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Our weekly show is hosted by Michael Nadeau (The DeFi Report) and Ryan Sean Adams (Bankless). Each week, we discuss how we approach managing our own portfolio and the data, research, and analytical frameworks that inform those decisions — for educational and informational purposes.
Ryan Sean Adams:
[0:10] The question today, what is the setup going into 2026? We'll talk about macro,
Ryan Sean Adams:
[0:14] the economy, the crypto cycles. Also want to find out exactly how Mike is managing his portfolio in 2026 as a result. Reminder for everyone, we do these episodes on a weekly basis now. They're going to be 20 to 30 minutes or so. You can access them on YouTube, Spotify, wherever you consume podcasts. And expect this episode every Wednesday afternoon. It's going to be on the reports that Mike publishes on the DeFi report on a weekly basis. Mike, you ready to do this?
Michael Nadeau:
[0:45] I'm ready. Let's get into it.
Ryan Sean Adams:
[0:46] Okay, so we're talking about, I could tell over the holidays with this report, you spent some time thinking about 2026 and what is happening at the moment. That really came through in today's report, which is entitled Our Outlook for 2026. Just to level set, your positioning, of course, is where we left things.
Ryan Sean Adams:
[1:05] 20% crypto, 80% cash. So you were very much in a risk off mode. I think to start the year, what I really enjoyed was this section on your strategy. So let's start the year. Let's just level set folks on the five pillars of how you think about markets and how you invest. So we can set the framework for these episodes that we'll be doing on a weekly basis. So what is it? What's your style? What are the five pillars?
Michael Nadeau:
[1:31] So, yeah, five pillars. I mean, this is really kind of what we anchor to with everything we do at the DeFi report, but it's a quantum metals approach. So everything we do is rooted in data. People that are familiar with the research will know that it informs really everything that we do. We then sort of overlay what we see in macro and the conditions out there. Obviously, Bitcoin is going to be correlated to liquidity, risk on environment sentiment out there. So we're kind of like combining what we see in terms of market structure on on-chain data with what we see in the macro economy.
Michael Nadeau:
[2:06] And we are long term investors. So we are not and we try to play the cycles. So we're not looking to, you know, be delta neutral and take counterparty risk and just try to capture like spreads and things like this. We are, you know, making convicted bets at various points within these cycles and looking to hold and trade kind of a big cycle.
Michael Nadeau:
[2:28] Within that, you know, we feel very strongly about how market cycles evolve, not just in crypto markets, but also in traditional markets. And so we have a framework for how liquidity sort of moves within the crypto ecosystem during these market cycles. And so we will allocate to other sort of altcoins, assets that are a little farther down the risk curve, maybe away from Bitcoin at various points in these cycles.
Michael Nadeau:
[2:53] And, you know, everything that we do is kind of like, is built on a foundation of sort of like the sort of traditional value investors, which is maybe a little bit different from what you would typically see for a crypto investor. But that just happens to be how I learned about finance and markets was reading books by, you know, Charlie Munger, reading Warren Buffett, following a lot of their mental models. And that's kind of my framework for how I think about markets. And it's just kind of unique that I'm combining that with crypto, which is things that these types of investors typically aren't super we're excited about. But I think if you can kind of take some of the foundations of what they have kind of built and learn from these investing legends, combine that with these new markets, and you can find some interesting similarities to how crypto works in terms of the mental models for actual traditional markets. So that's kind of the framework. And we're at like a really interesting, I think, phase in the cycle. Right now, we just turned a new year into 2026. So I think it's a great time to kind of like, really go through sort of like high level how we're thinking about markets right now.
