0:00

Forward Guidance is brought to you by VanEck, a

0:02

global leader in asset management since 1955. You'll

0:05

be hearing more about a VanEck ETF later

0:07

on, but for now, let's get into today's

0:09

interview. Very

0:15

pleased to welcome to Forward Guidance,

0:17

Jonah VanBorg, a macro trader who

0:19

has lots of experience trading commodities,

0:21

volatility, and crypto at the highest

0:23

level. Jonah, great to have you

0:25

here. Just tell the audience a

0:28

little bit about your background. How

0:30

did you get into trading commodities?

0:32

Thank you so much for having me on the

0:35

show, Jack. I really appreciate it. I love your

0:37

show and I'm honored to be a guest. So

0:39

I graduated in 2007 and started at Lehman Brothers,

0:41

a really awesome first job to

0:43

kind of pick the short straw

0:46

there. I picked the hot desk,

0:48

CDS trading, credit default swaps. And

0:50

then when Lehman blew up, I

0:52

sort of saw the eye of

0:54

that particular storm. So after

0:56

getting kind of tossed around finance for

0:58

a while, I ended up in oil

1:01

trading just by happenstance. A

1:04

connection of mine was looking for somebody with my skills

1:06

to be sort of the junior trader on the oil

1:08

trading desk at Goldman Sachs. And

1:10

I ended up doing

1:12

that for four years. And then I got poached

1:14

by VTOL, which is the world's largest oil trading

1:17

company shortly

1:19

thereafter in London. And I worked

1:21

there for seven years, at

1:24

which point crypto called, not

1:26

to bore your listeners too much with my career, but I

1:29

was sort of an oil options trader at

1:31

VTOL. I focused on systematic trading,

1:33

oil, just sort

1:36

of listed derivatives options, the way

1:38

to get leverage by buying and

1:40

selling insurance on the price of oil. And then through that,

1:43

I got some exposure to physical oil

1:45

trading as well. And my hands on

1:47

some physical cargoes as well. Super

1:50

exciting. Ultimately though,

1:52

when crypto started

1:54

to look like a commodity in 2021,

1:59

and an opportunity came, along to run an entire

2:01

trading business, it was pretty exciting for me. So I

2:03

went and took it. That's

2:05

how I ended up running trading at

2:07

Cumberland, which is DRW's cryptocurrency

2:09

arm. And when you said Bitcoin was

2:12

performing like a commodity in 2021, what

2:14

did you mean? So

2:17

a commodity in and of itself, it can

2:19

be useful if it's a refined commodity like

2:21

gasoline, or it can be completely useless like

2:23

crude oil. You know, sometimes, like

2:26

who uses crude oil except a refinery to turn

2:28

it into something useful. So to me, I looked

2:31

at a commodity like ETH, and I thought, all right,

2:34

in and of itself, this token is worthless.

2:36

But if you refine it by basically buying

2:38

some of it and spending a bit of

2:40

it as gas to, you know, basically gain

2:42

access to certificate of

2:44

authenticity, like, you know,

2:46

that basically proves ownership of your digital

2:48

goods and services like an NFC or

2:51

DeFi, you know, you hey, you, you

2:53

can't get a yield bearing, dollarized

2:56

instrument, but you can

2:58

maybe access, you know,

3:00

a yield bearing DeFi stream

3:03

of income. And you know, you live somewhere outside the

3:05

United States, like, to me, it was like, okay, this

3:07

is a commodity, you buy it or mine it at

3:09

the time, if it was proof of work, you

3:11

refine it, i.e. spend some gas, and you

3:14

can turn it into something useful, like it

3:16

all kind of started to click. And the

3:18

market had also just become big enough that

3:20

there was volatility, there was opportunity to trade

3:22

it, what there's opportunity to

3:24

profit, whether the price went up or

3:26

down, and the structure, sort of the

3:28

micro structure of the asset itself looked,

3:31

you know, familiar. That's, that's why I jumped

3:33

in. What do you mean the micro structure?

3:35

The micro structure is in, it

3:37

had the characteristics of a commodity, like you buy

3:40

it or mine it, it's useless

3:42

in its native form, then you turn it into

3:44

something interesting with

3:46

with some losses, much like a refinery. So that

3:48

that sort of micro structure, but then also micro

3:51

structure like, hey, this, you know, this

3:53

is an OTC product. Over here,

3:55

for certain counter parties, that looks like FX

3:57

micro structure. Over here, there's sort of a,

4:00

of a burgeoning exchange ecosystem. There's

4:02

FTX and Binance and Coinbase and

4:04

a few others. That

4:06

looks a lot like equities or commodities

4:09

trading. The market microstructure and fundamental

4:15

asset microstructure started to look familiar. What

4:17

do you think about crypto right now?

4:19

Are we in a crypto bull market?

4:21

And what are your thoughts? I

4:24

think we are absolutely in a crypto bull

4:26

market, medium to long term. I am so

4:28

bullish, I can't even see straight. I

4:31

think this is the asset

4:33

to own for the medium to

4:35

long term more

4:38

than any other asset. However, in the

4:41

short run, we've just pulled back from

4:43

$70,000 plus per

4:45

Bitcoin to $61K. In

4:48

the short term, we're due for some proper

4:50

chop for a number of reasons. I interpret

4:52

chop as very volatile, down

4:54

a lot, up a lot, but staying within

4:57

a range, not a

4:59

protracted decline. Is that what

5:01

chop means to you? Exactly what it means

5:03

to me. I think we're going to be in

5:06

a wide, high amplitude volatile range

5:08

for a while in the short

5:11

run. I've been a trader for almost 20 years.

5:13

I've witnessed a lot of some

5:16

of the best traders to ever do it

5:18

and also some very junior traders as well.

5:21

And what you see on Twitter, if you

5:23

follow crypto accounts, you see

5:25

junior trader emotions

5:27

and behavior. You see people getting bearish

5:29

on the lows and euphoric and bullish

5:31

on the highs, and that's normal. That's

5:33

human nature. That's market psychology. I think

5:35

that people in these

5:37

sort of public forums trying to

5:40

predict the price of Bitcoin in

5:42

the very short run struggle, because

5:46

a lot of them haven't been through the

5:48

types of mechanisms in professional trading that allow

5:50

you to profit from short term chop. And

5:52

in my opinion, there are two ways to

5:55

profit from short term chop. One of them

5:57

is market making, just showing

5:59

prices. prices benefiting from

6:01

that volatility without taking a directional view.

6:04

And the other is systematic

6:06

trading strategies that are

6:09

in the industry parlance described as

6:11

high frequency or mid frequency. Basically

6:14

anything with an outlook of seconds

6:16

to a day. So

6:18

why do you think Bitcoin or crypto stays

6:21

range bound now and chops in a range

6:24

as opposed to shooting up or shooting

6:26

down in price? Over the

6:28

long run I do think it'll shoot up, but

6:30

in the short run the reason why I think

6:32

it stays in a range is because for an

6:35

asset like Bitcoin or any asset you

6:37

need an influx of new money to

6:39

send it higher. I

6:41

think the most recent big leg

6:43

higher came from ETFs, legs higher

6:45

before that came from different

6:48

participant bases either entering the space for

6:50

the first time or committing new capital

6:52

after a spectacular sell off. This

6:55

time there's no real narrative or

6:57

catalyst for a vast new pool of

6:59

money to enter the space. You

7:02

basically have algorithm on algorithm violence

7:04

going on in the short term.

7:06

And I think that retail without

7:09

the backing of tremendous financial and

7:11

quantitative slash algorithmic firepower getting involved

7:13

in this chop is going to

7:15

struggle I think in the short

7:17

term. I think ultimately

7:19

the reason why we're going to

7:21

chop, you have one very bullish

7:23

long term narrative which is Bitcoin

7:26

becoming a geopolitically relevant force that

7:28

keeps central banks honest. Sovereign,

7:32

non sovereign money you could say. This

7:35

massive tailwind combined with more

7:38

of a technical thing which is ETFs,

7:41

debottlenecking, retail and

7:43

institutional investor access to the asset

7:45

class. There's that bullish thing as

7:48

well as the Bitcoin halving which is

7:51

a structural fundamental bull thing going on

7:53

in the background contrasting

7:55

with Mt. Gox unlocking some somewhere

8:00

between $8.5 and $9 billion worth of

8:02

Bitcoin that's been basically off the table

8:04

for 10 years, deterioration in

8:06

sentiment around altcoins, which is something that

8:08

we should probably touch

8:11

on briefly because the promise of

8:13

blockchain as a technological enabler for

8:16

all sorts of different financial applications

8:19

is, it's essentially falling short of

8:21

its promise, which is weighing on

8:24

the entire space, including Bitcoin, undeservedly

8:27

so I would say. We

8:29

also have investor fatigue

8:31

and capitulation and

8:34

a few other momentum trades.

8:36

So ultimately you have this

8:38

unstoppable force being the

8:40

structural bull market for Bitcoin against

8:43

this immovable object, which is effectively

8:46

a number of factors representing

8:48

disenchantment with the space and a lack

8:51

of new money in the short term,

8:53

creating this short term chop. And

8:56

I think that unless you're atomically scanning

8:58

the order book every nanosecond,

9:01

you're going to have a hard time trying to actively day

9:03

trade this. It's

9:05

a better thing to just sort of wait around and

9:07

buy dips in my opinion for the longer term megatrend.

9:11

Thank you. Jonah, describe how

9:13

you see Bitcoin becoming a

9:15

geopolitical asset that is actually

9:17

used by

9:20

I don't want to say central banks,

9:22

but for example, oil traders in Venezuela, like

9:25

not just there's this narrative that sounds great on the one

9:27

hand. And then at the same

9:29

time, the price is going up because people are

9:31

speculating that the narrative will play out. But actually

9:33

like the institutional players starting to use it as

9:36

an asset, you know, BlackRock all these

9:38

ETF companies, shout out to

9:40

VanEck, that is one thing. But when it

9:43

comes to using it as a currency or

9:45

a medium of exchange or a reserve asset

9:47

instead of just buying it as an investment.

9:50

So I think Bitcoin is the only token

9:52

with spectacular product market

9:55

fit. And what is that product

9:57

market fit? The

10:00

way I would describe it is that, let's

10:03

start here, Bitcoin in my opinion is a

10:05

better store of value and in

10:08

many cases a better means of

10:10

exchange, not for microtransactions but for

10:13

big payments, then let's

10:15

call it 100 to 150 of the world's bottom

10:17

fiat currencies. Not

10:22

the dollar, not the euro, not the yen.

10:25

If you're Toyota and you sell

10:28

a car in

10:30

Japan, yen's fine, it works, you don't need

10:32

Bitcoin. If

10:34

you're buying a coffee in Chad, you don't

10:36

need Bitcoin to pay for your coffee or

10:38

pay for your meal.

10:42

Let's say that you're doing international commerce

10:44

in one of the world's, in

10:48

one of the economies that has one of the world's bottom

10:50

150 currencies or no

10:52

disrespect to these places or

10:55

let's say that you are a person

10:57

attempting to store value in one of

10:59

these places. If you lived

11:01

in Libya, would you rather hold the Libyan

11:04

local currency or would you rather hold Bitcoin?

11:07

I don't even think there's a debate about the right answer

11:09

to that question at this point. Let's

11:11

say that you're having

11:13

worked at VTOL and seen what it's

11:15

like to lift a cargo of crude

11:17

oil from Nigeria and ship it off

11:19

to China. The crazy thing about that

11:21

type of trade, and this isn't buying

11:23

a coffee, this is a big transaction.

