Darren Kleine

Rest assured, crypto faithful. A massive, dramatic shift, from today’s old-fashioned financial system to blockchain technology will happen in the US, Anatoly Yakovenko says.&nbsp;



Just as soon as Congress passes a stablecoin bill.



“There is just a massive regulatory roadblock right now,” he says. Speaking on the 1000X podcast (<a href="https://open.spotify.com/episode/4ttue1QmhSxeFvdT121UMV?si=hdBc2O3ZQC68WvfpwBmiWg">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/solanas-end-game-with-anatoly-yakovenko-1000x/id1554930038?i=1000632686808">Apple</a>), the Solana co-founder says, “Everyone knows this technology is better. It&#8217;s easier. All the APIs are easier.”&nbsp;



Yakovenko contrasts the merchant experience with crypto-based stablecoin technology versus services like Stripe and PayPal. Setting up in the old system feels like it takes “a pound of flesh and a firstborn to deal with the mess,” he says.



The merchant experience “sucks” compared to the ease of setting up with crypto technology, according to Yakovenko. “I just generate an address with a private key and I’m good to go,” he says.



Yakovenko points to the “bizarre” nature of the credit card system as an example. “When I do a credit card transaction, it&#8217;s equivalent to me sharing my private key with the merchant.”



“Then there’s this massive process to figure out if…somebody stole the private key in the process and did an invalid transaction,” he laughs. “You step back for a second and you’re like, What? Who built this?”



Read more: <a href="https://blockworks.co/news/stablecoin-empire-emerging-economies-user-interface">Stablecoins are ‘a better product’ than local currencies in emerging economies, Carrica says</a>



“If and when we get a stablecoin bill,” he says, “and we can start actually using these technologies, I think it will explode.”



“Your bank accounts will take <a href="https://blockworks.co/tag/usdc">USDC</a> deposits across a bunch of networks, just like exchanges do. People will forget about wires and all this other stuff.”



<h2 class="wp-block-heading">‘There’s just no way that would fly’</h2>



Yakovenko argues that the <a href="https://blockworks.co/tag/solana">Solana</a> network is best suited for stablecoin usage, primarily because “it’s cheaper and faster” than blockchains like <a href="https://blockworks.co/tag/ethereum">Ethereum</a>.&nbsp;



“I don&#8217;t see Congress being super supportive of something that increases financial costs for the majority of Americans,” he says. “Something in Solana definitely will decrease it.”



As an example, Yakovenko mentions that a multi-route trade on <a href="https://blockworks.co/news/lightspeed-solana-zeta-markets">Jupiter</a>, a swapping aggregator on Solana, costs about $0.05. “It can touch 50 different markets and find you the most liquidity across a bunch of markets for $0.05 without incurring any additional fees.”



Yakovenko mentions Visa as an example of a major financial company that is <a href="https://blockworks.co/news/lightspeed-visa-banking-solana-stablecoin-settlement">dabbling in optimization via crypto technology</a>. For any blockchain solution to work at a satisfactory level, credit card checkout times have to be fast — completed in under two and a half seconds — he says.



Cost is a major factor for Visa as well, he adds. Being a “profit-driven company,” Yakovenko suggests that Visa would never choose to implement blockchain services that cause an increase in fees. “There&#8217;s just no way that would fly.”&nbsp;



“Everyone should intuitively agree that finance is moving numbers around computers,” he says. “It&#8217;s a regressive tax on the entire economy. It should be as cheap as possible. Like, that&#8217;s a win for the entire world if we reduce those costs.” 



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Still, Yakovenko says it’s going to be tough for crypto technology to “go mainstream” in America until “<a href="https://blockworks.co/news/stablecoins-battleground-future-money">some actual stablecoin legislation</a>” is in place. But it’s coming, he says.



“They&#8217;ll do everything else before they do the right thing. But eventually, they&#8217;ll do the right thing.”



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Yakovenko critiques ‘bizarre’ inadequacies of current financial system

It was not too long ago that the key concern regarding Ethereum’s future was the desperate need for it to scale. High network activity and subsequent gas costs spawned an explosion of layer-2 solutions.&nbsp;



Thus, the most recent developments on Ethereum have been focused on infrastructure and how to reduce the load on the once heavily burdened network. Now, it finally seems to be ready for prime time.&nbsp;



But where did all the traffic go?



“The argument was always, well, if you increase throughput by a hundred X, which has happened, then you should increase transactions by a hundred X, but that hasn&#8217;t happened,” says the head of digital asset trading at GoldenTree, Avi Felman.



On the 1000x podcast (<a href="https://open.spotify.com/episode/7EA1qe6M53JGMMcyONOMSw">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/what-is-cryptos-bullish-catalyst-1000x/id1554930038?i=1000631076464">Apple</a>), Felman says, “you&#8217;ve just moved all the transactions from ether (<a href="https://blockworks.co/price/eth">ETH</a>) to <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a>, and you&#8217;ve barely increased the overall amount of transactions that are occurring.” 



“Everyone was kind of expecting it to look good on a deflationary basis,” Felman says, “but that&#8217;s just not going to be the case as long as activity is mostly on <a href="https://blockworks.co/tag/base">Base</a>, or mostly on Arbitrum&nbsp; or mostly on <a href="https://blockworks.co/tag/optimism">Optimism</a>.”



<h2 class="wp-block-heading">More lanes = more traffic?</h2>



Goldman Sachs executive director Jonah Van Bourg compares his expectations for <a href="https://blockworks.co/tag/ethereum">Ethereum</a>’s scaling solutions to the constant addition of freeway lanes in California. “Every time they add a new lane, it just brings more cars onto the freeway.”



“I thought the same thing would happen to ETH,” he says, but instead it’s looking more like the network of pipelines in the Permian Basin in Texas.



“Sometimes there&#8217;s just too much oil,” he says. “Everything&#8217;s bottlenecked. So then there&#8217;s this frenzy of pipeline building, which is effectively a scaling solution for an oil field. And then suddenly there&#8217;s just way too much pipeline capacity and not enough oil.”



Van Bourg explains that scaling solutions were overbuilt during a period of particularly high demand in Ethereum’s history. Now, capacity is much greater than demand, Van Bourg says, “so gas prices are just forced into the toilet.”



Read more: <a href="https://blockworks.co/news/ethereum-blockspace-profitability-negative-merge">Ethereum blockspace on track for first unprofitable month since the Merge</a>



Van Bourg expects the pendulum to “swing back the other way hard one day” when people realize, he says, “we have this thing that&#8217;s cheaper and better than AWS for our use case — and probably more permanent.”