Ryan Sean Adams:
[4:03] I love that. That's why I love following your work. And you're, of course, open sourcing this on the DeFi report. You said you read Howard Mark's book again, over that break here, Mastering the Market Cycle. So wow, that is thicker than I thought. I've never read this book I do read every single Howard Marks essay that he publishes which is like you know once a quarter or so and I read his most recent how did that book hold up for you
Michael Nadeau:
[4:30] It's fantastic. You know, like I said, I really want to anchor to like these kind of fundamental frameworks for how I think things actually work. And it really helps me sort of observe the market, right? If you have a foundation for how a typical market cycle is going to go and sort of how that sort of reflexively feeds on itself, how it impacts market structure, how it impacts, you know, demand for credit, how that's impacting, you know, sort of asset allocation and market psychology. All of these things sort of interrelate to each other. And so if you have a solid framework for that, it's easier, I think, to sort of step out of some of the noise that we tend to see, particularly in the crypto markets, and sort of zoom out and kind of take like a bird's eye approach. And so that is like a big foundation. That book, you know, we just reread it over the holiday break. And I think it's a really good time to actually read that as well, because it feels like we're sort of at the very late stage in the traditional markets as well. And, you know, maybe I have some recency bias from reading that book just recently, but a lot of the things that I'm seeing in the market right now, the narratives that you see and sort of when you kind of go back and look at what has already played out over the last few years, it's very fascinating to sort of take that framework, observe the market, and then sort of use that into our analysis and our outlook for 2026.
Ryan Sean Adams:
[5:55] Okay, so you were bearish ending 2025, and I think you are bearish going into 2026. Let's talk about the setup. So let's talk about macro and liquidity. You start the report with the fiscal policy, and this chart actually surprised me because what we see is a budget deficit that has declined, a U.S. Budget deficit, I should say, that has actually declined this year. It's less than 2025. And I thought the thing that the U.S. government always liked to do was increase its deficits. That seems to be the long-term trend. It certainly is. It didn't come to play this year. We're actually down in the year. Can you explain this?
Michael Nadeau:
[6:32] Yeah. So, you know, Trump came into office in January of 2025. The fiscal year for the U.S. Treasury ends in September. And so we just finished the fiscal year for 2025. You can see that the pink bars there actually came down a little bit compared to 2024.
Ryan Sean Adams:
[6:52] It is modest. It's not a lot.
Michael Nadeau:
[6:54] It's modest, right? We're not suggesting that we're balancing the budget here or going into a surplus. But I think the thing to pay attention to is, On the margin, we have a shift occurring in the economy where there's less focus on spending through the government sector. And we're going to get into some data here that sort of shows job growth in those areas, but less government spending and looking to transition that to the private sector. And so as this plays out, we also have tariffs that are coming in and pulling capital out of the economy. So like the high level thing to, I think, to anchor to is that this shift has been playing out since Trump came into office. This is something that's common whenever you have any change in an administration. And what we want to do is understand how that is starting to transmit its way through the economy. And we're going to go through some of that in this report today.
Ryan Sean Adams:
[7:50] So the drivers of this, according to some of the graphs and the data points that you brought in, the drivers of this deficit reduction are the tariffs. So that's an increase in revenue, of course. And so that decreases the deficit by some amount. And then slightly less government spending under Trump. So you've got job openings of federal government employees, and that's actually down from the Biden years. And you say this, you expect that to continue. I'm given the renewed efforts to reduce government bloat and taxpayer fraud. We just saw recently the whole Minnesota scandal that made the news, like $10 billion scandal, something like this. We anticipate the trend to continue. So more tariff revenue, slightly decreasing public sector spend, and that will lead to deficits around the same for 2026 or slightly reduced? Is that what you think?
Michael Nadeau:
[8:40] Slightly. Yeah, that's kind of what I'm thinking is like it's probably going
Michael Nadeau:
[8:43] to be sort of similar to last year, maybe even a little bit lower. The trend that we saw in FY25 has continued into 2026. We only have two months of data right now, but that trend is continuing.