11:26

When you load crude oil in Nigeria, it's a deep

11:29

water port. Usually you're putting

11:31

2 million barrels of crude oil in there, that

11:33

cargo is holding $160 million

11:35

worth of hydrocarbons. It goes from Nigeria

11:37

to some port in the Shandong province

11:40

and it has to get paid for

11:42

and transported. All of this

11:44

stuff, China doesn't want to use

11:46

the dollar because they're basically in an economic

11:49

cold war with the United States. Nigeria,

11:52

they're happy to take dollars, but how does

11:54

that filter through to the local economy? It

11:57

settles T plus 17 days. 17

12:01

business days or whatever, and then in order

12:03

to convert those dollars into Naira and have

12:06

that wealth trickle down to local economies, God

12:08

knows how much grift occurs in the middle

12:10

of that. It's a

12:12

disaster when you watch emerging economy

12:14

to emerging economy, commodities trade.

12:16

To me, it would be much simpler

12:19

for Bitcoin

12:21

to be the denominator of this, rather than

12:23

a currency like

12:25

the dollar that's one counterpart is quite

12:28

hostile to and the other counterpart just

12:30

can't get banked in. It makes no

12:32

sense. So already you're seeing at

12:35

the very extremes of this debate,

12:37

countries like Venezuela offer discounts to

12:39

buyers of their refined products if

12:42

they're willing to transact in Bitcoin because

12:44

it allows them, frankly, to circumvent sanctions

12:46

and the US banking system, but

12:49

also because it's just it settles at

12:51

the speed of a block, which is T plus

12:53

15 minutes instead of T plus whenever. And

12:56

so as the US starts to weaponize

12:58

the dollar more and more throughout time,

13:02

like I don't even think Bitcoin's a dark horse

13:04

for the next candidate to

13:06

become like an alternative reserve currency. It's certainly not

13:09

going to be the wand or the euro or

13:11

the yen. What else is

13:13

there really? That's the first time I've heard

13:15

a narrative about Bitcoin that I can really

13:17

wrap my head around because it is limited.

13:19

You're not saying it's going to be for

13:21

small transactions. No one's, you know, I mean,

13:23

very few people are going to be going

13:25

to Starbucks and buying coffee with with Bitcoin.

13:27

So very large transactions and it's not the

13:29

dollar, the euro, the yen or the top

13:31

number of currencies. It is for very

13:34

large transactions, commodity transactions that

13:36

are transacted in a currency

13:39

that has issues such as the Venezuelan

13:42

currency, the Argentine peso, Nigeria,

13:45

Naira. So tell us, let's just

13:47

compare, you know, you're at VTOL,

13:49

the world's largest trading firm, commodity

13:52

trading firm, and you're you're lifting

13:54

Nigerian oil in Naira and

13:57

then you're selling to China, presumably in in

13:59

Chinese you want or. or maybe dollars, I

14:01

don't know. But tell us, let's go through

14:03

that transaction, the challenges of that transaction compared

14:05

to if you had done it in Bitcoin.

14:07

Why would Bitcoin have been easier? So let

14:09

me caveat this by saying that I was

14:11

never in the finance department managing the minutia

14:13

of this transaction, but I was

14:15

adjacent to it. I understood it. Now I was

14:17

at VTOL during the zero interest rate era. So

14:20

a lot of what I just said is far more

14:22

relevant now than it was then.

14:25

But let me talk you through

14:27

it as you requested. Nigeria is a place

14:29

where there's too much oil and China is

14:31

a place where there's not enough, right?

14:34

The job of trading companies like VTOL

14:36

is to reallocate commodities across

14:39

the world from places where there's a surplus

14:41

to places where there's a deficit. And

14:43

VTOL is not the only company that does

14:45

this. There are hundreds of them, big and

14:47

small. A VTOL will have relationships with the

14:50

NNPC, the Nigerian National Petroleum Corporation. They'll have

14:52

relationships with like the

14:55

grandma seamstress who

14:59

had a relationship with a general at a time

15:01

where it was economically

15:03

beneficial to do so and happened to,

15:05

you know, part of her family office

15:07

portfolio is this stream of oil called

15:10

Forkados in what's a place called the

15:12

Creeks. It's like a warlord run ecological

15:15

disaster where Shell found

15:17

a lot of oil and pipes it

15:19

to a offshore platform. Anyway, like there

15:21

are all these little independent and national

15:23

non-independent producers of oil in Nigeria. They've

15:25

got oil. They

15:27

don't have a, like

15:29

they don't have Xi Jinping on speed dial,

15:31

right? They need some help, right?

15:34

So VTOL get in there and like form

15:36

the relationships and have some people in a

15:39

place called Banana Island in

15:41

the middle of Lagos, like a place, you know, like

15:43

a place where you can live there without

15:46

feeling insecure. Anyway,

15:48

like there are lots of oil companies that do

15:50

stuff like this. Anyway, so there'll be relationships and

15:53

VTOL will buy the oil. They'll

15:57

buy it with a pricing mechanism that, you know,

15:59

I'm not a... at Liberty to get

16:01

into, but there's a mechanism there that

16:03

you pay for the oil with a

16:05

certain set of

16:07

rules. Yeah, you can't say, but I'll make

16:09

it up of, oh, this oil is similar

16:12

to the sweet sour crude and we're going

16:14

to have a certain margin of safety. And

16:17

then there's the cost for us to transport to

16:19

China, all of the costs, and we're targeting a

16:21

certain return, something like that, right? Yeah,

16:24

except the Nigerians won't pay for the freight to China. So

16:27

just sell it, what's called FOB, free on

16:29

board, which is like, this is the price

16:31

at our port in Nigeria

16:35

or next to Nigeria. And then do

16:37

you pay for that? Like how

16:40

do you determine the right price? Well,

16:42

it's not just like going to the

16:44

store and buying an ice cream cone

16:46

and the ice cream cone guy picks the ice

16:48

cream seller, picks the price of the ice cream

16:50

cone. It's linked

16:52

to the price of global crude with

16:55

a formula. Anyway, so that transaction

16:57

will happen. The trading company will

17:00

buy the oil from Nigeria. The

17:02

price will be determined at some later date

17:05

in arrears and then money will get wired

17:07

somehow to some bank in Nigeria in dollars.

17:11

And then obviously that'll go through correspondent banks

17:13

and it's a big, big

17:15

mess to get it back like

17:18

into the Nigerian economy because as

17:20

you'd imagine, Bank of America isn't

17:22

like handing out business bank accounts

17:24

in the creeks, right?

17:26

It'll eventually get there, but between the

17:28

time when the oil is, it's

17:31

called lifted into meaning

17:33

like taken from the port

17:36

into the boat and a bill of

17:38

lading is issued, which is shipping speak for like

17:40

a receipt for the oil. You're

17:45

looking at like possibly weeks before

17:48

dollars hit the local Nigerian banks

17:50

in or Nigeria hit the local

17:52

Nigerian banks. And in

17:54

the zero interest rate area, it didn't like

17:56

who cares money now equals money later. But

17:58

in the current era. like if

18:01

your money is tied up in transit, you could be

18:03

earning interest on it. And these are not like microtransactions,

18:05

you know, like a couple of weeks worth of interest

18:07

on $180 million or $160 million

18:09

or whatever is not trivial, especially in these emerging economies that

18:15

need the money to grow. Then

18:18

the boat will go over

18:20

to China. It'll go, you know,

18:22

around the Horn of Africa, basically. You know, this is

18:24

like in the case of a direct voyage. Sometimes

18:27

the trading companies like back to back to

18:29

it. They just have a buyer at the

18:31

same time as they bought

18:33

the oil. Other times they're like floating

18:35

it out there speculatively, hoping that someone

18:38

in Shandong or not

18:40

hoping algorithmically or discretionarily

18:42

determining that someone in Shandong will want to

18:44

buy that oil. By the

18:46

time the next bill of lading gets

18:48

issued in China to like offload that

18:50

oil into some refining pipeline system, it

18:52

can turn it into useful things like jet

18:55

fuel and gasoline for the Chinese people to

18:57

put into their cars and airplanes to

18:59

get around, you know, and use as a

19:02

mobility catalyst. Then

19:04

there's going to be another few weeks worth

19:06

of pricing

19:08

and arrears and nonsense before those dollars

19:10

end up in a Chinese bank account

19:13

that hopefully isn't sanctioned

19:15

for Iran oil trade and

19:18

can then get converted into one

19:20

somehow with their complicated system of

19:22

onshore and offshore currency management. It's

19:26

not simple, right? Like all of that's a

19:28

big shit show. It would be so much

19:30

easier if the trading company could just lift

19:33

the oil in Nigeria,

19:35

send Bitcoin to

19:37

a local gateway, and

19:40

then as soon as it arrives in China, just

19:42

receive Bitcoin for the cargo,

19:45

right? Like there's no correspondent banking

19:47

system. There's no Swift. There's no

19:49

currency conversion. All of the pricing

19:52

can be converted based on some

19:54

index. Like they're fixings for Bitcoin

19:57

to dollar. Like none of this

19:59

correspondent banking. banking and the hold

20:01

up, the tie up in time space,

20:04

which now has translated in a high

20:07

interest rate environment into dollar space is

20:09

necessary. You

20:14

could literally just hand a thumb, this wouldn't

20:16

happen, but you could literally just hand

20:19

a thumb drive over to somebody at the

20:21

port in Nigeria and pick one up in

20:23

China. And otherwise you don't

20:26

offload the oil. Coin

20:30

is elegant in that it settles at

20:32

block time and it can be transferred

20:34

and stored in a minuscule sort

20:36

of like thing in

20:38

the physical world. It's very interesting

20:40

stuff. So the oil

20:42

traders would be sending into Nigeria dollars,

20:45

but would the oil be bought in

20:47

dollars or in Naira? In

20:49

other words, is the conversion from dollars

20:51

to Naira, is that the oil traders

20:54

problem or the Nigerian producers problem? It's

20:56

the Nigerian producers problem and converting Bitcoin

20:58

to Naira would be a Nigerian producers

21:00

problem. But my hypothesis is

21:03

that as the dollar becomes a bigger

21:05

and bigger weapon and as dollar banking

21:07

becomes less and less available and as

21:10

populations across the world, like

21:12

in emerging markets, demographically, these

21:14

populations are quite young and

21:16

quite crypto savvy. These

21:19

economies will get re-denominated into Bitcoin,

21:21

much like El Salvador has. I

21:24

don't understand why if you're Nigerian, you would

21:26

ever want to hold Naira, whether you're young

21:29

or old, it just inflates your wealth into

21:31

oblivion. And so I

21:34

understand why if you're an American, you want dollars. That's

21:36

a no brainer. But if you live in Chad,

21:38

why wouldn't you want to have your wealth in

21:41

Bitcoin instead of their local currency? And Chad has

21:43

quite a lot of oil too, interestingly enough, Exxon

21:45

explored it. Eventually you'll

21:47

remove that last hop when

21:50

Chad becomes like El Salvador and Bitcoin is

21:52

a local currency. You won't even have to

21:54

do any conversion at the end of the

21:56

funnel. It'll just go straight into the local

21:58

economy and its local currency. which is Bitcoin.

22:02

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a wholly owned subsidiary of VanEck

22:36

Associates Corporation. Thanks. Let's get back

22:38

to the interview. Got it. So

22:41

I see from 2008, the Nigerian Naira

22:43

has depreciated against the dollar 92%. You

22:46

also have to take into account though, the interest

22:49

rate added bonus of, you know, Nigerian interest

22:51

rate right now is 24%. You

22:55

know, in 2013, it was 12%, which earns more than the dollar. So

22:59

it's not as bad as that 92%, you know,

23:01

looks you get, you've got to adjust for that.

23:04

But that's a very interesting use case. Tell us

23:06

more about your thesis and when do you think

23:08

this would happen? I mean, it sounds like the

23:10

Venezuela thing is happening now. When did that happen?

23:13

I read that news a couple of months ago.

23:15

You know, I think it's going to happen gradually

23:17

than all at once. And it's the gradually part

23:19

has already, you know, people think I'm crazy, right?

