Quant Trader Says The Crypto Bull Market Just Started - Scott Phillips - #54

But Scott Phillips on the pod. Thanks for coming on. This is fucking sick. - Yeah, man. - Dude, yeah, so it's great to finally put a face to a name. Saw you on Odson Open, fantastic quantitative finance pod that yeah, really brought you onto the timeline. I was like sick, like I've been following you for ages on Twitter and then you know, got to see you talking. I was like, this guy, fucking rocks. Like I need to speak to him, this is fantastic. - Fuck yeah, Australia, represent. - Fuck me. (laughs) - Let's do it. Also, Brazilian Jiu-Jitsu as well. So there's, there's, there's plenty to talk about. - When do you train Jitsu at Bondi? - I don't train Jitsu in Bondi, but I used to train when I was like living in Wollongoc, down in Melbourne as well. Like I haven't trained in like two years. I'm still like four-striped white belt. I haven't been put to blue. I just want to do one comp at white belt before I go to blue. - You can just speed some white belts up before you get your blue belt. That's, yeah. - That's fine. - Jiu-Jitsu spirit. (laughs) - Exactly. - Exactly. - I mean, you can beat some like middle-aged guys. Maybe, maybe some overweight dudes. - Dude, yeah, yeah, yeah. - Exactly, it's good to not just have my ass handed to me by like, you know, like six-year-old accountants called Kevin with a brown belt all the time that weighed 20 kilos less than me. I'm just like. - When I started Jiu-Jitsu in like 2011, I thought I had every reason to think I was a shit hot fighter, like I had a lot of experience. I've been doing martial arts my whole life. Just naturally assumed I'd be good at it. And fucking the chicks beat me. The high school kids beat me. The nerdy accountants beat me. It's tap and white brighter. It's just so humiliating and you just. - Yep, dude, I like. - But that's stand. You just gotta go, I've just got to stick with this until I can do some payback. - Yep, those similar sets. I've been doing boxing and boy tie for a bit at an ever-made gym but hadn't really done any grappling 'cause I was like, "Grappling's food. "Pussy's. "Stand a bank, dude." And then, yeah, I went to a Gracie Barra and she's lovely, but there was literally a 50-year-old cop called Jo. And she just beat the shit out of me for like three rounds. And that was like on my day two, day three, and I was like, "Okay, there's something to be said "for this, something that this is incredible. "If I can learn this, this is going to be the best shit ever." - Well, I mean, it's not that good for MMA, right? Like, we know, we know now. Like, I train at Bangtown MMA, which is probably the best MMA gym in the Southern Hemisphere. - No way. - Yeah, you know, Valks there and fucking, you know, all the greats are there and Zang Lee Lee's there and, you know, bunch of tie champions as well. And like, there's 15 guys from the UFC on the mats every day. And the UFC guys and the one of the UFC guys, the Jits isn't all that, like it's a very 10% subset of Jits here. - Yeah, there's so much stuff that just doesn't track well at all. Like, hey, I'm just gonna pull guard in the octagon. And it's like mostly wrestling. - You know, half-guard is great. Bottom half-guard is great in Jits here. It's a good way to get your face punched in and MMA, right? Like, and there's a hundred things like that too. But it's merging now. Like, Jiu Jitsu these days at high level Jiu Jitsu, Jim looks like wrestling. And that's the light should be. - Yeah, exactly. - It looks like wrestling is awesome. - Exactly. - All the daggers, Danny, while the fuck is it? Just been running a clinic on it being like, so it goes to show. But dude, we have a lot to fucking talk about. We've just ripped a 20% daily candle on hype. (men grunting) - And you know, I solved like a hundred grand with a hype yesterday, right before the pump. There's like, oh, you can't, you can't, I missed it. - Yeah, it's a bit of sleep for me. But it's tough. But at least you're not a completely sidelined to hype. You know, working at Synthetics, I felt like having like other, other imperfects. - I'm, you know, 70% hype run. - Exactly. - I'm okay, it's okay. - It's okay, yeah, it did. So I mean, Ethan's leading BTC is done really well. Treasury's just increasing nominal long and liquidity support by back starting September 19th. You know, we're getting like micro QE. It's all of this shit has just like, literally just landed on its little patch. - I think the key thing is zooming out a little bit and say, well, what do bull markets look like? Bull markets have some characteristics, not just in crypto everywhere. Bull markets generally start from a period of profound boredom when nothing's happening and people couldn't be bothered looking at it, like losing interest after a big drop. So bull markets don't start usually from a crash and then just a new bull market start away 'cause people have PTSD. Bull markets start from a crash and then a fucking six months or a year if I fucking hate this shit, it's done nothing. Crab right, crab market. And then bull markets kick off strongly. Statistically, the biggest moves, the longest running moves, I kicked off with the biggest single day, single week candles. And so we have, crypto has undeniably been not just boring, but there's reasons to doubt the whole thesis, right? Like, fucking North Korea and fucking Frontier AI models, hacking, DeFi, shit like for fun. Gryfft after Gryfft after Gryfft after Gryfft, the level of fuckery from existing projects is just extreme. Binance has been, you know, Binance charges like 15 to 20% have supplied to list a coin these days and they just dump it, they max extract. So because of that, one of the strongest, one of the strongest edges in crypto has been shorting new listings after about five days to a week and just holding it for like 90 days, which is the length of a market maker contract, right? And so because that's such a strong edge, there's a lot of shorts in very small shit coins and all those shorts got fucked today. Like, like they took damage. So after 10/10, which just wrecked every leveraged player in the world was wiped out. We were very lucky because, you know, we trade, we trade mainly trend-elfers so we were short into the crash. But that was more luck and skill, you know? And so most of our peers took a really, really big haircut on 10 to 10th retail wiped out left the building. You know, and what we're seeing is signs that this is the right, you want it generally, you want to buy crypto when people hate it and sell it when people love it, right? Like, you don't have to be a good trader to go, ask 10 e-mates, I'm thinking about buying some Bitcoin and they say, you fucking nuts, that's fucked. Don't do that by AI stocks by fucking. - By Micron and Sandisk, yeah. - Yeah, you know, you know, and then, you know, I've been through a number of tops in crypto like that. 2018 top, the 2021 top and, you know, I remember that the 2018 top are sitting around the edge in this Bangkok fight gym with a bunch of fucking Taiwan fight bumps. You know, it couldn't scrape together a couple of grand and they're spending in between rounds talking about the prices of old coins. And that was like the top. So, you know, as a general rule, if you're not like a trader