“But that might be a year off, or six months off, or two years off, who knows.”&nbsp;



Van Bourg notes that negative sentiment regarding Ethereum on “crypto Twitter” might pressure holders to think short term. “You read tweets where people who have been ETH-bullish for five years are just like, ‘It&#8217;s over. Never buying this crap again.’”&nbsp;



“You look at your ETH and you look at these tweets and you&#8217;re probably saying to yourself, ‘Crap, I&#8217;m going to get out.’”



“Remind yourself,” he says, “that in 12 or 18 or 24 months when this thing is gassing higher and it&#8217;s trading $5,000 a token, those very same people will be talking about how ETH is the future, how it&#8217;s going to $50,000 a token, how they&#8217;ve been long all the way up.”



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“It&#8217;s a gradient of outcomes,” he says. “It&#8217;s not black and white. ETH is not over. ETH is not the future. It&#8217;s this <a href="https://blockworks.co/news/ethereum-dencun-upgrade-progresses">constantly evolving shade of gray</a>.”



“You have to filter out the noise.”



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Ethereum’s scaling infrastructure is better than ever. So where’s all the traffic?

Avi Felman recently joined Friend.tech, the controversial social media app that financializes public profiles with “keys” — <a href="https://blockworks.co/news/friend-tech-taxes">previously described as “shares”</a> — purchased to connect and invest in personalities.



“I get personally offended when people sell my shares,” he says.



On the 1000X podcast (<a href="https://open.spotify.com/episode/6Tr23HIsQS7b3Prq3D1CMg?si=62a9403eeca349cc">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038?i=1000625538426">Apple</a>), the head of digital asset trading at GoldenTree jokingly warns his audience: “If you sell my shares, I will see it and I&#8217;ll be upset about it and I will — I don&#8217;t think I can threaten people on this podcast — but I will be very upset with you.”



Cumberland’s global head of trading and podcast co-host Jonah Van Bourg is intrigued by the new app. “Let&#8217;s say that I am a novice, aspiring day trader,” he says. “I read crypto Twitter, I follow a few influencers. I could theoretically buy those influencers’ shares on Friend.tech and get invited into private conversations with those influencers.”



“I theoretically might be able to learn something about the market that could help me do a better job profiting from it trading,” he suggests.



<h2 class="wp-block-heading">Financialization of people is inevitable</h2>



Felman agrees on the app’s potential utility, adding that the <a href="https://blockworks.co/news/friendtech-social-sec">financialization of people</a> is inevitable, given the blockchain technology that currently exists. But Van Bourg questions why the app needs to involve crypto at all.



“It&#8217;s just the easiest way to transfer value on the internet,” replies Felman. “If you&#8217;re going to have value transfer on the internet, crypto&#8217;s the best way to do it.”



Felman says the app follows a tried and true formula — the assignment of monetary value to access. Whether it’s getting a table at a nightclub or sitting down for a lunch with Warren Buffett, access costs money, Felman argues. “I view this as a natural extension of that.”



The tech allows celebrities to engage more directly with fans, Felman says. “People are willing to pay for access to people that they idolize,” he says. He also likes the betting element of the app.&nbsp;



“You can resell that access,” he says. “Potentially, if you get access to somebody early on, you can make a lot of money by betting that this person is gonna be huge.”&nbsp;



Felman imagines betting on someone’s future success using the app. “I don&#8217;t know exactly how they&#8217;re going to be successful, but I know that this person is going to be successful — and I want a piece of that.”



<h2 class="wp-block-heading">A refreshing change from memecoins</h2>



Van Bourg mentions the success of the app in its early stages, noting it is currently the third-largest revenue generator in the <a href="https://blockworks.co/tag/ethereum">Ethereum</a> network, following only the mainnet itself and ether (<a href="https://blockworks.co/price/eth">ETH</a>) staking service, Lido. He says the “proof in the pudding” is the fact that people are spending “real ETH” on the app.



Read more: <a href="https://blockworks.co/news/friendtech-social-token">Decentralized social media app Friend.tech is surging</a>



“Imagine instead of buying a concert ticket,” Felman says. “They just spin up an account for the concert and the first thousand people to buy shares are the only people that go to that concert.”



“There are so many random things that you can do with this, which is why I actually think that there&#8217;s a lot of money to be made here.”



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Van Bourg notes that a few previous iterations of similar concepts have been created in crypto, only to have quickly fizzled out. “But that doesn&#8217;t mean that the technology itself isn&#8217;t perfectly conducive to this use case,” he says.



“It&#8217;s just refreshing to talk about <a href="https://blockworks.co/news/friend-tech-bullish-bearish">something other than Pepe</a> or Barack Obama Sonic Harry Potter coin. I&#8217;m just sick of that stuff.”



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Friend.tech: Flash in the pan or inevitable future of crypto financialization?

In a first for US markets, PayPal introduced the PayPal USD stablecoin, built on Ethereum and issued by Paxos Trust Co.



On the 1000X podcast (<a href="https://open.spotify.com/episode/3gE3GzTFdHVpCSpFKA5eeG">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/crypto-is-entering-a-paradigm-shift-1000x/id1554930038?i=1000624034571">Apple</a>), Avi Felman, head of digital asset trading at GoldenTree, talks to Cumberland’s Global Head of Trading Jonah Van Bourg about the newest competitor in the growing stablecoin market.



<a href="https://blockworks.co/tag/paypal">PayPal</a>’s user base of over 400 million overshadows <a href="https://blockworks.co/tag/coinbase">Coinbase</a>, which has about a hundred million users, Van Bourg says.&nbsp;



“That means that there are a tremendous amount of people that could come into crypto because of what PayPal is doing,” says Felman.



Read more: <a href="https://blockworks.co/news/paypal-launches-stablecoin">PayPal launches stablecoin tied to the US dollar, issued on Ethereum</a>



Felman wonders about the financial company’s next step. As of now, the PayPal app lists four cryptocurrency assets for trading. “They list bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), ethereum (<a href="https://blockworks.co/price/eth">ETH</a>), litecoin (<a href="https://blockworks.co/price/ltc">LTC</a>), and bitcoin cash (<a href="https://blockworks.co/price/bch">BCH</a>),” he says.&nbsp;



“And now, they&#8217;re going to have a stablecoin. Are they going to start taking on Coinbase?” Van Bourg notes the company’s entry into <a href="https://blockworks.co/tag/stablecoins">stablecoins</a> could indeed spell trouble for Coinbase.&nbsp;



<h2 class="wp-block-heading">“Green shoots” in crypto environment</h2>



Felman observes that the crypto environment is “shifting,” with <a href="https://blockworks.co/news/galaxy-digital-q2-earnings-2023">potential spot bitcoin ETFs</a> on the horizon, PayPal’s stablecoin and <a href="https://blockworks.co/news/xrp-ruling-sec">the ongoing Ripple lawsuit</a>. “I don&#8217;t know what&#8217;s coming next,” he says, “but it&#8217;s clear that there are green shoots in a way that there weren&#8217;t prior.”



