Another Bitcoin Crash? Is the Worst Still Ahead? | Trade Secrets

I'm willing to stick my neck out and make a a guess uh that prices bottomed back at 58k uh at the end of June. The future is very bright. Ethereum, Salana, Hyperliquid, I think all examples of long-term winners category leaders that should be held in a diversified uh basket. [music] Hello, welcome back to Cointelegraph's Trade Secrets, where we give you all the greatest alpha right here live. My name is Kieran. I'm your host, and today I'm joined by Grayscales head of research, Zack Pendle. Zack, how you doing? >> I'm great, Kieran. Uh, awesome to be on the show with you today. >> Thanks for, uh, jumping on, man. Look, it's a critical time here for Bitcoin. Obviously, we had the we had the rally a couple of weeks ago and many people are wondering is it going to keep going? Are we going to go backwards? So, do you think that we experience the pain of a bare market like we did in previous bare markets where everyone truly thought it was over? I I think I agree with that point that the level of despair was not quite as bad in this bare market as those in the past. But at the same time, the level of euphoria wasn't as high in the bull market. So, you had a more contained bull market. I think it's possible that you have a more contained bare market. That's how I'm thinking about it. And then when you look at the uh the price action and some of the key drivers over the course of the summer, of course, we we don't know for sure, but I'm willing to stick my neck out and make a a guess uh that prices bottomed back at 58k uh at the end of June. And maybe two observations. One is strategy, formerly micro strategy stabilizing its balance sheet. The stretch product I think trading much uh better. That's been a leading indicator uh for the market. I think taking some signals from that is appropriate. Uh the second thing is that the price action uh just looked pretty encouraging for a little while. Prices essentially stopped going down even with bad news. Uh things like delays on the clarity act, things like the cold card hack. Uh when price uh in an asset class, whether it's crypto or anything else, stops going down on bad news, that's usually a sign that it's oversold. So just from a markets analysis standpoint, I think that there were encouraging bottom uh signs over the course of the summer. Time will tell, but that's my read at the moment. >> Now, Zach, from a institutional point of view, is Bitcoin still following the four-year cycle. Do you think we've moved out of that? That was obviously the big debate last year. and then hitting all-time highs in October and seeing the bare market this year. It kind of surprised people because people thought, "Oh, maybe we actually are still in this four-year cycle until uh until we know what happens uh next in in the story." I think this question is going to continue to be debated. Um but what I would say is if the bull market has begun, if prices have uh bottomed, then we are starting to see a pattern in Bitcoin's price that looks different from the the four-year cycle. The four-year cycle would have predicted lower lows uh for Bitcoin and a much longer uh path uh to start of the start of a bull market. I think maybe we are starting uh to distinguish from that historic pattern. I would say that all commodity markets uh have trends and cycles. So just because we don't have a 4-year cadence driven by the Bitcoin having doesn't mean that cycles are dead or cycles are going away. We're still going to have cycles. We're still going to have bull markets and bail markets in in Bitcoin and the the crypto asset class as a whole, but they may not have the same uh sequence of time and may not be so correlated to the Bitcoin having schedules. That's my personal guess. Uh, cycles, but maybe not four-year cycles is how I'd be thinking about it. >> Every year, exchanges get hacked, wallets get drained, and keys get stolen. Enra Zero is built to make that impossible. No USB, no Bluetooth, [music] no Wi-Fi. Every transaction is signed offline and verified by QR code. It's the only wallet certified EAL7, the highest security rating a financial device can hold. Four layers of tamper protection. Biometric access. Nothing gets in. Back up your key on graphine. Steel fireproof. Built to outlast disasters. Track your portfolio in the liquid app. Your keys never leave the device. Enrave, own your crypto. >> Obviously, the big catalyst right now is the US Clarity Act. There's still some uncertainty whether that's going to actually pass this year. So, how much do you think that the potential passage of that um hinders on Bitcoin's price? Do you think that it's going to have a big impact on Bitcoin's price if the Clarity Act does pass this year, or is it a potential sell the news event? Let me say a couple things about that. The first is that of all the assets in crypto, Bitcoin may benefit the least uh actually uh for a couple of reasons. One is it's regulatory status is more clear. It's a digital commodity. I don't think there's really any uh debate about that. And secondarily, it doesn't have all the other applications as something like Ethereum or Salana, stable coins, tokenized assets, onchain finance. Uh Bitcoin is a relatively simple use case, a very important use case today, the most valuable uh use case in the in the industry. Uh but it probably stands to benefit a little bit less uh than much of the rest of the ecosystem. The other thing that I would say is I I'm pretty confident that we're going to get lowercase uh clarity uh over time, even if