trader, you know, you can time how much to people hate crypto, they hate it a fucking lot right now. How much does crypto seem like it's a scam and never coming back? You know, those are the times that you want to get positioned. And when do you want to sell crypto? Oh, you know, slam dunk, it's going to a million fucking, you know, great news about it. Everyone loves it. Your dumb ass mate is calling you asking how do I buy Bitcoin, you know, people quit their jobs. That's a classic one as people quit their jobs. Like the end of the Salana trenching era was people quitting their jobs to become trenches and shit like that. So they're not actually quit the job that I had at the end of 2024. Not to become a trencher, but because I was like, "Oh yeah, fuck yeah, so this is going to be fine." Yeah, this is great. Yeah, I can. And then proceeded to round trip a phenomenal portion of my gates over the next six months and was like, "Okay, Sikh, we're good." Good at this. Don't worry. Yeah, yeah, yeah, yeah. So, which brings us to an interesting point is that a lot of the edges that are real in crypto are downstream of the nature of crypto. So what I mean is how hard is it for you to get money into crypto? Like, from your bank account into crypto, it's kind of a bull egg, right? Yep, especially in Australia. Especially in Australia. And getting back out is actually even worse, right? Yep. So most people, if you ask your crypto mates, how they get their money back out, so we'll get you with this blank stair. What do you mean, take profits out? Like, you never go, you just throw it in. And then we just keep it in. It's a casino where you're up and down and up and down and they're shit going on, but we never actually pull it out. So this makes siloed and trapped capital. Now, what this effect causes that once money comes in, it turns to wash around wherever's hot. So for example, after the hyper-liquid edge, up that capital washed around a lot and created, you know, because crypto market caps are a total fucking illusion, right? Like, you know, coins work a billion dollars market cap. It doesn't mean you can sell a billion dollars worth of it. You could probably sell, you know, a billion dollar market cap coin. You're probably materially affecting the market if you sell more than half million bucks worth inside a day. So one of the things, one of like Salana wins get kicked off, the big Salana win caused a bunch of, in 2024, caused a bunch of, you know, money that was trapped in Salana chain, that it's very difficult to get, it's not very difficult, but it's anxiety inducing to get money from Salana chain to Bitcoin to other chains. So you've got your money on phantom wards, it's in soul. The tendency is just to keep clicking on soul, right? Yep. Whenever we see a new big runner, that's on a new chain, that's kind of a thing that will loop around and just wash around. And you know, in my opinion, we're seeing some of that in Robin Hood chain right now. I think trenching on Robin Hood chain is a really interesting proposition right now. Yeah. There's these fucking idiots, actually, they're not idiots, they're actually really good traders. There's a couple of them, Cupsy and, and, and other guys who made like 20 million plus, my family copy traders basically. It, it's done to be the people still show up to copy trade them, even though they have made explicit like, by the way, by the way, I built my copy traders. I built a house a couple of years ago and I detracted a bunch of copy traders on Salana and I just found them. I wanted a better kitchen, I just found them until I paid for the kitchen, just like buying dog shit goes, it goes up 50%. You can only do like, you know, four or five grand, but like fuck, I was doing that every day for months. It's so funny. It actually, it's done to be the people just keep. I think that Salana is the most, has one of the most like, almost like trained user bases of like, oh, this one will be different. This one will be different and it's just as constant flicking of capital into nothing. Well, they fry their brains, right? Yeah. It's, it's like watching Tik Tok all day. But legitimately, the, the trenches, this generation of trenches with the like full on autism about knowing which a coin is likely to run and intuition about when they, when they've got to stop farming their followers and they're legitimately good at what they do. Like, I've, I've got a great friend, Antoine, RSX, who's a good follower as well, French guy, but despite that is a good blog. And I watch him trench and I can't, I can't keep, I can't keep up with him on trenching. Like, it gives me ADHD. It's like, it gives you epilepsy to watching. It's like fucking, you know, what do you think makes the difference? Like, cause you, you know, your medium frequency trading at a, at hyper trend, what is it like that, that makes the difference between like a good trencher and then like a more quantitative side? Like, what's the split there in terms of like skill or structure or what's they, what do they do? So a trench, trenching is like a poker game. So there'll be like five real players in a coin. And so you've got to know exactly who your opposition is. You've got to know, did they get, did they get in at launch? Did they get in, if it's on a launch pad before the launch pad? How much do they hold? Have they taken profits? Yeah, you're kind of looking at them and going, okay, so there's five guys who matter in this coin. Any one of us who dumps our stack, we fucked the coin. And once it's fucked, it's fucked for good, right? So you want to be out, it's a prisoner's dilemma, right? You want to be out ahead of them. But you might fake them out by like buying right when you're selling in a sidewalk, a side wallet, so they don't think you're fucking it. There's a lot of sleutying about tracking down other people's side wallets. You can track down side wallets in various ways. Like if you look at say some, you know, 500K topper, you can see who, which wallets won and go, okay, so Cups, he set this off and fucking these other cunts followed him in. But these were the big profit wallets. Okay, okay, those are side wallets of one of these cunts. And then you mark it down and keep a list and look at the other shit they did. And then you're looking at new launches and seeing, like when they go into it, yeah, okay. Yeah. And being like, oh, okay, same, same, same. Like we're going to go to 500K, we sell a little bit before going. So it's, so it's nothing to do with trading per se. It's more like, you know, it's more like a board game or a car game. With a fun Mexican standoff component. Yeah, yeah, exactly. You know, I think it's fun. I don't particularly like doing it anymore. I've done enough of it. And it's totally negative expected value, right? So the only one we miss by taking money off dumbasses. Unfortunately, you know, there's a lot of dumbasses. You know, you want a great supply. And this is an interesting, you know, crypto thing is you want to go where you see the large population of dumbasses. Like, and, you know, for example, if you see people who've been gifted through an adripe or through, you know, a massive hundred bag of trade, a bunch of wealth that's totally in equipped to manage it. And we saw this with the hyper liquid