23:22

You know, I come from an industry that's very well

23:24

established, oil is 100 and, you know,

23:27

100 as a hydrocarbon

23:29

market, like with use cases, it started

23:31

in the late 1800s. So

23:33

it's very mature. And if you leave

23:35

a, you know, a stable oil job to go into crypto, people

23:37

say you're nuts. But I really believe this

23:39

is going to happen. I don't

23:42

think I'm crazy. And I think it's already

23:44

started. I think that, you know,

23:47

the Bretton Woods sort of

23:49

like dollar world is

23:52

gradually deteriorating. America's pulling back, right?

23:54

America's not going to be the

23:56

global guarantor of safety and dollarized

23:58

diplomacy forever, probably. And

24:00

so you need some sort of

24:02

common denominator, some sort of financial

24:05

common denominator that can perforate these

24:07

Orwellian hemispheres of influence, East and

24:09

West, emerging economies

24:11

and developed economies. And

24:13

to me, Bitcoin seems like an obvious one. I think

24:15

at this point, it

24:18

checks all the boxes for kind of

24:20

an independent monetary system in a box

24:23

that, again, like with time

24:25

and battle testing, it's like there's not a

24:27

debate that it's better than most of the

24:29

world's currencies. Then most of

24:31

the world's currencies by number, but

24:34

probably not most of the world's currencies if

24:36

you weight them by size, because

24:39

the dollar is so big, right? That's right.

24:41

Yeah, that's right. And there's this awesome movie that

24:43

I posted on Twitter. It's

24:46

a pie chart representing market

24:48

share of every global

24:50

reserve currency. And

24:53

every frame is a different year. So it

24:56

starts in like 1890 or something and goes

24:58

until the present day. And what you can

25:00

see is just how dynamic it was, like

25:02

the Dutch Gilder, the French Frank, the British

25:05

Pound, like the

25:07

global reserve currency picture is extremely

25:10

fluid. It wasn't always the

25:12

dollar and it won't always be the dollar. And

25:14

it's really hard to see a sovereign

25:17

currency being the next

25:19

global reserve currency for

25:22

major international hydrocarbon trade

25:24

transactions as well as

25:27

others, other types of transactions.

25:30

That is really interesting. I will try and

25:32

check out that pie chart and if we

25:34

can, we can put it on screen. I'm

25:37

sure that that pie chart shows what you said it

25:39

shows. My understanding of the

25:42

history of global reserve currencies is

25:44

slightly different in that now, obviously, the

25:46

world's been on the dollar. For

25:48

that, it was the Pound-Stirling. But before that,

25:50

it was the Gilder. And

25:53

then I don't know so much about the French Frank. Maybe

25:55

it was a very close number two. French Frank was like

25:58

a runner up. It was not really a winner. Is

26:00

that you have to have, I mean, like the

26:02

Great Depression and World War I was

26:04

not sufficient to unseat the pound. You need the Great

26:06

Depression, World War I and World War II. So

26:09

it seems like you need pretty big seismic

26:11

moves and I'm sure the next 30 years

26:14

is gonna be wild and great things are

26:16

gonna happen, horrible things are gonna happen, but I

26:18

don't know if they're gonna be of the extremes

26:20

of the 19- No, you're

26:23

absolutely right. And let me caveat, like I don't

26:25

want people to just like leave

26:27

this podcast right here, like

26:30

hit, like turn

26:33

off Spotify and get upset. Like basically what I

26:35

was trying to say was, okay,

26:37

so I'm not saying that Bitcoin needs

26:39

to displace the dollar as the number

26:41

one global reserve currency in the imminent

26:43

future. What I'm saying is when

26:46

you look at this pie chart and we

26:48

will get it up there, like you can

26:50

see just how many reserve currencies there are

26:52

on there. And I think if Bitcoin eats

26:55

even a, like if it

26:57

eats a plurality of market share, like even

26:59

if it's a few

27:01

basis points or 10%, like

27:03

you're looking at millions of dollars per token

27:06

in terms of the price of Bitcoin. And it

27:08

doesn't need to go any further than that. Like

27:11

the dollar will always dominate in

27:13

the, let's call it NATO hemisphere,

27:15

right? For global trade,

27:17

like the UK and the US will not

27:20

be swapping energy commodities

27:22

in Bitcoin anytime soon. But

27:24

Nigeria and China just might,

27:26

right? Or the US and

27:29

Iran inadvertently might, or

27:31

Venezuela. That's how these

27:33

networks work. So

27:35

I think

27:37

it will become a

27:39

minority player in the global reserve currency

27:41

market. Jay, just to clarify, so you're

27:44

not talking about Bitcoin becoming the world

27:46

reserve currency, you're talking about it becoming

27:48

a reserve currency, perhaps within the top 10.

27:51

And the people who say de-dollarization

27:53

is happening and the people who trash those

27:55

people and say de-dollarization isn't happening, they're kind

27:57

of both right. I think, over the last

27:59

decade, the past 10 years, the euro

28:01

and you know, some Nordic krona type

28:03

currencies have inched their way up. So

28:05

the dollar is you know, instead of

28:07

being 90%, it's now only 86%. And

28:09

the Swedish krona,

28:12

you know, has gone from six basis points to

28:15

12 basis, I'm just making that up. But you

28:17

know, these things do happen very, very slowly. And

28:19

so there had has been a move. So

28:21

thank you for clarifying that. Do you have any insight

28:23

at all on Saudi Arabia, moving

28:26

off the petrodollar, which I don't know if

28:28

they've actually done that, or I think some

28:30

contracts officially expire that they did not renew.

28:32

But yeah, I've seen some headlines about that.

28:34

What's going on there? I think 50 years

28:37

ago, they signed some 50 year agreement to

28:39

use the dollar. And they haven't like, raised

28:41

their hand saying, Joe Biden, we'd like to renew this

28:44

and sign up for another 50 years. But I mean,

28:46

let's let's face it, right? Billions

28:49

of dollars of Saudi

28:51

oil every month are getting sold

28:54

to mostly Europe

28:56

and Asia, not so

28:58

much North America anymore denominated in

29:00

dollars still. So symbolically, it matters,

29:02

because they're not like, gosh,

29:05

we're so in bed with America that like,

29:07

we're committing publicly

29:10

to another, another half century

29:12

of this, but functionally, nothing's

29:14

changed. And so, you know,

29:17

back to our original conversation about Bitcoin as a

29:19

global reserve currency for this type of trade. I

29:22

like I, as a Bitcoin hyper bull

29:24

over the long run, over my lifetime, like

29:27

I do think it will be a major

29:29

reserve currency, if not the major reserve currency,

29:31

I know that I'm I've got a fringe

29:33

opinion there. I think a more acceptable base

29:35

case would be that it becomes a relevant

29:39

global reserve currency in which Saudi

29:41

Arabia perhaps denominates some of its

29:43

hydrocarbon trade, but not most. I

29:45

think the dollar is going to

29:47

be around for a while, unless

29:49

we Americans do something really stupid.

29:51

Like you said, something really drastic. But

29:53

yeah, I think to your point about

29:56

Saudi Arabia, just to close the thought

29:58

not renewing it like not renewing

30:00

a contract that you don't have to renew?

30:02

Why would they

30:04

give up the optionality? Yeah, not renewing

30:06

is not the same thing as canceling.

30:08

That's right. Okay, that's very interesting. People

30:10

are attributing the sharp

30:13

fall in Bitcoin today, as

30:16

recorded the afternoon of June 24th, to

30:18

these tokens from Mt. Gox, this exchange

30:20

that got taken over 10 years

30:23

ago. I was finally releasing the token,

30:25

you said $8.5 billion worth of Bitcoin, that's

30:27

8.5 divided by 60,000. So that's

30:30

how many tokens it is. How big of

30:32

a move do you think this is for

30:34

Bitcoin? Okay, so what's interesting about

30:36

this is that when I was at Cumberland, we

30:39

actually priced a few big liquidations, because

30:41

a lot of bankrupt crypto

30:44

companies, like the estate of

30:46

the bankrupt crypto

30:48

companies would come to us and they'd say, you know,

30:50

we have this many tokens for sale. We

30:53

have a yard of ETH, a

30:56

yard of staked ETH, a yard of Bitcoin,

30:58

like a yard is a billion dollars. You

31:00

know, like, what's your

31:02

bid? You know, if you're bidding in one

31:05

shot, if you're bidding a billion dollars

31:07

worth of Bitcoin in the middle of

31:09

a like nuclear

31:12

bear market, you're not going to get

31:15

away with and you're in competition, meaning

31:17

you can't just like, you

31:20

can't just show some price that you can't

31:22

show an uncompetitive price, basically, you're not going

31:24

to show more than one or 2% off

31:26

of mids for

31:31

like an enormous amount of Bitcoin, you can get out of

31:33

it really easily. Binance

31:35

was this phenomenal

31:37

liquidity engine with so much going through

31:39

it and that liquidity filtered through the

31:41

whole crypto market. So even

31:43

in a falling market of November or December 2020. Oh,

31:46

if you if you were bidding a

31:48

billion dollars worth of Bitcoin on a day where

31:50

it was down percent, yeah, it'd be hard. But

31:52

like I'm talking about just in a like the

31:54

liquidity picture in us on a sideways day, like

31:56

you wouldn't bid down more than one or 2%

31:58

for that much. volume. So okay,

32:00

so eight and a half billion dollars. Realistically,

32:04

like the Mount Gox community

32:06

is not asking one

32:09

or two liquidity providers for a bid

32:11

on eight and a half billion over

32:13

the course of like

32:15

a few minutes, right? The

32:17

bid for that would be like down five

32:19

or six percent, so, or

32:22

seven percent, but like nothing crazy, like, okay,

32:24

$5,000 a token, worst

32:28

case scenario for that. Instead, what's going to happen

32:30

is it's going to get slowly unlocked over the

32:32

course of six months, if this is real, unlike

32:34

the last five times we the market thought Mount

32:37

Gox was unlocking, but like, let's assume this is

32:39

actually for real this time. Basically, what's going to

32:41

happen is you're going to have like some

32:44

of the people want to keep their tokens because

32:46

they still are bullish Bitcoin. You're going to

32:49

have some of the people wanting to sell some

32:52

or all of their tokens, and they're

32:54

going to go and do that piecemeal

32:56

on a variety of exchanges. I think

32:59

this is getting delivered on Kraken and

33:01

a couple of others. It's very different.

33:03

Like one thing you learn as

33:05

a trader, which I've been doing for 20

33:07

years, if you feed risk to the market,

33:09

it digested very quickly. And if the one

33:11

shot worst case scenario bid for the full

33:13

size is like down five or six percent,

33:16

then the like feed it to the market

33:18

over six months for like a

33:20

third of that size or a

33:22

half of that size price

33:25

is probably like almost negligible. So a

33:27

good heuristic if you're a trader is

33:30

you want to, it's called the participation rate.

33:32

It's the amount of the daily volume that

33:34

is like generated by you. If you're

33:37

less than 10% participation, meaning

33:40

like your volume accounts for less than 10% of

33:42

the market's volume, that's usually like

33:44

a sort of like a rule

33:47

of thumb maximum for what it takes to

33:49

like get your volume off without moving the

33:51

price too much or barely in barely

33:54

noticeable amounts. And like

33:56

the, what I just described where there's like

33:58

a six month rateable unlock. of $8.5 billion

34:01

worth of Bitcoin, of which maybe

34:03

half at most gets sold, like

34:05

your participation rate is going to be

34:08

well below 10%. I mean, tens of billions of

34:10

dollars worth of this stuff trades every day. So

34:12

I think this, I think Mt. Gox

34:14

has a negligible price impact. I think the reason

34:16

why it nuked on the Mt. Gox headlines was

34:19

because people just

34:22

sort of like forgetting this cardinal rule, which is

34:24

that you can't front run flow the timing of

34:26

which you aren't completely fully aware of. You can

34:28

only front run flow when you know exactly when

34:30

it's going to hit the market. And I think

34:33

it's amateur hour out there where people are like,

34:35

oh, it's going to be selling. Let me sell.