Ryan Sean Adams:
[8:56] I always find throughout your reports, there's often this, but the monkey wrench of Trump, like Trump could always change his mind or something could change. And there's this caveat, even in this section about fiscal deficits, if the Trump administration sends dollars back to the taxpayers, he talked about a taxpayer stimulus, remember sending tariff checks to all citizens, that view could change. So we don't know what Trump's going to do next, but this is still the view that you have absent some sort of wild change.
Michael Nadeau:
[9:23] Yes. And I think we're going to get the ruling on tariffs from the Supreme Court on Friday. So that is something to pay attention to. We're paying attention to that. If the tariffs are overturned, my base case is that it's not going to matter. The Trump administration has consistently signaled that there's other avenues that they're going to pursue if this policy does get rejected by the Supreme Court. So we'll get that ruling on Friday. We'll have more. But for now, I'm just anticipating these trends continuing.
Ryan Sean Adams:
[9:55] And so the overall trend, to put a finger on it, is public sector spend actually decreasing somewhat, maybe modestly, and then private sector spend increasing, which we'll talk about more. Now, you compare this to 2022, and many of our listeners will recall 2022. It wasn't all that long ago. You said a similar transition played out in that year, but for different reasons. How does this compare to 2022?
Michael Nadeau:
[10:20] Yeah, I think the reason I'm sort of putting out this comparison is that you have a transition in the economy. So in 2022, the Biden administration had come in the year previously. Inflation was high coming off the back of COVID. And so the Fed had to hike rates at that time. That is a negative liquidity impulse into the financial markets. Behind that, they were sort of juicing the markets with government spending, more higher than the government center, more infrastructure programs. And so that was a transition. We're sort of doing the reverse of that now where we're doing less government spending and we're trying to get the private sector going. That's why we need rate cuts to sort of fill this gap. And this is sort of the shift in capital flows. So it's for different reasons this year compared to 2022 but the thing to pay attention to is that capital flows are shifting and then we need to pay attention to how that is transmitting itself into the economy.
Ryan Sean Adams:
[11:24] And if people don't recall, 2022 was a bear market for stocks and crypto while the real economy did fine. Nominal GDP was actually strong. Unemployment was low. And yet we had a bear market in our financial assets,
Ryan Sean Adams:
[11:38] in the Wall Street assets, in the crypto assets. Let's bring some of Michael Howell's work into play here. So talk about He's seeing what you're seeing with the U.S. liquidity cycle as this transition is playing out.
Michael Nadeau:
[11:51] Yeah. So, you know, we've been anchoring to this idea that the economy is in transition. We need to pay attention to how that is impacting capital flows. And Michael Howell does a lot of great work on liquidity cycles. This chart we're looking at here is looking at just the U.S. liquidity cycle. But when we're anchoring to this idea that, hey, capital flows are shifting around, And then we get confirmation that this is actually causing sort of liquidity to roll over with some of the work that Michael Howell does. It allows me to build more conviction around that view that the economy is in transition. and we're seeing it expressed not just in global liquidity rolling over, we've seen this in the repo. We've seen the Fed have to sort of react to tightness in the banking, in less liquidity in the banking sector with reserve management purchases, $40 billion a month. That is a direct response to tightening liquidity conditions.
Ryan Sean Adams:
[12:50] What do you see when you look at Bitcoin versus the 10-year real interest rate? And explain this for me. So I sort of understand where you're going with this, but I think there's maybe some detail I was missing. Why is this comparison important for you?
Michael Nadeau:
[13:06] Yeah, it's another way to sort of look at liquidity as well.
Michael Nadeau:
[13:11] And so, Bitcoin, we're seeing just extreme sensitivity for Bitcoin to rising real interest rates. And what that means is basically break even inflations, which is market expectations for future inflation, is declining. So as that declines, the Fed is not cutting fast enough to sort of make up for what the bond market is saying is a slowdown in growth in the market. So this is also kind of confirming that view that these impacts of tariffs, you know, less government spending growth on the margin is sort of impacting liquidity conditions out there. You know, Bitcoin has a negative correlation to this and you can see if you kind of focus on the blue line, when it goes up, Bitcoin tends to go down. There's a little bit of a lag, but we're seeing extreme sensitivity for Bitcoin. And if this trend continues, I would expect, you know, risk assets more broadly to have trouble in that type of environment.
