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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] It is Wednesday, February 4th. Welcome to the DeFi Report. Got a hot report for you today. What does the new Fed chair, his name is Kevin Warsh, what does he mean for crypto? Mike's got an analysis for us. And the big question, is it time to go risk on? We're getting closer to some of Mike's numbers. Are we there yet? It's definitely been a bloodbath out there. Also, stick around until the end where we talk about some of the metrics, including the ones for Bitcoin that might push him over the edge into risk-on mode. Mike, you ready to do this?
Michael Nadeau:
[0:42] Let's do it.
Ryan Sean Adams:
[0:43] Bloodbath. Okay, let's talk about crypto prices, get that out of the way. So Bitcoin at the time of recording, we're at about 72K. So these are some lows here. Ether looking even worse, $2,100 at the time of recording. On the seventh day, ETH is down 30%. Bitcoin is down 20%. Is this the capitulation you've been looking for?
Michael Nadeau:
[1:06] It's starting to get ugly. So it's interesting. It's starting to look similar to the period that we got into in the last cycle, where kind of early in the bear market of last cycle, we had our retracement move back to the 50 week moving average. And then things started to sort of unwind after that. And we had a Terra Luna drawdown. We had some bankruptcies in CeFi. And it was a much faster move, you know, kind of down to the fair value targets at that stage of the bear market. And we may be in a similar setup here right now is kind of where my head's starting to go. We are sort of at local oversold levels, I would say. and when that happens you tend to get a retracement move so I could certainly see that happening, But we are, the market is just very weak right now. We're starting to see NASDAQ start to roll over. I think we can get into that in this episode.
Michael Nadeau:
[2:12] But I don't think we're right at that capitulation level just yet. But it's really weak out there right now.
Ryan Sean Adams:
[2:19] Well, I keep thinking about you as we've dropped from like 90 into the 80s and now into the 70s. We're in the low 70s. I'm thinking about you because I'm like, oh yeah, Mike's price point, the fair market value price point for Bitcoin is 65K. And I can't believe we're already so close with $7,000 off from that 65K amount. So I'll be curious, maybe the end of this episode, we'll talk about what it will take to get you to go risk on and start buying again. I don't know if that 65K number hits, if you're going to activate buy mode,
Ryan Sean Adams:
[2:51] or you're still going to wait a little bit longer. But let's talk about the main event, which is the title of this report. What does the new Fed chair mean for crypto? You've actually done a ton of analysis here. And I haven't seen much on Kevin Warsh and like applying it to crypto. But could you give us some background on this guy, the context for him? And then we'll get into what it means for crypto. But what about Warsh? He was a Fed governor at one point in time. Just give us the recap of this guy's history and what his outlook is.
Michael Nadeau:
[3:24] Yeah, I spent some time just going through a lot of interviews over the weekend and trying to get comfortable with this guy. He's actually someone that I had already done some prior work on as well. And what I'm really trying to do with this just kind of preliminary research on him is try to figure out if he's like a disruptor. We know Trump is a disruptor, right? That's kind of the theme of his presidency. And I'm trying to understand, is this guy a disruptor? Is he in line with that? Are we setting up here for some sort of like real kind of regime change from the status quo of how the Fed has been operating for the last 20 years or so? Just maybe a little background on Kevin Warsh himself. He comes across as an outsider, right? He sort of kind of has a lot of talking points. He speaks very well. He speaks almost like a politician. And when he talks about the Fed, he sort of talks down at the Fed, which is sort of interesting because he's an insider, right? He's been a Fed governor. He was actually the youngest Fed governor to ever serve at 35 years old. He joined the Fed in 2006.
Michael Nadeau:
[4:35] And he's most known for being on the board during the great financial crisis and in the aftermath of that. And he sort of reluctantly supported the bailout programs during the great financial crisis, but he was very, very skeptical and outspoken about the ongoing QE programs that were implemented in 2010, 2011, 2012 thereafter. after. And he actually resigned from the Fed, almost in dispute over QE.
Ryan Sean Adams:
[5:09] Too. I didn't know this. So he rage quit the Fed because he was like, okay, the bailout, I guess we have to do this. It's a crisis scenario. But you guys are doing the QE, you know, 2010, 2011. And this is not what the Fed should be doing. And I'm getting out of here. I'm resigning in protest.