we don't get all caps uh clarity, the clarity uh act. Um you know, I think the bill's future is somewhat uncertain. Even if it were to pass the Senate, it's not clear that it's going to become law. But we've seen the regulatory agencies, the SEC, the CFTC help push us forward even in the absence of that legislation. So on stable coins, we did get bipartisan legislation through Congress, the Genius Act. On market structure issues, even without a piece of legislation, we're going to get more clarity. and you've seen a lot of good steps there uh from both the SEC and the CFTC recently. >> Now, there was concerns that Bitcoin may go as low as $40,000 and a lot of people were eyeing off that October mark to potentially have its its bottom for the cycle and now we've seen this uptrend again. It's kind of put that into more of an uncertain mode. But from your point of view, Zach, what do you think is more likely by the end of 2027? Do we go to 150,000 or does Bitcoin revisit 40,000? >> Well, we don't love uh price predictions here at Gayscale, but I am optimistic on where the market is headed. Um, a very wide range of investors is looking for diversification. They have highly concentrated risks in the equity piece of their portfolio. AI equities have performed well, but now they have very high expectations to deliver a lot of expectations priced in and it's unclear whether those expectations will be met. And so investors looking for diversification. And second, we have a changing world and we have macro risks, fiat currency risks and these call for diversification as well. And that's what we are seeing from our clients. You know, thinking about their portfolios in a holistic way, thinking about how digital assets can fit into those portfolios. I think encouraged by regulatory clarity. I put that picture together and to me it is an optimistic uh outlook even if I don't love uh giving a specific price target. So our I will stick my neck out and say that I think we bottomed at 58K. I've been encouraged to see the rebound. I think we see a lot of healthy recovery signs uh in the crypto asset class and in general to me the fundamentals are pointing in an upward direction broadly speaking >> and you yourself are based in the US along with Grayscale investments as well. We've got the midterm elections coming up in a couple of months now. Historically, Bitcoin has not performed well in the midterm year. Do you see that may have an impact on Bitcoin's price? I think the number one question that investors are going to have is, is this midterm election likely to change the outlook for tax and spending policies? The number one macro imbalance that drives investors to scarce assets, whether it's physical gold or digital Bitcoin, is unchecked government deficits and rising uh debt. When I look at either political party, I see essentially no effort to raise taxes and/or cut spending to get deficits under control. And as long as that remains the case, there's going to be a demand for assets like Bitcoin. If we start to see a change in the wind in the run-up to the midterms, I might start to reconsider my broader macro thesis. Maybe we have rediscovered uh macro discipline uh here in the United States and we're willing to do belt tightening. uh rather than just treating the symptoms of of the issues. Uh but I don't really see any evidence of that now. That's what I'll be watching. I think that's what most investors will be watching in the midterms is are defic deficits still on an uncontrolled path or are we uh getting the religion of belt tightening? Uh I think as at the moment it's still a very much a deficit ccentric outlook >> and grayscale itself is you know it's at the intersection of traditional finance and crypto. So outside Bitcoin, what is Grayscale most bullish on right now in the digital asset sector? >> Yeah, quite quite a lot of things. I do think that Grayscale sits right at that border. You know, digital assets are exporting things uh to traditional finance, stable coins, tokenization, traditional finance is exporting things uh to crypto like like the ETF uh structures. I think the number one topic today that's right at that intersection is privacy. You know, privacy is a baseline expectation in traditional finance. And anybody that has made their career uh in banking or capital markets, when they look at uh the blockchain technology, they realize uh that it missing the privacy layer. Uh now that crypto is growing up and now that AI technologies have a even enhanced ability to surveil uh the transparent transactions on blockchains, there's a pressing need for privacy solutions. Zcash of course has had exceptional uh performance over the last year. I think really as the first uh clear example uh in markets that um crypto investors are putting a premium on privacy. I think that this is going to continue. Uh I think privacy will be a major trend uh for digital assets over the next several years. Uh and it has certainly started with Zcash, but I think it will expand beyond that. So we're very focused on uh privacy, especially Zcash. Uh, but I think beyond that as well, it's going to be an integral part for all of the blockchain ecosystems. >> Do you think Zcash has much more upside potential in its price still as well or have investors missed the boat on that? >> In my personal opinion, uh, crypto markets are still putting a relatively low price on the value of financial privacy. Now, Zcash has gone up roughly 20x over the last year. Investors should be aware of that before they're allocating uh any capital and be mindful that it's a high