Discussion on the speculative nature and overvaluation of assets in the crypto space

Introduction to Crypto Market Valuation

Conversation about the growth of Miami's influence and the development of skyscrapers in the city

Miami's Growing Influence in Crypto

Insight into the speaker's background, career in finance, and transition to full-time crypto investing

Background and Journey to Crypto Investing

Explanation of the fund's approach, macro outlook, and conviction in crypto as an emerging market

Investment Philosophy and Approach

Comparison of Bitcoin to commodities and the cyclical nature of its value

Commodity-Like Approach to Bitcoin

Discussion on the influence of fiscal and monetary policy on the valuation and performance of crypto assets

Impact of Fiscal and Monetary Policy on Crypto

In-depth analysis of the macroeconomic landscape, inflation, and the impact of policy decisions on the market

Economic and Monetary Policy Analysis

Anticipation of market response to potential rate cuts and stimulus spending

Market Response to Policy Changes

Discussion on Bitcoin's price movements, crypto speculation, and liquidity cycles

Bitcoin's Price Discovery and Crypto Speculation

Comparing the prevalence of venture funds and hedge funds in the crypto market

Venture Funds vs. Hedge Funds in Crypto

Discussion on the need for underlying revenues and fundamentals in valuing crypto assets

The Need for Fundamental Valuations in Crypto

Outlook on inflation, geopolitical turbulence, and economic growth in the next 12 months

Inflation, Geopolitical Turbulence, and Economic Outlook

Discussion on the confidence in the election and its impact on the crypto market.

Crypto Market Confidence

Exploring the probabilistic distribution of outcomes in the crypto market and its potential impact on trend breaks.

Probabilistic Distribution of Outcomes

Discussion on the importance of asset selection and the potential winners in the crypto market.

Asset Selection and Winners

Expectations of a speculative boom into the election event and its potential impact on the crypto market.

Speculative Boom and Election Event

Shift in focus from Bitcoin to other values in the crypto market and the influence of the FAD signaling.

Tactical Focus Beyond Bitcoin

Discussion on global liquidity and its influence on Bitcoin as a global asset.

Global Liquidity and Bitcoin

Information on how to connect with Quinn and learn more about Lucker Capital.

Connect with Quinn and Lucker Capital

- The speaker believes that most assets in the crypto space are overvalued due to the speculative nature of the environment and lack of fundamental investors.
- They expect the market to shift towards more fundamental investing in 2-3 years.
- The speaker has a background in finance and macroeconomics, and their hedge fund strategy is focused on macro outlook and concentrated portfolio.
- They view crypto as the preeminent emerging market and believe it offers the best risk-adjusted rewards for expressing macro views.

- The speaker has experience in oil and gas and energy companies in traditional finance.
- They view commodities as very cyclical and not like stocks with internal compounding.
- They believe in allocating capital to crypto, but also recognize periods that are unsupportive for the asset class.
- They see Bitcoin as a hedge against currency debasement and believe that macro liquidity dictates the value of crypto assets.
- They discuss the macro landscape post-COVID and the shift from deflationary to inflationary pressures.

- The shift from China being a global economic powerhouse to an anti-China sentiment in the US and other Western countries was driven by populist discontent and exacerbated by COVID
- The fiscal response to COVID led to significant government spending and fiscal deficits, resulting in a 5-7% increase in debt per year
- The government's response to COVID through fiscal and monetary policy led to a bubble in tech and AI, followed by inflation becoming a problem
- The European and US central bankers and Treasury officials had to intervene to prevent a banking crisis in 2023
- Inflation is bottoming out and policymakers are easing monetary policy, which may lead to another inflation problem in the future
- The Fed's rate cuts and stimulus spending will impact consumer loans and market conditions, potentially leading to increased spending and investment
- The impact of the Fed's actions is already priced into the markets, and there may be a sell-off once the rate cut is announced
- The speaker also mentions the timing of Bitcoin reaching all-time highs as an indicator for investment opportunities in the crypto market.

- The speaker discusses the potential impact of Bitcoin surpassing all-time highs on the crypto market
- They mention the speculation and meme coins that have emerged as Bitcoin approaches its all-time highs
- They compare the current market situation to the small cap vs large cap dynamic in the stock market
- The potential impact of government support for crypto, particularly in the US, is also discussed
- Overall, the speaker sees potential for a significant market shift and increased adoption of crypto assets.

