Will Bitcoin ETF inflows push money into altcoins

0:01I'm Ashton Addison from the Crypto Coin Show and today on blockchain interviews we have Connor Ryder the head of research at ethena Connor welcome to the show and thanks for taking the time great to be here ashon thanks for having me likewise excited to dive into Bitcoin the crypto markets ETF approvals in the works we're hoping I think that's really causing a stir up in the markets

0:21I know you've been doing your research on that we'll also dive into stable coins Defi and a little bit more of the intricacies of the crypto markets in the latter half as well so excited to dive in I'd love to start off our conversation with just hearing a little bit about your background and your current Works in Bitcoin and the markets and then we'll dive into all the

0:41latest details yeah absolutely so yeah my name is Connor I leave research at atina Labs I got into crypto initially probably in 2017 2018 when I had my job in trafi so I was working mainly for a pension fund and the people you're talking to there are about as as far away from crypto as you can imagine and you're talking to yeah their portfolios mature in 50 years

1:05time and held fully bonds let's say but on the side I was just super interested in this asset class that was growing and got really into crypto then and then yeah over the lockdowns again got got super into it with all the spare time we all had and decided to kind of align my career with crypto and my passion so I joined Kao who were crypto data

1:24provider and I sat in the research team there for a couple of years researching stable coins exchanges derivative markets a bunch of different things super interesting job and a super interesting time to be in research as well it was the back half of that was around the 2022 bare market and the terror collaps and FDX collaps and you kind of obviously crypto was

1:43kind of falling apart but you never had things to run out about from a research point of view so really interesting job and got to touch on a lot of kind of broad topics there and then yeah about six months ago I joined the Tina Labs probably as one of the first hires kind of aligned with the goals of building out this defi stable coin that can yeah standing at

2:04own two feet which I'm sure we can dig into later but yeah that's the that's the rough background anyway very cool and that's quite the transition from from bonds to bitcoin and I'm guessing it's a little bit more exciting right now especially with the recent news for the ETF and the market moving and I'm guessing you took a little bit about of that Financial history

2:24background and applying it to the crypto markets I'd love to hear your take on sort of what's happening right now in the last couple months here and since that announcement it seems like the crypto markets are now heating up again yeah definitely there's a sense I think that the animal spirits around crypto are back and sentiment is definitely improving a bit I think

2:43that probably started or at least this kind of recent Bull Run that we've seen has been from I guess it boils down to that fake Bitcoin ETF news that we saw and I think what that showed was that a lot of people were two things basically one all like basically on the sidelines and not allocated enough to crypto but two also caught on the wrong

3:02side of the trade so we saw people on the wrong side of the trade because we saw just a massive amount of short liquidations and that was a reason for basically one the big runup we saw we saw we saw big positions being built up in derivative markets on specifically like darab where you had positions being built up where people would sell options and selling options

3:22is a play when you're not expecting much volatility in the markets which has been pretty profitable for the last six months markets have been quite flat and you were able to gather those premium from selling options but what we saw then when this like fake bitcoin news happened and people started then to realize they were maybe caught in the sidelines a bit and started allocating

3:39to the space a bit more we saw then those short calls had to be covered and you do that by kind of buying buying spot and buying perps again and basically that kind of led to this kind of runup or SC and we saw people yeah we saw we saw about 300 million of short Liquidations in a matter of days and we saw then funding rates which is a measure of the kind of sentiment it's

3:58the measure of the demand and Supply demand imbalance between short and long positions we saw long positions paying a fee of about 30% annually to go long Bitcoin and long ethereum in the past few weeks which is which is more than we usually see normally that's around 5% so we're seeing a different definite kind of improved sentiment in crypto markets and I think that as I

4:20said that fake Bitcoin ETF news was part of the reason for that and I think that 8% pump up and down kind of showed people that maybe when the real news comes out that they need to get allocated to crypto and they need to take part in those 8% Gaines because a lot of people like me probably thought that was priced in already it seems to be the consensus seems to be that those

4:38spot ETFs are all but approved so you'd imagine that would have been priced in but that fake news showed us maybe that it wasn't and I think in the in the in the in the time since that fake news we've seen people kind of allocate more towards the space which has led to probably the improved prices we've seen lately yeah great insights and yeah the

