Why the Next 18 Months Could Be Crypto’s Biggest Opportunity Yet w/ Avichal & Jesse Eckel

The market structure has really changed. I think people in this industry are used to retail flows. When retail flows, it just slams in and slams out, and you see the massive swings. That's not the way institutions work. That's not the way sovereign wealth funds work. That's not the way pensions work. That's not the way mutual funds work. What those guys have to do is have an allocation target, get it through an investment committee, which takes six to 12 months. We're 18 months after the ETF, but it's going to take a year to two years for a bunch of people to say, 'Oh, we got to do this.' Then the question is what do you do? I have a 50-bit target, so I'm going to leg into that. If the price changes, my exposure changes, I got to add more. There's an argument here that the market structure itself has changed in terms of how the money will flow in and who it's coming from. That bid is a really different bid. They're not going to slam their entire stack in because they see it going up. They're going to DCA in and come in slowly. If you go back to the gold markets when GLD was launched 20-25 years ago, the first 12 years of the GLD ETF saw every single year had more inflows than the prior year. There's a structural rotation that needs to happen when institutions come in, and the way they come in is really different than what people are used to. I think there's an argument that the inflow really changes the four-year cycle because the market participants fundamentally underneath it all have changed.

I think a couple things. I generally agree with everything Jesse just said. A couple things I would add. By the nature of our business model, we're long hold on stuff. We tend to be early investors into companies and protocols, and then we're on that journey for 7 to 10 years. We're not traders doing a bunch of Bitcoin trading. But I actually still think of Bitcoin and ETH and some of these top-level assets as very long-term venture holds. When you start running the numbers, I don't know what happens in '26 or '27, but looking at the macro backdrop and the technical backdrop, it seems to me that 10 years from now, it's probably worth a lot more. This is the digital gold narrative. Once you start putting numbers against it, it becomes real. I remember back in 2016-17, we used to talk to people and say, 'One day Bitcoin is going to a million.' You could reason through that. If it's one-to-one with gold, each bitcoin is worth $400,000. Then you figure it might be a little bit bigger than gold, and 20% of bitcoins have been lost, keys lost, Satoshi's coins, so you could reason your way to $750,000 to a million. Today, if you do that same math with the market cap of gold, each bitcoin is already worth more than a million because gold market cap has gone up so much. Over the long term, this is probably one of the easiest places to put money. It's not financial advice, but the long term is a lot easier than the short term. The backdrop reason, zooming out from what Jesse said, is if you think about the situation most countries are in right now, the demographics are set up in almost every country—maybe India and Mexico are exceptions—such that you'll have more older people than younger people. You already have fiscal dominance, debt coming on, which becomes a major driver of money flow, the need to pay for social services. You have four paths going forward. Option one: figure out how to not be under 200% debt and be stagnant for 20 years by cutting entitlements and social spending, which is really hard because you have to pick winners and losers, and no politician wants to do that. Option two: raise taxes, which is extremely unpopular in most Western countries, not politically feasible. Option three: debase your currency, which is politically feasible, so that's what everybody is going to do because the first two options are not viable. Option four: grow your way out, hopefully through productivity growth to support the debt load and a rising tax base even with fewer younger workers. AI, robotics, and crypto might help us grow our way out. Looking at that long-term backdrop over the next 10 to 20 years across the Western world and China, it seems like there has to be currency debasement. That's the only way forward. In that backdrop, I don't know how you can't stay bullish about crypto.

I was trying to bait people. That was the day Nvidia announced really good earnings and the stock went down 3%. I thought, 'This is a bad sign.' It was intended to get at that more than crypto. On the flip side, we haven't had amazing news on the crypto side. I'm looking at the inverse as a sentiment indicator. Once everybody says, 'This is a new paradigm, it's going up forever, institutions are here,' then you know it's the real top. Two things I would add to what Jesse said. On the top-down Fed side, everything he said is right. A little bit of alpha: if you go to Polymarket and see who everybody thinks will be the new Fed chair, it's Hassett, Bessant, and Warsh. You can look at their public statements; it's clear what they would do if they were Fed chair. There's a board governor thing, but it's clear which direction that might go. I think a strong Fed chair coming in could help. From conversations I've had with some of those folks, it feels like the Fed has been split in a weird way publicly, atypical. They're not marching to the same narrative, which suggests Pal has lost control of the situation. It's a lame duck situation. Whoever the new chair is will have to clean that up. I think that will inspire markets because markets don't like infighting. It feels like the Fed is fighting with the president a little bit, not wanting to cut just because the president tells them to, because they're supposed to be independent. Markets don't like that. Not only will policy change, but the temperature will change with the new person because the relationship with the president will reset, and the relationship inside the Fed will reset. That will be confidence-inspiring for markets. That's the top down. The other thing to think about from a market structure perspective: the market structure has really changed. People are used to retail flows. When retail flows, it slams in and slams out, and you see massive swings. That's not how institutions, sovereign wealth funds, pensions, or mutual funds work. They have allocation targets, go through investment committees, which takes six to 12 months. We're 18 months after the ETF, but it'll take a year to two years for many to say, 'We got to do this.' Then they leg into it. If the price changes, their exposure changes, so they add more. There's an argument that the market structure itself has changed in terms of how money will flow in and who it's coming from. That bid is different. They won't slam their entire stack in. They'll DCA in slowly. If you go back to the gold markets when GLD was launched 20-25 years ago, the first 12 years of the GLD ETF, every single year had more inflows than the prior year. There's a structural rotation when institutions come in, and the way they come in is different. I think that inflow really changes the four-year cycle because the underlying market participants have changed.