Michael Nadeau:
[5:26] Yeah. So this is very interesting kind of, you know, backstory here. So he's known to be somewhat of a hawk. He is very anti sort of the growth of the Fed's balance sheet. He views that as, you know, distorting the economy and inflating asset prices. Is he views the Fed as complicit in the sort of fiscal recklessness that's coming from Congress and the Treasury because the Fed is buying a lot. Essentially, the Congress is approving these budgets, this reckless spending budgets. And then the Treasury is issuing debt to allow that to happen. And in many cases, the Fed is buying that debt. So he views that as something that needs to be separated. And he's sort of proposed like an accord between the Treasury and the Fed, which is very interesting because we have actually had an accord between the Treasury Fed back in 1951.
Michael Nadeau:
[6:23] And that was an interesting time because that came right after all of this debt monetization that occurred during World War II. And so you had kind of a similar Fed at the time that was basically working in conjunction with the Treasury to cap yields, essentially doing QE back then. We didn't call it QE, but they were capping yields and monetizing the debt. And there was essentially a restructuring of the Fed after that period. And it feels like we just went through the same thing with after a great financial crisis 2008, the Fed has been becoming increasingly less independent.
Michael Nadeau:
[6:58] And he's sort of coming in now and saying it's time to restructure. This is time to go back to really kind of clear responsibilities between the Fed and the Treasury. And he doesn't think the Fed should be, you know, sort of complicit in what
Michael Nadeau:
[7:17] he views as like these distortions in the economy that are coming from some of these policies.
Ryan Sean Adams:
[7:22] Okay. What's interesting about this though is, and this is obviously kind of my bias from being crypto and bankless really is like, I think he's right. Like, I think he's really right about like his critique. You said he believes the way we measure inflation is mostly wrong. He believes wage inflation is okay, but that monetary and asset inflation is bad. And that basically this Fed balance sheet and this prolonged QE has caused massive asset price appreciation. And that's the true inflation threat that we've seen from 2011 onward. And the growing inequality between investors and those that hold capital assets and labor and all of the social issues. Maybe I'm putting more words in his mouth, but I think this is the vibe. All of the social issues and political issues that have come out of that have been because in part the stewards of the central banking system have behaved irresponsibly and they are increasing asset prices through QE and through bank policy. It's the Cantillon effect, basically. Those that are closest to the spigot,
Ryan Sean Adams:
[8:36] The benefits and labor has been completely left behind. It seems like that's his nuanced position. And what's interesting about that position is it is a somewhat populist position because at the core of it is saying like, hey, the bankers kind of, and the Fed being the chief banker of bankers, has sort of rigged this whole system in favor of asset holders and investors and left Main Street behind. And so Wall Street has had a great 15 years. So is Silicon Valley.
Ryan Sean Adams:
[9:09] But what we need to do, this would be his instinct and his proclivity, is go back to a world where the Fed wasn't like inflating asset prices. And in order to do that, we need some clear separation between treasuring the Fed. We need to reduce the Fed balance sheet. We need to stop the quantitative easing and get to a much better regime. But I guess you called that hawkish. I guess that's right. I guess that's somewhat hawkish. But he's not necessarily hawkish on the interest rates, is he? I mean, this guy does seem like a maverick of some sort.
Michael Nadeau:
[9:44] Yes. So this is kind of where I'm going with it. And yes, I think that's sort of like, okay, we established who this person is. We think he's sort of a hawk. But now we need to understand why is he appealing to Trump? And I think what you just sort of set up there is very interesting when we look at the mood of the country and the affordability crisis and the talking points that he's sort of bringing to the surface about Main Street. We need to reduce the balance sheet and move some of that capital to Main Street. Like, this is really, really interesting to me.
Michael Nadeau:
[10:20] But so how do we, why is Trump aligning, you know, with this guy? I think I think it comes back to, you know, these are a lot of themes that we've been covering in our research really since the Trump administration came in, because we think, you know, ultimately what they're trying to do is pivot the economy from this like sort of government at the nexus of everything, picking winners and losers, pushing money into different areas of the economy that they want, reckless spending. We want to get off of this sort of government bloat that we've been on and shift that to a more merit-based organic economy. And really the only way to do that, I think, is to, this is going to be, I think, a painful transition. But during that transition, you bring the rates all the way down. You bring the rates all the way down, and then you create demand for loans. And this helps small businesses. This starts to help Main Street. And you don't, you know, essentially... Bail everybody out and cover up all the weakness in the economy, you sort of let that go and start fresh.