4:59the news you know it bumped the market up 8% and then it sort of dropped it back down to where it was with within the hour of you know this news isn't really real but then since then we've seen over 20% gain of Bitcoin sort of waking up and the there you know there's a lot of different ETFs that are in the application process about to be

5:21approved there's a bunch of different dates thrown out there I think some even in November also in January and March seem to be sort of the main final deadlines that are expecting do you the percentage chance is like 95% at least that's what the estimation is so it's a matter of like when not not if you know do you have any insights into how you can prepare or how you can

5:47best capitalize on this opportunity right now I think simply plus allocate to bitcoin allocate to the majors at least because what we see is normally that the majors start a rally and then the altcoins follow so what you'd want to do is obviously get allocated in advance and I think if you asked me two months ago I would have said maybe you're even too late already because as

6:06you said the consensus was 95% that this was going to happen and this would be approved so then like it should be priced in really technically but we kind of know now that crypto markets are a bit inefficient and there was never a better case and point for that than that fake Bitcoin ETF news and as I said we saw that increase 8% so that just shows you really you just kind

6:26of have to allocate over time to this asset class it'll go and it'll go down but when there's something on the horizon like a Tailwind like this spot ETF approval I think it's fairly obvious that you know you probably need to get allocated in advance of that now and we know that like yeah the studies are there that financial advisers that they really advise their ass their their

6:47clients to invest in ETFs I think I saw a study that about 80% of financial advisor assets under managements go into ETFs and we know there's demand there from clients to go into to into crypto assets as well so we're just going to see hopefully this huge kind of influx of capital into the space and yeah it's about just basically not being on the sidelines when when

7:08that happens yeah and it seems like Bitcoin sort of can they say it's the rising tide that lifts all boats and we haven't seen it across the board but it looks like some of the other cryptocurrency markets are starting to wake up specifically salana and chain link seem to have a lot of action maybe leading the pack when you say looking at the majors are those some of the other kind

7:33of projects that you mean or you know maybe the top 10 or 20 market cap projects I would say qu more narrow than that yeah when I say majes I really think I just refer to bitcoin and ethereum in crypto if you looked at the top 10 a few years ago it looks kind of different it's as I said it's still an inefficient Market class so if you're really looking at it from like an

7:53asset allocation perspective and you're maybe splitting it between majors and like Blue Chips it's really really you can only have confidence in the blue chips in being Bitcoin and anything else really is more like a volatility play and you're you're you take probably a smaller exposure but the gains could be bigger so yeah when I say Majors I

8:10would more refer to bitcoin and eat and that's what the data shows but yeah as you said that allcoin the rallies tend to follow in the altcoins after after Bitcoin lead the way so we're starting to see that now with salana with ripple now today I think even we're seeing that with chain link as well and there's a lot of bullish news coming out of all those projects as well

8:28which is which is encouraging and that comes back to probably now sentiment is improving we starting to see more eyes on the space in general and these announcements are probably going to flow into into the new year hopefully okay that's great to know and you know there's a lot of people that are just Bitcoin and they sort of separate Bitcoin from crypto but there's

8:48a lot of people as well that understand the value of ethereum and I'm glad that you mentioned that and you know there's sort of this mini battle of like which one's going to do perform better and you of course they have different use cases you know ethereum is not just digital money it's it's a whole world computer but and for that reason people

9:08see a lot of potential in ethereum and also the fact that the market cap is a lot lower than Bitcoin it could have the potential to rise more but looking at the you the ethereum when priced in Bitcoin the ethereum Bitcoin trading pair over the last year or even more you know that has only been in a downward Trend and it seems like Bitcoin

9:29it's continuing to outperform ethereum what's your take on that and do you think it will turn around for any specific reasons yeah it's hard to say I would say that Trend we've seen lately is probably more to do with just the fact that we're in a bare market and again you see people in a bare Market rotate into not only the majors but also

9:49probably into stable coins as well but if you're Ro if you hold one of these old coins or hold even ethereum you see then sometimes people just rotate back into Bitcoin during a bare market and I guess it's safe to say that defi as a whole over the last year has been kind of suffering from a lack of activity in the spa a lack of interest in the space the theme of I guess