volatility uh asset. Uh but today, Zcash is valued at just a little over 1% of the value of Bitcoin. I find that number uh still somewhat low uh if it can be thought of as a proxy for the value of privacy. And if Zcash, this is not a price prediction, but just to help with the the scaling, if Zcash were to reach a market cap of say roughly 5% of Bitcoin's valuation, its price would be something like 4 to 4 a half thousand depending how how long it would take to get there and accounting for changes in the supply of the Ze uh token. So not a price prediction but we we see uh that privacy is a mega trend uh in the economy in capital markets and certainly in uh crypto uh and Zcash I think is one representation of that. I personally think uh that crypto markets are still putting a relatively moderate price on the value of financial privacy. >> What is the bearish case then for privacy tokens? Is there a bearish potential catalyst that might change your thesis on privacy tokens? >> I have a hard time thinking I'm going to change my mind on the need for privacy. Uh I think this is essential uh tools uh in our financial uh lives. I would say people ask this question with every successful idea in crypto whether it's a stable coins uh defy uh perpetual futures and the answer is just competition. you know when you develop a great uh concept and you find a winning uh formula of course other people are going to try uh to uh repeat the same uh concept so you're going to see zero knowledge technologies uh percolate across crypto even more broadly than they have and privacy will become an essential element I think when when all of us use blockchains in the future def privacy will be a default uh and so for the the currency use case the question is are there other competitors that can better deliver the private privacy solution that Zcash does given all its parameters, its track record, the uh the technology, formal verification of the pools, the wallet infrastructure, liquidity of the the product, if something else uh can deliver those uh same solutions, then potentially it could also take uh market share. But this the answer is always the same competition. At the moment uh Zcash is the leading uh privacy solution for the digital currency uh use case and I don't think it has uh very strong competition today. Now, one thing I really want to know from you, Zach, obviously from working on the institutional side, would you say that institutions are starting to actually become believers in crypto or do you think it's still a macro trade and they're thinking, well, we can't not be part of this? They are absolutely believers and I think that that was one of the most striking things about the recent bare market where we saw crypto natives I think become discouraged uh at some point you know very price focused uh uh mindset and become discouraged uh in the down market. But the mainstream institutions uh big banks uh big uh investment banks trading uh firms they just kept building uh they just kept building in the space building for stable coins building for a tokenized capital market uh future and didn't didn't really focus too much on on price. So I think we witnessed that very clearly over the last uh few months. Now that doesn't mean everybody is equally enthusiastic about Bitcoin or about Zcash. Uh but in the the premise uh that blockchain technology can give us lots of efficiency gains uh in our financial system that it can maybe have uh privacy preserving or uh de-risking uh properties that it can add functionality uh for users. uh that is absolutely believed uh throughout uh the mainstream uh players in in our space and I think we saw that very clearly over the last six months or so where they just kept held down and kept building the capital markets of the future. >> And what do you think would stop institutions from buying crypto? >> Well, the the number one thing uh is the debt and deficits uh story. Now the crypto is such a broad uh tent uh that it's hard to you know put the same label on on bitcoin and and hyperlquid of course u but today uh bitcoin is the number one asset in our space by a large margin and so the largest dollars the the most investors still come for that digital scarcity use case and the thing that would change their mind and things that would change my mind to some degree about uh bitcoin uh is uh spending discipline is a a a a political movement uh towards getting deficits under control. Uh committing to low and stable inflation, committing to the independence of the central bank, committing to the dollar's uh role for free movement of capital around the world and American military hedgeimonyy. If uh if elected officials were to back that type of idea, that would change the need uh for scarce assets and we would be comfortable uh putting all our eggs in the fiat currency basket. For better or worse, I I don't see any movement in that direction. I I think that we're going to be with these fiat curren these fiat currency risks have been building for 18 years since the financial crisis back in 2008 uh n those things are still all pointed in the same direction as far as I can tell. And so you're not going to change uh anybody's mind until we really get to a more proper solution to these challenges. We have obviously really hardcore Bitcoiners that say that Bitcoin is going to take over fiat and they're quite certain about it. In your eyes, do you think that's a possibility? We live in a world where Bitcoin completely replaces fiat currency. >> It's doubtful for the time being. I I think you know I think Bitcoin has a digital