Ryan Sean Adams:
[11:24] Wait, that part's counterintuitive. How is it more hawkish monetary policy to bring the rates down? I get that he's against quantitative easing, right? And he's maybe pro-quantitative tightening and reducing the Fed balance sheet. But bringing the rates down, I generally associate that a bit more with easy money.
Michael Nadeau:
[11:48] Yes. Yeah. I think this is the, this is the hard thing to kind of, I think for people to wrap their heads around is that typically when rates are dropping, that is because you're in a slowing, slowing economy. And, and so when the rates are typically dropping, especially if they're dropping fast, it's usually because the economy is, is slowing and we're using that to kind of, you know, try to create demand for loans and get, get things going again. So yes, cutting rates and getting rates all the way down, that should ultimately be very bullish for the economy and get the markets moving. But the transition is when the rates come down. And during that period, what has typically happened when we get into this situation where maybe the markets start to sell off a little bit, unemployment ticks up, there's so much debt in our system today that we've increasingly just gone into this default mode of like just shoring things up. And this is where I think he's hawkish, where he's not saying we're going to let things sort of cleanse.
Michael Nadeau:
[12:53] I think that's kind of where this is going. Could be wrong. He hasn't even been nominated yet. So we don't want to get ahead of our skis on all this. I think the market thinks that Trump just wants to juice the economy.
Michael Nadeau:
[13:07] You know, I don't know if that's even, you know, if you follow the incentives, Charlie Bunger, you know, show me the incentives, I'll show you the outcome. If the mood of the country is moving towards this Main Street narrative, you know, just last night, I'm starting to see there's like, there's boycotts now of tech companies for political reasons and things like this happening in the U.S.
Ryan Sean Adams:
[13:28] Can you talk about that? That was actually in your report. Yeah. It's like Scott Galloway, who is sort of a financial talking head. I actually appreciate a lot of the things he says. I think he's got a good head on his shoulders generally, but he's calling for a boycott of big tech.
Michael Nadeau:
[13:43] Yeah. So, you know, it's kind of, he's kind of coming out and saying, well, there's all these, you know, people are in the streets and protesting a lot of the ICE operations and things like that. He thinks it's sort of more of a, it's more optics and it's not actually that, that effective. And what is more effective is, you know, big tech is aligned with Trump right now. You know, let's, he's telling everybody, you know, cancel some of your subscription. If you have subscriptions that you don't need, cancel, cancel those subscriptions. And let's put a little pressure on the big tech companies and then they will end up putting pressure on Trump.
Ryan Sean Adams:
[14:15] Why? Is this basically the idea that he has, Scott Galloway has that big tech companies are kind of preying on users and they're using their algorithms to kind of glue our attention, glue our eyeballs and they're sort of manipulating us and taking advantage of us and it's all kind of junk food and so we should just stop. We should just stop using it.
Michael Nadeau:
[14:33] Yeah, I think there's some of that. I think what he's really trying to address though is the K-shaped economy. And he's just looking at it and saying, look at the economy, look at all the tech companies. They've basically been able to, you know, the tariffs really have an impact on their businesses. They're doing great. You have this K-ship economy. Let's bring that down a little bit. And I just think this narrative is popular and it's going to catch on. It's going to catch on. And this is why, you know, the big question is if we start to go into, you know, bear market conditions and we have a new Fed president that's coming in. Is there going to be some sort of safety net? Is there going to be a Fed put that the market has gotten used to? Or are we going to sort of cease creative destruction that we really haven't seen? And these are his talking points. He thinks if you don't let a creative destruction... I'm sort of paraphrasing what he's saying, but I believe he views... Not letting creative destruction play out as favorite, as favoritism. Sure. Sure. It is. Exactly. So that's the question. You know, I think rates are definitely going to come down, but how we get there and what that process looks like is really kind of what I'm focused on.
Ryan Sean Adams:
[15:47] So you think that Kevin Warsh may not enforce the Fed put, and let's talk about what the Fed put basically is, is anytime stock goes down too much, well, the Fed's going to come bail out and save it, right? So it's basically the idea that stocks shall never go down. And it's because there's a lot of asset holders that are voters, and particularly they're influential members of society. Many of them skew Boomer, for instance. So they're more likely to vote, more likely to be in powerful cohorts. And so if you start to let the store of value asset class, which is equities and stocks in the US, if you start to let that go down, pension funds, retirement funds, all of these things will take a hit. And so the U.S. can't sustain a 30% drop. You're saying that, and that's what the Fed put is. Anytime there's a drop like 20, 30%, Lord knows, 40%, I mean, that would be crazy territory. The Fed's going to come in, QE, even like buy some stocks even, to support the equity bags. You're saying that that's not Kevin Warsh's instincts. He'd rather or not do that. And you think that put might not actually exist in a Kevin Warsh regime.