10:082022 as well was just liquidity being and 2023 liquidity being pulled on Mass from the space we saw collapse and crypto lending we've seen market makers leave the space so there's just generally less liquidity and more and more institutions are less willing now to kind of lend the capital that's that's needed for defi to run but we're starting to see that come back to

10:28the space now and as said it's this bullish sentiment is starting to pick up and even person you've seen kind of Institutions are a bit more interested now in putting money into defy which in turn should be able to help kind of the price of e and just support the whole e ecosystem because really e is more of an ecosystem than Bitcoin and same with

10:45the altcoins they really need that liquidity there to really support the token price and valuations of a lot of those projects so I would say yeah if you're asking me gun to my head what do I think for next year I would say that might flip and E might outperform purely based off of hopefully this like bullish sentiment return into markets and more that

11:03liquidity return into the ethereum ecosystem yeah it's great insights and you mentioned earlier on about the open interest and you were saying you know in the derivatives markets you know you can look at the contracts and sort of maybe it tells a bit of a story of what people are thinking and what's to come I'm curious if you have any insights into you know now that

11:23Bitcoin has risen up the next stages of flowing into deeper into crypto if that story is able to be foretold through open interest or funding rates or looking into the derivatives markets definitely yes so even already like in the last couple of weeks we've seen the derivative markets in terms of daily volume they've passed not only their 2023 levels on averages but also their

11:4522 and 21 levels and those 22 and 21 levels were pretty pretty heightened as well like we saw the derivative markets grow I think like six or 7x over the space of a few months in 2021 and we're starting to see that's nearly the first sign that sentiment is that bullish sentiment is returning is when you see derivative Market interest pick up because that's where I guess

12:05a lot of Traders go to place their either long or short bets and open interest is another indicator of that as well that's up in the last few weeks as I said and that's probably people looking to get allocated to the space in advance of some some news coming out and maybe just allocating toward before the end of the year and just getting yeah

12:22getting their positions in line I guess but we've definitely seen that pick up as I said funding rates is another great indicator of bullish sentiment and long demand and that's increased as I said that was up near 30% Longs were paying short Longs were paying shorts for the privilege of being long basically which is super interesting as well so yeah derivative markets

12:41are definitely telling a few signs there and that's that sentiment is picking up and interest is picking up as well great insights and I'm curious on your thoughts moving into 2024 there's you know leading up to this potential event of the ETF approval but it's also a having year as well you know looking around March or April bitcoin's expected for the supply to cut in

13:04half for the new incoming Supply I've spoken to some major companies that are holding you know hundreds of millions of Bitcoin and they're preparing for that event but I feel like it might be overshadowed by the ETF news and in terms of price action you know that's something that we know 100% is going to happen you know we don't know the specific day depends on the Block

13:25but the ETF is sort of the main event for the price action what do you think about those two events and how they relate yeah well I wouldn't say they're like mutually exclusive I'd say people as I said earlier it's a matter of like Tailwinds for the space and this is just yet another Tailwind for crypto assets and crypto prices in general that being the happing like we've seen in

13:45other happening Cycles as I'm sure you've probably talked about ad no on the podcast but we've seen crypto asset prices improve around the time of a happening so that's just another Tailwind another one you can add in is the potential we might actually be at the top of an interest rate environment now now like we could see interest rates being cut next year that's another

14:02Tailwind so you all of a sudden you've got like sentiment picking up a lot and the Outlook in 2024 really picking up for crypto assets which paints a positive picture and hopefully I'm not biased in that sense but they're just the facts like we know the Hing is going to happen soon we know hopefully that this spot ETF is going to be approved soon and then the hope is that interest

14:21rates will be cut at some stage maybe next year or soon after so you've just got a lot of things kind of pointing in the right direction and this perfect storm that was building and people like myself were saying this for the last couple of months even in advance of this fake ETF news and as I said I think that fake ETF news really kind of opened a lot of people's

14:38eyes and they were like okay maybe this asset class now can Spike 10% in a day again because we saw for the last six months it was just going sideways and that's why people want to be allocated to crypto is for the volatility really they want to be able to allocate from a tradire perspective maybe they want to be able to allocate like 5% of their portfolio to it to get

14:57exposure to that asymmetric UPS side and now the last few weeks have shown that's kind of back for crypto and on the defi side and the stable coin side I know you have expertise in there from what I understand throughout since the peak in 21 and through 2022 as we were in a bare Market more people are allocating to stable coins and you know