Van Bourg says PayPal’s stablecoin proves that traditional finance institutions with “enormous amounts of traction” are saying, “We want to launch a product that no centralized database can own or should own. We need a decentralized ledger to operate this product and we have chosen <a href="https://blockworks.co/tag/ethereum">Ethereum</a>.”



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Van Bourg foresees PayPal disrupting the current retail merchant paradigm. He suggests the company could possibly make their stablecoin yield interest and then tell merchants, “If you set up a PayPal wallet when someone swipes their PayPal card at your coffee shop or newsstand, we won&#8217;t charge you credit card fees.”



“You just get interest-bearing money, yielding five and a quarter percent, wired within block time, 13 seconds from your customer&#8217;s account to yours.”



“Suddenly, you&#8217;ve disrupted Visa, MasterCard, JPMorgan, and Bank of America.” he says. “No one needs a checking account or a credit card anymore.”



“Obviously, <a href="https://blockworks.co/news/bitstamp-delists-tokens">there are a few roadblocks</a> between that happening and where we are today,” he admits. “But it&#8217;s a first step along that journey, and it shows you the promise of crypto for developed markets.”



Updated Aug. 10, 2023 at 1:35 pm ET: Removed quotes from Felman and Van Bourg.



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PayPal has a stablecoin. Will they take on Coinbase next?

Despite the crypto market’s turn toward a cautiously positive sentiment, things aren’t looking good for Ethereum’s competitors, according to Jonah Van Bourg.



On the 1000X podcast (<a href="https://open.spotify.com/episode/1cQ3g4H4rOusHiPnwMxpRE?si=rDiSuCSoTbWOwijL7jln6w">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/the-bear-case-for-risk-assets-1000x/id1554930038?i=1000621750888">Apple</a>), Cumberland’s global head of trading says user counts and wallet addresses have plateaued on alternative layer-1 blockchains.&nbsp;



“Your <a href="https://blockworks.co/tag/solana">Solanas</a>, <a href="https://blockworks.co/tag/near">NEARs</a> and <a href="https://blockworks.co/tag/polkadot">Polkadots</a> — and all these other coins — these ecosystems are dead on arrival at this point.”



In the meantime, <a href="https://blockworks.co/tag/ethereum">Ethereum</a> layer-2 solutions like <a href="https://blockworks.co/tag/arbitrum">Arbitrum</a> and <a href="https://blockworks.co/tag/optimism">Optimism</a> are flourishing, Van Bourg says. According to <a href="https://app.blockworksresearch.com/">Blockworks Research</a>, the <a href="https://blockworks.co/tag/tvl">TVL</a>, or total value locked — a measure of the monetary value that resides in a blockchain’s ecosystem — is comparatively low on competing chains.



The current total value locked in Solana stands at approximately $320 million, a little more than one percent of Ethereum’s TVL, which is currently around $26 billion.



Ethereum-based layer-2 chains Arbitrum and Optimism are trending positively and already overshadow Solana’s TVL with values of approximately $2 billion and $900 million, respectively.



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/NbYabxgHdd_6O06zyUYozxql10Wrr0M-kK8GYJThsJQev68piz-dtndPzcr4dGh_CHbxwhN0sRcU9H4cP3gqq5jGekgkOQO62dTf20NyO-u7TcK0aNiXLYqSAUM9etc4v9dsNVWBeW967OrXt21Nj3w" alt=""/><figcaption class="wp-element-caption">Chart by Blockworks Research analyst Spencer Hughes</figcaption></figure>



“So is the multichain thesis still alive for the next cycle?” Van Bourg asks. “I vote no. I think it&#8217;s time to write it off.”



<h2 class="wp-block-heading">The greed factor</h2>



Avi Feldman, GoldenTree’s head of digital asset trading, is quick to disagree.&nbsp;



“Greed is too large to write it off,” he says. “You get projects that are willing to build on things like Solana and <a href="https://blockworks.co/tag/avalanche">Avalanche</a> and NEAR and all of these other protocols because if they&#8217;re a competent, good team, they can win that space.”



Incentive programs will draw value to competing protocols, Felman argues, “when the bull market comes back.”



But incentive programs have been the “only draw” for the competing chains, Van Bourg retorts. “That doesn&#8217;t last forever.”



Felman expects competing chains to experience a “renaissance” due to their novelty and the “greed factor,” arguing that by onboarding people with incentives, they may potentially reach “escape velocity” to become “real projects.”



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Referring to a previous interview with Galaxy Digital’s Mike Novogratz (<a href="https://open.spotify.com/episode/3fLwRHCW2S5rySubiTrPaO?si=Qcavdb0lS_m8uxHeqQ-kxg">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/mike-novogratz-on-cryptos-outlook-trading-storytelling/id1554930038?i=1000616134217">Apple</a>), Van Bourg says the next bull cycle will be the “show me” stage of crypto, whereby projects need to prove their worth at a practical level.



“What computational ability is possible on Solana that isn&#8217;t possible on Arbitrum or Optimism at this point?” he asks.&nbsp;



Felman says it’s not so much about the tech itself, but instead a matter of “use-case fit.”



“The constraint is not always the tech. The constraint is figuring out what to do with the tech,” he says.&nbsp;&nbsp;



Van Bourg agrees, but suggests that the argument only further proves his point. “If it isn&#8217;t about the tech, what&#8217;s the advantage of one shiny <a href="https://blockworks.co/tag/layer-1">alt-L1</a> versus another versus <a href="https://blockworks.co/price/eth">ETH</a>?” Ethereum, he says, “gives you everything you need right now for today&#8217;s limited slate of use-cases.”



“If ETH was bowling over because of too many people trying to use it or too much throughput,” Van Bourg says, “then you have an alt-L1 thesis right there.”



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Ethereum rivals are ‘dead on arrival,’ says Cumberland’s Van Bourg

The crypto market is suffering from a “fundamental mispricing” at the moment, Jonah Van Bourg says.&nbsp;



In traditional finance, more than enough capital exists to “pre-hedge pretty much any type of announcement or anticipated information that&#8217;s widely known,” but this is not the case in crypto, according to Van Bourg.