34:37

So I think there's been some panic

34:40

around that. Ultimately though, Jack, I think

34:42

what's really causing the sell off is

34:45

a broader light bulb going off,

34:48

which is that most alt coins are completely

34:50

worthless and like

34:53

billions of dollars worth of VC unlocks are

34:55

happening. So I think a lot

34:57

of retail is finally waking up to the fact that

34:59

their shit coin of choice is,

35:03

it's dead. And I think that's like

35:05

weighing on the crypto space as a

35:07

whole right now. So

35:09

just to be very clear, you are a Bitcoin

35:11

bull, but not necessarily a bull on things that

35:13

could be called alt coins, like outside of the

35:15

top 10 or even the top five. Yeah. My

35:18

soundbite on that, like I think the meme coin

35:20

casino is a fun way to play around and

35:22

make money. I think that the majors like BTC,

35:24

ETH, and Solana are an awesome

35:26

long-term hold. Anything in the middle of that

35:28

risk curve, the

35:31

alt coin space with air quotes, I

35:33

think it will ultimately have value when

35:35

there's regulatory clarity. And when

35:37

crypto can fulfill Chris Dixon's

35:39

sort of prediction, he's a

35:42

venture capitalist at A16Z, he

35:44

basically predicted that crypto would disrupt the LLC.

35:46

It would disrupt corporate structure. It's better than

35:48

a safe agreement or startup private equity. Like

35:51

I totally agree with that. It's a better

35:53

way to organize value

35:55

sharing amongst like disparate participants in

35:57

some sort of like, you know,

35:59

software project. I totally agree

36:01

with that. You need regulatory

36:03

approval first. And then once

36:06

a crypto economic system can

36:08

pass through the benefits of

36:11

genuine economic activity, pass

36:13

through the, you know, like revenues of a

36:15

real business to token holders, which is not

36:17

currently legal, when that happens, then you'll have

36:19

new sources of inflows into crypto

36:22

other than just like the greater fool

36:24

buying your shit coin. But until then,

36:26

I think we've run out of greater

36:28

fools to buy your shit coin. And I think that

36:30

that whole alt coin space is going to go from,

36:32

you know, hundreds

36:34

of billions of dollars in market cap to a

36:37

lot lower, unfortunately. Wow.

36:39

So just to your point on Mt.

36:41

Gox, it sounds like all things being

36:43

equal, you don't think the $8.5 billion

36:45

worth of Bitcoin that's going to be

36:47

sold would have a sizable

36:50

impact on the price of Bitcoin. But you

36:52

know, as we all know, all things are never equal. And it could

36:54

have a huge impact on sentiment if

36:56

ever if this scares everyone and it spooks people

36:58

and then people are selling into a falling

37:01

market. Of course, that could happen. But you're just just

37:03

talking about the $8.5 billion to

37:05

be sold. You don't think that by itself

37:08

is something to worry about. That by itself

37:10

is irrelevant. I think the selling flow on

37:12

BCH, which is I think it's like almost

37:14

nine figures or maybe slightly over that that

37:16

could send BCH down a lot. So

37:19

that that selling will matter for Bitcoin cash. But

37:22

no, the actual flows of Mt. Gox

37:24

Bitcoin unlocks don't matter. It's just it's

37:26

the news is hitting the market at

37:28

a fragile time when there's already like

37:31

I said, all coin carnage going on and a

37:33

lot of value being lost and people panicking and

37:35

getting upset. So yeah, like you said, sentiment is

37:37

the exact word I would use to describe what

37:39

was causing the sell off right now, not

37:41

actual like technicals. So Bitcoin Cash is an

37:44

old node of Bitcoin. I'm going to pretend

37:46

to understand the technology. But you know, Bitcoin

37:48

is now on a new node and Bitcoin

37:50

Cash is that old node. Some true believers

37:52

are still on the Bitcoin Cash thing. But

37:55

why do you think this will be worse for Bitcoin Cash than

37:57

Bitcoin? And I'll just say on your Twitter, you said Bitcoin Cash

37:59

could to zero. The great thing about crypto

38:01

is that the code is open source. So

38:04

if some people don't like the roadmap

38:06

for a given project, they can just do what's called

38:09

forking it, which is copy all the code, paste it

38:11

into some new repository and

38:13

get going with like the exact same

38:15

thing with a few small modifications. And

38:17

I, you know, honestly, I

38:20

think Bitcoin, I can't remember whether the

38:22

current Bitcoin is the original stem or

38:24

whether Bitcoin caches. I think Bitcoin cache

38:26

is an original stem of

38:28

like Bitcoin looked more like Bitcoin cache

38:30

in the beginning than it does today.

38:33

And so our current Bitcoin is a

38:35

fork of Bitcoin cache or something. I

38:38

don't remember exactly. I'm not a dev.

38:40

I haven't been in this since 2011.

38:42

But anyway, Bitcoin cache is this like

38:44

legacy, almost Bitcoin Bitcoin thing that, you

38:47

know, is held by a few whale accounts

38:49

and some true believers who are, you

38:51

know, they are true believers. Right.

38:53

So if you held Bitcoin on, on

38:56

Mt. Gox way back when, when the

38:58

exchange got hacked, you like the fork

39:00

happened after the exchange went

39:02

down. So now all of

39:05

those exchange accounts are holding both

39:07

current, like what is today Bitcoin

39:09

and the fork, which is Bitcoin

39:11

cache. And so, like

39:14

theoretically, most of

39:16

these people don't want Bitcoin cache. It's just

39:18

a shit coin that they don't want. So

39:20

they're probably going to sell it. And unless

39:23

all of the Bitcoin cache, true believers slash

39:25

whales go and absorb that extra

39:27

hundred million, which they very well may, but I

39:29

doubt they will, you know, the,

39:33

the marginal buyer of that, which is where

39:35

the price gets set, right, for anything, whether

39:37

it's oil or Bitcoin or

39:40

some random token you've never heard of,

39:42

it's always the price the marginal buyer is

39:44

willing to pay for additional supply. All

39:47

the supplies coming to market, like I don't

39:49

really see who's going to be willing to

39:51

pay up for it. So maybe zero is

39:53

probably an exaggeration that I posted to get

39:55

some engagement, but I think it's going down

39:57

a lot. It already has. 20%

40:00

in a couple of minutes on the

40:02

headline. Final thing on altcoins. Yesterday you

40:04

posted that altcoins are not done nuking.

40:06

This is not an opportunity to buy.

40:09

And you said your signal was to

40:11

get out of alts was that the

40:13

Bitcoin to ETH to sole ratio. And

40:15

you talked about that earlier on the

40:18

1000x pod shout out to that. But

40:20

just when you say about why do you

40:22

think this is the moment for altcoins to

40:24

do poorly? Typically, I think it is fair

40:26

to say, I gotta, we don't have huge

40:28

amounts of sample size, but when

40:30

Bitcoin goes up, ETH also goes up and other

40:33

altcoins goes up. I mean, there's a go up.

40:35

There's a time when Solana and ETH were considered

40:37

altcoins in the same way that if the S&P

40:39

goes up, the high beta stocks, Tesla and Nvidia

40:41

will go up as well. And you know, the

40:43

crappy, you know, huge frenetic bull market like 2021

40:45

or late 2020, the

40:48

crappier the company, the higher rate of company, the more it

40:50

will go up. And certainly that can be characterized of

40:52

crypto during the same period of 2020 and 2021. Why

40:55

is this time different? And just to sort of preempt

40:58

your response about, oh, the fundamental tech isn't there. But

41:00

I would have said that that was true in 2020 and 2021. Like

41:03

the promising has been very, very big and

41:05

the delivery has been a little short to

41:07

say the least. So, but

41:10

that's not new to me. So what's different?

41:12

Yeah, okay. So first of all,

41:14

yes, you're absolutely right. This is

41:17

a controversial take, spicy take. I've

41:20

taken a lot of heat for

41:22

it on Twitter. Here's why I'm confident that

41:24

my contrarian view on altcoins is correct. Let's

41:28

say that you were to create a systematic strategy. The

41:30

systematic strategy is buy an

41:33

index of the top thousand altcoins, market

41:36

cap weighted index of the top thousand altcoins.

41:39

When the market, when Bitcoin

41:42

has been in a bull

41:44

market by some definition, let's say,

41:48

pick your definition, it doesn't matter, has been

41:50

in a bull market for longer than six

41:52

months, right? You would have had an

41:54

awesome time in 2017 and

41:57

again in 2021. So your

41:59

system. Systematic strategy has two

42:02

data points to sort of like

42:04

validate your thesis, right? This

42:07

is not in the

42:09

parlance of systematic trading statistically significant. It's

42:11

entirely possible that something that worked twice

42:14

could fail on the third time. And

42:18

I firmly believe that it will. Why?

42:21

Well, retail has had their

42:23

hands burned twice

42:25

by this. Retail

42:28

was not deploying the systematic

42:30

strategy at an optimal time and exiting at

42:32

the highs. Retail was holding

42:34

the bag in the last

42:36

two altcoin bull markets. And

42:40

I do not think that retail

42:42

is there this time to buy

42:44

suey and Aptos and say. What

42:48

say? Great question. But it's an

42:50

L1, right? It does

42:52

something that no one cares about, right?

42:55

Like there are people that like

42:57

when there are no venture capitalist

42:59

unlit unlocks and there's

43:01

no supply, the marginal buyer for

43:04

what what little liquidity is out there,

43:06

you know, their algos sloshing things around

43:08

their market makers like GSR and Wintermute

43:10

providing two ways on these tokens because

43:12

they're contractually required to do so so

43:15

that they look liquid and stable. And

43:18

the marginal buyer is, you know, somebody

43:20

who just like listens to a podcast

43:22

about suey or say and gets

43:24

excited and pushes the price up. But like

43:26

when the venture capitalists who have, you know,

43:28

in these in their like investment vehicles like

43:30

hundreds of millions, if not billions of dollars

43:32

worth of this funny money to unlock, there's

43:35

not enough retail to buy it anymore

43:37

because retail has gone and bought the

43:39

last two VC bull markets. And I,

43:41

you know, there's just not like you

43:44

need a new infusion of capital. And

43:46

so my whole thesis around crypto, like

43:48

around altcoins in particular and tokenomics in

43:50

general is what I was saying earlier,

43:52

which is that you

43:54

need another source of capital other than

43:57

like random guys on the street. and

44:00

mom and pop people to come and buy altcoins.

44:02

You need inflows from genuine

44:04

business activity. You need this to

44:06

start disrupting trad-fi economics in order

44:08

to bring in the amounts of

44:11

capital necessary to sustain these

44:13

multi-billion dollar valuations. And we're not gonna

44:15

get it in the next year or

44:17

two. So I think we're

44:20

due for proper

44:22

altcoin underperformance. Now

44:24

on the other side of that, just very quickly, my

44:27

former boss at

44:29

DRW, Don Wilson, has this amazing saying,

44:32

which is, I was complaining one time

44:34

about Cardano or Polkadot. I don't remember

44:36

which, something that shouldn't exist. And he's

44:38

like, Jonah, tokens don't file for bankruptcy.

44:41

Which is true, they don't go to zero. You can't

44:44

short them, right? So it's unlike stocks. You're not just

44:46

like, these things aren't gonna go to zero. So

44:48

you'll have a lot of zombie

44:50

tokens out there floating around. But

44:53

I don't think that's

44:56

what people are looking for if they're

44:58

going and buying altcoins. So I would be, I wouldn't

45:01

touch the altcoin space with a 10 foot

45:03

pole. Now to your point about ETH and

45:05

Solana, yes, they were altcoins at some point.

45:07

So if you're that good at picking winners,

45:09

and we can talk about ways to do

45:11

so, like I think there are tokens here and

45:13

there that are gonna 1000X. I'm

45:16

just saying the space as a whole, it's kind of cursed.