adripe. There's a bunch of fucking eight figure guys who shouldn't be $8,000 guys. And all of a sudden, they're starting to post like, like, they know things and they can pick the next winner. And those guys all fucked it up. Really bad with like, there's a very, there's very strong alphas in, in fading guys who got the adripe and hyper liquid early on for a start. Because they're, you know, drunk, drunk on the house's money. Fucking 3 a.m. with millions up. Fuck it. Let it ride. You know, that sort of mentality. It is interesting. I feel like the early Salana days were similar as well. The Gido, Gido Airdrop hit, Jupiter Airdrop hit. And so you just gave all of these random guys that put a soul in Gido in a single wallet. They handed out like five grand of wallet. And so you had instantly just this massive liquidity influx into the, you know, what was pretty trenches. But then pump fund came along with the match and was like, Hey, you can launch coins for two bucks. Enjoy. So yeah. Now it really is really used. Fucking insane. And so taking you back a little bit to where you started, you genuinely think that we've kicked off like this today's kind of PA marks the beginning of like, what is the problem? We've had a week of Trump crypto announcements every day that are very clearly staged and stage managed. There's one of those Mondays, there's Tuesdays, Wednesdays, Thursdays and Fridays, like, Oh, and Trump just managed to mention hyperliquid and perpetual futures in a fucking speech here. What a fucking coincidence. Like, I mean, there's some shit going down, right? And we have a very quiet historical low volatility market. So if you want to, if you want to bring up a long term chart of crypto, any crypto, all the indexes or the total three on trading view and, you know, as a proxy for volatility, just plot a standard deviation indicator on it with, you know, about 20, 25 period days on it. That's a decent proxy for volatility. And then you look at what happens when volatility hits the lowest it's been for like half a year or a year. And then the first move off that tends to be oversized just because of mechanical effects and the mechanical effects are when volatile, most people are, most people who are professionals are sizing their positions based on volatility. So if the market is wiggling a little bit, I can only have a, I can have a large position. If the market is all over the place like a madwoman shit, I've got to fucking have a smaller position because it's wiggling too much. So what happens is mechanically, if the market is quiet and low volatility, if you don't speak nerd means boring, that's when, when people think low volatility, high volatility, what does that mean? Low volatility means a boring market. High volatility means an exciting market. Exciting market can be exciting fun or exciting kids move out, pack a shit with lots of house. It can be both times of exciting. So mechanically, you've got a bunch of people who have oversized positions when things are very, very quiet, barely wiggling at all. And then you get a 20% up candle and they have five times the size that a sensible person should have on today. And so they've got to mechanically deliver. They have no choice. They have to get the fuck out at any price. And so one of the things that creates edge in any market is forced, trapped, constrained traders. If a guy gets his stop loss here, he's not choosing the price that he gets to trade at. He gets, gets what he's fucking given. Fuck you, buddy. You got fucked. You know, no crying and casino. So on a more professional level, if you're looking at institutional traders, who's, you know, it got to put folio, you know, like us today, we haven't put folio over 100 coins. And most sensible things that you can do in crypto end up. No matter how you slice and dice, you know, we've got 140 to 140 odd different systems. which we call features. We blend them all into a soup. But when you put that all together, when you shake it out and you say, "What put folio on my holding?" Generally, it looks like I'm a long Bitcoin, I'm long hype, I'm long Ethereum, I'm long Solana, I'm long big stuff, and I'm short as much dog shit as I can get because shit coins are the clues in the night, right? Like they are, in fact, shit. And most shit coins will go to zero either through the team giving up, the community giving up, someone doing an OTC deal and max extracting, you know, I'm looking at you monad, I'm looking at you bearer, not bearers down 97% still a magnificent short. And any reasonable way you can come up with, for coming up with ideas for what would a shit project look like? It's almost going to you going to work. So for example, if you, you know, give me an idea for how would you, what would a failed project look like to you? Like you mean some indicators? Found a seller? Yeah, Found a seller, it's a team's given up, you know, community just yelling at him on Twitter, whatever. Bullshit votes in their fucking Dow, like they, you know, vote to print a million new coins and give it to some related party, OTC deals, dev stopping working, firing a bunch of people, so those devs start showing up, stop showing up on it. You know, any sort of reasonable thing that you could reasonably infer, closed down, head count, you know, change in head count. You know, we're keeping the marketing guys, but the actual devs we fired, like, what does that tell you? Like, like, like the shit's thought. So almost anything that you can come up with like that, I almost guarantee you can build a very, very strong system out of it. And, you know, anything that you could come up with that might be, you know, people stopping using the chain, people all, you know, like these things are supposed to represent businesses, right? Like if no one's actually, I'm looking at you, Berra again, and Monad, and, you know, my business ends like 10 Berries every day, like 100 Berries, fuck Merra, like all those shitty fucking Binance listings, you know, we know the Binance charges 15 to 20% of supply, so to list you. And we've always wanted one of those ones that I remember looking at like when it first came out and was the proof of liquidity, like, staking system. And then I sort of like, I forgot what FDV had launched at, but it was absurd. And we're just being like, what the fuck is going on here? Like, it's another thing. So back in the day, a Pudgey Jewish man showed us the formula, he showed us the way, the truth and the light, which is, you can draw a dick on your chart. You can make it whatever you want. As long as you have a very low float and a high fully diluted value, you know, oh, we've got a 50 billion dollar market cap on fucking whatever, but only like the float is only 1%. So a little bit of buying pressure will push it up and down. But so, you know, that playbook, any coins that you can recognize that are running that playbook, there's only one reason to run a low float, high fully diluted value coin. And that's so you can fucking run a scam, right? Like that is the, that is the only fucking reason. Like, so you can sell it. Yeah. Yeah. So there's a bunch of like reasonably obvious, if you do it, if you're a discretionary trader, or better yet, if you're a systematic trader, that that, you know, anything reasonably plausible when you test