On a recent 1000X podcast (<a href="https://open.spotify.com/episode/7K91GWkGBC1b5ivaVkI0E5?si=e458c76f3c0a4d96">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/empire/id1554930038?i=1000619534089">Apple</a>), Cumberland’s global head of trading spoke to Avi Felman, the head of digital asset trading at GoldenTree, about the potential value of <a href="https://blockworks.co/news/blackrock-bitcoin-etf-grayscale">Grayscale’s GBTC</a> compared to its current price.



“The best trade in crypto is long <a href="https://blockworks.co/tag/gbtc">GBTC</a>,” he says.



But, he admits, it all depends on hopes for the <a href="https://blockworks.co/news/blackrock-bitcoin-etf-wolf">SEC to approve a spot bitcoin ETF</a>, which isn’t fully priced-in yet, he says.



“There just isn&#8217;t enough money that can get into crypto to pre-position for what a BlackRock ETF approval would bring in.”



Van Bourg says that buying bitcoin now — spot or GBTC — enables anybody to “get ahead of a potential BlackRock ETF approval.”



The reason why the price of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>) “isn&#8217;t up in a probabilistically weighted way already,” Van Bourg says, is because “it&#8217;s hard for capital to get into crypto right now.”



Traditional finance struggles to attain direct exposure to crypto on a larger scale because of “restricted pathways,” he says. “So I think GBTC is the best trade.”



Felman agrees, noting that GBTC is among his current “favorite trades in the world.”



Grayscale-issued GBTC shares allow traditional investors to gain indirect exposure to bitcoin and avoid the hassles of physical custody. Rather than personally holding digital assets in a crypto wallet, traders can leave the daunting responsibility to Grayscale.&nbsp;



Since the Grayscale Bitcoin Trust does not yet enjoy status as an ETF, GBTC currently trades well below bitcoin’s market value as it can not be directly redeemed for the underlying bitcoin asset.&nbsp;



<h2 class="wp-block-heading">The cynical take</h2>



An SEC approval of BlackRock’s spot bitcoin ETF could spark a series of similar approvals, including <a href="https://blockworks.co/news/grayscale-appears-to-win-opening-sec">Grayscale’s proposal</a>. Such a change would remedy the share-to-bitcoin imbalance and allow for 1:1 redemption.



But Felman has a “cynical take” on this potential outcome. “I don&#8217;t think the ETF drives truly meaningful flows.”



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A significant amount of flow into bitcoin could be offset by GBTC owners who finally redeem their shares and exit bitcoin altogether, he says. “There are funds right now that own GBTC outright and will, when approved, drain GBTC of their Bitcoin and get out of the trade.”



“Yes, there are a lot that own GBTC in a market neutral fashion, but there are a lot that own it outright, basically willing to take the price risk of bitcoin,” Felman says. “And when that gap closes, they&#8217;re out.”



All of this conjecture depends on a spot bitcoin approval, Felman admits. “We&#8217;re talking as if the ETF <a href="https://blockworks.co/news/blackrock-clout-bitcoin-etf-approval">is definitely going to get approved</a>.”



“But I think we&#8217;re at an inflection point where it becomes an institutionalized asset class and it becomes something that is just not going away.”



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The best trade in crypto right now is ‘long GBTC,’ Van Bourg says

Avi Felman says he’s bullish on bitcoin miners, but not strictly because of bitcoin’s potential.



With a pivot to providing high-performance computing, or HPC, companies are finding new ways to broaden their revenue stream beyond ASIC mining.



<a href="https://blockworks.co/news/hut-8-secures-50m-loan">Hut 8</a>, best known as a <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> mining company with facilities in Alberta, Canada and Texas, is a great example, he says. Thanks to its high capacity computing infrastructure, Hut 8 recently signed a <a href="https://www.newswire.ca/news-releases/interior-health-selects-hut-8-as-data-centre-partner-for-co-location-high-performance-computing-services-868561838.html">contract</a> to provide HPC for clients in Canada’s health sector.



On a recent 1000X podcast (<a href="https://open.spotify.com/episode/6fYdb5k6nvrhylpjjAc6C9?si=k4GJ6ChCQbuWkR7b9Yvh3g">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/trading-cryptos-reflexive-markets-and-mispriced/id1554930038?i=1000617959657">Apple</a>), the head of digital asset trading at GoldenTree talks to Cumberland’s Global Head of Trading Jonah Van Bourg about the broadening revenue strategy.



<h2 class="wp-block-heading">It’s not about the hardware</h2>



With the growing potential for more cash flow, one might expect mining companies to pack up their <a href="https://blockworks.co/tag/asics">ASICs</a> for greener pastures, leaving the precarious business of crypto mining and its knife-edge profit margins behind.



But it’s not about the chips, Felman says, “it&#8217;s a completely different business.”



It&#8217;s more about access to the facilities and the people who know the business, Felman says. Cooling, for example, is important in any high capacity computing environment, he says. “In both bitcoin mining and HPC, they have all of that set up.”



“They have the people that know how to build out those services. They have the warehouses and the facilities. They have the power contracts.”



Read more: <a href="https://blockworks.co/news/brooklyn-bitcoin-mining-spa">Do you bleed enough BTC to pay $55 for Brooklyn’s bitcoin spa?</a>



The actual product that is provided to clients, Felman explains, “is radically different and requires a decent amount of upfront investment. But the overall operations are very similar,” he says.



Large-scale mining companies like Hut 8, Iris Energy, Hive and Cipher can repurpose facilities to provide HPC, diversifying the business and generating more revenue, Felman says. “It seems like there&#8217;s a tremendous amount of demand.”



<h2 class="wp-block-heading">A healthier bitcoin market, to boot</h2>



Felman clarifies that current ASIC hardware — highly specialized computers designed strictly for bitcoin mining — can not be diverted for the purpose of providing HPC to clients. But the diversification of services provided through their infrastructure and know-how could enable mining companies to be financially “healthier,” he says.



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The move could also benefit the market price of bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), he argues, because miners may be less pressured to sell in fearful markets. The need for mining companies to sell their fresh bitcoin on a regular basis just to survive acts as a constant damper on prices.



“Miners will get liquidated less often as they become better and more robust businesses.”&nbsp;



Van Bourg adds, “it would make the market healthier, for sure.”



“It would also tell the world,” he says, “crypto has provided a series of infrastructure plays that are relevant outside of just crypto.”