45:19

Like what tokens do you think are gonna 1000X?

45:21

And I should say, because your podcast is called 1000X, unless

45:25

you think Bitcoin is gonna 1000X, which would

45:27

be something to behold, from

45:30

a $60,000 per Bitcoin price right

45:32

now, what's going 1000X? I

45:34

mean, we can't change the show name, unless you

45:36

made it. Well, okay, so

45:39

just a little bit of like inside baseball for you.

45:42

We wanted to call the show 100X, but

45:45

Arthur Hayes, the founder of Bitcoin, Bitmex,

45:47

sorry. He had

45:49

that, like he already had

45:51

a company called 100X, his investment company.

45:53

So out of respect to Arthur, we're like, are

45:55

we gonna call it 10X? No

45:58

one's gonna listen to this shit. So call it 1000X. It's

46:01

a little bit aspirational, so I'm not sure I know

46:03

what's going to 1000X. But

46:05

in terms of what I think is going to 100X,

46:08

I am extremely bullish

46:11

on what's called, like

46:13

things like Ondo, like things like, let's call

46:15

it the RWA space, even though a treasury

46:18

bond is not a real world asset. I

46:20

think that use cases like stablecoins, like, did

46:22

you know that stablecoins are the 18th biggest

46:25

lender to the United States of America right

46:27

now? To me,

46:30

the idea that JP Morgan won't bank

46:32

you if you live in Argentina, or

46:34

you're an itinerant farmer in Bolivia, but

46:37

you can get a

46:39

dollarized checking account with Tether or

46:41

a dollarized high yield savings account

46:43

with Ondo on Chain, to me,

46:45

that's just pure magic. And

46:48

so I think that to the extent that I do believe

46:50

the dollar will remain the world's leading

46:52

global reserve currency, not the only one. I

46:55

think that on chain

46:57

projects that collect a

47:00

sliver of the difference between the

47:02

yield they deliver to their end

47:05

user and the yield that they

47:07

collect from lending to Uncle Sam,

47:10

I think that those types of

47:12

projects represent like an absolutely critical

47:14

use case in the global banking

47:16

ecosystem. And as soon as

47:18

regulatory clarity starts to emerge, I think you're going

47:20

to end up with a system

47:22

where those revenues get passed through to

47:25

token holders and you're not just holding

47:27

some worthless governance token, you're getting actual

47:29

dividends from that business. And then

47:32

soon you'll end up with tokenized

47:34

stocks on these platforms, tokenized corporate

47:36

bonds, hell, maybe even tokenized

47:38

cargos of hydrocarbons. And I think that if

47:40

you're going to take a bet on pre-regulatory

47:42

clarity, if you're going to

47:47

take a bet on an altcoin, you should be

47:50

sitting around waiting to dip by the things that

47:52

will benefit the most from genuine

47:55

business activity revenue pass through.

47:58

I know it's a complicated thing. but to

48:00

me it may like I just I'm seeing

48:02

that ball very clearly personally and so those

48:04

are the all coins I like now do

48:06

I want to buy them here watch them

48:09

sell off 90%

48:11

and then have the the regulatory clarity emerge like

48:13

no I'm kind of waiting in the wings right

48:15

so those are the ones that I think You'll

48:18

ultimately want to buy on a proper

48:20

jackknife What's a jackknife?

48:22

Just like a real like massive?

48:25

Vertical sell-off buying buying a falling knife

48:28

jack. Yeah. Okay. So what you

48:30

think suddenly eating most altcoins are nonsense Like

48:32

what do you think about the AI coins?

48:35

so Some of them

48:37

actually work like live peer. I

48:40

had a chat with the are we of

48:42

guys and oh my god Like a oh

48:44

is just so interesting a stateless computer that

48:46

can process like llama 3 on

48:48

Jane Like I love these ideas.

48:50

I think they're so interesting. I I

48:53

think again the

48:56

blockchain product

48:59

is early stage and

49:01

Even if the blockchain product achieves

49:03

mass adoption They're like

49:06

we're past the point where in terms

49:08

of like just markets markets

49:10

and market psychology Where like people are

49:12

gonna feel comfortable buying a token? Because

49:15

in name only it's associated

49:17

with something that's kind of cool,

49:19

right? Or that works

49:21

or that people are using like again

49:23

You need a pass-through of genuine economic

49:26

activity to the token holders in order

49:28

for people to in order for there

49:30

to be like a hope that The

49:33

tide is gonna rise and lift your ship right

49:36

now if you buy a oh Which

49:38

is the AI sort of like let's

49:40

call it the like computational engine of

49:42

our weave which is very capable of

49:44

processing You

49:47

know AI Applications like

49:49

llama or even if you buy our weave AR

49:51

the token which is already basically the

49:54

most important consumer product in crypto It's

49:56

like the AWS the Amazon Web Services

49:58

of crypto like Any

50:00

revenue that people are spending

50:04

to store or compute on our

50:06

weave, like the only way that

50:08

you're getting that as a token holder is like

50:10

through buy and burn or

50:13

something that seems kind of nebulous. Like

50:15

the money needs to actually just flow

50:17

straight through into your wallet in

50:19

order for it to be a layup

50:21

trade. You know, until then

50:23

you're still basically hoping that no one

50:25

else around you sells and other fools

50:28

come in to buy. Not that you're

50:30

full for buying, are we? But you

50:32

need people to keep lifting it in

50:34

order to earn the types of returns

50:36

that you expect from your investment. You

50:38

earn your 100X. Your 100X.

50:40

Very interesting. Jonah, thanks for talking about

50:42

crypto. We've done close to an hour.

50:44

I want to now talk about oil

50:46

where you have got some strong views.

50:48

The price of crude is around 80

50:50

bucks. What's your view on it? Right

50:53

now, crude oil is not the most

50:55

exciting trade from the perspective of a

50:58

retail investor. Like retail investors like to

51:00

watch things go super

51:03

high or oh my God,

51:05

crude oil went below zero. How's that

51:07

even possible, right? Right now, we're in

51:09

a situation where there's a lot of

51:11

slack in global crude oil markets. And

51:13

what is slack? Slack means that producers

51:15

could produce more and

51:18

consumers could consume less, right?

51:21

So let's say that the price skyrockets

51:26

for I don't know what reason. Saudi

51:30

Arabia could pump an extra one

51:32

or two million barrels a day.

51:34

I think one, they say two.

51:36

Consumers could theoretically, consumers

51:38

being refineries, they could

51:40

draw from stocks. There's

51:43

a global strategic petroleum reserve ecosystem. China has

51:45

a lot of oil and tank. So does

51:47

the U.S. So

51:50

consumption could be supplemented

51:52

by some of these reserves that are being held

51:54

by governments, much like what happened in 2022. So

51:58

there's a lot of extra oil that could hit the market. Normally,

52:00

or if there's a

52:03

huge sell-off, that's I think where you could

52:05

potentially run into a big price move and

52:07

some problems for the economy. But I don't

52:09

think there's going to be a big sell-off

52:12

because the global economy is growing robustly. Ultimately,

52:15

OPEC and Russia, their friends in

52:17

OPEC Plus are keeping a lot of oil

52:20

off the market. So

52:23

really the big move that the crude

52:25

oil market's exposed to is a down

52:27

move. And I just don't have the

52:30

view that there's going to be a

52:32

massive COVID-style macroeconomic catastrophe in the near

52:34

term, like a demand shock that

52:36

it would take to catalyze that move. Don't

52:39

see it. So you think when you said producers could put

52:42

a lot more supply in the market if they wanted to, that means

52:44

there's a lot of spare capacity. That if the price

52:47

goes up from 80 to 90, boom, a lot more

52:49

supply goes on the market. You're not going to have

52:51

80 to 90, and then no one else is going

52:53

to stop that train and we go to 140, 150.

52:57

I think at $90, I don't think

52:59

extra production would come online. So right

53:02

now the price of Brent, which

53:04

is the global waterborne crude that comes from the North

53:06

Sea between England and Norway, that's sort of between 85

53:08

and $88 a barrel right

53:11

now. So that's the market that

53:13

the Saudis and every other OPEC producer will

53:15

look at. The WTI,

53:18

the one that used to be relevant, is

53:20

landlocked crude in Texas. Well,

53:22

it's not landlocked anymore. But that's a bit

53:24

lower because of freight, but that's not the

53:26

price that people pay attention to or the

53:28

relevant people pay attention to. So let's say

53:30

the price is basically already close to 90.

53:32

If the price were to go to 100, maybe

53:35

you'd see a little bit more production, but OPEC has

53:37

said they're going to unwind their cuts later in this

53:39

year. They're not really trying to unwind them now. They

53:42

want the revenue. So ultimately,

53:44

if the price were to suddenly go to 110, there'd

53:46

be a lot of oil hitting the market. To

53:49

me, the last time the oil market

53:51

was truly, truly very

53:54

fragile. And let's go

53:56

pre-Ukraine because Ukraine, people thought Russia wasn't

53:58

going to be able export. So let's

54:01

ignore that. The last time you

54:03

were in a geopolitically stable environment,

54:05

and oil was fragile, as ever

54:09

was kind of I would say 2018. In the summer of 2018,

54:14

every producer was pumping max and demand

54:16

growth was so robust. And

54:19

supply was like, like

54:21

threatening to come offline in Libya and

54:23

all these other places, where if you'd

54:25

lost even half a million barrels a

54:28

day, in a world where the human

54:30

economy was the global economy, humans

54:32

were consuming almost 100 million barrels of oil a

54:34

day. So you lose even, even half a percent

54:37

of that, like the price could have shot up by 30, 40, 50

54:41

dollars a barrel. And then Trump did

54:43

something to alleviate that he waved

54:45

the sanctions on Iranian oil to let

54:47

a little bit more of it out

54:49

to prevent that price shock outcome. Like

54:53

that was the last bit of spare capacity in the

54:56

market at that time. That

54:58

was the only slack. Now there's slack

55:00

everywhere. Russia has slack. Saudi

55:02

Arabia has slack. The United Arab Emirates

55:04

has slack. Kuwait has slack.

55:07

Iraq and you know, Nigeria pretend

55:09

they have slack, but they don't.

55:11

They're pumping max. Iraq too. But

55:13

yeah, you get the

55:15

drift. In 2018, so the price of oil was

55:17

$70. So it was lower than

55:19

it was now. I also associate 2018 as

55:21

that is a time of rapid growth in

55:23

Permian production. So you're saying that the potential

55:26

declines from Libya and the other places you

55:28

mentioned would have more than offset the growth

55:30

in production from Permian growth was starting to

55:32

taper off back then. What was happening in

55:34

2018 was that Wall

55:37

Street was getting sick of lending money

55:39

to Permian producers and receiving a negative

55:41

yield for that money on that money

55:43

negative return on investment. So

55:45

the money tap was starting to dry up.

55:48

Permian production growth was starting to

55:50

taper off. The

55:52

narrative was shifting from like drill

55:55

baby drill pump as much as

55:57

you can to like fiscal prudence

55:59

and profitability. Kind of like what

56:01

you're seeing in the SaaS market right now, you

56:03

know? Meanwhile,

56:06

the global oil markets were tight. Economic

56:08

growth globally was robust. Demand

56:11

growth was robust. And all

56:13

it would take was one Libyan supply shock

56:15

to send the thing into the stratosphere. Like

56:17

the crude oil is a, crude oil does

56:19

not have a lot of, like it has

56:21

tremendous elasticity of price with respect to demand.