15:19if they were doing defi it was just to get their 5% interest or whatever it may be on a stable coin and now potentially they may be moving those stable coins back into Bitcoin what do you think is going to happen with the stable coin Market as Bitcoin starts Rising here yeah that's a really interesting question so I think definitely people will move some of their allocation maybe

15:39from stable coins into like more volatile assets that could easily happen but one Trend that I could see happening is a move away from these more centralized stable coins that really the business model there for centralized stable coins is kind of broken at the minute if you ask me it doesn't really make sense they pay out zero yield and they kind of they

15:56internalize all that yield and we see tether and we see Circle are some of the more most profitable companies in the world now I think tther in a quarter earned over a billion in assets and it has like around 50 employees and per employee it's one of the most profitable companies in the world so they just internalize all that yield but they externalize all the risk out to users of

16:14a risk of a deeg and everything like that so I think if you were to ask me like what the trend is maybe for 2024 it might be a move away from those centralized stable coins that we've gotten so used to and they kind of proliferated around Defi and CI and maybe more towards a model of yield bearing stable coins and yield being shared with the with the users

16:35because we've seen stable coin Supply on a decline this year and I think a big part of that reason is because people are rotating into bonds even that pay 5% and it's kind of the question why would you hold stable coin that are in 0% with a lot of probably inherent risk in there potentially with some of these centralized stable coins with dpeg

16:52and everything where you could potentially just rotate into bonds that earn 5% so it's a case of now crypto trying to match that 5 % yield that's on offer in trfi to become more competitive and start attracting more liquidity back to the space that's a good Insight because I feel like people need to know more about stable coins and the and the right

17:11asset because all stable coins are slightly different in the way that they're backed even those centralized ones and there's a lot of decentralized ones that you know about as well because when the time comes when you know Bitcoin is crazy oversold and hopefully hundreds of thousands of dollars people are probably going to want move that back into stable coin and

17:31they're going to want to know the what's under underlying of that asset and is it the right stable coin that they're using are they using the best one maybe you could talk a little bit about the difference of those centralized ones versus the decentralized ones and also what Athea Labs is working on yeah absolutely so yeah the centralized stable coins essentially hold bonds they

17:50hold cash on hand so essentially just us bonds centralized assets and the centralized issuer issues the stable coin so that's obviously quite Reliant upon traditional banking infrastructure and then you look more towards the recent like decentralized stable coins in quotation marks and a lot of them have kind of onboarded bonds as well lately or centralized

18:12stable coins in an effort to kind of comes back to be more competitive with that 5% bond yield so we've seen a few different stable coins now yet as I said on board real world assets that yield 5% and make their stable coin more competitive but yeah it kind of comes back down to like what are we trying to do in defi really we want that foundational stable coin of defi

18:33probably to be outside of the traditional banking infrastructure and not Reliant upon any centralized entity not Reliant upon yeah like have no censorship risk of those assets as well because we don't want someone to come in one day and just flip a switch and then all of a sudden defi disable coins defi run on are all of a sudden censored and defi yeah defi is kind of

18:54screwed in that instance so at atina Labs we're essentially trying to build this yeah this new kind of digital dollar let's say that's backed with Crypton native collateral so we use State ethereum as the collateral backing that stable coin and then we hedge that price exposure of State ethereum on derivative markets so that the two positions offset each other from a p&l

19:14perspective and at the end of that process you get this tokenized dollar that can essentially also earn a yield as I was talking about earlier the yield on the asset stake deterior ears about four or five% but then also historically you've been paid to go short ethereum Perpetual Futures which is the Hedge side of the trade and that earns about six to 7% on average

19:34annually over the last three years so that's something that could be yielding double digit double digit percent while using Crypton native collateral which is super interesting as well because as I said that's hopefully censorship resistant and it also kind of Rivals the bond yields that we're seeing in traditional markets as well so we're hoping what we're building is

19:53going to lead to that yeah and pushing the boundaries let's say of kind of more of a shift towards Yi bearing savings Assets in crypto and yeah hopefully we're kind of pushing those boundaries and helping defi move away from the censorship of assets more towards being I guess more self-sufficient and censorship resistance no that's that's great to