- The approval of a Bitcoin ETF opened up the potential for trillions of dollars in brokerage accounts to invest in Bitcoin.
- The approval of an Ethereum ETF is expected to follow the same pattern, with initial outflows followed by a significant run in price.
- The upcoming US election is seen as a binary event for the crypto market, with potential for significant impact depending on the outcome.
- The current sentiment in the crypto market is that there are too many venture funds and not enough hedge funds, leading to potential misallocation of capital.
- The market is expected to mature and become more legitimate as funds focus on underlying revenues and cash flows rather than just launching tokens.

- The speaker discusses the overvaluation of certain protocols and the need for the market to reward fundamentals and real building
- They express excitement about the ability to do venture deals with liquidity and the potential for finding undervalued opportunities
- The speaker predicts another wave of inflation and potential supply constraints in the physical commodity world, which could impact risk assets
- They also mention the potential for geopolitical turbulence in 2024 and its impact on inflation and the economy

- The speaker believes that the current economic environment is positive for risk assets, including crypto
- They predict a strong run for crypto in the next year
- They discuss the potential winners in the crypto market, such as the Solana ecosystem and Ethereum
- They anticipate a speculative boom leading up to the election
- The speaker can be found on Twitter and will be releasing a site, LuckerCapital.com, for people to follow their work and fund performance

- Speaker believes most crypto assets are overvalued due to speculative nature and lack of fundamental investors
- Expects market to shift towards fundamental investing in 2-3 years
- Background in finance and macroeconomics, focused on macro outlook and concentrated portfolio
- Views crypto as preeminent emerging market with best risk-adjusted rewards
- Experience in traditional finance, views commodities as cyclical
- Recognizes periods unsupportive for crypto, sees Bitcoin as hedge against currency debasement
- Discusses macro landscape post-COVID, shift from deflationary to inflationary pressures
- Fiscal response to COVID led to significant government spending and debt increase
- Predicts another wave of inflation and potential supply constraints in physical commodity world
- Anticipates strong run for crypto in next year, potential winners in Solana ecosystem and Ethereum
- Discusses potential impact of Bitcoin surpassing all-time highs on crypto market
- Expects mature market with focus on underlying revenues and cash flows
- Predicts speculative boom leading up to election
- Will release site LuckerCapital.com for people to follow their work and fund performance.

Quinn Thompson is the CIO of Lekker Capital a Digital Asset and Macro Hedge Fund. 

Quinn's Twitter: https://x.com/qthomp
Lekker Capital's Twitter: https://x.com/Lekker_Cap
Lekker Capital's Website: ⁠https://quinnthompson.substack.com/⁠

Logan Jastremski's Twitter: @LoganJastremski 
Frictionless's Twitter: @_Frictionless_
Frictionless's Website: ⁠⁠https://frictionless.fund/⁠⁠

Generally speaking, most assets that are in the space are probably overvalued, just given like the level of how early we are in speculative nature of the environment and the fact that almost no participants in the public liquid crypto markets are fundamental investors.

And so that means that you have to play the game that's being played.

And today that is very much not fundamentals like it is in value investing for stocks.

I think it gets there, let's say 2 to 3 years and our strategy will adopt to that and we will continue to do more and more.

It's already increased from 12 months ago to today how much fundamental work is being done but if you step back and kind of have that view that generally the space is kind of from a protocol basis a lot of froth and overvalued.

We then believe that macro liquidity dictates most of these assets.

Quinn, thank you so much for coming over.

Excited to make this podcast finally happen.

Good to hang with another Miami neighbor.

I know we're growing the Miami crew slowly and surely, but a lot of exciting things that are now happening in Miami.

I mean, I just read a tweet that said Miami has the highest number of skyscrapers being built more than any East Coast city combined or something like that.

Well, they're building a 66 story building next to my place.

So I'll have people looking at my apartments.

But I think what you're doing is super interesting within the crypto space.

You're starting a hedge fund and it's a crypto hedge fund, but you're also focused on macro.

And I think historically crypto funds have kind of either been long, short, kind of thesis driven, but not very many people include kind of macro outlook, at least not, I would say, historically.

And so I think your fund is really unique because throughout the, say, 2023 and even today in 2024, I've been following your Twitter more, you've been tweeting more, And a lot of your calls have been really fucking crack.

But your story, I think, is just super interesting.

And so maybe to start off the podcast, I always like to hear a little bit about people's stories before diving into the details of like your investment philosophy.

So maybe give us a little background on your how you ultimately came to be with this fund and how you got started.