these hypothesis, they tend to turn out correct. But the problem with them is that they all tend to give you the similar sort of thing, which is, like, you want to be short, better, and more than a long bit coin in height, like they all give you those sort of portfolios. Yeah. Um, which is a problem when you get a day like today. Right? Because even though, even though the big stuff in our portfolio went up, the small stuff also went up a lot too. And we were, we were all short, a lot of shit coins, that, that punt, like puns. Um, and it evens out somewhat, but, but still, how do you manage, like, how do you, like, you were saying that you've got a hundred coins, like in the, in the overall portfolio, a bunch of different, like, giant soup of different systems. How do you manage, like, holding those, like, even when you have a big day where all the algos kick in and everything just trends up. And you're like, so we don't have 140 separate algos. You have 140 signals. And so let's say a trim signal, a classic trim signal is rank everything on how much it's gone up recently. And, and buy the ones that have gone up a lot recently, and, and short the ones that have gone down a lot recently. So that, um, is, is long a certain subset of coins. And then let's say we've got a, some sort of shit coin algo that's identifying shit coins. So, you know, it's not one that we use, but, um, you might look at chains that don't earn very much income on the chain as an indicator that the chain is shit. And you might go long, a portfolio of coins that earn a lot on their chain, which would get you long, big coin, long, high, long Ethereum, long Solana, and you might go short, a bunch of coins that earn fucking nothing despite their billion dollar valuations. I'm actually, like that's a perfectly reasonable sort of way to, to do things. And, you know, you want to have as many of those things as you can. And, and, you know, there's nothing really new under the sun in crypto. Like, um, you know, we know that momentum. So, you know, the things that have gone up recently will tend to continue to go up. We know that that works. We know that carried, which is the things that pay a lot of money, um, to hold, like, with high funding rates, tend to go up faster and go down faster than, than other things. Um, we know, you know, there's, there's, uh, analogies to the quality factor that works in equities. And we know there's a, a size factor. So, in, in equities, the big difference to in crypto and equities is that in, in equities, little tends to be big on average risk adjusted. So, if you want to, if you want to go out and find a bunch of high performing, um, small cat manufacturing companies, they're probably going to outperform proctor and gamble on a risk adjusted basis. The opposite is true. So, in crypto, big beats small every fucking time for obvious reasons, because shit cleanses shit. Um, so there's, it really is just this persistent edge of just like, hey, they keep launching dog shit and it keeps sucking, uh, relative to equities. You can just run it short. So the, the other difference between crypto and, uh, and regular markets is in regular markets, if you try and have any sort of predictive say over what coins are going to trend. If, if you, if you said is oil going to trend or is the stock market going to trend or is bonds going to trend, and you think you know that in the future, I'd say, fucking put your crystal ball away. You just fucking fool yourself. In crypto, that's not true. That's demonstrably untrue. We have a number of things. It's like half a dozen of them. You know, I won't, I won't give it away, but they're, but they're fairly obvious. If you're a quantity watching this and, and you have the ability to test these things, um, the things which you might think, uh, play out give you an, an ability to build better momentum and trend features because trend works better on Bitcoin than it does on Ethereum. It works better on Ethereum than it does on Solana. It works better on Solana than it does on this. And that holds through, through all the way through the first three desols of, you know, coins on CoinMarketCap, which are the ones that are probably on exchanges at some point. And then by about the third desol, coins that pump have negative momentum effects. So Bitcoin, if Bitcoin goes up up in a 20% day, the odds are very strong. The Bitcoin will have an update tomorrow, or, you know, that Bitcoin will be higher in a week's time, right? If you did that same experiment with Barra jumps 20% in a day, the odds are not the same, that Barra will be higher in a week's from now. In fact, the odds are strong that Barra will be down a week from now. Why? Because anyone who got a 20% daily profit in Barra is looking for the exits. Like, thank fuck. Yeah, finally. Yeah, man, man. And, and, you know, bag holder behavior, you know, so much of coins. So, and so, yes. And the other thing that we see in crypto is that what we call the second moment of, the second moment of, of, I won't put in net, in net terms. So momentum is how much a coin has gone up. Acceleration is how fast it's gone up. Acceleration of all almost anything that you can find is worth looking at strongly. So for example, funding rate is predictive of future price. How fast the funding rate is changing is predictive of future price but better. And so the acceleration of things, if you found something that works in crypto, like for example, what's a known one that I'm not giving away. CVD. So CVD is an EMA of the volume that's transacted at market buy divided by an EMA of the volume that's transacted at market sell. So it's a great, it's measuring aggression. It's measuring who's who's smashing the who's smashing market buy versus who's smashing market sell, right? Okay. If a lot of people have been smashing market buy that's strongly and only very strongly predictive of higher prices in 24 hours from now. Strongly true. Yeah. If you take that same thing and look at the acceleration of it, it's even better. Yeah. But comes with a catch because it's acceleration. Everything's happening much faster. So you have to get in and out of positions faster, getting in and out of positions faster is costly unless you're really good at execution. So there's a barrier to entry. You have to be good at execution. And so that that barrier to entry acts as a moat and it enables the persistence of these types of edges. Like, like, you know, if people know about things, the only reason they can persist and not get arbitration away is because there's some contain to them, you know. You know, everyone knows that shit coins go to zero on average. Why wouldn't everyone to short shit coins, short Apollo, short of portfolio of shit coins and long the equivalent of Bitcoin? That is an extremely, like, extremely strong system is long bitcoins short all the rest of those. That's an incredible system. Why would that, that's a system that's going to run somewhere between sharp two and a half and sharp three. And it's not consistently, consistently, for many years. But why would assist, why would assist, why would assist almost forever given that everyone who's got a brain who does any sort of work in this area will figure it out like everyone knows it. And the reason it persists is because it's kind of a