The move indicates the presence of a growing market for “<a href="https://blockworks.co/news/bitcoin-miners-ai-computing">purpose-specific computation facilities</a>,” Van Bourg says. Bitcoin mining technology, he says, “laid the rails for other applications” that can now harness the technology in new ways.



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Bitcoin miners are pivoting to new markets and making bank

The recent news of BlackRock filing for a spot bitcoin ETF seems to have sparked considerable excitement in what has otherwise been a miserable crypto market. Some are even saying it marks the beginning of a new “<a href="https://blockworks.co/news/blackrock-bitcoin-etf-wolf">crypto summer</a>.”



“What do you think is going to benefit the most from that?” asks Avi Felman.



The head of digital asset trading at GoldenTree answers his own question: “There&#8217;s this great instrument, <a href="https://blockworks.co/tag/gbtc">GBTC</a>.”&nbsp;&nbsp;



If Grayscale were to succeed in being turned into an ETF, <a href="https://blockworks.co/news/blackrock-bitcoin-etf-wolf">following BlackRock’s lead</a>, it could be a “great trade,” says Felman.&nbsp;



“It is currently trading at a 33% discount,” he says.



Speaking to Cumberland’s Global Head of Trading Jonah Van Bourg on the 1000X podcast (<a href="https://open.spotify.com/episode/6fYdb5k6nvrhylpjjAc6C9?si=k4GJ6ChCQbuWkR7b9Yvh3g">Spotify</a>/<a href="https://podcasts.apple.com/us/podcast/trading-cryptos-reflexive-markets-and-mispriced/id1554930038?i=1000617959657">Apple</a>), Felman explains that GBTC shares sell at a discount compared to their underlying <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> assets, enabling some interesting opportunities.



GBTC sells at a lower price than the underlying <a href="https://blockworks.co/price/btc">BTC</a> due to the fact that Grayscale, while it aims to exist as an <a href="https://blockworks.co/tag/bitcoin-etf">ETF</a>, is currently structured as a trust and does not provide asset redemption of its shares. As a result, supply and demand dynamics can cause the price of GBTC to deviate from the value of BTC.&nbsp;



While currently trading at a discount, the shares have been priced at a premium in the past. Some traders prefer to avoid the risks of directly custodying the digital asset, instead leaving the job to Grayscale. Twelve-word mnemonic phrases and hardware wallets don’t seem to suit the institutional vibe.



Converting the trust into a spot ETF could reduce pricing deviation by enabling 1:1 equivalent redemption between the shares and bitcoin, but the Securities and Exchange Commission <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-95180.pdf">rejected</a> the company’s 2022 application, <a href="https://blockworks.co/news/grayscale-win-over-sec-might-not-change-much-industry-watchers-say">sparking a lawsuit</a> that is not yet resolved.



GBTC’s price recently surged following news of BlackRock’s ETF filing and a <a href="https://blockworks.co/news/blackrock-bitwise-bitcoin-etf-filings">number of subsequent institutional filings</a>. Van Bourg expresses caution against banking on the discount, warning that GBTC will likely sell off again “at some point.”&nbsp;



The reason for Van Bourg’s hesitancy, he says, “is DCG” — Grayscale’s owner. “We don&#8217;t know if the managers of DCG are economically rational” or if they are more driven by “reputational” concerns.



<h2 class="wp-block-heading">Grayscale doesn’t have to compete</h2>



“In theory,” Van Bourg explains, “the textbook says they should just do nothing.”



“Whatever the price of GBTC does, it doesn&#8217;t change the amount of fees that Grayscale collects. It&#8217;s really just the price of bitcoin going up and down that alters their fee.” 



“They collect 2% of the bitcoin held in the fund every year.”



While BlackRock is filing for an ETF, Grayscale doesn’t really have to compete with them, according to Van Bourg. “Even if the price of GBTC gets fire-sold down to a discount of minus 90%, technically, they&#8217;re still collecting those same fees.”



If a BlackRock ETF were to be approved, Grayscale might be better off eventually buying their own shares back at a deep discount, Van Bourg suggests. BlackRock could clear a regulatory path, after which Grayscale could convert their trust into an ETF.



“That would be a scummy thing to do to your investors,” he says, “but if you&#8217;re just purely economically rational, that might actually make sense to do that.” 



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“There is some risk to the downside there.”



Felman argues that the probability of such a move is “extremely low” due to legal and reputational implications.



“They&#8217;re trying to build a business,” he says, “as opposed to generating a lot of cash in the short-term and then opening themselves up to legal liability.”



“That being said, a lot of people have done a lot of worse things in crypto,” Felman admits.



“Let&#8217;s say you&#8217;re managing GBTC and BlackRock comes out with a product that&#8217;s infinitely superior,” Van Bourg says.&nbsp;



Grayscale investors will rotate into BlackRock, he argues, leaving the company little choice but to allow the redemption of GBTC shares. “GBTC is going to get redeemed and the assets are going to get rotated into something more institutional.”



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What does the BlackRock bitcoin ETF filing mean for Grayscale?

“Once you’ve wrestled,” Mike Novogratz quotes Dan Gable, “everything else in life is easy.”



Wrestling defined the CEO of Galaxy Investment Partners at a young age, he says, building the foundation for his success. “Wrestling teaches you how to lose and come back.”



The investor admits he “got lucky” pivoting into something he was “naturally good at.”



Novogratz explains what made him successful as a macro-investor in a recent episode of the 1000X podcast (<a href="https://open.spotify.com/episode/3fLwRHCW2S5rySubiTrPaO?si=e6534a8ef43d4962">Spotify</a> / <a href="https://podcasts.apple.com/us/podcast/empire/id1554930038?i=1000616134217">Apple</a>). “It&#8217;s a combination of reading economic trends, political trends, social trends — in understanding how markets behave with those inputs.”



“There&#8217;s a lot of intuition in it,” he says.&nbsp;



<h2 class="wp-block-heading">The only silver lining</h2>



His intuition has not always hit the mark, he admits. “We thought institutions were gonna buy crypto. I&#8217;ve got 430 people in Galaxy all geared up to help institutions come in to buy crypto.”



A combination of <a href="https://blockworks.co/news/brady-dale-sam-bankman-fried">bad behavior</a> in the crypto industry, <a href="https://blockworks.co/news/regulation-by-enforcement-unsustainable">tough regulation in the US</a>, no regulation outside the US and high interest rates caused institutional enthusiasm to wane, he says.



“Now,” he says, “the only silver lining is, retail&#8217;s still buying. It was always the people’s revolution, and they’re still out there.”



