, with your money? 19:32 So some of it is, like, what you're not supposed to do, which is the things that are most at risk are long duration fixed cash flows in fiat currency, otherwise known as bonds. 19:43 [laughs] So, you know, one of the things you wanna do is shorten the duration of your interest-bearing assets. 19:49 You know, it's okay to earn cash flows that are coming to you right away, or what an investor would say sh- short duration fixed income, uh, can be a perfectly reasonable thing. 19:59 So you wanna shorten, uh, the duration of your cash flows. You wanna look for other floating cash flows, uh, essentially. What are other things that pay you back more or less, uh, immediately? 20:10 Cash flowing companies, alternative yield sources, basis trade, let's say, in, in crypto would be a good example. 20:19 So other ways to kind of give me cash flow in short duration that doesn't, m- uh, promise to give it back much later. 20:27 And the other things are other real assets, spreading those around, physical commodities, real estate, you know, with valuation questions I think, uh, need to be taken into account with, with real estate, uh, but those can be reasonable. 20:42 And then lastly, I would say I do think that other foreign currencies are supposed to be thought about seriously. 20:50 I, I think the dollar has a unique role in the world economy, and it has unique risks in its, uh, global role in the future, one of which has to do with the rise of China and the Chinese yuan. 21:04 Uh, despite China's mega size, the Chinese yuan is a little peanut in international markets, uh, today. 21:10 And although not everybody likes this point of view, I would say yuan-denominated assets, in my opinion, are supposed to be part of a global investor's portfolio because in, in my view, the Chinese yuan will likely play a bigger role in the global economy in the future. 21:28 Uh, and I would think hard about do you have Chinese yuan-denominated, uh, exposure in a global portfolio? 21:35 So short duration cash flows, real assets, international currencies besides the dollar, maybe emerging market currencies broadly or including the yuan. 21:46 Those are the things I try to push people towards when they're thinking about, say, global macro diversification for a risk of dollar debasement. Yeah. Very, very interesting. 21:56 And one of the strategic smart moves that the US did is pushing US dollar denominated- Yeah... stablecoins, right? Uh, which strengthens the dollar around the world. 22:06 99% of all stablecoins run on US dollars, and the US has done a, a great job in that, right? 22:13 A- and speaking about stablecoins, something that you said, I think it was about two years ago, was that fees are the fundamentals that matter most. 22:23 And the stablecoin market is interesting because activities hit record highs this year. 22:29 I think it was, it's about 330 billion in stablecoin minted, uh, around the world, yet most layer one tokens are far off their heights. Where is the value going? 22:41 What is happening right now, and where are those fees accruing? Yeah. Great question. Let me talk about the layer one thing first and then maybe expand on it, but 22:53 blockchain tokens are commodities, and so commodities cannot be valued with cash flows. 22:58 You know, we, when we look at the price of copper, we look at the price of oil, we're not thinking, you know, "What is my cash flow?" 23:03 We're thinking about supply and demand, trying to measure those things as, as best we can and, and coming up with statistical methods to try to nail down what a price is going to be. 23:14 That's how we approach valuing layer one tokens. We recognize these are commodities, and we take a statistical approach to try to say, "How do you come up with a value?" Okay? 23:25 And I think we have a pretty rigorous approach, uh, at this point to, to be honest. And the TLDR is that size matters. Bigger is better. Bigger networks mean bigger token value. And what does bigger mean? 23:41 Well, bigger means all the things. Uh, more activity, more users, more assets, more trading, more fees. 23:48 Putting all those things into a basket, and there's statistical tricks, uh, to do that and, and inferring what the value of the tokens, uh, might be. 23:55 Ethereum is the most valuable, uh, smart contract platform, uh, token because it's the biggest network when you look at all those things together. 24:03 If you put me on a desert island and you said, "You can't have all your statistical models and all your data providers. 24:10 You can only have one thing, and you have to tell me the price of a layer one token," I would say, "I wanna know transaction fees paid on the network." 24:20 And the reason is that that is the least gameable of all the statistics. 24:25 I think we need to recognize that, you know, there's a lot of, like- Incentive games that are played and, uh, partnerships and business development that happens, and those can make some statistics go up relative to others. 24:37 Fees paid are somebody's money going in, out of their pocket into somebody else's pocket, so it's very difficult to game it, and I think is a good rigorous measure for landing on these token values. 