thing to do. And the reason it's a kind of a thing to do is every now and again, both ends is big mouth. And everything goes up 20% and you're like, ah, so almost everything that works in crypto falls into two categories. So, well, there's a few ways to think about it actually. So let's break that down a little bit. So, you know, where does Edge come from? Edge is, um, Edge is something one way of putting it from Chris Abdelmessi is, is it him? Maybe him. Edge is something that you know that other people don't know. Or it's something that you can do that other people can't do. So crypto falls into like the second bucket pretty firmly. It's like, yeah, that gets filled with three times. Yeah, we have two categories of ages in everywhere, you know, one is called price inefficiencies. So price inefficiencies are the prices wrong. Why would the price be wrong? Well, because a bunch of people got squeezed out on a short, um, a bunch of people got a stop loss here. Um, there was monthly rebalancing. There was the price was wrong. There was a new announcement that fundamentally changed the value proposition of hyperliquid today. The price was this and then Trump said, no, we're making it legal in the US. It's definitely worth 11% more. Like it fucking, it just fucking is the price, the fair price changed from, from one day to the next. Those are pricing efficiencies. The other type are what we call risk premium and, and risk premium are, uh, risks that you take that you can be expected to be compensated for. And a thing like that is Bitcoin outperforms the stock market, right? Um, and the stock market outperforms leaving your money in the bank, right? Mm hmm. So why is that is because humans are risk averse. And you know, if I put my money in the bank, I know it's fucking that. If I put my money in the stock market, it mostly goes up, you know, seven years out of ten and then once every 10 or 15 years, it shits the bed. Um, that's a risk that you expect to be compensated for. Crypto in the early days, Bitcoin, you know, it did incredibly well because it was super risky and sketchy. Like it was, you know, a reasonable investor would want to be compensated for taking that level of risk. And, and there are other types of risks aside from that. So for example, um, you can sell puts or, which is like selling insurance, right? Like you're selling portfolio insurance. And that's a really good business, you know, 99 days out of 100 and then, and then you get, and then you get fucked, right? Like those sort, that, that's a good edge. Like we know that insurance companies make money. Like we know that almost every insurance company in the world that's well managed makes, makes money. There's no reason why selling puts properly sized and as part of a portfolio is not a very, very good investment strategy. Why does it persist despite the fact that everyone's known about it? Like the first book on options was written like 300 years ago. I mean, like this is known for hundreds and hundreds of years. Like fucking ship captains knew it back in the day. Um, it persists because it sucks. You know, trend, which I, you know, I've made nearly all my money out of trend falling. Absolutely sucks. It's got huge drawdowns. Let's draw down some lengthy, um, you know, most, you're losing money. My win, long term win rate is like, I'm trend falling is like 20%. Like 20%. Yeah. Yeah. Like tens of thousands of trades losing 80% of them. Like, do you know what that's like? It's like fucking soul destroying, but you make money in most years doing that because it sucks. You know, um, selling puts, you make money because it sucks. The money comes from the suckiness. It doesn't come from, it doesn't come from our, it's just magic free money. It comes for something. And so in generally markets, you can expect to be paid for doing stuff that's useful. Like a market maker is doing something useful. If I want to buy a shit coin, I, I can do it right now. If I tip my friend Leonardo market maker, that's a useful service. He can reasonably expect to be compensated for that. But market making sucks on like a 10th of the 10th when all the market makers went broke or today market makers, market makers get asked in a big minute that I can make his head terrible out today. So yeah, it's a great business, but sometimes it sucks. Yeah, trend falling has worked for like hundreds of years. Like, like trend falling's worked since before there was money, like, like before there was money, the oldest human fucking settlement is in modern day Iraq, ancient, uh, and I mess, mess it, methamia. And the first human city was this big fucking, not a pyramid, like a ziggurat looking thing in called, uh, it was the first human city. It was like 5,000 years ago. And they didn't have money. It was like predated money. They use sacks of barley as money. And they stored on these uniform clay tablets, the price of barley every day. And those prices are an accurate record from for the price of a commodity 5,000 years ago. Trend falling works just like it did back then. You know, if barley was up a lot in the last week, it was probably going to be up tomorrow as well. If barley was down a lot, it was probably going to get, and, um, you know, the first fucking, um, derivatives exchange was in, uh, the Dejima rice futures exchange in Japan in the 16th century. And those were the fuckers knew all about this shit too. Like, they were, they were like quite sophisticated traders and all those candlestick patents and shit that you see, um, more or less their artifacts of, of early trend falling systems down. So this shit's, so my point is, this shit's worked for 5,000 years ago, worked 400 years ago. If you look at every decade for the last 100 years, at the end of every decade, you've made money trend falling. Just buying the shit that went up a lot, shorting the shit that went down a lot. That's the strategy. So get a list of, get a list of 50 things. If it's been up a lot in the last couple of months by it, if it's been down a lot in the last couple of months, shorting. And if you do that at the end of every 10 years, you'll make, you know, decent money. You'll outperform the stock market. Um, but it's known. It works. It's reliable. You know, I've made a large amount of money from it. life changing some of money from it but it's sucked. Everyone says, oh, I want to hear the trend is your friend, the trend is a fucking kind of thing, you know, it's just and so all the things that are broadly known in crypto that funding rates predict future prices that momentum predicts future prices, that variations of quality which is long big stuff, short shit coins, predict prices, that big coins, big small coins which is what's called a size factor in in tradfly, that high volume coins outperform low volume coins, that low volatility coins outperform high volatility coins. Wait, there's a bunch of different systems right there and these are not, that's not giving away any secrets, those things make money at the end of, at the end of most years but they also suck to do and so the game is to blend as many of those as you can practically do and so for most people the biggest practical bang for bark is blending trending carry, that's your first stop as a beginner, if you're a beginner algo trader and you're trying