Novogratz says he certainly hasn’t given up faith in <a href="https://blockworks.co/tag/bitcoin">Bitcoin</a>. The “big decentralized revolution” that is building a “whole new world” on networks like <a href="https://blockworks.co/tag/ethereum">Ethereum</a> is still moving forward, he says, “but the market now seems to want to see shit that works.”



“Unless you&#8217;re an early adopter, you&#8217;re not using <a href="https://blockworks.co/tag/web3">Web3</a> in your normal life,” he says.



Novogratz says that to “suck people in,” the crypto industry will need apps that people can “sink their teeth into.”



One strong prospect for crypto’s appeal as a utility is <a href="https://blockworks.co/news/what-is-decentralized-identity">authentication</a>, he says. “With all these deep fakes,” he says, “how do I validate that this is actually my work?”



“But now I want to see people actually show me the app that does it — and even if it doesn&#8217;t get complete adoption — then we&#8217;re telling stories that people can sink their teeth into again.”



<h2 class="wp-block-heading">No better inflation hedge in the world</h2>



It could take some time for a return to a crypto bull market, Novogratz says. “We&#8217;re not going to get a sustained bitcoin rally until the Fed says we&#8217;re done and we&#8217;re cutting,” he says. “And that, in my mind, is probably [the] end of summer” but could take longer if stagflation settles in, he warns.



Pointing to America’s debt-to-GDP ratio exceeding <a href="https://www.ceicdata.com/en/indicator/united-states/government-debt--of-nominal-gdp#:~:text=United%20States%20Government%20Debt%3A%20%25%20of%20GDP,-1969%20%2D%202022%20%7C%20Quarterly&amp;text=United%20States%20Government%20debt%20accounted,123.6%20%25%20in%20the%20previous%20quarter.">120%</a>,&nbsp; Novogratz argues the “only way out” of the predicament is inflation. Last year, Novogratz says, the Federal Reserve did a “pretty good job” of inflating their way out of debt.&nbsp;



“We had seven percent inflation. We&#8217;re paying three percent for our debt, two and a half percent. That was the blended average. So you just inflated four percent of the debt away.”



“Of course, you can&#8217;t say that as a central banker, and you can&#8217;t say that as a treasury official,” says Novogratz, “but you&#8217;ll want to have higher inflation to get out of the debt trap.”



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“If it gets too high, you&#8217;re screwed. And so it&#8217;s a really, really challenging dance for the stewards of your economy to pull off.”



Bitcoin and crypto in general were the best inflation hedges in the world during the Covid-19 pandemic, he says, when everyone was panicking about a rise in costs. But when the anticipated higher prices finally showed up, Powell “took a sledgehammer to the gonads of inflation.”



“That was painful. Crypto would&#8217;ve kept going higher.”



Still, Novogratz sees promise amid market tumult and “regulatory assault.” He notes that retail “continues to accumulate” despite the noise.



“It&#8217;s surprising to me,” he says, “how much buying happens every day, in small amounts, that adds up to big amounts.”



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Novogratz says crypto retail is the market’s ‘silver lining’

The dream that “everything will be on a blockchain” was a familiar chorus in the heady days of 2018’s ICO boom. ERC-20 tokens sprung up for every imaginable purpose, from pure Ponzis like BitConnect to coffee and cannabis supply-chain ecosystems that — pardon the pun — went up in smoke as soon as the bubble burst.



Five years later, the notion of a much broader range of assets existing on the <a href="https://blockworks.co/tag/blockchain">blockchain</a> is not nearly as far fetched. After all, so many assets are already traded electronically without any actual transfer of physical goods.



In a recent interview on the <a href="https://www.youtube.com/watch?v=V762GDXDdmw">1000X podcast</a>, Don Wilson, founder of trading firm DRW and co-founder of Digital Asset Holdings, spoke to Blockworks about the possibilities of the future “blockchain-ification” of traditional finance assets.



He begins with an important caveat: “There are some assets that are physical assets, like nickel,” he says. “You can put nickel on a blockchain, but ultimately the nickel has to sit somewhere.”



“If somebody steals the nickel, then you have a blockchain that represents nickel and the nickel&#8217;s not there — and that&#8217;s a problem, right?”



“So that kind of stuff is something that still has this intimate link to the physical world that is super critical.”



<h2 class="wp-block-heading">Many instruments are already virtual</h2>



On the other hand, many instruments in finance are already “virtual” in nature, such as <a href="https://blockworks.co/tag/equities">equities</a> and Treasurys, he says, “and people don’t usually walk around with their Treasury certificates.”



Wilson says “those assets probably lend themselves more to digitization,” or as podcast host Van Bourg describes it, “blockchain-ification.”



“Right now,” Wilson says, “we&#8217;re experimenting with <a href="https://www.broadridge.com/ca/press-release/2023/drw-executes-intraday-repo-transactions">intraday repo</a> using blockchain technology.”



Wilson describes the growing capacity for the digitization of assets built on the <a href="https://blockworks.co/news/goldman-sachs-blockchain-canton">Canton Network</a>, a “digital assets holdings blockchain.” The network aims to use permissioned blockchains to bring different bank and financial companies’ applications together, allowing for greater ease of use and security across platforms.



“It enables value to be moved in real-time and even 24/7. And that&#8217;s the kind of thing that will make clearing houses more resilient if they want to avail themselves of that technology.”



<h2 class="wp-block-heading">The current system is clunky</h2>



With today’s financial system, wiring money internationally can take hours and is only possible “when the wire window is open,” he says.



Wilson illustrates current limitations with the example involving the spread between a futures contract in London and another in the United States. “After London hours, there&#8217;s a big rally and you&#8217;re long the futures in London, and you&#8217;re short the futures in the US.”



Pulling variation margin out of the London market and moving it over to satisfy the negative variation in the US isn’t feasible with the current system, according to Wilson.&nbsp;



“You&#8217;re not even close,” he says. “What will happen is, the next day, that futures contract will rally.&#8221; 



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“Assuming then, the next day we open up and the market&#8217;s unchanged, then the London futures contract will rally and the variation margin will show up in your account,” he says.



“At that point, you can wire it out maybe that day, maybe the next day. Maybe now you&#8217;re running into the weekend.”&nbsp;



It just doesn’t work well with traditional finance technology, he says. “The whole system is just very clunky.” Everything is slow to move around and requires “a lot of extra capital” to deal with all the delays, according to Wilson.



“Being comfortable moving out the risk curve is super important,” Wilson says. “If you can move out the risk curve and you have access to super low-latency tools and connectivity, then you&#8217;re in a really strong spot. That&#8217;s where we try to be.”



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Traditional Finance ‘Blockchain-ification’: Pie in the Sky or Inevitable Future?