56:23

So like you're not going to stop driving

56:25

to work because gasoline prices go up. You're

56:29

just going to keep eating it

56:31

until you go broke, right? And

56:33

that's why big oil shocks create

56:35

recessions. And so would you

56:37

say that the period we have now where you

56:39

see a low risk for a huge move upwards,

56:41

is that true most of the time in the

56:44

oil markets? I am a crude

56:46

oil permeable because I believe

56:48

that unless OPEC is

56:50

in a market share war like it

56:53

was in 2020 or 2014, they're

56:56

artificially propping up the market

56:58

and it tends to grind higher. And

57:02

I occasionally have gotten lucky on this or managed to

57:04

get in at a very low price like in mid-2020

57:07

or early 2016. With

57:13

the exception of 2022, it's very rare to see the price just go

57:15

look like it's going to

57:18

go to infinity. And even in 2022, Joe

57:21

Biden showed up with more than a hundred

57:23

million barrels worth of physical

57:25

crude oil to just like flood the

57:27

market to prevent that from happening

57:29

because that's a game changer if you

57:31

end up in an oil shock like in the 1970s, right? People

57:35

lose their jobs and some people lose their heads

57:38

over that. It's like crazy. It's

57:42

bad. It's very, very bad.

57:44

Wars start over oil. So yeah,

57:48

basically, I would

57:51

never buy like you buy calls, you buy

57:53

options when you expect the market to move

57:55

fast. I would never buy

57:58

a front end oil call. unless

58:00

it was just so frigging

58:02

cheap after years and years

58:05

of oil doing nothing or

58:07

oil being in a permanent sell off. And

58:09

we're not there yet because oil had a huge move in 2022. Yeah,

58:12

no. I mean, the best trade of the year

58:14

in oil has been selling options. It's called the

58:17

implied daily move or the implied break even. There's

58:19

like a price where you break, if

58:21

you buy a straddle, you break even if the price of

58:23

oil moves that many dollars and cents per day. At the

58:25

beginning of the year, it was like 180. Now

58:28

it's like $1.10. That's

58:31

a huge sell off in the price of oil

58:33

options. So yeah, selling

58:36

vol because of all this slack in the system.

58:38

And by vol, I mean volatility options.

58:42

That's been the trade this year in

58:44

oil. And what are you seeing in

58:46

the world of refined products

58:48

or distillates like diesel, gasoline, that

58:50

kind of stuff? Gasoline is actually

58:53

not a distillate. You

58:56

have to recombine some distillates and do

58:58

some fancy chemistry to make gasoline. Is

59:00

gasoline a refined product? Yes. Yes, it

59:03

is. So distillation is

59:05

the process of boiling something, taking

59:07

the steam, cooling the steam back

59:09

down. And whatever you get out

59:11

of that is a distillate. So

59:13

you can get distilled water from distilling

59:15

water. It's like slightly

59:18

less minerally cleaner water. If

59:21

you distill oil, you end up with products

59:24

like diesel, which

59:26

people put in trucks. You end

59:29

up with jet fuel, stuff like that.

59:31

So the big trade this year in

59:33

refined products has been

59:35

this round trip in diesel, where

59:38

to start the year, the

59:40

price of diesel was quite low. And

59:42

diesel is usually considered to be the

59:44

input product for economic activity, because

59:47

trucking, a lot of

59:49

people are buying toys on

59:51

Amazon. And you need more trucks to

59:53

move it around, basically. So that's the

59:55

basic explanation. Anyway, so diesel started the

59:57

year at quite a low price. It

1:00:01

rallied in a straight line for three months on

1:00:03

bullish economic prospects and cheap crude

1:00:06

oil. Rising crude oil

1:00:08

is linked to diesel, but cracks

1:00:10

were rallying as well. So

1:00:14

the margin to produce this stuff was

1:00:16

relatively healthy for finer, and then it

1:00:18

sort of peaked out sometime around mid-February

1:00:22

or early March, I forget. Hedge

1:00:24

funds, a hedge fund that

1:00:26

was short, a massive

1:00:29

hedge fund known

1:00:31

for being the best hedge fund

1:00:33

in commodities was massively short. Diesel

1:00:36

all the way up, stopped

1:00:38

out, fired their portfolio manager,

1:00:41

and the global price of diesel

1:00:43

moved. Another significant

1:00:47

amount of dollars per ton on

1:00:49

that stopout finished

1:00:52

around March, and then it's just careened

1:00:54

back down into

1:00:57

Hades from then

1:00:59

until basically two weeks ago. So

1:01:01

that's been like the thing about

1:01:03

refined products trading. When

1:01:05

you talk to people on the street about

1:01:07

refined products, the one they identify with is

1:01:09

gasoline. The one they identify with the second

1:01:11

most is jet fuel. They

1:01:14

could be like, oh, my plane ticket price is higher. Oh, filling

1:01:16

up at the pump. It was cheaper this week than it was

1:01:18

a couple months ago. Usually

1:01:21

what they're seeing is the price of

1:01:24

crude oil, but the individual relationship

1:01:27

between the distillate

1:01:30

or the refined product and the price of crude

1:01:32

oil is what industry people like. People

1:01:34

like me will get involved with, and

1:01:36

that's usually a lot less transparent to

1:01:38

people. And ultimately, the story this year

1:01:41

was like, oh, my God, road

1:01:43

fuels going to infinity. The

1:01:45

economy is picking back up. It's doing

1:01:48

better than expected. Oh, my God, distillates

1:01:50

are incredible. Oh, my God, somebody's

1:01:52

stopping out and driving it even higher. Oh, wait, actually,

1:01:54

there's not enough demand to sustain these levels, and it

1:01:56

crashes back down. So distillate trading is something that's going

1:01:58

to be a little bit more difficult. It's all about

1:02:00

mean reversion. You find some of the best

1:02:02

traders in the distillates world are mean reversion

1:02:04

traders. They learn to fade these

1:02:06

highs by selling them and buy the lows. They're

1:02:09

not like the kind of people you meet in

1:02:11

crypto who are just these massive momentum traders. Okay,

1:02:13

that's interesting. I was able to find a chart

1:02:15

very interesting of the price of Brent crude oil

1:02:17

and the price of jet fuel and then the

1:02:20

crack spread between them. And so

1:02:23

that shows it was not a big spread for

1:02:25

most of 2020 and 2021. Then

1:02:27

with Russia's invasion of Ukraine, as the price of

1:02:30

oil spiked up, the price of jet fuel

1:02:32

spiked up even higher. So you had a

1:02:34

huge explosion in the jet fuel price and

1:02:36

it's lower than. Tell me about that

1:02:38

mean reversion trade because I can imagine someone in January

1:02:41

2022 saying that

1:02:43

the crack spread for jet fuel has

1:02:46

gone up. So it's time to short that crack spread

1:02:48

and then just getting destroyed. That's right.

1:02:50

And the people who did that then

1:02:52

lost their jobs for sure. I mean,

1:02:55

ultimately refineries. Okay,

1:02:57

so there are certain things that the human

1:02:59

race can't do without, right? Like

1:03:03

transportation. It's always going

1:03:05

to be there. You're going to buy it at

1:03:07

most prices. But when something

1:03:09

like COVID comes along, like you could just

1:03:11

work from home. And so people

1:03:14

stop driving and cracks for

1:03:16

a lot of crack spreads for a lot of these

1:03:19

refined products like went at

1:03:21

times negative. So

1:03:25

basically these big shocks create opportunities

1:03:27

for mean reversion traders to come

1:03:29

in and scoop up the pieces.

1:03:33

Ultimately like there's only one buyer of

1:03:35

crude, as we discussed earlier on the

1:03:37

podcast. It's a refinery, right? And refineries

1:03:40

are like very economically

1:03:42

rational actors for the most part.

1:03:44

They have what's called an LP,

1:03:46

a linear program that tells

1:03:49

them like, hey, I'm seeing this much

1:03:51

demand at what's called the rack when

1:03:53

big trucks with tanks pick up gasoline.

1:03:55

Or hey, I'm seeing this much

1:03:57

demand for jet fuel. hey,

1:04:00

I'm seeing this much demand for fuel oil,

1:04:02

which is what powers big oil

1:04:04

tankers and cruise ships, the biggest

1:04:06

ships. They can see demand in

1:04:09

real time for

1:04:11

these refined products. They can switch between

1:04:13

them so they can do

1:04:15

more hydrocracking or less. They can make

1:04:17

more naphtha, which is a precursor to

1:04:20

plastic, or less. They can make more

1:04:22

gasoline or less. So when basically the

1:04:25

price of a refined product relative

1:04:27

to crude moves too

1:04:30

much to the upside, they'll make more of

1:04:32

it. Because they're like, oh, my LP tells

1:04:35

me that it's like, I should be making

1:04:37

naphtha because everybody wants plastic and nobody wants

1:04:39

jet fuel. So I'm just gonna like go

1:04:41

all in on naphtha for a little while.

1:04:43

Oh, actually now, you

1:04:46

know, no one wants shampoo and plastic,

1:04:49

Ziploc bags anymore, and everybody wants gasoline.

1:04:51

So I'm gonna stop making naphtha and

1:04:53

make more gasoline because that's where the,

1:04:55

you know, it's like whack-a-mole, right? I'm

1:04:58

oversimplifying it massively. But basically,

1:05:01

because of these, because

1:05:03

of these LPs, and because of the

1:05:05

end user demand, you

1:05:08

know, being at times

1:05:10

quite elastic, at times inelastic, like the refinery

1:05:12

is ultimately going to be able, like it's

1:05:15

a mean reversion trade. If there, if something's,

1:05:17

if the get-ins too good in some refined

1:05:19

product, all the refiners are going to go

1:05:22

make it. It's a waterborne market. It's going

1:05:24

to find its way to the places

1:05:26

where there's a deficit, and then the prices are going

1:05:28

to come back down, and vice versa,

1:05:31

you know? So that's

1:05:33

kind of how it works. Like if there's a, if

1:05:36

there's a massive oversupply of

1:05:38

something, like refineries are

1:05:40

going to stop making it, basically. And

1:05:42

then the price is going to come back after

1:05:45

people, people in Germany are like,

1:05:47

wow. So in Germany, diesel is called gas oil,

1:05:49

and it's used to heat homes, right? So if

1:05:51

diesel goes too low, then you know, in Germany,

1:05:53

people are going to be like, wow, I can

1:05:56

buy an entire winter's worth of heat for pennies on

1:05:58

the dollar. Let me just go and and

1:06:00

fill up the tank in my backyard. Commodities

1:06:02

markets are really interesting like that. So

1:06:07

it's ultimately refined product. Crack spreads

1:06:09

are, I would say, a mean

1:06:12

reversion game. The more risk

1:06:14

tolerance you can wear in casino parlance, the

1:06:18

more times you can double down at the

1:06:20

blackjack table, the

1:06:23

more money you can make on these obvious

1:06:25

mean reversion trades. It's just about your entry

1:06:28

price, your timing, and whether you can stay

1:06:30

solvent longer than the market remains irrational on

1:06:32

the refined product side. So jet

1:06:35

fuel that crack spread has been narrowing,

1:06:37

although it probably still is above the

1:06:40

pre-2020 levels. What's

1:06:42

happening to the crack spreads of diesel

1:06:44

and gasoline and the other stuff?

1:06:47

Gasoline is a summer trade. So

1:06:50

let's start there. Gasoline rallies in the summer. Why?

1:06:52

Because summer is driving season. That's

1:06:55

when most gasoline gets used. So

1:06:58

basically, if you're a commodities trader and you

1:07:00

get long gasoline cracks, when

1:07:03

everybody's buying gasoline, usually

1:07:06

the world is prepared for

1:07:08

that seasonality of gasoline. You're

1:07:12

probably wondering to yourself, does the

1:07:14

price of ice cream spike in

1:07:16

the summer? Well, no. But the

1:07:18

thing about gasoline is occasionally there's

1:07:21

more demand than people anticipate. And

1:07:23

you also have this optionality from

1:07:25

buying gasoline in the summertime when

1:07:27

occasionally a refinery will just explode

1:07:30

by accident. It's called unplanned maintenance,

1:07:32

right? When let's say

1:07:34

it's like 50 degrees Celsius in

1:07:37

some refinery in the Middle East, and

1:07:39

it'll just blow up. Or some old

1:07:41

refinery in Pennsylvania will just fall

1:07:43

apart and blow up and literally.