I think it's mostly a nothing burger. Probably the only one it might impact is MicroStrategy, just because they're so large they're included in a bunch of indices. It feels like MSCI is getting ahead of potentially other companies getting so big that they have a forced inclusion problem, so they're changing their policies in advance. Practically, very few other DATs will be included in meaningful indices, so it's probably a nothing burger.

It's hard to be in this industry and not be a little conspiratorial. The whole thing exists because some anonymous guy wrote a white paper on the internet, and for all we know that was the NSA. If anybody knows the history of cryptography, there was a Swiss company called Crypto AG that was the world expert in encrypted communications. The CIA secretly bought them and put in a backdoor, then listened to all governments' communications. So you can't be non-conspiratorial and end up in this space. I could totally see the person deciding policies at any index place went to college with the guy doing the bond offering from JP Morgan, and it's all incestuous. That's why DeFi is so interesting—transparent and composable. If I have liquidity, I can see what's going to happen, where the fees are going. That's the whole promise. In the old world, two buddies who are best men at each other's weddings might say, 'I'm going to make money on this MicroStrategy thing, so cut off the demand over there.' That's how that world works, which is frustrating to many people because it's so incestuous and blocks people out. I'm in the camp of 'yeah, probably.'

We're also investors in Ethzilla, Tom Lee's BMR, and ESP with Joe Lubin. We've done a few of these, and some on the Solana side. The way we thought about it at a high level is similar to what Jesse said. This is another piece of infrastructure and plumbing for another part of the market. The ability to have capital inflows come into this space is strategically important and valuable. If we can facilitate that, it's good for the space. If we can get Bitcoin, ETH, Solana, and other high-quality assets considered valuable collateral, and debt markets are willing to lend against them, we unlock an entirely new market—not just public markets with DATs, but you can go to Goldman or your local bank and say, 'Will you lend against this?' That doesn't exist right now. That's a valuable thing. So at a high level, this is structurally important to get different parts of the financial system to flow in here. As for differentiation, there are basically three strategies. Strategy one: the Tom Lee or Michael Saylor strategy—being a zealot, saying this thing is the only thing that matters, making so much noise in the media that you get a retail bid. If you get the retail bid flywheel going, for a short period you'll trade above NAV, and you can print more shares, buy more assets. That's a flywheel. Strategy two: like ESBET or some Solana ones, where you have a collection of productive assets thematically connected, and you can use the underlying asset productively in that ecosystem. Joe Lubin's ESBET has done a good job tying in MetaMask and Consensus, creating a flywheel with a permanent capital vehicle with ETH. You can create a flywheel there, maybe through acquisition, rolling together security companies, audit companies, staking businesses. It's hard to make them publicly traded individually, but in aggregate with a permanent capital base, it could be effective. Strategy three: people who say this is a set of assets on top of which you can generate significant yield in addition to the operating business. Because of the size, you can have outsized yield performance. That's the approach Ethzilla is taking. We're just the asset managers. You can do a lot if you know what you're doing on chain to generate outsized yield. The numbers announced at the last earnings call were like 7% annualized yield. When you compare that to ETH exposure in an ETF, it's better because ETFs are constrained by rules about what they can and can't do. We don't have those constraints, so we can use that ETH productively. We set up strategic ties like Etherfi and Puffer on the LST side. We can move that ETH around on chain to help facilitate parts of the ecosystem. So even within DATs, there are different strategies. As an investor, you might want something generating outsized yield versus just holding the underlying asset and staking, or some sort of operating business exposure in addition to ETH exposure, or take a bet on someone running a retail flywheel like Tom Lee's master class. They're all called DATs, but they're different strategies.