Michael Nadeau:
[17:00] It's possible. It's possible. We don't know. We don't know. We see a lot of talking points and then people get in the seat and they change. So we don't know. We don't know for sure. But I think that's, you know, he seems to be against these types of policies. And, you know, that's, things could get interesting because part of the reason you have the Fed put is because there's just so much debt in the system and the stock market itself is a large generator of tax receipts and things like this. So that's part of the reason that they just don't want to see that unravel. And there's reflexivity to this and markets are extremely reflexive, especially during bear markets when liquidity dries up and it can get ugly quickly. So I think they'll have to step in. I don't think they can just sort of step away from everything and just, we'll see. But this is kind of what I think the market needs to be processing, is what are these policies? Is he going to stick to his word? Is he really a disruptor in the way that Trump is a disruptor as a president? Is he a disruptor to the Federal Reserve?
Michael Nadeau:
[18:03] And what does this mean going forward?
Ryan Sean Adams:
[18:05] I don't know what to think, honestly, Mike, because I think you've made a great case for what Kevin Warsh's instincts would be if he was completely let off leash. And I didn't realize all of that, but this background shows what his instincts might be. But the question is, how long is his leash actually? And so there are a few things that can tighten the leash on what a Fed chair can do. One of them is, of course, Trump and maybe even Besant just saying, like, look, I'll fire you. You can't do that. Maybe him resigning in protest, something like that. The other is that just the matter of fact constraint of retirement funds and the debt and like those are going to be probably some least shortening types of things that mean even if Kevin's instincts are to do some of these things, he may not actually be able to because he's somewhat trapped in the incentive structure and all of the choices that previous administrators have made in his position. So there's a question of like, what would he do if he could? And then there's another question of what are his actual real world constraints?
Michael Nadeau:
[19:16] Right. And that, that is, you know, and I, you can imagine a world where, um, you know, stocks are down 20% more than that. And, you know, what would, what I think would end up happening is, you know, Congress starts, Congress starts blaming everything on the Fed. That's probably what, you know, what goes, what happens. And then, you know, everything turns to the Fed again. And, you know, what does that mean for Fed independence and all of this? So, you know, I think it's I think it's it's good to kind of go through this and also understand that, yes, he does have constraints. And I don't think that anybody that's, you know, running the Fed or is on the board of the Fed, like these people are very tied in with all the major CEOs of all the major corporations. And, you know, it's not going to be like a. I can't imagine just like them letting the system unravel.
Ryan Sean Adams:
[20:10] But the other thing is things could shift, I suppose. Maybe that's your broader point. Rather than the money piling up on the Fed balance sheet under a quantitative easing type of regime, maybe it goes somewhere else. Maybe it goes somewhere inside of fiscal. Maybe it goes towards, and this is outside of the Fed's control, but maybe in some sort of industrial policy, U.S. Industrial policy, where it shifts from public sector investment, but the U.S. Still spends a lot of money Maybe that's shifted more towards private. I suppose it could look a lot of different ways, but you're just saying that there is a push that seems different from the previous establishment Fed chairs, which is a bit more populist, some explicit recognition that the Fed balance sheet has gotten too large and
Ryan Sean Adams:
[20:56] they've been running things poorly for Main Street for the last 15 years. And that'll surface somehow in what this new Fed chair does.
Michael Nadeau:
[21:04] I think so. I think that's a great way to summarize it.
Ryan Sean Adams:
[21:07] What does it mean for crypto then? So let's say some of these assumptions hold. What are we looking at?
Michael Nadeau:
[21:13] Yeah, so I think, you know, for right now, like I said, we don't, he's been nominated. He still has to go through the Senate approval process. And I'm sure that that's going to be a very, you know, messy, messy process with everything going on with Fed independence right now. So, you know, let's see how that process goes. That could potentially be somewhat disruptive to markets because markets need certainty. to really function well. And if the markets aren't sure who the Fed president's going to be, if this is a really contentious approval process, that could be interesting to watch play out.
Michael Nadeau:
[21:50] My view as far as like this year and crypto is we are, you know, we're in a bear market in crypto. I don't think that this appointment and even if he was just coming in and going to just lower all the interest rates and everything, I don't think that's necessarily going to like help this year, I guess my base case is more that like maybe it's a little more severe, the bear market potentially, you know, because we have this uncertainty. We don't know how he's going to react. But I'm kind of like just doing the research that I understand what's going on, but not really letting this impact my views on the crypto markets like in the immediate near term.