24:49 Now, my preference would be to be a much broader thing, and in practice, we use a much broader approach than just fees, but that would be my desert island, uh, indicator. So 24:58 layer one tokens have value because they host all this network activity. Bigger is better. More fees, more TVL, more RWA, more users, uh, more, uh, transactions, all of these things matter for valuing, uh, the tokens. 25:14 Now, in reality, value capture from this, uh, technology is gonna go in lots of different places. But I wanna say the most important thing for me is that, is value leakage to users. 25:27 Like, the point of what we're doing here, I think, is to change the financial system, create efficiency, reduce costs, and bring consumer value, user value. We want to reduce risk and reduce cost for users. 25:42 And if that, if that is the case, which is sort of value leakage from the system, then I think we've won, uh, actually. [laughs] So, so actually what I wanna see is value leakage [laughs] first and foremost. 25:52 I wanna see a better financial system for the users of the financial system. 25:57 Uh, now that being said, there will be other types of value capture, some of which will be application layer tokens, uh, built on the blockchain. Some of it'll be public equities. 26:08 Uh, some of it will be other types of intermediaries. And I think a truly diversified digital assets portfolio is supposed to own all those things, layer one tokens, application tokens, stocks. 26:21 Uh, all of the things will be ways to invest in, in the space, and, and Grayscale is involved in all those, uh, all those, uh, aspects. 26:28 So that's just, these are very important, uh, central questions for a digital assets investment firm. That, that's what Grayscale is. Uh, so we think hard about those topics. 26:36 I would say those are some kind of high-level thoughts on how we think about it. Yeah, high-level thoughts, but very interesting. 26:42 Zach, we actually wrote a, a piece in July called The Fat Protocol Thesis Is Dead, and we have a few numbers in there. 26:49 One of those numbers is that Robinhood recently launched their own chain on Ethereum tech, and of about, I think, $800,000 they earned in the first two weeks after launch, about one and a half thousand went to Ethereum as transaction fees. 27:06 But then another example is Solana settled around 3.5 or $3.8 billion in tokenized stocks in June, and s- the SOL price still halved. 27:18 So my question to you is, uh, what are these layer ones that you're looking at that you think have an interesting value proposition or, and, and are generating that return not only for users, but also somewhat for investors and token holders, right? 27:35 Yeah. A lot of layers to that thoughtful question also. [laughs] Let me say first that 27:43 I like to think about a fatter protocol, uh, thesis in the sense that the original concept here is that on the information internet, the protocol layer earns zero. 27:57 You know, TCP/IP, uh, earns zero, uh, from the flow of information across the internet, that the protocol earns, uh, zero. 28:06 Public blockchain technology is the value part of the internet, and the protocol layer, uh, let's say Ethereum and, and Solana, that's the protocol layer in the, in the value, uh, case, that earns more, uh, than zero. 28:20 So it is, uh, definitely a fatter protocol than, uh, TCP/IP. So exactly how do we balance out between the layer ones and the applications and the layer twos and all that thing is still an open question. 28:35 But I, in my view, the fat, fatter protocol thesis, meaning fatter than TCP/IP, has clearly been demonstrated that, uh, there is value accruing to the protocols of the value layer of the internet, even though it did not accrue to the protocols of the information layer of the, uh, internet. 28:54 Where do we go from, uh, here? Well, your question I think is very thoughtful, but o- of course, there's lots of what's priced in sort of elements, uh, here. You know- Right... 29:01 Solana is $70 billion or something like, like that. You know, Ethereum is, uh, $300, uh, billion. BNB Chain is, like, 100, uh, uh, billion dollars. 29:10 And so, um, you know, they've already gone a long way in terms of creating a token value, and Robinhood Chain is, is something new and, uh, growing up and, uh, emerging on, on the scene. 29:21 So I think some of it is, like, what's priced in for what these things are, are going to do. I think about it in that same way that, uh, we talked about, uh, already, which is bigger is better. Networks 29:35 that are big size will accrue a premium. Uh, there's a network effect. There's a kind of scale premium on, on these, uh, assets, and it is nonlinear. 29:44 So the big assets are big, big value tokens, and the, they will get more value the bigger they get. So the question is, like, do you believe in the thesis? 29:55 Do we believe that public blockchain technologies are gonna host more assets and more users, more transactions, and more fees, uh, over time? I believe that thesis. 