Ryan Sean Adams:
[14:17] This was a fascinating graph to me because I think the base expectation I have without looking at these data points is that, okay, the Fed is cutting rates, so real interest rates shouldn't be rising right now. They should be going down. And yet this graph actually shows a more restrictive Fed policy than one would believe with some of the rate cuts. Now, could that change next year? What's the forecast for Powell's rate cuts? And then, of course, we'll have a new Fed share by what, April? And I expect whoever Trump appoints, he's going to want someone that all of his statements, this guy's an open book. He's going to want someone who is very dovish with respect to liquidity and Fed policy. So is that a catalyst that could change things from your view starting the year?
Michael Nadeau:
[15:05] It could. You know, I guess I'm sort of surprised that the market right now is only pricing in two Fed rate cuts for this year. It's like a 17% chance of a cut in January, about a 42% chance right now of a cut in March.
Ryan Sean Adams:
[15:22] And where would that take us? Like down to three or below three?
Michael Nadeau:
[15:25] That gets you down to around three. If you get two cuts, it gets you down to around three. And, you know, what we're seeing with real interest rates is just telling us that they're not cutting, they're actually still restrictive. The bond market is saying they're still restrictive, they're still tight. And so how far down do they need to go for break even inflations to start rising again? And that's what we would expect to see for like a typical debasement trade, where real interest rates start falling, inflation expectations start rising. That's what you would want to see for the debasement trade. And the fact that that's not happening, we're seeing more tightness right now, to me, tells me the Fed needs to actually be more stimulative. We would change our mind if we saw them sort of really signaling that they're getting concerned about this. Maybe they start to remove duration long bonds from the market, that would, you know, push real interest rates down. And that would be good for risk assets. It's just not my base case that like
Michael Nadeau:
[16:28] they're like urgently looking to address this currently, which points to more weakness, I think.
Ryan Sean Adams:
[16:34] The Fed, of course, looks very closely at this next graph, which is employment, the employment rates. And there has been word that, you know, the labor market is showing some weakness. It doesn't seem incredibly weak, at least not to me, but this is sort of a possible recession indicator. I'm wondering what you see when you see the labor markets and if you think a recession, the probability of a recession actually on the horizon in 2026.
Michael Nadeau:
[16:58] Yeah. I mean, that's a tricky, tricky one. This chart is showing the employment to population ratio, which I think is like a pretty clean way to look at like unemployment. And it's just kind of, again, confirming that we're seeing weakness in the labor market. Typically, when you see that blue line starting to roll over like that, those gray bars are indicating recession. And so we've been sort of in a similar downtrend for that line.
Ryan Sean Adams:
[17:29] And so- It's just a slight downtrend so far. It's not a big drop as we've seen in these other gray bar, the recession bars. Correct.
Michael Nadeau:
[17:37] So this would turn into a recession if there's like a reflexive move here in the labor markets. I think most of the layoffs, there's some data showing that most of these layoffs right now look like they're kind of like efficiency cuts from companies potentially related to AI, potentially less hiring for younger people. A lot of these sort of like white collar jobs, entry level positions, maybe a little bit less hiring on the margin there. And so it doesn't look like it's a full on slowdown, But when the labor market does start to like fully roll over, it tends to happen fairly fast because a lot of companies, if they're sort of concerned about their outlooks, they'll try to hold on as long as they possibly can. They don't want to signal to the market, to the customers that, you know, they're in trouble. And so they'll hold on as long as they possibly can. And then if their competitor starts cutting, then everyone gets sort of the green pass to go ahead and do it themselves. So we'll see, it's not my base case, we're going into recession, but it's another, it's just more confirmation that this transition that we're focused on is bleeding into the labor markets.