We've been doing this since 2018. Back then, we were wondering where fundamental value really accrues. We thought developer activity is a really good signal and a proxy for where interesting value will be created over the next two to five years. There's a saying, I think from Chris Dixon, that what software engineers do for fun on weekends is what you'll do for a job in 10 years. So we said, 'We should figure out what engineers are doing.' We built a system that crawls GitHub, GitLab, and social media sites to find where real developers spend their time. We fingerprint something like 750 million unique lines of code, and we can trace copying and forking back to the original. We built a robust data pipeline that constantly crawls the internet. Once a year, we'd share it with the Electric developer report. But last year and the year before, we realized it was getting really hard to classify things. Are L2s part of Ethereum? How do you attribute developers who write code for multiple chains? The attribution problem became gnarly. Also, we spent more time with foundations—ETH, Solana, Near—and many teams in those ecosystems. Hundreds of people have contributed to our repositories and data structures. We thought, 'Are we the right people to adjudicate where protocols go?' So we decided to open up the data. People can run their own queries. If they think an analysis says something, they can publish the data and analysis because the data is open. Then we can have an open conversation. Now all the foundations or any developer or data person can poke around and publish findings. As a community, we can agree or disagree with the analysis. We opened this up as Open Dev Data. If you go to my profile on Twitter or Electric Capital's Twitter, you'll see it. We worked with the Ethereum Foundation to publish some stuff, and they did their own analysis. We're working with all the other major foundations to publish their data. It's sort of an exit to community without a token. The data is there for anyone who wants it.

CCI is an advocacy and education group. Electric Capital, Andreessen Horowitz, Paradigm, Fidelity, Block, PayPal, SoFi are on the board, and I'm chairman. We focus on state, federal, and international advocacy. We spent time with regulatory bodies and in DC working with legislators and their staff. A couple years ago, it was mostly education—explaining what a stablecoin is and why it has national security implications. The policy team is top-notch. We helped with key provisions in the stablecoin bill and are working on market structure, like where to draw lines between securities, and SEC vs. CFTC oversight. Developer protections are important—you shouldn't send people to jail for writing code. It's really in-the-weeds legislative work, but important to get right. It determines who wins in the space. You don't want a system where big banks just come in and win. I've become more optimistic after engaging. When everything is 50/50 and polarized, all you have to do is convince one or two people, and everything tips. That's a tractable problem. You can have lunch with someone on staff and walk them through why they need to do something rationally. There are still enough good people who care. I had lunch with someone who later became a senator. We talked about stablecoins. This person was a veteran, a Democrat. They switched their vote on SAB 121 and the stablecoin vote because they understood how important the dollar is. The process has been empowering. You can have conversations, and people will change their vote. Finding five people and convincing them over lunch or dinner over six months is doable. As for innovations, we deliberately named our firm Electric Capital, not something like 'Block' or 'Chain,' because we believed that 10 years from now, the technology would fade into the background. You wouldn't call it crypto anymore. In 2010, you might have called yourself a mobile app company. Now you just say you do XYZ. We're at that point. If you're a fintech, why wouldn't you use stablecoins? They're strictly better. You don't need to say 'stablecoin company.' You just do remittances, and when probed, you use stablecoins. A litany of technologies are now usable. ZK proofs are getting there. Spruce, an Electric portfolio company, powers the California DMV app. You can go through TSA with your driver's license on your phone. They have deals with other states and DHS. The cryptographic curves they use are the same as Ethereum, because the company started as Sign-In with Ethereum. Nobody knows that. Distributed systems tech can be taken off the shelf with an SDK. Privy, another portfolio company now part of Stripe, makes every app a wallet. We're at the beginning of wallet tech, cryptography, ZK proofs for privacy, distributed systems where you can spin up a distributed database with global state. Stablecoins are just protocols that work. People are starting to figure out we don't need to lead with the crypto; lead with utility. A good example is X42, a protocol to pay for API calls. It came out of Coinbase. Cloudflare picked it up, and AI people are excited because it lets agents pay each other. It's an internet-native way to pay. You send a request to an API endpoint, it says, 'You got to pay me this much,' and because of stablecoins and wallets, you can pay. You can pay for data, compute time, access to an article. That wasn't possible before. Crypto makes it possible. But AI people are excited, and nobody talks about it as a crypto technology. It's just a thing that works. We're there with many components. We're spending time on what problems can be solved with these technology pieces, going to market as solving a problem without calling ourselves a crypto company.

I don't think it's any one thing. There's an old Ben Horowitz blog post I remember reading when I was a founder: there are no silver bullets, only lead bullets. Once you realize that, you know there's not one thing that makes your business work; it's one thing after another. The industry is like that now. It won't be the Clarity Act or a new Fed chair that makes everything work. It's lead bullet after lead bullet, and you wake up five years from now and say, 'Holy crap, everything worked.' We're at the beginning of that. I don't know how the next year plays out. I'm not smart enough to call the markets, and none of this is financial advice. But I see all the lead bullets about to get fired over the next five years. It seems straightforward from there.

Just @Avichal on Twitter, or Electric Capital on Twitter. We have all the docs, so electric.com, electriccapital.com, and developerreport.com. We try to do the coms, so we're pretty easy to find.

Thanks for having us. Good to see you.