Ryan Sean Adams:
[22:29] I see. I guess the one thing this does for you is if from your research on the new incoming Fed chair, the possible incoming Fed chair, it's not going to be the case that new Fed chair comes and then it's going to be a massive liquidity QE injection. And then crypto response to that QE injection from the US is printing money. And then it just goes up immediately. Right. That is not the case that you see. That's a pretty de minimis probability now.
Michael Nadeau:
[22:55] I don't see that. I mean, it's possible. It's certainly possible. I don't see it. I mean, even if you get rates down, and this is what, you know, if you're in a kind of recession, rates will come way down. And that's great because it makes it easier to get a low interest loan. But you need demand. The market needs to be bullet. People starting businesses, people investing in infrastructure, investing in CapEx, that all needs to come back, which means you kind of need confidence in the market. So it doesn't just happen. It doesn't happen overnight.
Ryan Sean Adams:
[23:33] Okay. Now, when it comes to Bitcoin cycle metrics, we haven't hit the things yet that you're hoping to hit. Of course, we talked about price earlier in this episode where 65K, you've said repeatedly, is kind of fair market value. You think we're still above that, maybe a lot closer than when we started this podcast though, Mike. But what other things have yet to be hit and are you looking to be hit before you sort of feel comfortable going risk on?
Michael Nadeau:
[24:01] Yeah, so definitely getting close and shifting closer to a risk on stance.
Michael Nadeau:
[24:08] When we look at like the, you know, the realized price for Bitcoin, it's kind of the proxy for the average cost of all the coins in circulation. And we're still above that. It's around 58K. You know, we look for that to get, you know, down to par with the realized price, with the market price at the realized price. We're still at about 1.3. And this table here, when you look at the far right side that says today, what we're sort of trying to do is, you know, see those numbers start to line up more where we were in the early bull. So you can see we're still a little bit off. We went below the realized price in the last bear market, still off of that. We're looking at the supply, you know, held by long-term holders. And I've been actually keeping a pretty close eye on this because I'm trying to see if long-term holders are stepping in and buying the weakness in the market right now. And I'm not seeing it just yet. I'm actually seeing them looking like they're joining the selling currently. So I'm looking to see like that sort of bottom out at some point and set a base, a healthier base in terms of market structure for us to kind of come out and go into more of an expansion mode at some point here. Long-term holders and loss, this is something we keep an eye on. It typically goes to zero, you know, at the peak of a market, which happened again in this cycle.
Michael Nadeau:
[25:27] And during bear markets, you can see that number rise all the way up to, you know, 35 to 40%. We're at 19% in terms of long-term holders in loss.
Ryan Sean Adams:
[25:37] Actually, on that really quick, another way to look at something similar is the cost basis levels, right?
Michael Nadeau:
[25:43] Yeah, this is important. You know, what we're doing here is we want to understand the health of the market structure for Bitcoin. And, you know, we just went through 2025 was a year where Bitcoin was down, you know, 9%, but we were up at pretty elevated levels for most of the year. And so basically everybody that came in to Bitcoin over last year is underwater on their holdings. And about 42% of the supply is at levels above 78,000. So why is that interesting? Because these are potentially newer sort of holders of Bitcoin that have come in over the last year. And we've talked about this idea of just why are Bitcoin bear markets so like nasty? Part of it is the, you know, mimetic nature of these assets and how narratives can really drive things. And so price comes down and everyone starts to look around and wonder, you know, is everything that I believed a year ago still true?
Michael Nadeau:
[26:47] You know, a year ago, we were talking about Bitcoin strategic reserves, and we were talking about, you know, the financialization of Bitcoin and all the, you know, regulation, all of these things that were very bullish. And that was sort of the mood of the market. And now... Price is dropping. And the discussion is more about, you know, quantum FUD and Michael Saylor's cost basis and things that are not bullish
Michael Nadeau:
[27:12] and don't make people feel good. And so these newer, you know, newer holders, the question is whether like they hold on, do they buy more at lower levels or do they capitulate? And, you know, we usually see, you know, a capitulation. We're probably in the somewhat in the middle of that.
Ryan Sean Adams:
[27:27] So did you say, is it 42% or did you say 48% of Bitcoin supply is now sitting underwater on unrealized losses?