Ryan Sean Adams:
[18:49] I think the last category, data category, we should discuss in macro is real estate. And for listeners who maybe aren't thinking very much in terms of real estate, this was actually surprising to me. I hadn't looked at this in a while. Real estate actually represents 15% to 20% of the U.S. Economy when you consider mortgage financing, lending, insurance, and home improvements. And we've got house supply increasing per this chart. At the same time, existing home sales are at multi-decade lows. The home prices around me, at least, haven't started falling. It's not clear that they're rising anymore. But are you seeing home prices starting to fall? And where does that leave things with respect to kind of the economic outlook for 2026?
Michael Nadeau:
[19:38] Yeah, I think this is, you know, this is related also to we talked about real interest rates. You know, the mortgage rates are still above 6%. So it's not a great environment to be buying a home at those interest rate levels. This is something I've been monitoring a little bit. I have a family member that purchased a home down in Florida earlier this year, and it turned into a buyer's market down in Florida pretty early, or maybe mid 2025 or so. So almost every listing is now being, you know, prices are being cut. Um, I'm actually in the market for real estate. I'm in the Northeast and, um, the listings there, there's not a, we're not seeing a ton of listings come online up here right now, but, uh, we are seeing price cuts. And so, um, it's looks to me like this period of like, you know, we, we've, we've kind of gone through a few periods with real estate where there's bidding wars, especially the Northeast where supply is really constrained, lots of bidding wars, sellers market. That to me is transitioning right now into a buyer's market for real estate potentially. That's probably more for people that have cash and are not going to be dealing with those large mortgage payments with 6% rates. But it's just, again, this is another indication that things are slowing out there a little bit.
Ryan Sean Adams:
[21:00] We also have 2026 being a midterm year. And there are some trends with midterm years that you've identified? What is important about a midterm year for investors?
Michael Nadeau:
[21:13] Yeah, I think a lot of people are kind of focused right now on growth in the economy. So GDP growth has been strong. Earnings were strong through Q3. And so that is one reason to sort of kind of fade some of the weakness we see in some other areas. And it's possible that this can continue, but I think people should pay attention to it. And this, I think, just relates to this idea of economy is in transition. You know, how do midterm years or the second year of a presidential term typically go? This was some interesting data that we got from Global Liquidity Index. And it's just showing that you could have, you know, strong earnings per share growth. And that's what we typically do actually in the second year of a presidential term, the midterm year. But what's interesting is it's typically the weakest year for financial markets. And so if you're holding this view that, hey, the economy's GDP looks pretty good, earnings look pretty good, that can be true. And you can still have a sort of down year in the financial markets.
Ryan Sean Adams:
[22:21] Is this just like markets hate uncertainty, Mike? Is that why?
Michael Nadeau:
[22:24] Yeah, I think that's part of it. I think you have shifting capital flows. I think you have, you know, I think what I support, you know, is these policies to sort of like get the private sector going and sort of let's fuel the economy more in an organic way through bank lending and maybe a more merit-based way, kind of the way I view it. And I think that will come to fruition, but you can't just cut rates, you know, that comes from demand for loans, right? So cutting rates... Is great, can impact demand for loans, but you need, market participants need to be looking out, need to be excited, need to be starting new businesses, need to have use cases for, for, you know, accessing capital. And the confidence game is definitely, you know, part of that.
Ryan Sean Adams:
[23:08] So if Michael Howell is right as well, when you take everything we've talked about into account, and the global liquidity cycle has peaked, and we're headed towards a local downturn before it goes back up again. And Michael Howe, of course, thinks that it will continue to go up just in these
Ryan Sean Adams:
[23:25] kind of oscillating 60-month sine wave type of functions. What does that imply about the asset allocation cycle? I mean, one thing we've seen recently is not very much action in crypto assets, of course, but silver has been on a tear. Other commodities have been on a tear. Does that match what Michael has said would happen in these liquidity cycles?