1:07:46

And then suddenly there's not enough gasoline,

1:07:48

right? Or pipeline

1:07:50

will blow up. So yeah, there's optionality

1:07:52

to that. Or hurricane knocks

1:07:54

out a couple of refineries and there's not enough gasoline.

1:07:57

Anyway, so gasoline's got this sort of upside

1:07:59

option. So if you can get it at

1:08:01

a cheap enough price into the summer, it's called

1:08:03

buying Q3 cracks. That's the trade. So

1:08:07

for the third quarter, because those derivatives

1:08:09

price during the summer. Anyway,

1:08:12

so basically,

1:08:16

so that's what's going on there. So that

1:08:18

stuff's starting to rally after a period of

1:08:20

weak demand. Jet

1:08:23

fuel and diesel, they're both

1:08:25

distillates. So

1:08:28

refineries kind of switch back and forth

1:08:30

between making one or the other a little bit more

1:08:32

fungibly and easily. Just

1:08:35

distillates in general, like think of it

1:08:37

as a complex, right? Like they kind

1:08:40

of trade together. The distillates

1:08:42

complex, like we discussed,

1:08:45

rallied like crazy for the first three

1:08:47

months of the year on demand and

1:08:49

then stopouts vomited into

1:08:51

oblivion in the following three months. And

1:08:53

now it's just starting to recover as

1:08:55

of a couple days ago. There

1:08:57

are sort of some of the early

1:08:59

indications like physical diesel barge

1:09:02

prices, like the price at which you'd buy

1:09:04

literally a barge, like a river barge worth

1:09:06

of diesel in China. Like those are starting

1:09:08

to pick up. It's a good leading indicator.

1:09:11

So all this stuff's happening. So

1:09:13

it's like kind of, there's some green

1:09:15

shoots in that market, but ultimately they're

1:09:19

within that market. Everything's

1:09:21

called regrades, the difference between the price of jet

1:09:23

and the price of diesel. You

1:09:26

have to adjust it for dollars

1:09:29

per barrel because it's priced in dollars per

1:09:31

ton, but they have different molecules

1:09:33

or different sizes. So you have to

1:09:35

like multiply them

1:09:37

by different numbers to get a volumetrically equivalent

1:09:39

crack between jet fuel and diesel. Like there

1:09:42

are all these little minutia of things that

1:09:44

are trading back and forth in that

1:09:47

world. So I think anything's

1:09:49

particularly interesting inside of the

1:09:51

diesel complex right now. Sorry, inside of the

1:09:54

distillates complex. It's more just like distillates

1:09:57

I think have bottomed out and we're going

1:09:59

to start to I see some

1:10:01

like, I think a sustained rally

1:10:03

in distillates provided the economy doesn't

1:10:05

crap out, which is my base case. You

1:10:07

have to underwrite something, right? If

1:10:09

the economy doesn't crap out, then

1:10:12

you think distillates will rally, they'll spread. Yeah,

1:10:14

I think distillates will rally with respect to

1:10:16

crude. I'm bullish distillates from here. A

1:10:19

lot of the shares of the

1:10:21

refining companies like Marathon Petroleum, Phillips

1:10:23

66 have been on a tear.

1:10:25

Are you a structural bull on

1:10:27

the business of refining crude oil?

1:10:29

So it's interesting. Everybody likes to

1:10:31

look at refining stocks as, like

1:10:34

people just don't get this. I'm

1:10:36

sure your listeners do because they're

1:10:38

educated, handsome, slash beautiful, amazing people

1:10:41

who take the time to understand these topics

1:10:43

in depth. But most people

1:10:45

just think like, oh, crude oil's

1:10:47

up. Like refining stocks

1:10:49

should be up, right? Like it's no,

1:10:51

it's not quite that simple. It's basically

1:10:54

refiners make money when the refining

1:10:56

margins are high, which is basically

1:10:59

when the difference between the price of crude

1:11:01

oil and the price of refined products is

1:11:03

wide. They

1:11:06

also make money when there is

1:11:08

volatility in what's called the

1:11:10

margin, which is the difference between

1:11:12

the price of crude and the price

1:11:14

of refined products. So when there's volatility,

1:11:16

they can capture opportunity. And then beyond

1:11:18

that, there's one extra layer of complexity,

1:11:21

which is margins are very different

1:11:23

in different regions. So let's just

1:11:25

break the world into three parts. There's

1:11:27

the North American refining margins. Texas

1:11:30

is kind of the hub of all that. Then

1:11:33

there's, let's call it European finding

1:11:35

margins. You have two regions with

1:11:37

huge refinery systems. One is Northwest

1:11:39

Europe, that's like the UK and

1:11:42

something called ARA, Amsterdam, Rotterdam, and

1:11:44

Antwerp. So all the refining is

1:11:47

in Northwest Europe. Then there's the

1:11:49

Mediterranean, like huge,

1:11:51

huge refineries in Greece and Southern

1:11:53

France and Spain and all those

1:11:55

places. Then

1:11:57

Turkey, then there's.

1:11:59

That's Eastern refining margins. So let's

1:12:02

call it two regions. There's China

1:12:04

and then there's non-China. Anyway,

1:12:07

so if you break the world up into three regions,

1:12:09

you can have like the 2010s where

1:12:12

margins in Europe were just horrendous for

1:12:14

a decade and margins in the US

1:12:16

were okay and margins in Asia were

1:12:18

excellent. So just to connect your point

1:12:20

earlier about how just because a bullish

1:12:22

crude market doesn't mean their finding margins

1:12:25

are high in non-US

1:12:27

markets. In 2010,

1:12:29

the price of oil from 2010 to 2014, it

1:12:31

only went up, but that doesn't mean that refining

1:12:33

margins were good. That's right. So

1:12:35

basically, if you're going to buy a refiner,

1:12:37

like ask yourself, where are the refineries and

1:12:40

what does the margin look like in that area? Like

1:12:43

don't just like, well,

1:12:45

it's a good market for refined

1:12:48

products and economies growing. So I'm going

1:12:50

to buy a refiner. Be like, okay,

1:12:52

am I buying a European refiner? What

1:12:54

are refining margins like in Europe? What

1:12:56

part of Europe? Red or Northwest Europe? And what

1:12:59

are they going to look like for

1:13:01

the next five years and why? Like

1:13:04

our refineries getting taken offline and there's not

1:13:06

a lot of competition or the like 12

1:13:09

different refineries getting built. Is there the

1:13:11

world, the Africa's biggest refinery called dang

1:13:14

Godi getting built in Nigeria about to

1:13:16

export like an enormous amount of refined

1:13:18

products into that region, depressing the price

1:13:21

of refined products, but doing nothing to

1:13:23

the price of crude? Like,

1:13:25

you have to ask yourself these questions. It's

1:13:28

harder. Could do a quick

1:13:30

tour of other commodities, whether it's precious metals,

1:13:32

gold, gold and silver, uranium, coal.

1:13:35

What's the most interesting commodity to you

1:13:37

outside of oil and the petroleum space?

1:13:39

The petroleum space has always been my

1:13:41

sort of my passion. Like I just

1:13:43

love oil. So interesting. I

1:13:46

think there are two areas in the

1:13:48

commodities world that people should focus on.

1:13:51

I think the first area is

1:13:54

obvious. It's natural gas because natural

1:13:56

gas is kind of like that

1:13:58

lily pad between. the

1:14:00

carbon intensive commodities like coal

1:14:03

and oil and

1:14:05

the renewable low carbon

1:14:07

future that we all

1:14:09

aspire to. And obviously

1:14:11

they're emerging commodities like

1:14:14

they're called environmental products

1:14:16

like biogas, biodiesel, renewable,

1:14:19

like it's called SAF jet fuel.

1:14:22

Like basically you take like

1:14:25

chicken oil or whatever the byproduct of making

1:14:27

a McDonald's burger is and you turn it

1:14:29

into diesel. Like I don't know how that

1:14:31

world works. It's an emerging market

1:14:34

in commodities but I think like the

1:14:36

natural gas market is just so exciting

1:14:39

because gas

1:14:41

has just become a global commodity for the first

1:14:43

time with the rise of LNG. And

1:14:46

this is like the ultimate plug to

1:14:49

make us a little bit cleaner as

1:14:51

a human power consuming

1:14:54

entity on this planet before

1:14:56

we can go fully sustainable. So I think

1:14:58

gas markets are by far gonna be the

1:15:00

most volatile, the most interesting and also generate

1:15:02

the biggest profits for the

1:15:05

international oil companies, sovereigns and

1:15:08

trading houses alike. So I

1:15:11

think natural gas is the big one to pay

1:15:13

attention to. And

1:15:15

then the other sort of thing that I

1:15:18

think is really exciting in commodities aside from

1:15:20

that renewable environmental

1:15:22

products space I just talked

1:15:24

to you about is, and this comes

1:15:26

from my experience in crypto. People

1:15:29

will start, this is my big like worldview

1:15:31

and this is something that I wanna pursue

1:15:33

personally with my own career.

1:15:36

I believe that people will start

1:15:39

to view things as

1:15:42

commodities in the future which

1:15:45

are not currently being viewed

1:15:47

as commodities. And what

1:15:49

I mean by that is I

1:15:53

believe that there will be a vast

1:15:55

commoditization, financialization

1:15:58

and either future is... or

1:16:01

tokenization of many

1:16:03

different markets that

1:16:06

ultimately fuel a

1:16:09

lot of human consumption and productivity.

1:16:11

I believe that firmly, and I think that's a space

1:16:14

to watch in the coming decades, and it's

1:16:16

something that I'd like to personally participate in.

1:16:19

So when you say things that are not considered

1:16:21

commodity and they become a commodity, to me, I

1:16:23

think of interest rates, which were not considered commodity

1:16:25

in the 1970s and before,

1:16:28

but then they became one with your

1:16:30

dollar futures, LIBOR, which are the same

1:16:32

thing. Interest rate futures,

1:16:34

10 year note, it's always a constant maturity type thing. What

1:16:37

are you referring to? You could look at commodities

1:16:40

for which there are already illiquid

1:16:42

futures markets like milk and cheese.

1:16:45

I'm not saying that I think those are going to be

1:16:47

exciting markets. I don't. But

1:16:50

I think that financial innovation will

1:16:53

make, let's say, a market like rice more

1:16:55

liquid and interesting. Perhaps crypto will

1:16:58

be that. I also

1:17:00

think that tokenization will probably make

1:17:02

markets like carbon, regional

1:17:05

markets global, right? Like Microsoft

1:17:08

or Apple as part of

1:17:10

their decarbonization initiatives. If

1:17:13

they don't have access to a local voluntary

1:17:17

carbon market in the United States, they may

1:17:19

feel comfortable buying a

1:17:22

token that guarantees the proof of carbon

1:17:24

removal in Indonesia. I

1:17:27

think that some financial innovation

1:17:29

will probably commoditize

1:17:32

things like carbon

1:17:34

a bit further out the risk

1:17:36

curve, maybe rice. Then I

1:17:38

think that there are also, I don't

1:17:41

want to spill the beans on what I'm

1:17:43

personally excited about on the air yet at

1:17:45

the risk of sounding like a fool. But

1:17:48

after this whole conversation about refined

1:17:50

products, I think that I would

1:17:54

encourage your audience who are

1:17:56

obviously very educated macroeconomic thinkers

1:17:59

to imagine And what is gasoline?

1:18:01

It's something that's been manufactured, right?