to find some shit that works trending carry, those are your first two and then cross sectional trend which is also called momentum which is instead of just going long all the stuff that's gone up and shorting all the stuff that's gone down, you might be balls long during an altcoin bull run and you might be balls short during a bear market. That's, you can make that slightly differing by taking the top half of it, just going along the top half and shorting the bottom half and so what that does is it gives you slightly less performance in a bull market but it gives you slightly better performance in a bear market and so overall it's a smoother, better behaviour version of that. So that's your thing number three and then you want to keep building out your features or your systems on top of that until you've got, you know, just the stuff that we've talked about in the last few minutes like there's enough to keep you going on with for a couple of years right. And then you blend all those into a soup and you say okay trend says I should be balls long Bitcoin, Bitcoin, carry says I should be balls short and this one says I should be half long and so we average them all into one number to rule them all and then we're going to spit all of that into a portfolio. How do we size that portfolio? You can do it either come anyways from simple to fancy. So the simplest way is by saying let's equate out portfolio, you know, equate it between trend momentum and carry a third or third or third that's just that's surprisingly hard to be. And you can go progressively more and more complicated things. The good part about crypto is you don't need to be what we would call state of the art. Like if I want to compete against Citadel and Tradfire, I need, you know, a fairly sophisticated portfolio optimisation system like an MVO with cost penalties, like a bridge MVO. That's a very sophisticated sort of portfolio management system for crypto. But it's not for Tradfire. If I propose that in a Tradfire mean revision firm or Tradfire multi-strat, they're going to fire me and call me an idiot. So the level of sophistication is so much lower in crypto. Crypto is a poker table that it's feasible for a small team to compete in. It puts back to you like table selection problem of like this is great. Like this is fantastic, yeah. And if you're a, if you're a solo trader, you know, one of the ways that you can tell a lot of clients, like people who just pretend to be clients on Twitter is that they're always doing all this stuff like, oh, I know about this, I know about that, I know about options, spline pricing, I know about market making, we do HFT, we do this, we do that, we do momentum, we do it, but it's like, no, you're fucking done, buddy. You don't do shit. Because the capability of a single person is finite. Like in the limits of what a single person can manage, even with very good info, you know, reasonably obvious if you've done it for a while. And so if you get trading systems of the stuff of teams, right? Like a small, these days with AI cutting tools, a small team can can do quite well. Like a team of three or four really smart people can do really well. But, you know, fucking one of the big multi-strets, they've got a thousand counts there, you know, and they're all smart. Yeah. Yeah, Thomas Conn has been a small scum, right? Like, you know, eventually you won't be able to, like if Chadfly, if crypto eats Chadfly, those guys are all going to be coming over here and they're going to have a great couple of years eating oil lunch. So, you know, you have to be realistic as a crypto trader. You have to be, what are we being paid for? We're being paid to take a bunch of extra risks that people in Chadfly want. It's frankly embarrassing to be a crypto trader. You're getting no bitches. You know, I'm stupid. You know, you're in fucking, you're on Tinder in New York and you're in your finance bro, Goldman Sachs or whatever in your bio, you might get some likes. Fucking crypto trader, trench warrior, like zero bitches, like optimize the word, the word crypto is just like a, a prophylactic to everyone. It's like, oh, what are you doing there? Yeah. And reputationally, and, you know, and also we're taking a bunch of different risks in crypto that you're really not, you're taking counterparty risk all the time. Hacking risk, one of those frontier models could decide to hack every fucking thing. You know, there's all kinds of too many even to name, too many even to figure out. So, so why does crypto pay better? Well, because it's riskier, obviously. Like, like, there's no universe where we just get paid free money because it's crypto. We get paid more despite being stupider. And I think this is something that I saw, like, and I did the rounds again recently. It was quite funny, but it was this claim that, you know, Kobe, Gainesy, they were trading against plumbers in 2021. And it's this thesis that like, there's the market back then was a bunch of fucking retards. And then now it's all sophisticated, because trust you, that's just not true. And Gainesy's a fucking idiot. And Ansum's a fucking idiot. Like, you know, I know a good, like, I'm an okay trade, like, I'm like, I'm a middle of the road pro trader. And, but it's no universe where I'm getting a job on a desk. And, you know, the guys who work for me, some of them are really good traders. And they're much better than me. And I know what it takes. And, you know, we've got a couple of guys who are really, really good traders, like Robert James and the liquidity goblin and really, really good traders. And they're not, it's not even the same species. Like, it's not, it's not this, you know, we're not that good and we still get paid. Why do we do it? Probably because we're taking a bunch of risks that other people wouldn't take. And the reason other people wouldn't take those risks are probably good reasons. Like, like, like, like, there's a lot of, you know, I've done well at a crypto, but, you know, you run the simulation a hundred times and I lose 90 of them, you know. Speaking of breaking trend, and this is something that like you were talking about before, and I just wanted to like, loop back on it. But something that like surprised me, at least today, and this is just purely from just like, observing some pretty basic, like indicators over time was how well ETH performed on this rip compared to beating sales. And I was like, okay. And ETH to me is one of those like, just this fucking demon of cryptocurrency Twitter that's just consumed more time, capital and attention from people being like, I'm long ETH again, and they're just being fucking mercilessly wrecked. And it's like, what's the go here? What's happening with ETH? Like, what do you think about ETH as an asset, like structurally long term? Because it's just weird fucking thing that you just can't help but keep going back to it. Like, I think some things are true about ETH. It was early mover. They had, there's the most capital by far is stored on ETH, like ETH and the ETH L2s. I think, you know, ETH has some stuff going for it. And it's obviously being held back by idiotic management, the foundation who constantly sell an overbladed budget, a CEO who's, fuck, I saw Vitalik in Bangkok in like 2021. And a buddy called me up and said, "Fucking