20:13know and from what I understand with defi even when you're in a bull market and everything is moving up stable coins are very important to defi because normally if you're doing a liquidity provision there's going to be two coins and if you want to mitigate your risk one side of that you're probably going to want to stick to a stable coin even if the assets are going up because

20:34otherwise it can be risky with the you know different other other risks are involved if you don't use stable coins so there is sort of a use in bare markets and in Bull markets as defi continues to grow yeah 100% And then yeah so as you touched on it exchanges themselves they don't want to be Overexposed to let's say a tether or a circle just in case

20:57they blow up they want probably some something that has more of an uncorrelated risk profile and we're not saying obviously 100% needs to be in these def5 stable coins but definitely a percentage of their order books probably need to be in that stable coin so they're just less concentrated on usdt and usdc we saw in March of this year when Circle had their issues with

21:15with svb and that could have that could have turned badly for them and so definitely a diversification of assets helps for exchanges and entities all around crypto in terms of stable coins and then yeah crypto as as a collateral asset within defi as well we see a lot of projects running on again centralized stable coins and just these things that have I guess

21:35correlated risk profiles with traditional banking infrastructure and as I said we want to build something out that has uncorrelated risk profiles and be more I guess make defi more independent and self-sufficient and that's what that boils back down to so yeah right now it's pretty fair to say that defi kind of runs on these centralized stable coins I think

21:54something like 80 or n 70 or 80% of volumes on Dex is on decentralized exchanges involve a centralized stable coin in the pair so we need to kind of flip that and make sure that's maybe more down towards 20 or 30% and that defi can still run on decentralized Stables yeah and with that transition into more decentralized stable coins you know it's there has to be some point

22:19where there's a pivot because a lot of the times you know people are looking to trade a coin and they say okay well the you know the top trading pair is usdt because as the most liquidity and it's on a lot of exchanges how can these decentralized stable coins sort of grow their market share so that they can you know compete with the ones that are already listed everywhere and have

22:40liquidity and people want to you know they may not agree with what are the underlying assets of the centralized coin but they're sort of forced to use it to not you know have those spreads and lose money yeah I think probably two things the first of that being the yield which I've talked about so the Ben Benchmark yield to beat for tether in

22:59circle is 0% right they don't pay a yield so hopefully defi Stables can start offering a yield that beats that not only beats that but I guess maybe it's fair to say The Benchmark yield is 5% for traditional bonds so defi defi yields need to just be elevated across the board and beat that 5% and then if we do that we'll start seeing an inflow of liquidity into

23:20the space and the shift away from centralized stable coins to more decentralized stable coins and then also we need to build out the use cases for decentralized Stables we need de decentralized Stables to be used as a collateral asset throughout the board we need defi Stables to be used on centralized and decentralized exchanges and as I said everything I've said so

23:39far hopefully the exchanges and different use cases hopefully the protocols behind those can see can see the use case there they as I said they want something with an uncorrelated risk profile they want something that can hopefully earn a yield that's Crypton native versus riant upon bonds and everything so yeah essentially it's two things yields and building out

24:00those use cases and I think yeah that defi will be kind of all the better for that and hopefully that happen sooner rather than later yeah I appreciate all the insights on your expertise in stable coins and defi I feel like as Bitcoin continues to grow people are going to become more interested in Defi and what's current and where it's at and these are very

24:18important points to know for people that want to learn more about the decentralized stable coin and just what you and your team are working on at Athena Labs what's the best way to dive into that information more yeah so I think the main spot is the Twitter _ laabs will be coming out and we have done with a lot of data surrounding different things there with the funding

24:39rates and different risk exposures as a team we're trying to be as transparent as possible with the risks that are involved because we're not trying to claim this is a riskless product there's definitely risks involved but we're happy with where we've kind of placed those risks and we're doing it for good reason so there's a lot of lot of information on the Twitter there

24:56a lot of charts we're also coming out with FAQs and different things ahead of our launch which should be at around January of the new year so really looking forward to that and yeah you can keep up to date with everything on our Twitter account cool thank you so much Connor appreciate your insights into the market everything to do with defi

25:13stable coins Bitcoin all the best in the markets and with Athena Labs moving forward and let's definitely follow up in the near future yeah thanks ashon great great chat thanks problem me