SBF talks to the founder of Real Vision: What do you think of the biggest monetary tightening in economic history?
Original compilation: 0x711, BlockBeats
Original compilation: 0x711, BlockBeats
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talk about macroeconomics
Raoul：Before we get started, we want to get a sense of the chaos that's going on right now and your take on the market.
SBF：Apparently, the last month has been very chaotic, and it's not just a crypto phenomenon. Across the economy, something similar is happening in tech, basically all the gains that have happened over the past year have shrunk dramatically.
It was initially triggered by a rate hike by the Federal Reserve, and it went way beyond expectations. But at this point, what we're seeing in the market is, I think, at odds with what 3% rates typically represent.
Raoul：Yeah, I've noticed that too, actually, I call it monetary deflation, monetary deflation with a change in inflation, all these things and the dollar, IConsider this the largest monetary tightening in economic history. And it happens very fast.So, as you said, this is not a crypto event. This is just a liquidity event. It's happening -- look at the oil market today. Everyone is very bullish on oil. I heard someone had a $350 price target. Yet it is down 10% today alone.I'm actually very bullish on long-term assets like tech stocks and cryptocurrencies.
SBF：As long as concerns about inflation and liquidity linger, assets with huge capital inflows will suffer. As you said, sectors with longer time horizons hurt compared to oil and bread. But it's really just a general economic event that will still hurt everything, but the transmission will change there.
During inflation, people see all asset prices going up and you go, oh my god, that's a huge economic change. And then all of a sudden, the Fed starts to tighten monetary policy, and all the numbers come back down, and you go, holy shit.
But in a way, if you think about it another way, it's just a dollar-denominated stock split.first level title
Talking about bailouts in the crypto market
Raoul：A longtime client of mine has stuck in the back of my mind throughout my career that having cash is king in a recession. I can see that you're in a great position to have cash in a recession, opportunities are everywhere for you.
SBF：Oh sure, there's a lot of misplacement here, and a lot of potentially really good scripts to play. If you have unlimited capital backing, of course, no one has unlimited capital backing anything. But it's still a good place if you have a lot of capital but limited capital. so,I think one of the things we're thinking a lot here is what are we supposed to do, given everything that's going on? Where is it most important for us to deploy our funds now?
Raoul：What is your answer to this?
SBF：Yes, one of these, and I think the one that has received the most attention, is that in the crypto space, except for a very serious short-term liquidity crunch, it is completely fine. The closer you get to that ideal, the closer you get to a place where capital should be deployed from every angle. From both perspectives, are there good investment opportunities?
Maybe, but more importantly,In terms of you can save some customers, save a company, stop the contagion, the bailout is basically permanent because it's not like a business that has to go down, it's just because of short term conditions, an enterprise will actually experience a crisis of economic inefficiency. So, it's a platonic ideal that we're looking for above all else. Of course, nothing is a Platonic ideal.
Raoul：No, it's not just a business. This is done only for the greater good.
SBF：right.So I don't think we're just trying to throw money one at a time. But if, in some cases, we're going to bail out a very good business or a business that has a serious customer protection problem, then what we really value is that it stops the spread of the crisis.first level title
Talking about the CeFi crisis
Raoul：What do you think is wrong with CeFi? What did it not do right this time, and what can it learn from it next time?
SBF：When you research some of these CeFi companies that are taking a hit, none of them have any transparency, no way of really knowing what's going on. How serious is the Celsius problem? no one knows.
One of the cool things about DeFi is that it's actually very transparent. There is only one clear answer. So, how much is remortgaging? You can view it on-chain. In CeFi, the answer is I don't know, maybe a lot, maybe not? who knows?
Raoul：Yes, this brings me back to the summer of 1998. I spent a bachelorette weekend in Ireland with a group of friends in the financial markets. Everyone is asking, who is your biggest customer? "How much do you have?", I had about 3 or 4 billion, and the other guy said 3 billion, and I was like, I was from Net West and moved to Goldman Sachs. I think I've probably done $6 billion or $8 billion. We started adding up, and the numbers were huge. I thought, we're all screwed.
The exact same situation in the crypto market right now is that one client is taking a large part of the risk in the entire ecosystem and all the major brokers are lending a lot of money, because they are long-term capital.Before you know it, everything has been re-mortgaged and no one knows who owns what.