Michael Nadeau:
[23:48] Yeah, I think so. And it also matches up with sort of like Howard Marks' framework for how a typical asset allocation cycle would go. And right now, we've been seeing commodities just kind of popping off. Silver is a very speculative market right now. And it kind of, again, just gives me more conviction that we're late stage.
Ryan Sean Adams:
[24:13] Because that only happens at the end of cycles, right?
Michael Nadeau:
[24:16] Come on, these popping up. Yeah, this isn't like an exact science, but, you know, I think what he's showing here is this is typically how what you would see at the end of a cycle. And there's reasons for this in terms of how, you know, capital formation, you know, investment and things like this. And now we've had a lot of, you know, capital formation, we've had a lot of investment. Now people are looking at, oh, wait a minute, you need commodities to actually build the things that you've put the capital into. And oh, wait a minute, there might be a shortage of those things. And so, you know, I think what's interesting is like a lot of the narratives, and this is something that, you know, Marx talks a lot about is, you know, pay, pay close attention to narratives at cycle when there's lots of speculations. And one of the narratives we see in the silver market right now is this idea of a shortage of silver. And, you know, one question that I have is like, you know, people like, you know, Stanley Druckenmiller was in this trade, you know, before it started, right? This was a thesis that he had. And I wonder, is somebody like Stanley Druckenmiller, you know, telling his investors right now that there's a silver shortage and that he's going to hold on to his silver because there's a shortage? Or is he selling his silver to the people that are saying that right now because his thesis has already played out? And so that's something that I'm sort of seeing all this speculation in silver. It gives me a little bit of pause as I observed that.
Ryan Sean Adams:
[25:37] I think that's a great take and I think that might very well be what he's doing. Particularly the silver use case has been much more utilities driven, right? So all of the use cases and commercial applications of silver, which is kind of different, but that is pretty typical in the commodities phase. The next phase after commodities is as the market downturn, it turns down, you want to hold cash. So we're kind of in that period where you want to have cash and you've positioned accordingly, but not yet by. So you say the real takeaway is that Main Street seems poised to do fine in 2026. Your base case is not a recession. You think it's probably going to be fine on Main Street, but Wall Street assets,
Ryan Sean Adams:
[26:15] capital assets, it's still risk off from your perspective. Let's talk about now the crypto cycle, because all of that is the macro setup in your lens in order to interpret the crypto cycle, which is the assets that you are looking to buy. So what are we seeing in the crypto cycle right now? And how has 2025 played out? Yeah.
Michael Nadeau:
[26:40] So, you know, the way I think of this is, again, through the lens of like how this works in traditional markets. And I'm looking at what has played out already, you know, for this last crypto cycle, which really started in like the beginning of 2023.
Michael Nadeau:
[26:56] And, you know, I basically have seen everything that I would look for in a market cycle in terms of capital formation, right? You have an early bull period, Bitcoin starts to show some life. This leads to capital formation, it leads to venture capital, you know, investing into crypto projects. It leads to crypto, you know, crypto asset management firms being able to raise new capital to invest in crypto markets. And so this starts to reflexively feed on itself. This, this leads to, you know, financialization and new products. So we had the Bitcoin ETFs that goes gets you into a wealth creation phase. We're seeing more of that, right? Like we had the Circle IPO, we had other capital markets activity for the crypto markets. And then you kind of end up in a wealth distribution phase, which I think we've sort of gone through. Maybe we're still in that a little bit currently. And typically, you know, at some point, the excesses in the market start to, you know, become too much. And investor psychology eventually shifts into more wealth preservation from risk taking. and risks start to seem real again. And so I think we're kind of in that phase right now. And that's kind of what I am anchoring to.