Vitalik's in this Vietnamese restaurant." So 49 in Bangkok. You've got to come over. I was like, I can't move around. I said, I'm going to go say, hello. And I said, nah, just watch this fucking weird camp for a while. And I said, what do you mean? It's just watch. And Vitalik was sitting there staring at the menu like this. And there's a waitress hovering waiting to take his order. Like, she's there, like, like, ready to take your order, sir. And my buddy's like, no, I just keep watching. Like 15 minutes later, he's staring his turn a page. He's just looking at the thing. So I bought it out and moving. The fucking waitresses right there like read it. Like just a light to run nobody's fucking home. Like it took him half an hour to order a meal. He's the kind of guy that you want writing the code. He's a fucking hungry. He's a fucking running there. You couldn't trust him to run a fucking lemonade stand. You put him in charge of billions of dollars like what the fuck's wrong with you? Like yeah sure he was a smart guy. Like there's lots of fucking smart people in the world. Same everywhere. Like yeah he was early to a new idea. You know it's a pulling, it's a pulling, it's a potentially good idea that's been poorly managed. And poorly executed that has too many people working for it. And those people produce too few results. So when you compare and compare contrasts, say hyper liquid, 11 people in their team. That's fucking astonishing to me. Like yeah I work with the, we have a team of like 15 here. Like the fact that they're doing the that with 11 fucking people just, it boggles my mind. I can't believe it. By the way, well we're dishing out alpha here. Like like you know that's, if you can quantify that, doing a lot without many people and producing good results, what other teams look like that? That's a good way to identify good projects. What other teams are like half a dozen like close fucking close buddies. Like those guys, like you have never seen, you'll never see a leak out of the hyper liquid team. They're like their staunch. And you know they love each other. And that's what startups like, right? Like it's like on war you're all gonna die or you're all gonna get rich together. You gotta do it and you're doing it for the man by your side. You're not doing it for the fucking technology, certainly not. And you know what teams look like that. If you want to identify a good crypto project, look at teams, look at teams that have that same characteristic. A bunch of dudes have known each other fucking, most of them have known each other for a long time. They're close. They're closer than brothers. They've fucking got an ambitious target. And they're outperforming big teams with a small team, doing more with less, you know, teams that look like that, which happens to be the complete opposite of what teams like Monad and Berra and fucking, you know, the teams that hire North Korean devs. Do you realize how fucking stupid you have to be to fall for that bullshit? Like, you know, yep, yep. No, it is, it is fucking, yeah, they're a fascinating fucking example. And it's something that I, because I came across like hyperlaborate, again, like I did not pretend to be like, you know, incredibly well, like plugged in in terms of markets. I did not consider myself like a sophisticated trader. And I've only really been like understanding Perp Dex in for over the last 16 months, like year and a half kind of thing where I'm like, I have a very good understanding of how like backend infrastructure actually works at scale. And so I only like maybe six months ago actually listened to the Cory Hofstein, Jeff Yen podcast. Yeah, as amazing as well. And Cory submitted mine. And Cory told me at the time, he said, Jeff Yen is who SPF was pretending to be. That was the exact phrase he used at the time. Yep. And I remember listening to that and just being like, why the fuck did I not listen to this? Hey, I didn't have the like actual foundational knowledge to actually do anything, I think with it at like level like the. It's so hugely risky, dude. You know, yeah. And I think a bias to optimism in crypto or in any startup investing or in any technology investing is useful. And you know, the good ideas, the really great ideas are mostly all taken. So so a great idea will mostly sound pretty left, left fucking field and will sound a little bit crazy at first. We're going to take over or we're going to have one blockchain that's going to house all the finance. Like that's crazy, crazy proposition. And he wasn't playing around. Like he means we're going to take over all the finance, all of it. He's got a plan like. Yeah, the best ideas are going to sound a little bit crazy. Can you build me through like what you kind of like identified with hyper liquid and what made you click on it that you were like, yep, fuck yeah, I want to own as much of this as I fucking physically can. So I started using it early, not to find points. But because what I noticed is that you know, I'm sitting at my computer, bullshitting on Twitter and seeing shit coins pop off. And and the login process for finances like get one of those email codes, get out your phone, go to a thing to cater for I can to fake that shit. Binance is always popping up these like compliance windows and and and hyper liquid one click you're in. And I found myself on my day to day workflow. I would reach for hyper liquid before banks. And this was when hyper liquid was like 5% of the size of finance. If that, no, like 2%. And what I noticed was that on the really ashy stuff, which I trade along, hyper liquid was much better liquidity than it could be. And so what I realized early on was that Jeff Yan was speedrunning the parts of the sbf playbook that worked. So the parts of the s so were you running the ftx era? Yep. So I was like a spot and chill guy didn't touch derivatives at that point in time. Like I was literally like by Bitcoin hanging around on crypto twitter shitposts. So what are the guys like me who you call pro suma traders or sophisticated retail traders or like like semi-serious alga traders or small teams? We all traded on ftx. We all got done. And the reason for that was the liquidity was better on ftx. It's like you could trade terrible shit coins and not get fucked. Why? Because they had the world's worst market maker alimiter on the other side of your trades. You have to be fucking ambitious. Like I want to trade with carolina every fucking day when I trade with it. Like everything reminds me of her. That was the absolute glory day is trading with that. And liquidity matters more than anything else. And Jeff Yan realized that s what's called hyper liquid? I will trade where I can get the best prices. And everyone will trade where they get the best prices and best liquidity. And hyper liquid was punching above its weight. And what they did with the HLP which is a very good what was it's still okay but it was an incredible trade. It was a better trade than I've ever had in my life. Like it made money nearly every day. And they gave it away. And they went being greedy, you know, whereas like Bitmakes have their internal market maker that was ripping you off every time you traded with them. And where's Bitmakes today? Bitmakes is gone. They're in the dustbin. You know, insular that