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Pi Day Mailbag

Q: Will bitcoin ever go down?

It doesn’t feel like it, no — which is of course the exact moment when things usually do go down. Usually by a lot. 

But crypto is different, and ETFs are making this particular moment in crypto even more different.

Most thought the new spot ETFs might take in $10 billion over the first year — they took in $1 billion on Tuesday. 

(Not to mention $505 million on Monday and $683 million on Wednesday.) 

This is forcing us to rethink how much TradFi demand there might be for Bitcoin: JMP Securities now expects the ETFs to take in $220 billion over the next three years.

It’s worth noting, though, that Bitcoin went down on Tuesday — and it did so during the afternoon window when the ETF issuers do their once-a-day creations, which is where you’d normally expect demand to be highest. 

That was only one day, so it might not mean anything, but it’s a reminder that price moves can be counterintuitive — when there’s one big, obvious buyer, markets often have a way of creating even bigger, non-obvious sellers.

Q: Do Ethereum blobs change everything?

Yesterday’s Dencun update introducing “blobs” to Ethereum has lowered L2 fees to Solana-like levels. 

This is most likely temporary (and the Ethereum mainnet remains unusably expensive) but there’s a lively debate on crypto Twitter as to how significant Dencun will prove to be — opinions run the full spectrum from “this changes everything” (by ending the scaling wars in favor of Ethereum L2s) to “this is a nothingburger” (because block builders will bypass blobs for MEV reasons). 

Either way, blobs on Ethereum advances the bigger-picture debate about what, if any, new use cases will be enabled by lower fees.

Will L2 transaction fees of 5 or 10 cents enable some of crypto’s long-awaited use cases like payments or gaming?

If not, do fees need to be 1c? A tenth of a cent? A thousandth?

It can’t be zero, blockspace has to cost something — so, is there a sweet spot where blockspace is cheap enough for new use cases and expensive enough that blocks are worth producing?

Or is the reason that payments and gaming haven’t happened yet something other than cost?

We’ve already seen how lower fees have caused a Cambrian explosion of memecoins (because it’s become economic to buy lottery-ticket memecoins in lottery-ticket increments).

The question now is whether low fees lead to anything more substantial than dog coins.

Dog coins are so far what this cycle is about, and if that's all it’s ever about, it’ll be because lower fees failed to enable anything more substantial than WIF and BONK.

Q: Will memecoins fail like meme stocks?

Definitely not.

Memestocks didn’t fail because they were memes — they failed because they were stocks.

Memecoins don’t have that problem — they are not encumbered by things like empty movie theaters or brick-and-mortar video game stores. 

BBBY was so encumbered by its legacy business that the shares no longer exist — despite the Reddit crowd pouring money into them right up until they were delisted. 

A memecoin, by contrast, will trade forever.

Better yet, you’ll have so many more to choose from — there are new ones every day.

With meme stocks, by contrast, after GME and AMC got a little boring and BBBY got delisted, there wasn’t anywhere else for the Reddit crowd to go.

Yes, most memecoins will go close enough to zero that they might as well be delisted — but there will be a never-ending supply of new ones to keep people coming back. 

And if we’ve learned anything from crypto over the past year, it’s that ever more people are interested.

In his most recent investor letter, Warren Buffet noted that, “For whatever reasons, markets now exhibit far more casino-like behavior than they did when I was young. The casino now resides in many homes and daily tempts the occupants.“

He was talking about stocks, but it applies even more so to crypto.

The demand for lottery-ticket-like investments is higher than ever, and crypto is much better at meeting that demand than traditional finance is.

This is probably a secular trend. 

With people feeling like they’ve been priced out of equities and real estate, the demand for alternative assets will grow — and crypto will be the easiest alternative to access.

Q: Should I move all my risk-free investments into DeFi?

Until recently, the hottest topic in crypto was how to bring TradFi yields on-chain so that crypto money would stop moving off-chain.

But DeFi has now flipped the script, with rates on stablecoins back above rates on TradFi money market funds.

Way above: Lending USDC on Compound is about the closest thing to a risk-free return in DeFi and that’s currently paying 19.5%.

In part, that’s because crypto natives are borrowing stables to put on more risk, as you’d expect in a bull market.

But what’s different this time is that Ethena’s new sUSDe is currently yielding 67%, and because people are treating sUSDe as a stablecoin (even though Ethena insists that it’s not) it’s dragging borrow rates higher across DeFi.

This probably won’t last.

The yield on sUSDe is so eye-poppingly high because the Ethena project is not so much a stablecoin as it is a hedge fund that does one thing: Arbing the “basis trade” in ETH futures.

That trade will presumably become less profitable as Ethena attracts more deposits, which should bring sUSDe’s yield back down to earth.

So, you probably shouldn’t move money into DeFi expecting to get 20% yields for long enough to make it worth taking all the risks inherent to having money on-chain. 

But at the very least, those 20% yields have stopped the flow of money going in the other direction and changed the topic of discussion in crypto — no one’s talking about bringing TradFi rates on-chain anymore.

Q: Should I buy Eigenlayer points?

I don’t know, but the fact that you can buy Eigenlayer points is kind of amazing.

Last week, a comment the EigenLayer team made in Discord suggested the project wouldn’t be dropping the token that everyone has been so excited about — this would be a bitter disappointment to crypto’s legions of airdrop farmers.

I wouldn’t normally mention something as inside baseball as that, except that I found it to be an illustrative example of how crypto makes everything it touches a tradeable event.

If you think that the Discord comment is boilerplate language from the EigenLayer compliance department, you can buy EigenLayer points on Whales Market.

If you think EigenLayer won’t ever launch a token (because they want to be enshrined in Ethereum mainnet), you can short perps on EigenLayer points with the Vega protocol.

Soon, we might even have a “layer 3” blockchain just for trading points!

That may all seem unnecessary to you, but this is crypto’s primary use case: Making everything tradeable. 

Is the casino that Buffett sees in the room with us right now?

It most definitely is.

― Byron Gilliam

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We're Watching

This week, Jon Charbonneau joins the show after Jito announced their suspension of their mempool function. We deep dive into solving the MEV problem, Ethereum's Dencun upgrade, the current state of crypto in 2024 & of course... meme coins.

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