Using Ethereum is expensive.&nbsp;



Whether it&#8217;s from trading on DeFi, flipping NFTs, or gambling with memecoins, transaction fees have been driven upward for months on the network. The rise extends to simply sending tokens from one wallet to another.



While recent <a href="https://blockworks.co/tag/meme-coins">memecoin</a> buffoonery has exacerbated the problem, ether (<a href="https://blockworks.co/price/eth">ETH</a>) gas fees have been gradually climbing long before the more recent get-rich-quick <a href="https://blockworks.co/price/pepe">PEPE</a> craze, with previous perpetrators <a href="https://blockworks.co/tag/uniswap">Uniswap</a> and <a href="https://blockworks.co/tag/blur">Blur</a> elevating costs.



But it’s not all bad. New mechanisms introduced by EIP-1559 in 2021 brought in the burning of base fees, causing <a href="https://blockworks.co/news/ethereum-deflationary-2-months">deflationary conditions for the network</a>.&nbsp;



This fee model contributes to the narrative of <a href="https://blockworks.co/tag/ethereum">Ethereum</a> as “<a href="https://blockworks.co/news/ether-supply-cap-late">ultrasound money</a>,” reducing the supply of ETH as on-chain activity drives demand. Adam Smith might have been on to something.



In theory, a reduction in supply should increase Ethereum’s value as an asset in the long term. Avi Felman, head of digital asset trading at GoldenTree Asset Management, and Jonah Van Bourg, Cumberland’s global head of trading, spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=q2afnJQjblA">1000x podcast</a> about their evolving investment thesis for Ethereum.



“Even though 16 gwei is neutral gas levels for Ethereum,” Van Bourg says, “we&#8217;re consistently averaging 50 to 150 gwei.” As a result, ETH is highly deflationary at the moment, he says.&nbsp;&nbsp;



“And even if it does eventually die down,” he says, “the ETH that&#8217;s being burned as a result of this activity is never coming back.”



Van Bourg asks Felman, “What does it mean for price, and what does it mean for supply and demand of block space? Is there an investment thesis there?”



<h2 class="wp-block-heading">EIP-1559 opened the monetary door</h2>



Felman says the “best thing” Ethereum ever did for itself was the implementation of <a href="https://blockworks.co/tag/eip-1559">EIP-1559</a>, which made ETH as an asset more attractive for investment.



“It opened the door for so much institutional capital to come into this space,” he says.&nbsp;



“I gave a talk last week at a conference that was filled with a lot of pension fund allocators, a lot of institutional allocators. I got an obscene amount of questions on it,” Felman says.



“My job,” he says, was to “teach these guys about what crypto is, cuz these guys knew, when I say nothing, I mean literally nothing, about crypto.”



Felman suggests Ethereum fee burns behave like traditional finance stock buybacks. Just as a company can buy back their own equity to indirectly increase value for shareholders, a fee burn can indirectly drive price action for anyone holding ETH. “If ETH annualizes out to $5 billion a year in burn fees, that&#8217;s a pretty substantial ‘buyback,’ right?”&nbsp;&nbsp;



“And this is all during a bear market,” he adds.



“That really hit home for a lot of people.”



Ethereum stands apart from other layer-1 protocols because of this formula, Felman says. 



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Other layer-1s like <a href="https://blockworks.co/tag/solana">Solana</a>, he says, do not generate fees in the same way — and, importantly, do not burn fees to reduce supply. Alternative layer-1s as such do not “generate revenue for their shareholders in the same way that Ethereum does,” so “allocators are just way less likely to come in and buy it.”&nbsp;



“Because all eyes are on Ethereum, because that&#8217;s where the speculative money is, because that&#8217;s where the market participants are, they&#8217;re able to <a href="https://blockworks.co/news/uniswap-leads-network-activity-on-ethereum">charge those fees</a>,” he says.&nbsp;



Felman compares the current attractiveness of Ethereum to the appeal of living in New York. “Yes, Manhattan&#8217;s expensive, but it&#8217;s expensive for a reason — because everybody&#8217;s there, and everybody that you want to be around is already there.”



And the beauty of proof of stake is that all of those fees that are burned and all the fees that are generated, Felman says, “are now paid back to owners of the asset.”



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High Gas Fees Worth the Pain? Ethereum’s Deflationary Model in Action

The cascade of bank failures over recent weeks seems to be <a href="https://blockworks.co/news/banking-sector-versus-defi">spurring investors to find new ways</a> to hedge against a weakening system.



And the biggest bank of all — the US <a href="https://blockworks.co/tag/treasury">Treasury</a> — is looking a little shaky, too.



Ongoing talk around <a href="https://blockworks.co/news/debt-ceilings-and-defaults-bitcoin">debt ceiling and defaults</a> is certainly not helping the cause for confidence in America’s economy, but it may attract buyers to hard assets like <a href="https://blockworks.co/tag/bitcoin">bitcoin</a> to weather the storm.



On a <a href="https://www.youtube.com/watch?v=q2afnJQjblA">recent 1000X podcast</a>, Avi Felman, head of digital asset trading at GoldenTree, and global head of trading at Cumberland, Jonah Van Bourg, spoke to Blockworks about the market’s possible reactions to a technical default. This would occur if the United States holds off — even briefly — on paying back bondholders.



Van Bourg asks Felman, “What do you think the price of bitcoin is in that scenario? If that headline hits the tape?”



“My bet is that the headline sends us past $30,000, maybe to $35,000,” Felman replies.



Felman suggests that a confluence of debt ceiling panic and the narrative of bitcoin as a hard asset could lead to a burst in buying sentiment.



Van Bourg is even more optimistic about bitcoin (<a href="https://blockworks.co/tag/btc" target="_blank" rel="noreferrer noopener">BTC</a>) market action, “I think we could definitely see all-time highs in short order if the United States were to default.”



<h2 class="wp-block-heading">The risk-free rate is no longer risk-free</h2>



“Whoever you are, wherever you live in the world, if you have a spreadsheet with money in it, you have to rewrite some cells and some formulas if the United States defaults. Like, the risk-free rate is no longer risk-free.”



Van Bourg suggests a default could be “the most seminal event in financial history,” during which bitcoin prices could test or even exceed the all-time high of $70,000. “I think you&#8217;d see people move money out of fiat and into crypto in droves if fiat suddenly became unstable.”



Felman replies bluntly, “I think you&#8217;re insane. I don&#8217;t think this is going anywhere near $70,000.”