Michael Nadeau:
[28:13] It's easy to get sort of tripped up. I think one of the challenges for investors is to be able to hold multiple competing views and have this cognitive dissonance because there are things we could look at and say, that we could be bullish about, but we have to anchor to these things that we think are the most sort of powerful key things. And it would be, if you're bullish right now, I think you sort of have to fade that this stuff already played out. And then also, you have to have some reason to say that, like, well, this is different. Like, the macro setup is different or market structure is different in some way. And we're having trouble. Sort of aligning with those views based on our views of the cycle, what we've seen, and then kind of the macro setup as well.
Ryan Sean Adams:
[29:00] Yeah, I mean, just looking at this graphic, right, it's the simplest way to interpret this is we are in the wealth destruction phase and have been since October and will continue into that phase in 2026. And that's how you're interpreting it. Now, the counter to this is someone who is still bullish, who says we haven't yet seen the top of this cycle for Bitcoin, or maybe they say cycles don't matter. They have to believe that, for instance, or they have to believe this time is different, that there's some sort of expansion phase, that we won't have a wealth
Ryan Sean Adams:
[29:33] destruction phase where Bitcoin sees 50 to 70% decline. But that's not your base case. You think we actually will. So what's the summary here when you look at the setup going to 2025 for crypto?
Michael Nadeau:
[29:46] Yeah, so the summary is, you know, we're in a period of transition. And I think that's confirmed in capital flows and what we're seeing in terms of tightness in the banking sector with real yields right now. Can these things, you know, reverse and go the other direction? Like it's definitely possible. I think the thing that I would be looking for is signaling from the Fed, you know, like I mentioned, you know, the removal of long duration assets, you know, real yields falling.
Michael Nadeau:
[30:17] Inflation expectations picking up. These are the things that I would be looking for to potentially change my mind. But outside of that, I'm sort of anchored to this idea that we're in a period of transition. We see that in the capital flows. We see that in liquidity conditions. We know that the crypto cycle, everything that we looked for has essentially played out. And so now it's kind of like, okay, let's be patient. Let's be patient. I think this is one of the hardest things to do if you're an investor is to just, you know, do nothing and kind of watch. And also like when you have conviction, you always have to be prepared for the market to move against you and for that conviction to be tested. And so one of the things that I've been looking for is a counter rally for Bitcoin at some point. We've had quite a bit of weakness here since October. And when you look at the altcoin market and a lot of like the stuff that like, that really did really well earlier in the cycle, a lot of that stuff was peaking in like Q4 of 24. A lot of the longer tail risk assets like meme coins and things like this were actually peaking in like Q4 of 24, Q1 of 25. And so those have been in a bear market now for almost a year. And so we just, we're seeing a little bit of life from altcoins that have sort of rallied. It looks Like, you know, maybe they have bottomed after like 12 months of pain.
Michael Nadeau:
[31:46] But at the same time, if Bitcoin shows further weakness, I would expect that there could potentially be another leg down in that space as well.
Ryan Sean Adams:
[31:53] Well, I think this is a key insight, right? So your conviction on the risk off mode is not going to be shaken, even if Bitcoin, I mean, people are maybe feeling a little bit better with Bitcoin trading above 90K. It's like 93K or something at the time of recording. But if Bitcoin gets up to 100K, then the voice is saying, hey, Mike, there was no cycle. It's a super cycle. You're wrong, are going to get louder and louder. And even if Bitcoin hits what, 101, 102, 103, that's a test of your conviction and you're not going to be shaken out from your view by that. In fact, you're saying you expect that.
Michael Nadeau:
[32:28] I expect that to happen. What I will be watching for if it does happen is, can it hold those levels? Can it show strength at those levels? Are we seeing a shift in liquidity conditions that pair up with what the Fed is signaling? Are we seeing new narratives forming? One thing that I noticed yesterday that caught my eye was Morgan Stanley is coming in now and issuing ETF products for crypto. And a lot of people think that's a pretty big deal based on their client base and the amount of capital that that opens up to. too. And so when you kind of get towards the end of a cycle, good news does not move the market. And so that's something that I'm watching, right? Like if that's just getting faded by the market, like that sort of also confirms some of these views. But at the same time, like I said, if it gets up back up there, I'm looking for it to hold that level and show that it's actually establishing that as support. That could potentially force me to come back into the market, right? As any investor, you have to be intellectually honest. You have to kind of change your view as things shift. I don't expect that to happen, but I'm open to that happening. You always have to be open to all different scenarios out there.