30:04 I think we are just getting started, and I, I think sometimes people in crypto lose sight of the mission [laughs], you know? So, so this is the game. 30:12 We're gonna watch it play out over 20 years, and the bigger networks will get bigger, and they will accrue value, uh, to, to those networks. And the question is, who are gonna be the industry leaders in that game? 30:22 Today, the industry leaders in L1 are clearly three things. They are Ethereum, they are Solana, and they are BNB. 30:30 Now there's other smaller cap networks that we think have interesting design choices that could make them an emerging leader. The ones that we've made our bets on at, at the moment are Sui and Avalanche. 30:42 But there's lots of other, uh, lower cap L1, uh, tokens that are in the mix, uh, that are competing to escape, to achieve escape velocity and be a Solana, a BNB, an Ethereum, which are, I think, in a category different, uh, than the others in terms of token value and network, uh, scale. 31:00 So that's the game. You know, tokenized capital markets are going to be a 20-year journey. As we go along that path, which are the networks that, uh, continue to ch- get that size premium? 31:13 Is it gonna be the leaders today? Uh, is it gonna be emergent leaders? I think it'll be some-- my view, it'll be some mix of those things. 31:20 I think probably the big things today will continue to be big, and there'll be some other things that are emergent leaders, and those will be some of the best trades. 31:27 Uh, you know, the things that are still small-ish, uh, today, you know, let's say five, 5 to 10 billion market cap that can get into that hundreds of billions of dollars in, in market cap, and is a, a fairly intense competition among those players, as you know. 31:43 Mm-hmm. 31:44 Yeah, and then Zach, if I hear correctly, your thesis is that there will be a multi-chain Layer 1 world, uh, compared to a world where we have maybe one or two Layer 1s and the rest are privatized corporate blockchains. 32:00 M- multi-chain but high network effect, uh, meaning like there will be a lot... 32:05 So there's like, by our measure, there are 40, uh, smart contract, uh, chains that have a kind of some market cap and liquidity and listing criterias and their own token, uh, that make them analyzable for, for Grayscale. 32:19 There's f- 40 of them, but most of the value accrues at the top. I, I think we will see something like that. Let's say my kinda gut is a half a dozen quite high value, uh, Layer 1s and, and maybe a 2 in there. 32:34 I, but I think there is a Layer 2 discount. 32:36 But, you know, six things or so that are quite high value, and then maybe 100 things that are much lower value but serve some kind of bespoke purpose and have some user base, uh, plus a lot of private things. 32:51 I, I think that there will be consortium, there will be compliance chains, there will be L2s, there will be, um, Avalanche subnets, there will be lots of other, uh, things, uh, out there. 33:02 But probably half a dozen really big smart contract platforms. That's our current working assumption. So a lot of... A multi-chain world, but high network effects when it comes to value accrual and a kinda mega scale. 33:14 Mm-hmm. Zach, I, I wanna take a step back and also talk with you a little bit about, uh, Bitcoin and gold and e- everything else that's happening in the world right now. 33:23 One thing I wanted to ask you was that central banks are buying gold at record pace right now, and almost none of them are buying Bitcoin. Why does a multipolar world still reach for gold first versus buying Bitcoin? 33:39 Well, a lot of reasons, uh, for that. I think number one is history. Gold was money, uh, prior to the mid-1970s, li- early 1970s, let's say. We had a system where central banks, 33:53 uh, tied their currencies to the dollar, and the dollar tied itself to gold. 33:57 And so we, we had a kinda gold-based, uh, system that, that's the, what's it called, the Bretton Woods, uh, structure, uh, post-World War II structure. 34:05 And then of course, gold has a long history, and silver also as a, uh, monetary, uh, asset throughout much longer stretches of time. 34:14 So central banks ha- and institutions that surround them, governments, there's a, a norm of gold as a, as a central bank asset, and, uh, I would say it's reached an official capacity in, in many types of ways. 34:27 So the, the first reason is history. 34:29 You know, the Central Bank of Russia, uh, the Central Bank of China, People's Bank of China, they have been some of the big accumulators of gold in the last few years, and they already had gold prior to Russia's invasion of Ukraine, which set off this m- more recent round of gold accumulation. 34:46 So some of it is history, and then some of it is just, you know, kind of trust in the, in the market and, and where this asset is at as a, from a maturity standpoint. You know, gold is very mature. 34:56 It is literally just a, uh, a, a, a metal on the periodic, uh, table, and uncomplicated. 