Michael Nadeau:
[27:35] It's about 42% above that 78K threshold. So yeah, so about 58%.
Ryan Sean Adams:
[27:42] And of course, I mean, easy to see that, right? It's a very bad user experience, let's call it. When you buy a store value asset that you're promised will go up during times like these and it goes down, that's bad user experience. You feel like you have been sold a faulty good. And then so you lose conviction and then you sell. And that's the type of thing that's happening. We talked about the 200-weekly moving average and kind of the numbers. How about RSI? How about the cost to mine, one Bitcoin? What are you looking at there?
Michael Nadeau:
[28:15] Yeah, so keeping an eye on the hash rate. So the hash rate's starting to come off a little bit. Last time I looked, it was down about 15% or so from the peak, and it started to come down a little bit after the price peaked. And so what's happening there is the miners that aren't super efficient, as the price comes down, they're not able to profitably mine. And so a lot of them have to shut off their machines to conserve operating costs, sometimes sell some of the Bitcoin on their balance sheet to pay off debts and things like that.
Ryan Sean Adams:
[28:50] They often go out of business, don't they? Yeah.
Michael Nadeau:
[28:54] There's usually restructuring and consolidation period. The bigger miners get bigger during these markets. So keeping an eye on that. And there can be a capitulation even amongst the miners at times.
Ryan Sean Adams:
[29:07] One of the conclusions here is that, of course, we've talked about this often, but liquidity rolling over in the US. People will still point to the stock market and say, hey, it's actually not doing too bad here. Do you think this continues? Do you think the NASDAQ continues to outperform this year? Of course, it's got a lot of tailwinds. AI is still a big deal,
Ryan Sean Adams:
[29:31] still getting a massive amount of investment. There's still new breakthroughs happening. Where do you think stocks go this year?
Michael Nadeau:
[29:38] So NASDAQ, yeah. So it's been kind of interesting watching this. Even since Bitcoin peaked back in October, the NASDAQ has mainly held its ground, but there's been quite a bit of reshuffling that's going on. So Mag7 is showing some weakness, not across the board, but some of the Mag7 companies are showing weakness. And then if you look at the software sector, SaaS business, companies like HubSpot, companies like Salesforce, these companies are getting demolished right now. And a lot of that has to do with AI and the market sort of looking at it.
Ryan Sean Adams:
[30:14] I didn't realize this. HubSpot down 70%, Salesforce down 42%. The era of SaaS cloud providers is kind of like, it's definitely showing cracks, right? The anticipation from investors is AI is going to change. Maybe software can be developed on the fly. Maybe we don't even need, you know, CRM tools developed in the cloud by somebody like Salesforce.
Michael Nadeau:
[30:36] Right. I think that's what's going on right now. And, you know, that's kind of interesting. I mean, we're probably going to get to a level where it just gets totally oversold. There's probably going to be some interesting buying opportunities in that sector. Because I don't think QuadCode is just going to replace HubSpot or some of these major enterprise-level software products out there.
Michael Nadeau:
[30:58] So yeah, we've been seeing somewhat of a reshuffling, but the actual index itself has not really seen a correction where we may be sort of at the beginning of that. I am expecting NASDAQ to start to show some weakness here. And then that is kind of like start to pair that up with where Bitcoin is at. And what we're trying to do is say like, okay, if NASDAQ comes down, you know, yeah, so this chart here is just showing the Bitcoin to NASDAQ ratio. And, you know, if we kind of came down sort of in similar to what we did last time, we'd come down to about a 50% decline. And, you know, what does that look like in terms of, the NASDAQ price and the Bitcoin price. And we did a little forecasting here. We don't know what's going to happen, but we put these forecasts out there just to kind of give us our general sense of how things could play out. And the reason I think NASDAQ is sort of set up for some weakness here is we talked about the tech boycotts. We've talked about AI, but AI is it's in a bubble. I think it's clearly in a bubble. And the question is, what does that look like when if investors start to look around and say, how is all this, you know, is this, is all this capital investment, you know, going to pay off? What is the returns going to be on this?