gold use case uh today and that's a very valuable use case. I think maybe an undervalued uh use case compared to to physical gold, but you know, stable coins have demonstrated that the power of blockchain technology can be brought to fiat currencies. There's lots of reasons why uh fiat currencies have a a convenience factor, whether it's just volatility or taxes or other practical uh things related to them. So, I think that we're going to live in a dual world where there are decentralized blockchain based currencies like Bitcoin and Zcash and there are fiat currencies running on on blockchain rails. I think that that for as far as we can see uh that's the world that we're headed in. Uh but there's plenty of room for further value growth in both of those uh use cases. lots of room for stable coins to grow as a payments mechanism as you know especially in things like across border and lots of demand for non-fiat currencies uh because of the scarcity that they provide the autonomy that they provide maybe the privacy uh that they provide uh in the case of uh of Zcash. So to me that's how the world is breaking out. Uh you know there are clearly demand for decentralized alternative currencies bitcoin and zcash but a lasting role uh for uh fiat uh currencies as well probably in the form of stable coins. >> Now you mentioned hyperlquid before as well. I want to know your thoughts on hyperlquid and more broadly what are institutions thinking towards hyperlquid as well. You know, it wasn't too long that we had Trump come out and say that they're going to try and legally bring hyperlquid into the US. I mean, did that change the view of hyperlquid from the institutional standpoint? >> Well, it didn't change Grayscale's view because we very much thought things were pointing in this direction, but I think it was an eyeopening moment for people that weren't paying attention. Of course, uh when the president says something so direct, it gets people to uh to listen. Um, hyperlquid is a very easy story uh to tell to institutions. It's a great piece of technology. It generates revenue. It it pushes that revenue back uh to the token holders through a buyback uh mechanism. Uh so it can be analyzed in the same way that it's not a company and it doesn't issue shares. It's a a public blockchain uh with a token. However, you can apply traditional financial analysis tools uh to hyperlquid and the hype uh token. That's one of the things that's uh made it uh easy to explain to uh investors and I think that they have been impressed uh by things like the the SpaceX preo market and other innovations u with hyperl that maybe they weren't uh aware that could even happen uh in a in a financial market. Um I think hip 4 outcome markets is going to be the next big eye opener. quite optimistic uh on this uh uh market. We've seen of course prediction markets uh take off through platforms like polyark and kalshi outcomebased uh markets uh similar uh concept on on hyperlquid are just getting uh started but I think their permissionless nature uh the liquidity of hyperlquid is going to make these uh projects also very uh interesting for for user very valuable for users and ultimately generate value for the token. So that's what we're focused on at the moment. >> And for someone that isn't across the idea of hyperlquid or maybe they are still not convinced because every single cycle seems to have a new hot token that then gets forgotten about in crypto. Um, what would you say is different about Hyperlquid, the project itself that may mean that it's not going to be one of those forgotten about projects like we see in every other cycle? Two things. One is the obvious value of perpetual futures. Um, so you know, perpetual futures of course have taken off and they've uh become a regulated product here in the United States. The CFTC has approved uh perpetual futures uh for uh US registered platforms. And so I think the success of the product structure uh is one and the second is scale. Uh you know hyperlid no longer should be compared to decentralized uh exchanges. It competes with um Binance uh as the number one uh perpetual futures exchange uh in uh in crypto. It's the third largest exchange today by open interest even if it is a decentralized platform rather than a a centralized uh business. So the success of the product the scale uh to me mean that hyperlquid has achieved a uh product market of fit and escape velocity uh that is different from many other uh projects. Now that doesn't mean uh its future is pre-ordained. there will be a competition. Um other I platforms are going to try to compete for that liquidity but today hyperlquid is in a pole position. I think it has a lot of tailwinds um especially from regulatory clarity coming from from the US uh and that's why we've been so enthusiastic about it why we offer uh it through an ETF product. >> So what's the most obvious way then that hyperlquid could fail and we see the token go to zero? Ultimately, these are platforms for liquidity. It's not exactly an exchange. It's a it's a blockchain uh a layer one blockchain and open uh network. And so, I think that there will be a demand for these products. I think perpetual futures have been incredibly popular uh in uh crypto and I think that they will be incredibly popular in traditional markets. um particularly for investors that don't want the complexity of options, they don't want to deal with extra layers with levered uh other types of levered uh products. I think perpetual futures will be very uh uh popular. At the end of the day, it's where the liquidity goes. You