35:02 You know, Bitcoin is still something that's growing up, and where it is at from a official allocation standpoint is basically at sovereign wealth funds but not at the central bank. 35:14 So it's on the national balance sheet in a few different places, Central Asia, Southeast Asia, Middle East, couple of other pockets, and it's being discussed in, in a few other places. 35:25 So it's on the kinda national balance sheet in the sovereign wealth fund sleeve today, but not on the central bank sleeve, uh, today. 35:32 I think that that's going to happen, but I think there's still some questions that need to be answered, one of which is the security environment that we're living through today. 35:43 Uh, I think, I do think that we need to live through a challenging period for cybersecurity, uh, as we have AI technology, of course, has just advanced so, so rapidly that it's challenging the cybersecurity environment, both in blockchains but now throughout the public internet. 35:59 We're gonna need to AI-harden our, our tech. We're gonna need to deal with a post-quantum, uh, future. And those things will help, I think, bring increasing confidence to the security of, of the assets. 36:11 We also probably need to deal with privacy. This is another big open question. It is the case that gold is private, uh, and, uh, you can obscure the transaction history of gold. 36:24 You cannot obscure the transaction history of, uh, Bitcoin. 36:27 And so privacy is a huge topic, and Zcash, uh, is emerging as An alternative store of value with Bitcoin-like characteristics, dealing with these challenges in a different way, with privacy, with AI hardness, with quantum readiness. 36:43 And so you're seeing some of that competition or these kind of questions, let's say, play out as competition in the currencies category of digital assets, with Zcash showing that there's a different set of design choices that can bring value to users. 36:58 And so I think the industry needs to answer some of these questions, uh, that'll t- uh, and this will take place over the next five years before we get to full-on central bank balance sheet adoption. 37:08 And we tend to encourage investors, what, say, a sovereign wealth fund, to own mildly diversified crypto, both because of the risks of different, one different chain, but also because of the use cases. 37:21 There's a lot of things happening in this space besides digital scarcity, besides Bitcoin, and there are some kind of risks and questions around things like, uh, quantum. 37:28 So holding a kind of mildly diversified basket of assets is probably the way to go, even though Bitcoin is the king of the category by a huge margin, and it's not going anywhere, and I'm confident that Bitcoin will, um, tackle these, uh, challenges over time. 37:42 And you see a lot of, of valuable things happening what, in what I call the big brain part of the Bitcoin ecosystem, the kind of the right people working on the right, uh, topic. 37:51 So, so that's how I would characterize it. You know, we're, uh, we're well on our way, uh, to 37:57 s- ins- with sovereign adoption and all the things that I expect to see in the fullness of time, but central banks will be the very last buyer of, of these things, and they need to see all these boxes being checked, and we're gonna check them. 38:07 Mm-hmm. Uh, and the industry's moving in, in the right direction. Yeah, and you mentioned privacy, obviously a, a big topic and narrative right now. 38:14 Lots of privacy coins have performed very, very well this year, and Bitcoin hasn't yet come up with an answer to privacy yet. Another topic is quantum, and on quantum, I hear different opinions from the space. 38:28 I hear people who are saying this is gonna be a, a big threat for Bitcoin. We're not ready yet. Uh, and then there are people who are saying lots of, uh, chains have already upgraded. Bitcoin will upgrade, too. 38:39 We will just, uh, need a switch, probably a hard fork. That's gonna be a little bit of an issue, but technically it's no problem. How do investors have to think about what's gonna come for Bitcoin when quantum arrives? 38:55 It's a deep question. The first thing that investors, uh, need to know is that this is software. Software can be changed. It will change if and when it needs, uh, to change. I, I think, we think that... 39:09 And I'll come to the uncertainties, but our, our view would be that 39:14 progress and investment activity in quantum computers has progressed far enough that it's time for the readiness process to be well underway and prepare for post-quantum cryptography to be built into blockchains. 39:28 This is an established field in academic, uh, cryptography. 39:33 Peter Shor, the MIT mathematician who came up with the algorithm that can, uh, potentially be applied by quantum computers for this, uh, purpose, developed it in 1994 [laughs]. 39:44 So, so it's kinda been well on, you know, this has been a well-known topic for a long time. The question is when do you need to start putting resources to it? 39:51 And, and we think now is the time to be putting real resources to, to readiness, and that's what's happening. So I'm very happy to see, uh, what, what's happening. 