Michael Nadeau:
[32:24] You know, are, are there going to be applications that start to come out that actually make all the spending worthwhile? It kind of reminds me of crypto, the crypto build out, the crypto infrastructure build out. And this is true of like almost any technology. Typically, the build out process is when all the hype starts and everybody gets really excited about what the future could look like. And we typically over build, you know, we did this during the telecom boom,
Michael Nadeau:
[32:51] you know, during the tech bubble, we typically over build. And then there's a little bit of a glut period where the application, the actual utility of that technology hasn't sort of, ripened just yet and there's not enough demand and so you have an overbuilt infrastructure not enough demand and there's sort of a washout phase and that's normal that's totally healthy almost every technology goes through this we've seen it with crypto, I mean, this has to happen in AI and it's probably, you know, probably on the horizon when something like that starts to starts to happen.
Ryan Sean Adams:
[33:24] You can see it. You don't have to squint very hard. You look at OpenAI and the amount of capital that it's burning just on a weekly basis to just like our monthly basis just to keep its data centers on, plus all the capital investment that it's planning. And you see Sam Altman's recent sort of pivot to now we're going to add ads to OpenAI, right? And that reeks of like, okay, like he needs advertising to fund this. And like, how does he fund that when he's up against Google, which has all the, you know, the ad supply, for instance, can integrate things. You know, like it's just, you could kind of see that coming. Now, you actually did some numbers here, which I found pretty valuable, which is if you assume two things, one is a dropping ratio, of Bitcoin versus NASDAQ on the ratio. So Bitcoin goes down relative to the NASDAQ. And at the same time, if NASDAQ is also dropping for some of the reasons you just mentioned, we come up with some stark maybe numbers here. So a 10% decline in NASDAQ with that 50% decline in the Bitcoin to NASDAQ ratio puts us at a Bitcoin price of 62K. If you saw a 20% decline in NASDAQ and the same ratio decline, 55K, a 30% decline would put us at 48K. Now, that is well below your fair market value, but You must think that's a potential scenario here in this bear market in 2026.
Michael Nadeau:
[34:51] Yeah, for sure. And this is kind of where the attention is going now is, you know, how does this start to manifest itself? And, you know, you mentioned, you know, just kind of the funding of a lot of the AI companies as well. And like there's a lot of circular stuff going on there where like NVIDIA is essentially funding its customers, right? which is kind of interesting where you're funny and then they're paying you back basically for compute. Not too dissimilar also from other tech build-outs. We've seen things like Uber just basically get subsidized in the early days by VCs. We see this with crypto with tokens usually to subsidize. So it's perfectly in line with what we would expect. It's a good bubble.
Ryan Sean Adams:
[35:35] Really.
Michael Nadeau:
[35:35] Yeah, it's hard to bootstrap these things. And the reason bubbles exist is because it's a breakthrough technology And, you know, bubbles are sort of signals for where we're going. But I think we could see this one, you know, I don't know what it's going to look like. But if it is a nasty unwind, this could mean that the Bitcoin bear market's a little bit more severe. And, you know, we've been putting out 65K as fair value. That's fair value. It doesn't mean you can't go below fair value. Fair value was about 20K in the last bear market. We went all the way down to 16.5. If we got to an equivalent of that, let 20% down from 65K, that gets you to those lower numbers. It gets you down to about 50K or so.
Ryan Sean Adams:
[36:22] So I guess that... I have a question about the price, but we'll leave that to the last question as we start to close this out. There's one bit of hope that I've seen among the, we're still in a bull market sort of crypto folks. This is sort of a, it's a deep blip, but it's still a blip. And that is the ISM data. Now, I don't fully understand ISM data. I haven't given it a lot of time, but can you talk about ISM at all? Like, what is it? And why are some people interpreting these numbers as kind of like hopeful for crypto? And what do you think about that case?
Michael Nadeau:
[37:01] Yeah. Yeah. So ISM is a survey that basically the manufacturing industry goes through every month and they write down, you know, their thoughts on inventories and prices and you kind of get a feel for what's happening, you know, in the manufacturing sector. And when that is above 50, which is like a aggregation of all this data that they get from these surveys. When that, that level is about 50, it typically means the, you know, the economy is in an expansion mode when it's below 50, it's in contraction. Um, this is something like Tom Lee has been talking about this. I think real vision has been talking about this for a while.
Ryan Sean Adams:
[37:41] Raul Paul loves the ISM because he's it's, it's switching bullish, right. And in his mind, right. Yeah.
Michael Nadeau:
[37:47] Yeah. And so, um, So the ISM has been below, it's been essentially trending below 50 for a very long time, which is very unusual. So it looks like, you know, basically a recession in the manufacturing sector has been going on for quite a while. And people are expecting that to inflect at some point. So the January data came out and the reading was 52.6, which was higher than expected. And that is like expansion territory, 52.6. And I think, you know, there are the people that I think are still bullish are kind of looking at this as a signal that, wait a minute, maybe things are inflecting here.