Felman argues that it’s not feasible for prices to reach all-time highs “mostly because I just don&#8217;t know where that buying is coming from.”&nbsp;



“Retail&#8217;s not buying on it. They might buy a little bit.”&nbsp;



Felman suggests it&#8217;s possible that a rush to $35,000, mostly propelled by high net-worth buyers, could draw some retail buyers back in. However, he notes that &#8220;even then,&#8221; retail doesn&#8217;t feel as rich or as bored as they were during Covid-19.&#8221;



<h2 class="wp-block-heading">The perfect storm</h2>



Felman points to the perfect conditions for the previous run-up to all-time highs. “You’re locked in your house, you have stimulus checks. You can&#8217;t do anything. Your entire life has just gone online. And that led to crypto going nuts.”



Van Bourg suggests a different set of factors could cause similar behavior, but in the longer term.&nbsp;



“Gen Z people,” he says, “it seems like they&#8217;re less doing the sorts of things that I did when I was young and more like just chasing apparitions of Pokemon around abandoned lots with their phone or living on Fortnite, watching a Travis Scott concert on the internet.”



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The Gen Z crowd, Van Bourg says, is growing up with the experience of innumerable hours spent online. “Crypto internet money is going to become <a href="https://blockworks.co/news/crypto-holders-stayed-despite-collapses">more of a thing than fiat</a> for a lot of people.”



“The seamlessness of the experience of moving value around and moving digital goods and services around relative to moving actual goods and services and fiat currency — It&#8217;s such a drastic improvement.”



“Eventually for certain people, you will have that perfect storm of constant economic activity inside of some game or reality that isn&#8217;t necessarily what us ‘olds’ think of as normal.”



“As parents get older,” Felman adds, wealth reallocation to the younger generation “is gonna bring a lot of money into digital assets.”



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Shaky US Treasury Could Push Buyers Back to Bitcoin

America’s ongoing banking and budget dramas seem to have, once again, got people thinking about keeping money under the mattress — or elsewhere.&nbsp;



Of course, stuffing some cash under the bed doesn’t isolate the holder from inflation. Plus it isn’t exactly the safest place to keep it, albeit arguably safer than <a href="https://blockworks.co/news/bitcoin-dominates-bank-stocks">some fragile bank accounts</a>. Many are instead turning to assets that offer a degree of isolation from the failures of the system, namely crypto.



It wasn’t too long ago that a banking crisis began with the collapse of a few regional services including <a href="https://blockworks.co/news/who-will-bank-crypto">Silvergate and Silicon Valley Bank</a>, instigated by a combination of problematic balance sheets and panicked bank runs.&nbsp;



More recently, the bad news coming out of First Republic Bank about depositor flight seems to have <a href="https://blockworks.co/news/crypto-related-stocks-soar">pushed more people toward crypto</a> as a potential exit from the mess.



Avi Felman, head of digital asset trading at GoldenTree, and global head of trading at Cumberland, Jonah Van Bourg spoke to Blockworks on the <a href="https://www.youtube.com/watch?v=i7ddfquivmM">1000X podcast</a> about the paradigm shift around bitcoin’s value proposition — moving from being perceived primarily as a correlated macro asset to an asset that “<a href="https://blockworks.co/news/crypto-stayed-green">might actually be fulfilling its promise as a banking system alternative</a>.”



“The best opportunity of the year,” Van Bourg reflects, “was the [<a href="https://blockworks.co/price/btc">BTC</a> and <a href="https://blockworks.co/price/eth">ETH</a>] dip-buy during the banking crisis.”



“We might have another one of these types of opportunities coming down the pike possibly as the debt ceiling approaches.”&nbsp;



<h2 class="wp-block-heading">Weaponizing debt ceilings</h2>



Debt ceiling disagreements and the looming possibility of defaults are just about a yearly occurrence over the last couple decades, with opposing political parties weaponizing the approval process. In an effort to push through policies that would not stand a chance of passing through the usual channels, parties will attach conditions that allow the debt ceiling to increase once again. The system can then carry on paying out its obligations.



In 2011, under the Obama administration, the debt ceiling conflict between the Democrats and Republicans had serious repercussions, with the United States of America being <a href="https://www.reuters.com/article/us-usa-debt-downgrade-idUSTRE7746VF20110806">downgraded</a> from its AAA credit rating by Standard &amp; Poor’s. It was “not because of an inability to pay,” Van Bourg says, “but because of a potential unwillingness to pay.”



“That was a big deal,” he says, “that was the beginning of a 20 or 30% gold rally.”



Debt ceiling drama returned during the Trump presidency, causing a government shutdown as the two parties again locked horns.&nbsp;



“Now, I think the vitriol is just as high, if not higher than then,” Van Bourg says, “and unlike then, interest rates aren&#8217;t zero anymore.”



“So if the government were actually to default,” he says, “then you end up with an unprecedented event in financial history whereby the supposed risk-free rate is no longer risk-free.”&nbsp;



“The United States government will say, ‘Hey, Mr. Dentist, we owe you $100 grand. Sorry, we don&#8217;t have that for you right now. We got you, though. Wait a week or two until we figure this out in Congress.’”



The impending possibility of default, exacerbated by underwhelming tax receipts, hasn’t roiled markets yet, Van Bourg says, because “we&#8217;ve been through a few of these that have resolved in an okay fashion.”



Directly following the Obama and Trump debt ceiling events, Van Bourg notes that gold enjoyed 30% rallies.



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Felman replies, “I bet bitcoin would do quite well in that scenario.”



“If you look at the correlations between BTC and gold and then BTC and equities, it basically flipped over the last month.” Felman says that Bitcoin “is a lot more correlated with gold than it was with equity.”



<h2 class="wp-block-heading">The supply side</h2>



Felman cautions that the “supply side” of the bitcoin story may dampen spirits. The United States government is currently in the process of <a href="https://blockworks.co/news/us-government-dumps-bitcoin-silk-road">selling off its bitcoin holdings</a> and the potential for sales from <a href="https://blockworks.co/news/crypto-bear-cases-bull-consider">Mt. Gox</a> creditors might also suppress the market. Despite this, he says the debt ceiling story may act as “a massive catalyst” in the short term.



Felman says he views the current situation as “an opportunity to trade — similar to what the banking crisis was, with an additional benefit of making Bitcoin better long-term” because it may convert some retail traders into holders.&nbsp;



Van Bourg prefers to think in a longer timeframe. “I know that my bias is a little bit more to try and just focus on the long term,” Van Bourg concludes, “because that&#8217;s a framework that you can cling to when things are going badly and you&#8217;re staring at a bunch of red numbers.”



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