40:00 There are some open questions for how all the different ecosystems will address this and the timeliness and the security and, and, and, and s- work to do, let's say. But the work is happening. I'm encouraged to see that. 40:11 Right. All that being said, I do think it's fair to say that 40:15 we don't know everything about quantum physics, and although there is a lot of investor excitement on this topic, it is true that we don't actually know whether these computers will work. 40:27 You know, there could it be the case that as we build more and more advanced quantum computers, that what we learn [laughs] at the end of the l- day is there is something about quantum particles that we didn't understand in the past, and it turns out we can't actually use quantum computers in this way. 40:44 So in theory, in Peter Shor's theory since 1994, and in how we understand quantum physics today, there is a vulnerability in classable, classical, uh, cryptography. 40:55 But until it's d- done, it's not done, and I think people that really know this stuff will acknowledge, uh, that 41:02 one of the things that could happen is that we learn something about quantum particles that we didn't know before. So it's not entirely sure, uh, that classical cr- cryptography will be broken by a quantum computer. 41:12 Uh, it's very sensible for technology that we're building for the next several hundred years to prepare, uh, for that, uh, future, and that's what's happening. We're preparing. 41:21 There's no panic, no need to panic, and, uh, it may turn out that the preparation was not needed. But it's appropriate to prepare. That's what's happening. We're encouraged to see it. So 41:31 that's how invest- what investors should f- should know, uh, that, uh, th- these are great assets. 41:37 Uh, there are open questions just like with every type of software, and for people that wanna go one step further, we walk them through what's happening all, in all the specific chains, what are the options, what does it mean for transaction throughput and block size and, uh, risk mitigation, and all the, that's, what are the choices of post-quantum cryptography. 41:56 So many investors wanna go through that process, and we, we, we're happy to do that. But those are the big high-level, uh, questions. Yeah, very interesting. 42:05 Zac, another topic I would like to talk about is crypto and AI, and particularly AI has been the hot topic for many months now, and a lot of investors are eyeing at that. 42:16 And we're now in a stage where more and more people say we're in bubbly territory, and we're looking at these neo clouds and AI companies, and they're not making any money. 42:29 They're making a lot of revenue, but they're also losing money at the same time, time. 42:34 For example, these neo clouds are spending more than twice their revenue on CapEx, and their stock fell about 27% since late September. What do you think? 42:44 In what phase are we in right now in the AI build-out, and where are we heading in the next couple of weeks and months? [laughs] Well, a couple of weeks is a hard question, but 42:56 the framing that I would use is that all roads lead to more compute. So the AI tech stack is sort of three parts to oversimplify, but I think the simplification is helpful. 43:09 It's compute or the turning of energy into computation. 43:13 It's models, which is the turning of computation into intelligence, and it's apps and agents, which is the turning of intelligence into value, a useful economic value. 43:25 So the three parts of the stack, compute, models, apps, and agents. At the higher parts of the stack, there is a lot of dynamics at, at play. 43:34 Open source competition for models, pricing power reducing for model providers, model providers, OpenAI and Anthropic trying to push themselves into the apps and agents layer because they think that that's where the more value will accrue. 43:47 So a lot of dynamics at the top of the stack, and let's say a lot of really highly valued assets that may be IPO candidates with these question marks, I think. 43:57 So I think there is some question marks at the top of the stack. 44:01 But whether the demand is coming from the models, let's say the training of models, or from the inference, uh, from agents, all of it funnels down to compute. 44:11 So our view is that the right place to-- That AI is a mega [laughs] trend, obviously, uh, and, uh, that investors are supposed to have these assets in their portfolio in some shape or form. 44:23 Our, our view is that the compute layer is the right place to be deploying, that it's the scarce resource that is at the bottom of the stack and doesn't face these same dynamics, and it, it's clearly still scarce. 44:35 You know, compute prices, GPU hour rental costs are still going up. You know, they're not... Token prices are going down, GPU rental costs are going up. So you still have scarcity there. 44:45 And what's interesting to us is that one of the elements of scarcity is permitted electricity access, and there are still a lot of players that are former or current Bitcoin miners that are sitting on that, uh, access. 