Michael Nadeau:
[38:24] I don't see that just because the January ISM report typically has a lot of like preordering and things that happen. And if you dig into the actual survey and Nick Tamiros from Wall Street Journal had some good stuff on this, you will see that it's not bullish at all. It's like bearish, some of the commentary that came out of there. And I'll just read a few of the notes. A transportation equipment respondent said, strategy setting has been reduced to hope and that the second half of 2026 brings a turnaround. So they're hoping. A machine company says the recent European tariff threats risk a huge negative impact on our profit for current quoted orders. Geopolitical tensions are fueling anti-American buyer sentiment and sales are being lost. Confused and uninformed tarot policies continue to plague small companies, making long-term planning pointless. And we've seen just some of the labor, if you get into some of the labor issues.
Michael Nadeau:
[39:30] Related to the ISM, that was really weak as well.
Michael Nadeau:
[39:34] So that was kind of my, if you dig in a little bit, I think it's harder to be bullish about that. I don't want to be too bearish, but I didn't take that as some signal that things are changing out there.
Ryan Sean Adams:
[39:47] Okay. So ISM, not a positive signal for you either, which leads you to the conclusion, of course, you're still in risk off mode. Now, Now, the question is, what would change that moving forward? And I do also have to ask if we've talked about the scenario of a 30% decline and then a decline on the ratio that gets Bitcoin into the 40K zone, right? 48K. So I'm wondering if in the weeks to come, if Bitcoin goes below 65K, if you just switch into buy mode or if you're waiting for something a bit more. And I don't want to say, are the goal posts moving? Because I don't necessarily like that framing of things. I think investors should actually move their buys and their fair market value as new information comes in. But I'm wondering if you get closer to 65K and you're just like, I'm still waiting for something deeper.
Ryan Sean Adams:
[40:41] I'm still waiting for something into the 50s or even lower potentially. So what's kind of your portfolio stance right now? and what's going to switch you into risk on and buy mode.
Michael Nadeau:
[40:55] So, yeah, so still risk off and, you know, the cash positions rising just because other assets are dropping. But I'm still risk off. I'm, you know, we're getting like you said, we're getting closer to to fair value targets. And I still think those are fair value, but that doesn't mean we can't go down below fair value. And I haven't made any decisions. The way I do this is I do the work well ahead of time. We do a ton of work to have a plan. And I like to do that because then as the market conditions play out, I sort of have a view on what I think is going to happen and where I might be wrong. And I kind of just let the market kind of speak to me a little bit about kind of how things are going. So we haven't made any like, you know, decisions on what we're going to be doing. We have a general view of what we'd like to get done. And, you know, people should be also be anchored to the idea that like, when you get into the, you know, kind of like fair value, you know, zone to be buying, we can stay there. It gets, it usually gets pretty quiet and we can kind of stay at these, there isn't like this massive, you know, I don't think there's a ton of urgency.
Michael Nadeau:
[42:08] And also like it's hard to buy at the bottom, right? Like everything is totally, it's going to be, it seems easy in theory, but it's contrarian. It's always going to be contrarian. That's why it feels, you know, it feels... You know, risky. So, um, yeah, so that's, those are the deals we're going to keep monitoring this. We will keep updating, you know, pro, uh, subscribers every week on kind of how we see things, things shaking out. And then everyone gets notified when we, when we make those changes.
Ryan Sean Adams:
[42:40] So, yeah, that's great because I feel like if we get closer to that 65 K range, I, I feel like we should do an entire episode and maybe you'll do a report at some point, which just talks about how to actually buy into this market because it's not the case that you're just setting orders at 64,999 and deploying at that number, right? And you did say we will have some time, but I know you're not one to try to perfectly time the bottom either. So how do you kind of scale into these types of positions? I guess we'll tackle that as we get there. Thank you to listeners for staying tuned in this episode. Of course, this is a weekly journal that Mike provides, a weekly investor journal. And if you are not subscribed to this podcast, stop what you're doing, go to the YouTube channel, subscribe there. It's on Spotify as well, wherever you listen to podcasts. Subscribe because we do these on a weekly basis. And now is the time where you wanna be tuned in weekly to see what the market is doing. There's also a paid option as well for DeFi Pro, the defi report pro which you can find in the show notes we will see you next week and we'll end with this none of this has been financial advice but thanks for following the defi report and stay curious we'll see you next week