And, you know, went to school, had no idea really what Wall Street was.

And in school at Wisconsin, I was in accounting and finance classes and ended up double majoring and then getting an investment banking internship in New York.

So went out to New York for the summer and then went back for my, you know, started my career, spent the first 6 years up there working in investment banking and then fixed income and capital markets roles.

And I always loved the markets, just like the public markets, macroeconomics.

It's kind of funny because growing up in elementary school and middle school and high school even was, I just loved current events.

That's like meaning sports and pop culture things that when I was younger and then that morphed into really having a interest in geopolitical events and more, not necessarily political things, but more like strategic geopolitical things and how events would take place and what that meant.

And then eventually that makes sense that shifted to macro because if you have a passion for forecasting these things and maybe taking not consensus views, the place to make money is not betting on is China going to invade Taiwan.

It's expressing that in financial markets and how things will play out.

And it kind of brewed through my early career in finance, where I was in these credit and fixed income jobs, and always had this passion for, you know, the macro side, which wasn't, it was a part of it, but not full fledged, you know, my day to day.

So diving in there, I would say, in credit and fixed income roles, you typically are a specialist of the product debt capital markets, but you're a generalist across industries.

So what I mean by that is we were an expert on the capital market side of things and underwriting.

And then we leaned on the industry experts, the sector specialists within the firms who knew the ins and out deep dive of each industry we worked on.

So at any given time I was working on oil and gas deals, sometimes media and telecom deals.

That skill set, I think you cover like 10, 000 feet, an inch deep type of thing versus a small radius, but very deep.

It teaches you to be able to get up to speed quickly on a number of topics, be aware of all your periphery of potential things that could influence or become knock-on effects.

From there, I had this passion for macro and how things would play out.

A little bit was the monetary policy experiment.

Now it's not as much talked about because QE is so accepted, but for the 2010s, it was all about your headline every single year was like, Can QE and monetary policy continue at 0% interest rates?

And these things tend to move in unison across the world.

Gotten a Bitcoin in 2019, 2020, actually, through Real Vision is really what sparked it.

I know a lot of people went that route, but it was the first kind of financial media research publication that married the 2.

And at first, like everybody else, I'm working in New York on Wall Street every day and have Real Vision pulled up on my screen and they're talking about Bitcoin and crypto.

And obviously, Raoul Pal is a very established traditional finance guy years ago and worked in hedge funds.

But it still was that fringy media source.

It wasn't your Wall Street Journal or anything like that.

Oh, they're just pumping Bitcoin and stuff.

And so I definitely had that view, like every TradFi person at the beginning, and then got deeper and deeper.

Instead of going in the office 6 days a week, I had all this time on my hands that I wasn't commuting and gotten to crypto big and then went full time in 2021.

So it's that background that's kind of shaped my investment philosophy and approach to the space and maybe unique edge of how I see the world.

I think being able to synthesize a lot of ideas and intelligently try to make predictions about that is really a superpower.

I mean, it is really, really hard to, I would say, digest that much information and actually be able to synthesize that and how they all come together and doing something with that.

And then being able to kind of see what's going on.

I was also a big fan of Rao Pao and his content and just getting people open to the ideas that there's something else out there outside of like the traditional markets, within outside the traditional markets and exploring this new asset class that is crypto.

I think everybody starts to kind of get in with Bitcoin and then you go to Ethereum and then you're like, oh, shit, like, there's actually a lot out here.

So the fund and strategy kind of revolves around this as well.

But to Lekker, I would consider a global macro discretionary hedge fund.

And I'll get into the crypto part, but at the core, it's discretionary macro.

Our approach is generally a concentrated portfolio, usually picking somewhere between 3 to 5 themes, like a traditional macro approach would, that you believe strongly in and are kind of secular themes that you expect to play out over a, say, 12 to 36 month time horizon.

And then within those themes, probably have anywhere from 5 to 10 line items or assets that you're picking as your winners if that theme prevails.

I would consider the crypto part of the strategy, which is the bulk of it, is more just a reflection of our view and belief, which is crypto is the preeminent emerging market in the world today.

So we kind of view it in that lens, which is just like you would a sovereign like India or China coming onto the global scene and the capital flows, the liquidity, the economic growth, the population growth, the activity, imports, exports.

I think you can basically view the crypto economy as such and the only difference is instead of a sovereign, It's a network state, kind of like how biology talks about it.

And so with that, we're generally of the belief that if you have a convicted macro view on whatever part of the environment that might be.