happens to Binance too. Fuck Binance. You know. Fuck. Fuck. I know. You just don't hate them enough. The shit they've done to this industry with malice of forethought. Like of course, 10th or 10th. They caused it with malice to see their own market makers, their own just poor morals, poor business behavior, poor wrecked an industry because they were down on cash. Fuck sees it. If you want to be down with Binance, fuck you too. It's just a shit exchange. They consistently do dishonest and illegal things and consistently hold this industry back. My thesis is that, you know, jeez up, hose down, perps up, pepdex is up, fucking centralised exchanges down. Yeah. Kind of trust him. I don't trust him at all. You know, even the relatively well managed, why bet's the relatively well managed one? I got hacked. Yeah, that was fucking insane. But CZ is very, like, wow, wolf in sheep's clothing. Like it'll be like 10-10 and then it'll come out on Twitter and then have the, it's the sideways cry laugh emojis that get me every time. It's like, wait, how do liquidations work? Haha. You're like, dude. Oh, you can't, you can't. Yeah. Yeah. Speaking of like other perpsdexes, like, have you, and because it's like, there's, there's hyperliquid and I think that I've seen, and this is something I've been messing around with the original and the lightest, lightest fantastic tech. Yeah. Okay. So variational has used, is using an RFQ model. And an RFQ model has some things going for it. If you want to get a big position away on a small shit coin, RFQ can have some advantages. But ultimately, an RFQ is putting your quates out to a market maker and say, what price are you going to give me? And say, I want to do 100 grand worth of error. What price are you giving me? And surprise the fucking prize, the price that a professional market maker wants to give you isn't always the price that you want. Like you're tipping your friendly enabled market maker. So for retail traders who are going to tip the market maker anyway, yeah not so bad. Professional traders know it's a well executed version of the RFQ concept. I don't have an issue with it. I have an issue with the points meta like people trading on an exchange to get points because you know every single trade that's ever happened starts off great and then the next couple are okay and then then you do that. Euthanasia rollercoaster shit yeah. Yeah yeah and we see it with salana memes and we see it with hyper liquid air drop good lighter okay fucking aster fuck you you know the rest of them all the way down. Just variational extended. Just until it's like yeah rock bottom's just a fishing term and you know by the time trades get popular and you know there's this idiotic fucking dumbass things like tread fire which is a terrible market maker where you lose money to gain points. So you're losing money wash trading so you can bump up variational stats to make them look better than they are and hopefully you make it back on points. That would have worked on hyper liquid really well it would have worked okay on wider it would have worked okay on a couple others. Is it going to work on variational? The rider red drop was was fantastic. I was expecting to that level I was like oh thank you how many. So the good news for a few weeks. This is the life cycle of a trade right like it's that's off good. The early end and so the the lesson that I have for everyone is when you find a good trade don't be a pussy about it you know get your money funnel stuck in its neck straight away and start pulling money out so before you go and build a bunch of complicated infrastructure click trade it if you think it's a trade if you think there's money in it click trade it the next day click trade spreadsheet man with a mouse and a spreadsheet you can do some you can do some damage on it if you're early to a trade and what do I mean by early to a trade like something like those trade XYZ tokenized stock things when they came out they trade it's so sloppy on weekends like some don't do those those books are so fucking like illiquid on the whenever they list like some fucking three billion dollar neo cloud like you could literally just like clip in like orders either side and just take it's fucking phenomenal I'm a fucking like donkey in an order book dude like I have no technical expertise whatsoever and yet I could pull up when they listed Shaz which is like a three billion dollar Australian fucking neo cloud and I was like oh my god like even I could do this this is fantastic okay so this is important in the early stages of a trade click trading much better than you're trying to vibe code some infrastructure and get it all just magnificently perfect you can donkey in an order book and click trading can make money and then you go from there to a spreadsheet to some janky janky fucking vibe coded bots and then maybe you know and by then it's probably dying and you wish you and you wish you click traded more is usually the way that it goes I should have started with the basics yeah should have stayed well and and so the magic in crypto is always and I mean always early to the new fucking thing early to the new thing you're on solid ground tokenized stocks you want to be early to that fucking new thing you know perp dexas early to that new thing mean coins fuck early fuck fuck yeah speaking of early like you mentioned robin hood before um and it was like in the in the first couple of minutes of this episode you're talking about how robin running right now there is some shit happening the fact that Vlad is you know standing next to fucking Johnny and being like oh hey we're tokenizing equities boys okay do you want to trade against you want to trade against dumb fox you don't want to trade against often junk crypto you don't want to trade against citadel you don't want to you don't want to trade against winter you want to trade against dumb fox who's got the greatest collection of dumb fox in the fucking world is robin hood and their business model is we're going to let the dumb fox trade for free on our app at no cost so we can sell their flow to people who will pay for it that's their business model so you've got this natural collection of dumb fox in a hyper gambling era and um i look at very i look at robin hood chain memes as being a very if i was a small trader i'd be looking very very hard at that right now it can't get the size on it to to make a difference to me and and my mental health is fair my wife it killed me if i started trenching again like it with an mental hospital last time mate this is a fucking great place to wrap it up dude i just want to say thanks so much for for coming on the show i really appreciate you running me through like you know all this stuff um when people are done listening to this what do you want them to go check out what do you want them to go on the internet um you can look at our project which is hypertrend.xyz which is a um might the algorithm training that i've got all my money in and um it's really fucking good um it's probably um for most people probably our team is better at trading than you are and and probably we're going to get better returns than you will by yourself so that's a nice place to put your money if that's interesting to you perfect Scott thanks so much for coming on man cheers