45:02 So the interesting thing about this as stack is that it is a blend of compute providers plus Bitcoin stuff. 45:10 And so these stocks, uh, when you're investing in these companies, you have a kind of AI compute beta, uh, but also a Bitcoin beta. 45:18 And I think that's a pretty interesting mix of, of assets, uh, at the moment, or betas, uh, to own. So, so we like these stocks. 45:25 I think after a thirty percent drawdown, uh, these are good entry points, uh, in these names. Some of the neo clouds are highly levered, loss-making, all, all that. 45:37 When you look at a diversified basket of the compute stack, particularly what we would call the energized compute layer, so the neo clouds, the, what pe- some people call powered shells, or you can think of AI, special purpose at data centers, and the owners of, uh, gridded electricity, which are some often Bitcoin, uh, miners, and you look at that kind of diversified, uh, portfolio, you have a more m- balanced mix of leverage and, uh, of business models. 46:02 I think it's a, a, a pretty interesting mix. We have an ETF that services that, ticker GCPU, shameless plug, uh, the Grayscale Compute ETF, that gives exposure to that basket. 46:12 So yeah, a lot of questions about value accrual and valuation at, at the h- top of the stack. 46:18 I'm, I'm pretty comfortable with the compute layer, uh, here, and I think diversified exposure is a way to kinda balance out, uh, some of those kinda re- uh, revenue and earnings, uh, risks. 46:28 And then we obviously also have the area where AI overlaps with crypto, and I know that your AI crypto basket rose fifty-four percent in September, and I think it includes NEAR, Venice, VLW, and TOE. 46:43 Why did these token go up so much in September? Well, some of it is just the kinda crypto market rebounding, and there's a, there's a beta, uh, there. 46:51 But how I would think about it is, we think of crypto as a lot of distinct categories, and we use a, a framework that we call crypto sectors that we designed with the index provider FTSE Russell, uh, to do this. 47:02 But Bitcoin is a currency. Ethereum and Solana are smart contract of platforms. There's different categories. There's a AI category, public blockchain technology applied to the AI use case. 47:15 And what's interesting about it today [laughs] is, first, that it's tiny, uh, b- from a value, uh, standpoint, and, and second, uh, that there are a lot of interesting innovations, uh, happening there. 47:27 So when I look at like what has the most upside over time across the kinda sectors of crypto, you know, things that I think will create a lot of value and are quite small today, 47:38 I think that AI category is particularly interesting. Now, I think it's hard to say exactly what will be the structural winners. 47:47 Uh, the things that you mentioned, um, are at the top of that stack from a value standpoint today, BitTensor, NEAR, the World Project or, or Worldcoin, and Venice. 48:00 Those are the three highest, uh, four highest value items, and, but there's another, let's call twenty to thirty, uh, things, uh, below that. 48:07 So we're very focused on it as a category, and I think I would encourage investors that are interested in the more frontier, high upside, high risk parts of the crypto ca- uh, s- industry to look at that category. 48:20 I think that that's where these are much less established projects than Bitcoin, but I think there will likely be 48:27 one or more high-value things emerging, you know, hundred of billion, hundreds of billion dollar valued things emerging from that, uh, category. 48:35 So at Grayscale, we're very focused on making sure that we have enough bets on that, uh, group, and we are involved in each of those, uh, things in some shape or form. 48:45 Yeah, we actually had Matthew Hogan from Bitwise on the show last week, and when I asked him what he's most bullish on in crypto, he said NEAR, definitely NEAR. Do you have a thesis at all on NEAR? Yeah, we, we do. 48:59 I'll let Matt run, run w- run with that. And look, I think NEAR has a lot of interesting things, uh, going on, and exactly what, what you wanna see on these, uh, projects. 49:07 You know, and I would say the things that are interesting are, you know, number one, kind of well-functioning tech. Number two, things that are making, uh, money. Number three, like, growth vectors, uh, over, over time. 49:17 So, it has, like, all the pieces to make it a great competitive product. Uh, we run a, uh, NEAR investment, uh, product, have for, uh, a long time. We're, we're very familiar with the ecosystem. 49:28 Just to provide diversity of opinion, I would say Bittensor to me is a misunderstood and extremely interesting, uh, thing. I like to call it the, call it Silicon Valley on the blockchain. 49:39 Uh, so Silicon Valley is not just, like, a, a place in California. 49:43 Like, it is a, it's a system of talent and capital and competition and customers, and you put all those things together and you get a cluster of innovation that is more than the sum of its, uh, individual parts. 49:57 Bittensor is, like, this concept on blockchain infrastructure. 