The best expression is probably from a risk-adjusted reward perspective in crypto somewhere.

You can just look to Bitcoin's Sharpe ratio and the historical return, risk-adjusted returns of the asset class.

Then at a more granular perspective, the view on crypto is like maybe zeroing in on Bitcoin.

I used to do a lot of work with oil and gas and energy companies in TradFi.

And how commodities work is they're very, very cyclical.

You know, they're not like stocks that have internal compounding that's growing enterprise value, your earnings base is growing, and you have a multiple on that that kind of ebbs and flows.

It's you don't have that cash flow in the commodity.

Obviously, there's other assets besides just Bitcoin.

But with that commodity like approach, it's extremely cyclical.

You know, it's either in vogue or It's out of vogue.

And you can, for example, be the best oil analyst in the world, picking the winners and losers of oil companies.

But if we're in a terrible recession and oil's falling through the floor, you're picking nice houses in bad neighborhoods and it's going to be a struggle.

You might outperform your benchmark, but you're not going to outperform other assets.

You know, I'm the biggest investor in Lekker and that's how I view allocating capital is I generally want to be long crypto because I think it is this emerging market that's going to dominate and be the quickest grower in the next 10 years.

But there's periods that are very unsupportive for the asset class to the point where we will be out of the positions completely if things have run too far based on where we see relative value.

So the example there is going back to the oil patch, which oil is a commodity that powers energy and basically the modern society.

A big reason why the US is such a prolific services-based, tech-based economy is because we have extremely cheap energy, low cost of electricity.

You look at many other countries that are net importers, like Japan, which have a really struggling economy.

So I view Bitcoin in particular as the purest form or commodity to express a hedge against currency debasement.

And so there's periods like 2020, 2021, where governments are going wild post-COVID printing and currencies across the globe are debasing.

And then there's periods like 2022, where it's actually the opposite.

And these officials are acting a little more responsibly, not completely responsible, but enough to kind of drain out the speculation in crypto.

And so if you think that's the case, there's these different environments where it works really well and doesn't work so well.

And so we're trying to structure, obviously we have a really positive view on crypto long-term, but then other bets and themes within the portfolio that might offer a positively carrying hedge against that view.

And I think 1 thing that you kind of mentioned that stood out to me is just the emergence of crypto as an asset class that is actually deserving to be called an asset class.

And it's interesting because crypto, I mean, really was so small, it just started out with Bitcoin, then Ethereum expanded that with smart contracts, and now you can build these applications on top of it.

And Bitcoin today, I believe is above a trillion dollars.

And then we have Ethereum and other smart contract platforms allowing you to build applications.

When you were kind of with the hedge fund, are you generally kind of looking at applications built on these blockchains?

Are you trying to get broad exposure to different themes, whether that's smart contract platforms or just Bitcoin?

How are you thinking that Also, I guess, in terms of macro as well.

So the macro informs the 1, like macro rules the whole process.

So the thing about that is we're taking less fundamental views at the moment on a long-term buy and hold approach to other assets, like non-core, non-major assets.

And the reason for that, we can probably talk about it later, is generally speaking, Most assets that are in the space are probably overvalued, just given the level of how early we are in speculative nature of the environment and the fact that almost no participants in the public liquid crypto markets are fundamental investors.

And our strategy will adopt to that, and we will continue to do more and more.

It's already increased from 12 months ago to today, how much fundamental work is being done.

But if you step back and have that view that generally the space is from a protocol basis, a lot of froth and overvalued, we then believe that macro liquidity dictates most of these assets value.

And under that approach, if we believe to be in a positive macro environment, we'll go risk on.

If it's a mediocre and risk-taking environment for crypto, we'll probably just be in the majors like Bitcoin, ETH, Solana.

And then if we think it's no bueno, then we'll just be in cash or into the other macro bets.

But we will invest in protocol application layer altcoins.

It's usually not usually even 50% of the book, but it will max out probably 30 to 40 if we're in a really positive environment.

I think actually probably coming up is another example where we're getting pretty constructive.

So on that point, I think hopefully people now have a little bit of background context on you, kind of the fund overall.

Where would you kind of, and I think you touched upon this throughout, but we're much different, in my opinion, probably macro landscape than 2021, where COVID happened in 2020, you turned the printer on, things went burr, crypto prices were extraordinary.