Ryan Sean Adams:
[33:50] So as of now, you say you remain anchored to your value target for Bitcoin of 65K. I mean, at some point this year, it's got a ways to drop. And the question of why, as you say, during bear markets, Bitcoin typically retraces its network cost basis, which is currently 56K. The 200-week moving average is currently 57K. And the production cost of miners is 45 to 60K. Give that some time on the timeline. We get somewhere closer to 65K.
Ryan Sean Adams:
[34:22] So that's your base case. Now, there is one other X factor, which has been in the news recently. And we have no idea how this is going to play out, which is once again, Trump. And this time from a geopolitical perspective. So Trump and the U.S. government just captured Venezuela's president. And there's some question as to whether Greenland is going to be the next move. For the Trump administration? What is China going to do in the wake of this? What is Russia going to do in the wake of this? This seems like a political X factor here. And how do you take that into account with kind of the model you laid out right now? What would it mean if, say, China, suddenly we woke up this morning and there was a move that China invaded Taiwan?
Michael Nadeau:
[35:09] Yeah, this is the big X factor is kind of how I think of this. And one thing that I'm pretty anchored to is that the Trump administration is very serious about, you know, solving these trade imbalances, or at least making, taking action to do so. The recent, you know, move that we saw in Venezuela capturing Maduro, I believe that's a direct response. The sort of public narrative around this is kind of like around drugs and oil, things like that. I think it's more of a direct response to China operating, basically using Venezuelan resources, getting cheap oil from them. I think it's more of a reaction to that as well as like things that Iran and Russia are doing, you know, in Venezuela and that being in the Western Hemisphere within potential range of Miami. I think that's really what's playing out there. So a direct response to China. And so, you know, is China going to how are they going to react to this? We don't know. What I think is clear is the world order is shifting around right now.
Michael Nadeau:
[36:19] And we don't know how this is totally going to play out, but we have to be prepared for different scenarios. And yeah, if China moved on Taiwan... That would be a much bigger deal for markets, I think, than what we saw with the U.S. Removing Maduro. I think that directly is a sort of an impact on NVIDIA, right? They're mostly operating out of Taiwan. And so what happens to NVIDIA stock if that were to happen? I would imagine it probably falls pretty quickly. That's a big percentage of the S&P 500 right now. You can sort of see the knock-on effects of this. you know, is China truly incentivized to do something like this? I think that needs to be fully gamed out. But I think they would be trying to slow down the sort of, you know, the ability for the U.S. To expand our AI operations and try to level the playing field in some way.
Ryan Sean Adams:
[37:14] You know, I would love a DeFi report just on the geopolitical X factor at some point in the future because it was so curious to me that after Venezuela, stocks actually moved up. And certainly in Venezuela stock markets, prices have been soaring. But what does that imply? I guess the market is discounting that China would actually invade Taiwan. But Polymark is predicting 16% odds this year, which is alarmingly high. So we have no idea how that's going to play out. And it's interesting to contemplate. Let's wrap it here. Guys, of course, you can follow Mike's strategy on the defireport.io. Go check that out. You get these reports on a weekly basis. If you You get two weekly reports, you get access to Mike's portfolio and watchlist assets, the things that he plans to buy during this risk off season and alerts when things change, which has saved me more than once actually in the previous cycle. So you can subscribe to that. We'll have links in the show notes and got to let you know, of course, none of this has been financial advice. We appreciate you listening and we'll be back next week.