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“A bargain that remains a bargain is no bargain.”

— David Einhorn

Thursday Bargain Mailbag

Q: Why is crypto lagging everything?

Crypto is looking conspicuous as the only risk asset that hasn’t recovered from the carry-trade mini-crash — US equities are now up on the month and even Japanese equities have fully recovered.

Crypto has not: Bitcoin is lagging gold, altcoins are lagging stocks, and Ethereum is lagging everything.

How can crypto have done worse than Japan from a Japan-induced market panic?

There are reasons, I think.

On Bitcoin: Fed rate cuts are imminent, but with fed funds a full 2.25 percentage points above inflation, monetary policy will remain unusually restrictive for the foreseeable future and that should be a headwind for bitcoin (in theory, at least).

On altcoins: US equities may be in a bubble, but, if so, it’s a bubble driven by earnings. The knock on AI stocks, for example, is that current margins and revenue growth are unsustainable. AI tokens, by contrast, have no margins and very little revenue. Unless interest rates go back to 0%, there’s no reason to expect speculative crypto tokens to be positively correlated to earnings-rich Nasdaq.

On the Ethereum ecosystem: There’s just too much blockspace, as evidenced by the 1 gwei gas fees on Ethereum’s layer-1 and the fact that layer-two transactions are up, but fees are down — all of which is great for users and hopeful for the future utility crypto, but not immediately helpful for investors.

If crypto continues to lag other risk assets, it’ll probably be for crypto-specific reasons.

Q: It’s not just more sellers than buyers?

That’s a fair point.

Bitcoin might be underperforming gold simply because its been absorbing a lot of temporary supply (at the same time that governments have been buying gold at a record pace); ETH has been absorbing outflows from the Grayscale ETF; and the whole crypto market has been absorbing a steady supply of altcoins coming from token unlocks.

The first two of these are idiosyncratic sources of supply and you usually want to buy those — forced sellers often create garage-sale-type deals.

The third is more structural, but even there the gap between FDV and market cap has gotten dramatically smaller, which is helpful.

So, yeah, it could just be flows — in which case the discouraging price action might prove to be an opportunity.

Q: Is crypto just too expensive?

I think that’s part of it, yes.

Everyone’s disappointed with the performance of ETH, but it still has a $300 billion market cap, which makes it bigger than companies like Netflix, AMD, and McDonald’s.  

If Ethereum were a company listed on Nasdaq would it be worth more than those three?

I doubt it.

I don’t often come across tokens where I think, ‘Wow, if that was listed on an exchange, it would be worth so much more.’ 

Just the opposite — tokens often seem inexplicably expensive to me.

Celestia’s TIA token is perhaps the poster child for this.

Dan Smith estimates that it would cost about $1 million a year to post all Solana data to Celestia’s data availability network. 

On that basis, if Celestia were to onboard 100 new Solanas as customers, the token, at its current $5.5 billion market cap, would still trade on 55x sales — and that’s after the token has fallen 75% from its highs.

In fairness, data availability might not be the only driver of Celestia’s value long-term, I don’t know.

But I’m pretty sure there are not 100 new Solanas in the pipeline, so, just as a thought experiment, I think framing that way is directionally instructive as to what kind of lofty assumptions much of crypto is still pricing in. 

There are exceptions!

After listening in on the Blockworks Research monthly conference call for customers this afternoon, I’m more optimistic that there are crypto bargains to be found. 

I learned, for example, that Kamino, a Solana-based DeFi protocol, is doing a respectable $1 million per month of revenue and has a long-term target of $100 million of annual revenue — if you believe that’s achievable, you’ll think the token’s current FDV of $450 million is looking pretty bargain-basement. 

More immediately, I was surprised to hear that the perps protocol dYdX has been paying a 15-25% yield to stakers — in real-money USDC, no less. 

And there are traditional comparative-valuation trades to be made, too: The Solana trading platform Drift was highlighted at a $500 million FDV, which, as a Drift user, seems pretty reasonable to me — especially compared to the $8 billion valuation that its nearest comp, Jupiter, trades at.

None of that is financial advice — just evidence that there may be more bargains to be found in crypto than it sometimes seems.  

Q: Should crypto tokens return capital to token holders?

I think they should, yes, although not many seem to agree with me.

Most crypto investors take the entirely reasonable view that tokens are early-stage investments and that early-stage investors don’t want dividends, they want growth.

But crypto is different, I think.

It’s still unclear what token holders own (equity? Voting rights?) and what kind of claim they have on earnings (if any), so committing (preferably in code) to return earnings immediately has a lot of signaling value at this point.

It’s also unclear whether DAOs can be trusted to allocate capital in even remotely productive ways. 

Until those issues are cleared up, I think the market will prefer tokens that pay earnings out as yield or use them to buy back tokens — even if that means simultaneously issuing tokens to pay expenses or invest for growth.

Because even the cheapest crypto token won’t be a bargain unless it can find a way to get out of the bargain bin.

Making a commitment to return capital might be the quickest way to do it.

— Byron Gilliam

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Fig Talk: Is the Top In? Crypto's Q4 Catalysts & Headwinds

Boccaccio is joined by Kez and Tolks to discuss the current state of the market, focusing on the summer slump in meme coins and the broader implications for fundamentals. They analyze the controversy surrounding PumpFun and the concept of "extraction." The conversation then shifts to the rise of prediction markets like Polymarket and the growing popularity of Hyperliquid.

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