know, what is going to dominate from a liquidity uh standpoint if somebody else uh can create a a better product or service uh and the liquidity migrates uh over there uh uh over time. That's the bare case for Hyperlid. uh today uh it is absolutely leading in price discovery and liquidity formation among decentralized projects and in my view should just be compared to all the exchanges in in crypto compared to uh Binance and OKX and and Bybit. Uh that's the league that Hyperlid competes with. It's really distinguished itself uh from the other decentralized players so far. >> How early do you think that investors are if they were to invest in Hyperlid today on a scale of 1 to 10? How early are they? >> Well, I would say very early, but that doesn't necessarily mean best possible price. Um, so, you know, we we're in a long uh journey with with this. I I think we are transforming the financial system with this technology and we are going to be telling the story of perpetual futures on on blockchains for 10 and 20 years. Um, so we're very early in the story, but the price moves around uh every day and one of the great things about uh Hyperlquid is that you can value the token in the same way you would uh anything else that produces cash flow. So this is where the debate is among investors. It's not whether Hyperlid uh has product market fit or whether it has users or whether the technology is useful. I think that's obvious to everybody. Uh the question is what's its multiple? You know, what are 2027 earnings going to be? what sort of multiple does it trade at? How does that compare to fintech comps, uh, like a Robin Hood or a Coinbase? And how does it fit in my portfolio? And that means it's just like everything else. So, uh, so, you know, of course, the price when the price goes up, it's a slightly less attractive than than to buy it than when the the price goes down. But I think we're very early in the story. Uh, and how investors take risk and put capital to work, it depends on their own process. But typically dollar cost averaging thinking about the long run is is how we uh try to educate Grayscale's clients. Think about the fundamentals think about the long run. We think Hyperlid definitely one of the long run uh winners uh in our view. Um but yeah, of course, when the price goes up, it's it's slightly less uh uh cheap uh than when uh when the price was lower. So then if you could only hold one, so either Hyperliquid, Ethereum or Salana over the next five years, which one would it be? >> Oh, I I don't like to choose among my children like uh like this. Look, these are all great projects. Um look, I I uh I I preach the uh religion of diversified crypto investing. Uh I think there are different market segments. There's currencies, smart contract platforms, financial applications, AI applications, and some other things. In each of those categories, there's a category leader, Bitcoin, Ethereum, Hyperlquid, etc. And a diversified approach that owns the category leaders across uh the different uh sectors uh in crypto to me is the most efficient way uh to build a portfolio. And then I also think that there are uh asymmetries uh that uh that come along um that for whatever reason the market has a mispric and I think privacy and Zcash is a good example uh of that. So a diversified cross- sector approach and looking for asymmetries is typically uh what we are guiding our uh clients towards. So I I can't pick any one of those things. Those are three great projects. Ethereum, Salana, Hyperlquid. think all examples of long-term winners category uh leaders that should be held in a diversified uh basket. >> Now, final thing I want to talk to you about, Zach. Um I'm not sure if you actually have a thought on this, but I can edit that out, but um there's been a lot of debate and controversy around the Metanet situation at the moment. So, are you able to share what's going on there and your thoughts on that? Look, just at at a high level, our view is that over time you're going to have fewer pure play digital asset treasury uh businesses, but many more diversified businesses with Bitcoin and other digital assets on their uh balance sheet. So, companies like Coinbase, companies like Galaxy, companies like SpaceX, these are all diversified public companies that hold Bitcoin on their balance sheet. I think that's the direction of travel uh for corporate Bitcoin adoption. So fewer pure play uh DATs, more diversified businesses holding Bitcoin and other digital assets. >> And finally, um last question. I always ask this to every guest on Trade Secrets. A million bucks for Bitcoin by 2030. Is that a possibility? Is that likely or unlikely? Look, uh we don't we don't give that's too close to a price target for uh for Grayscale. But look, I would say the future is very bright. And if anything, I think uh most people that I talk to, even in crypto, in my view, don't share the same degree of upside vision uh that that I do. I I tend to see a much bigger vision uh for the future of public blockchain technology, for the future of digital assets in financial markets. I wouldn't be doing uh what I'm doing uh if I if I didn't think that. In my in my view, the macro forces and the technological forces uh that are most important in our financial system and our economy today in some ways center on digital assets as the best single expression of those ideas and I have a uh some very high uh expectations of where we're headed over the next uh five and 10 years. >> Amazing. Zack, thank you so much for joining us on the show. >> It's my great pleasure. Thank you.