SBF：first level title
Talk about ETH pledge
Raoul：I've been talking about this,The risk-free rate of return in the crypto space is coming: that is, the staking return of ETH.I don't think people understand how big of an impact this is. I just wrote an article about it.
I think the most interesting point is that it will give us the "Treasury bond yield" of the Web3 space.We can then price all of its spreads. Then one can better understand risk pricing.
SBF：This is a very interesting point of view. I think this is correct. I guess one thing I would add is what is the risk-free rate?I think the risk-free rate was viewed as an uncertain number for a long time.In cryptocurrency value, is it zero? Obviously not zero. Actually, sometimes it's like 20%, but sometimes it's ridiculously large, and sometimes it's ridiculously small. It's everywhere.
Much of this is down to capital crunch in the ecosystem. But let’s be honest, there’s often a lot of arbitrage between different approximations of the risk-free rate in cryptocurrencies, with some sources effectively pricing it much cheaper than others. But I think few of these sources have given much thought to what the risk-free rate really means. I think there's a lot of speculation here. I think some people go too far with this.
Of course, no risk is not necessarily easy to understand.One thing I think is worth discussing is how long is risk free?The risk-free overnight rate can be very different from the risk-free annual rate. If you have to lock in that rate for a year because you can't unwind it in a liquidity crunch. These are not highly liquid Treasuries. And there wasn't enough liquidity in the system to sell cheap, and when Celsius started to come under pressure, you saw what happened to the staked ETH.
Raoul：Like trading spreads, it works. I think it works, this is the liquidity risk that needs to be priced, and Stake ETH is the only place to get liquidity.
SBF：Yes, it does, but I think one of the interesting things is that I think the impact on Staking ETH, I think it's a lot bigger than people think. If you just look at the graph of Stake ETH vs. ETH over time, it doesn't look like a valid market graph to me.
During the year, everyone assumes that Staking ETH should be based on ETH plus or minus 10 basis points. And then all of a sudden, on the same day, everyone realized that the number for the discount might not be zero. Everyone realized it didn't need an anchor, and within a day, it dropped 2%. Then a week later, it dropped another 2% in one day. So, I think that's also part of what's going on.
Raoul：So liquidity is why everyone is mispricing it. However, I'm really interested to see what ETH 2.0 unlocking will bring, because I even looked at how the market pricing of Solana staking yield vs potential ETH staking yield? It looks like it's priced roughly right because you're basically saying, okay, Solana is a proven protocol, but it's more volatile, so the yield should be slightly higher. Works perfectly. Like, well, I think this is going to be a big unlock for people.
SBF：I think that's right. I think this brings up another interesting point, which is what has a market. There are many cases in the crypto space where there is a weird assumption that there is no market for something, and people sometimes don't make that explicit.
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Talking about Solana making mobile phones
Raoul：I've been eyeing the Solana phone, what do you think?
SBF：Yes, I think it's a huge opportunity. I think having a native Web3 phone will help most people get into the Web3 world. Right now, if you want to use a DeFi app on your phone, it's very difficult for the average person. So I think having a seamless wallet experience on mobile is actually a huge leap forward.
Raoul：Yes. And we're still in a world where you have to have different wallets for different things, which is crazy. That's not how the world works, and we don't care. But I can see it coming. I think the breakthrough in mobile is huge. I think Web2 integration will be great.
SBF：first level title
Talk about whether the market has bottomed out
Raoul：So, one last question. Where do you think we are now in this bear market?
SBF：I don't see any particular reason why we couldn't be at the bottom. I'm not saying we're definitely at the bottom. But I think the liquidation that had to happen has happened.And I think if you're seeing some reversal in general risk asset pricing right now, which I think is good, let it be. And I don't think there's anything directly preventing tomorrow from being the day that the recovery really starts.
Of course, something good will happen tomorrow, that's just an assumption. If something bad happens tomorrow, it will be worse. So I'm not even sure I'm making a symmetrical statement between upside and downside right now. Obviously, I am not providing financial advice.
Raoul：No. I have the same opinion.I think maybe the macro economy has changed and we've moved from concerns about inflation to concerns about growth.Of course, we go lower, more excess liquidation from general market concerns. But overall, I feel like big things have happened and we usually have some instability before we get some stability. The macro context is changing and it feels like it's in the right area.
SBF：Original link