50:02 Talent, capital, competition, customers, using a blockchain to tie those things together on the internet, uh, essentially, and trying to make something that is more than the sum of its parts. 50:13 Most of that innovation is AI-related, but it doesn't necessarily need to be. It can be other types of, of, uh, tech. So there are a lot of interesting things in this category, and NEAR is one. 50:22 I think Bittensor, I'll just give it a shout-out, uh, in this, uh, setting for diversity of, uh, viewpoints, but something that we're t- particularly excited about. Mm-hmm. 50:30 Yeah, and looking at the whole space, Zac, we're almost at the end of the show. 50:33 Is there one thing in the crypto market right now that you think the market is failing to price correctly and you think it will actually work or work very well? I have to say Zcash. 50:45 Zcash has had an enormous run, uh, over the last year. But today it is still valued, I haven't looked this morning, but let's say in the ballpark of 1.5% of Bitcoin's market cap. 50:59 And so the question is, what is the relative value of the design choices that Bitcoin is making and that Zcash, uh, is making? 51:08 I, I think what we are seeing is basically what, for a crypto native audience, what can be thought of as Bitcoin's Solana moment. Ethereum is the leading smart contract, uh, platform. 51:20 Solana demonstrated that a different set of design choices can bring value to, to users. I think that's what's happening in the currencies category, uh, today. Bitcoin is clearly the leader, the king of the category. 51:32 But Zcash is demonstrating that a different set of design choices can bring value to users, and I personally think that its relative market cap at 1.5% still s- seems surprisingly low. 51:46 We will see, but that, that is my, that is my view. Yeah, ve- very interesting. You made public market calls for 20 years. What have you learned about being wrong in the public? The most important thing is 52:00 to stay humble. Uh, to not, uh, celebrate the wins and not beat yourself up when you get it wrong. Just give it people straight. 52:09 And investors understand that because invest- any professional investor knows about losing money, and any kind of, uh, long-run analyst knows about making wrong calls. 52:20 Uh, and what, what you do is you just keep after it, and, uh, it accumulates to alpha over the long, uh, run. But you get things right, you get things wrong. That's what decision-making under uncertainty i- is all about. 52:31 So you stay humble, and you s- you ke- take it seriously. That's what you need to know, I think. [laughs] Simple as that. Yeah, that's great. All right. So before we end the show, uh, a quick lightning round. 52:41 Those are short questions and short answers. The first one is, prediction, Bitcoin above its old high before the end of 2027, yes or no? Yes. Then 10 years, one asset, and no selling, Bitcoin or gold? Bitcoin. 52:59 Easy choice. Overrated or underrated, digital asset treasury companies? Good question. I, I would say, I, I think we are investors here at, at Grayscale, and, uh, I think it, investors, the perspective is different. 53:15 You know, we, the, I think an important principle is that there are no bad assets, there are just bad prices, okay? 53:23 Any asset can be an interesting asset depending on the price, and I would say that digital asset treasury companies today at current prices are underrated because they are some, in some cases, great assets, uh, trading at a discount. 53:37 Uh, so today at current prices, underrated. Then the biggest thing TradFi still gets wrong about crypto- Bitcoin... or the other way around. Bit- Bitcoin, I would say. Uh, it's still Bitcoin. 53:49 Uh, we're going through another period of blockchain, not Bitcoin, uh, [laughs] type of stuff. Like, 53:55 the last thing TradFi will understand is Bitcoin, which is hilarious because it's, like, by far the biggest and most established, uh, thing. So Bitcoin is beautiful, and everybody will understand that at some point. 54:07 That's great. Zac, s- thank you so much for coming on the show. This was very, very interesting. Where can people learn more about you, about Grayscale? Yeah. We, uh, the research team writes a blog called The Stack. 54:18 Just Google Grayscale Stack, uh, Blog. Uh, that's a great way to stay in touch with all the things that we're doing. And on Twitter I'm @lowbeta. Follow me, follow me there. 54:28 Uh, those two places are a great way to stay up to date with what we're doing. Yeah, that's great. And we'll link that in the show notes, too. Appreciate it. Zac, thanks for coming, and all the best. Thanks, Marc. 54:36 Great questions. Great dialogue today. Appreciate it. Thank you. You obviously like this video enough that you got to the end. Listen, do me a favor. Hit that like and subscribe button because I think you'll like it. 54:48 And if you want even more, with more I mean incredible alpha, research, and digital asset market updates, subscribe to our newsletter on 51, that's the number 5 1, insights.xyz and get the most actionable insights on digital assets. 55:05 See you next time.