Then we had a variety of kind of cool off reasons, FTX collapse, Luna collapse on the crypto side, maybe paint a broad picture of where we are today post-COVID from the macro side and where we are today or perhaps where we're going in the next 6 months.

So taking a step back to frame it is Bitcoin started because of policy, government intervention, and really centralization.

So we always talk about decentralization.

And at this point, it's just regurgitated so much, you don't really know what it means.

But if you take a step back from a macro lens, I always find it funny how things that are talked about in crypto land are actually very applicable to many parts of traditional finance system.

And it's just another building block of our views.

But basically, the 2010s up to COVID, we had a very centrally planned monetary policy.

So if you think of the 2 levers of the economy, you know, it's not just all centrally planned, but monetary and fiscal policy.

So the currency and liquidity is generally dictated by monetary policy.

And then how governments spend and finance themselves is dictated by fiscal policy.

And in the 2010s leading up to COVID, we had a tremendously accommodative monetary policy because we were in this structurally deflationary environment that basically didn't produce any repercussions to free easy 0% interest rate money.

It was this anomaly which was largely attributable to China.

They're coming onto the global landscape of cheap labor, cheap goods, and all the developed nations at the time, primarily US and Europe, but US was a huge beneficiary, was importing deflation.

1, producing a ton of cheap goods, you know, exporting that to countries like the US where labor was more expensive.

So just importing it alone, we had, you know, we had an advantage on cost.

And then also they were kept their currency very, very, very cheap and devalued.

So this double whammy of labor was already cheap there if you just didn't intervene on anything.

And that would be importing deflation in the US.

But then they kept their currency even cheaper, purposefully devalued it to grow their exports on a global scale.

That magnitude is, I still think, greatly underappreciated in today's economy macro perspective and how deflationary that force was.

So the US, Europe, every central bank basically was on this global easing path and no repercussions.

No 1 thought inflation could even exist again because we had technology, lower costs, all these things.

And it really, like, there's other factors besides China, but, like, that was the primary, probably 75% of it.

Fast forward, so we had easy monetary policy, we had China's, you know, exporting deflation to the world, and why the, you know, we didn't have that great a growth in the US.

So fiscal policy, which is government spending, was pretty responsible.

It was, we were running small deficits, but nothing crazy, maybe 1% to 3% as we were going in and out of recessions.

Fast forward to COVID, and you had all of a sudden those extremely structurally deflationary pressures overnight essentially switched to inflationary pressures.

Meaning, so 1, we went from China being the global powerhouse of the economy, we immediately pivoted to an anti-China, generally adopted view both in the US and other Western developed world.

And the reason for that was a lot of brewing populism things like in our home states in Indiana and Wisconsin, people getting unhappy with the middle and lower class not keeping up.

So the Tinder was there for the spark, all you need, and COVID was what did it.

It gave a very easy thing for people to rally behind as China started this huge global pandemic and they're the bad guy and they've been ripping our faces off for a long time.

So it started kicks off this narrative of anti-China, which now is probably the most agreed upon bipartisan angle in the US and many other countries.

So we went from accepting China's deflation via exports to now rejecting it.

So this whole big driver of the 2010s deflationary period that allowed us to have super, super easy monetary policy and debase the currencies is kind of gone.

The next step then is the fiscal response to COVID.

Oh my God, this is the biggest emergency we've faced as a nation, as a world, since people were saying worse than the great financial recession and since kind of the Great Depression.

It's our duty to respond to protect our people and that's fiscal stimulus.

We need to hand out unemployment checks that are bigger and in size than what people were making even when they were employed.

Stuff like that that's just absolutely ridiculous, but has been normalized now.

And so what started as 3 free money, $1, 500 checks in the mail has now turned to all these other, the Inflation Reduction Act and all of these other government spending programs.

And it's resulted in, you know, in the 4 years since COVID, we've ran 5 to 7% plus fiscal deficits, meaning as a percentage of GDP, the government is spending 5% to 7% more into debt per year.

So if you just think about that, you're like, okay, GDP is $1, let's say, and the government's every year spending an extra $6 per year than what they're bringing in, and they're financing that with debt.

We should be growing GDP as a percentage close to that 6 number.

So that GDP growth rate of a nominal 6% that you can assume, assuming they're not just like the worst allocators of capital.

So your economy could be growing 0% real GDP, but 5% inflation per year, or you could be growing 5% real GDP and 1% inflation.

And that gets you to that nominal growth number.

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Deep diving Macro with Quinn Thompson of Lekker Capital on Digital Asset Trends | #EP 138