1:18:05

Raw inputs came in,

1:18:07

crude oil and some natural gas came

1:18:09

in and out came gasoline, right? Or

1:18:12

out came naphtha or out came diesel. What

1:18:16

else out there has been manufactured that's

1:18:18

kind of a commodity product, right? Something

1:18:21

where you wouldn't necessarily want to do

1:18:23

a startup to make it because the

1:18:25

price is not going to

1:18:27

go up that much and you don't have a

1:18:30

monopoly on it, but it's

1:18:32

volatile, it's important, it's necessary. So

1:18:34

I would encourage the world to

1:18:36

start thinking about, or your listeners

1:18:39

to start thinking about what manufactured

1:18:41

products like gasoline are commodities and

1:18:44

would the world be better off with

1:18:46

a futures market for those commodities that

1:18:48

they become liquid and fungible and

1:18:51

would trading expertise

1:18:53

make it easier to

1:18:55

transport those vital manufactured commodities

1:18:59

from places of surplus, where there's

1:19:01

too much, manufacturing regions to places

1:19:03

of deficit, maybe emerging economies, where

1:19:05

there's demand. To

1:19:08

me, that's the commodities blue

1:19:10

sky space where I hope young

1:19:12

people become entrepreneurs. Interesting. So

1:19:15

you said natural gas is a

1:19:17

really interesting space because

1:19:19

now there's a liquefied natural gas LNG

1:19:21

market, so it's a global market. Of

1:19:23

course, that has to be converted from

1:19:25

natural gas to liquefied natural gas. Are

1:19:28

you a bull on, I don't know

1:19:30

if it's called refining, but the process

1:19:32

of liquefaction of turning natural gas into

1:19:34

LNG, a company that does that would be, for example,

1:19:36

Shenier, whose ticker happens to be LNG. I didn't know their

1:19:38

ticker. That's a good one. Yeah.

1:19:41

So liquefaction is turning it into from a gas into

1:19:43

liquid and then re-gasification, a good

1:19:45

word is turning it from liquid back

1:19:47

into gas. And

1:19:51

so I would be bullish,

1:19:53

well-managed re-gasification projects at

1:19:57

demand centers like Europe. If

1:20:02

they can get their ducks in a row, in

1:20:04

terms of the global fungible price of natural

1:20:06

gas, I would be bullish

1:20:08

the hubs and bearish

1:20:13

the current price of LNG because I think there's

1:20:16

only going to be more liquefaction going on. The

1:20:19

hubs meaning like where it comes out of the,

1:20:22

like basically the places where it's aggregated and priced.

1:20:25

Final question, Jonah, uranium and gold.

1:20:27

Any thoughts? Yeah, so uranium,

1:20:31

quick hit. Humanity solved climate

1:20:33

change in 1942. I

1:20:35

don't for the life of me understand

1:20:37

why there aren't more countries other than

1:20:40

basically China and India building a ton of

1:20:42

nuclear reactors. Like what the F is going

1:20:44

on there. I don't get it. I

1:20:46

just don't get it. So I

1:20:49

want to be bullish uranium and I like,

1:20:51

I own a little bit of the ETF

1:20:53

and my PA, not a lot, but like

1:20:55

I'm just, I'm literally sitting here wondering like

1:20:58

when, when are the

1:21:00

government's going to start firing up these

1:21:02

nuclear reactors? Like it makes no

1:21:05

sense whatsoever to just keep

1:21:07

stalling and delaying. I

1:21:10

don't get it. So that's, that's a

1:21:12

hard trade. You're basically the market's

1:21:15

not efficient enough for you to take a

1:21:17

good bet on that one. I

1:21:19

don't think there's asymmetry either. This is run up

1:21:22

quite a lot from the post Fukushima doldrum days.

1:21:24

Then in terms of gold, central banks have bought

1:21:27

a lot of it, which is what

1:21:29

I expect them to do with Bitcoin. But you

1:21:31

know, if you look at the S and

1:21:33

P priced in gold since the twenties, I

1:21:35

think it's like flat. I mean, I honestly,

1:21:37

I, as

1:21:40

the dollar becomes this like increasingly

1:21:43

abused, like ever more valueless

1:21:46

piece of toilet paper that,

1:21:48

that gets inflated and abused

1:21:50

into oblivion by fiscal profligacy

1:21:52

that us millennials can't control,

1:21:55

but it impacts us so much. Like things like

1:21:57

gold should perform, even though I don't like gold

1:21:59

or like the idea of gold or own any

1:22:01

gold or like the

1:22:03

look of it like I

1:22:05

know other people do and much like

1:22:08

Bitcoin, what else is there when

1:22:10

they're just running the printing press

1:22:13

like night and day?

1:22:15

I don't know. What do you think about that one?

1:22:17

It's interesting. I think there are like,

1:22:20

theoretically, there should be a strong correlation between printing

1:22:22

a lot of money and inflation and the price

1:22:24

of gold going up. And

1:22:27

debt creation, but oftentimes

1:22:30

it doesn't happen. For example, there's

1:22:33

a ton of debt creation from the 1980s to 2000 and the price of

1:22:35

gold went

1:22:37

down a lot. So yeah, anything

1:22:40

can happen. I feel like

1:22:42

positive real rates, it

1:22:45

is correlated with

1:22:49

inflation adjusted interest rates. So real

1:22:51

rates going from negative to positive has

1:22:53

been a hindrance to gold and yet

1:22:55

it has rallied despite that, which

1:22:57

you could say it's gold's overvalued relative to that. Or

1:22:59

you could say, hey, something

1:23:01

bad happened and the price of gold didn't go down and went

1:23:03

up. So that's a contrary signal. So I

1:23:05

don't know. Yeah. Pocket of

1:23:08

strength and when it should be weak is

1:23:10

usually bullish. I'm

1:23:12

totally with you there. I mean, I'm

1:23:14

starting to think of gold and Bitcoin in the

1:23:16

same light. They're not necessarily inflation hedges or debt

1:23:19

hedges. They're debasement

1:23:22

hedges. And

1:23:25

the medicine that our

1:23:28

American economy should have taken in 2008 and again in

1:23:30

2020 was

1:23:34

evaded via

1:23:36

debasement by cutting

1:23:38

and printing. Debasement? How do you define

1:23:41

debasement? Just printing more money, transferring

1:23:43

risk from the balance sheets of

1:23:45

private individuals and companies onto the

1:23:47

central bank's balance sheet, buying of

1:23:50

the purchase en masse of

1:23:53

mortgage backed and other debt

1:23:55

obligations that should have been borne

1:23:57

by the consumer and got put on the government's balance sheet.

1:24:00

and paid for by basically printing,

1:24:02

right? To me, like

1:24:04

Bitcoin and gold protect you against that.

1:24:07

And so if whenever

1:24:09

the next crisis comes along, central

1:24:13

banks and treasuries and presidents of the world

1:24:15

and prime ministers have two options. Option one

1:24:17

is to take the medicine that should have

1:24:20

been taken in 2008 and again in 2020.

1:24:25

And again, in whatever this next crisis is. So

1:24:27

that'll be like three pills, but

1:24:29

the compounding effect of it all will

1:24:31

be more than, you know,

1:24:33

one plus one plus one equals three.

1:24:36

It'll be something larger than that, right?

1:24:38

So really, really bad

1:24:40

pill to take. Or they just

1:24:43

print us out of it again. I

1:24:46

think that no one has the courage to take

1:24:48

the former path or the mandate. And I think

1:24:50

that everybody's gonna go take the latter path. And

1:24:52

then I think that's when you get your parabolic

1:24:55

move in Bitcoin, that's when you get hyperinflation, that's

1:24:57

when you get fiat debasement. And I think

1:25:00

that's what probably drives, to

1:25:02

our point earlier in the conversation,

1:25:04

kind of like more adoption

1:25:06

of Bitcoin. And you probably get more gold

1:25:08

getting stashed on balance sheets too in central

1:25:10

banks for one reason, which is that like,

1:25:14

in addition to it holding its value during

1:25:16

these times, like let's

1:25:18

say you're China and you hold or

1:25:20

you held eight to $10 trillion

1:25:22

worth of US securities on your balance sheet. And

1:25:24

the US is starting to talk a little nasty

1:25:26

to you and threaten to cut

1:25:28

off your banking lines and punishes your neighbor Russia.

1:25:32

And you wanna invade Taiwan and do all

1:25:35

sorts of things the US doesn't want. You're

1:25:37

probably gonna start looking at like letting some

1:25:39

of those trillions roll off and you have

1:25:41

to replace it with something, right? Like gold

1:25:43

and Bitcoin are out there. They're not gonna

1:25:45

get debased by the US or sanctioned.

1:25:48

So I think it's

1:25:50

as much as I don't like gold

1:25:52

or identify with it or understand it,

1:25:54

like it's structurally it makes, it's

1:25:57

kind of hard not to be bullish, you know?

1:25:59

Yes. Final question for you Jonah is I know

1:26:01

you have a plan for

1:26:04

when you're gonna sell all of your crypto. When

1:26:06

is that time and does it depend

1:26:08

upon anything other than just

1:26:11

a timeline of regardless of when I'm gonna

1:26:13

sell this month at this day, this year?

1:26:15

Yeah, so great question. I

1:26:18

don't have a plan in price or

1:26:21

time space. I have

1:26:23

an indicator that I look at, it's

1:26:25

called MVRVZ. It

1:26:27

is the ratio of market

1:26:29

value, which is market cap to

1:26:32

realized value, which is like, how

1:26:35

do I explain this quickly? It's like

1:26:39

a price adjusted market cap. It's the price

1:26:41

at which basically

1:26:43

adjusted by the price at which Bitcoin

1:26:45

has last traded, right? So you can

1:26:47

tell like when Bitcoin moves

1:26:49

hands, there's like a way to measure

1:26:52

that. You can monitor things called UTXOs.

1:26:56

Basically, it's a measure

1:26:58

that shows you the ratio of

1:27:01

the market cap of Bitcoin to the market

1:27:04

cap of last transacted Bitcoin. And it

1:27:06

shows you whether the space

1:27:08

is like wildly in the money

1:27:10

or wildly underwater. And then

1:27:13

the Z part stands for Z score, which

1:27:15

is like, it just basically

1:27:17

translates that ratio into standard

1:27:19

deviation space. So are you

1:27:22

like historically underwater or historically

1:27:24

like euphoric and partying with

1:27:26

all your money as a Bitcoin

1:27:28

space? So when MVRVZ hits like

1:27:30

six or seven, well,

1:27:32

six or seven, I don't even

1:27:34

think it's standard deviations. It's just, I don't know

1:27:36

what the unit of this is. Like it tends

1:27:38

to be a great signal top. So whenever that

1:27:40

happens, I'm projecting, it

1:27:43

probably happens late next year. I'm

1:27:45

out. I'm probably gonna keep a little

1:27:47

bit just because you always learn

1:27:49

a little bit more when you have your finger on the pulse

1:27:51

and some skin in the game. But

1:27:53

I'm not gonna be shy about selling when it

1:27:56

gets there. That's my target. Usually

1:27:59

MVRV below. 2 is when you

1:28:01

buy and NPR be above 6 is when

1:28:03

you start to lighten up. Very interesting. Jonah,

1:28:05

thank you so much for coming on, sharing

1:28:08

your views. People can find you on Twitter

1:28:10

at jvb underscore xyz, as well as on

1:28:12

the excellent 1000x podcast on

1:28:14

the Blockworks podcast network. Thank you again,

1:28:16

Jonah, and thanks everyone for watching. Thank

1:28:19

you so much, Jack. Really appreciate you having me on

1:28:21

the show. Great conversation. Thanks

1:28:26

for watching. Remember to check out vanik.com/mote

1:28:28

FG to learn more about the Vanik

1:28:31

Morningstar Wide Mode ETF ticker M O

1:28:33

A T. Lastly, forward guidance is available

1:28:35

not just on YouTube, but on all

1:28:37

podcasts, apps and video version is available

1:28:40

on Spotify and Twitter where I post

1:28:42

interviews regularly. Thanks again. Until next time.

1:28:52

Transcribed by https://otter.ai