🎙 Mati Greenspan: Only Those Who Are Well Funded or Most Committed Will Make it Through the Bear

This week on The Defiant Podcast we speak to Mati Greenspan. Mati is the CEO & founder of Quantum Economics, a crypto research and advisory firm. Mati believes we’ll keep seeing pain in the market, with crypto and stocks remaining highly correlated, as long as inflation persists. He says most sectors of crypto will be hit by this crash, because of reduced liquidity from dwindling token treasuries, or because demand for their platforms and apps will dry up.

Only those well funded and committed teams will make it through, and any project that survives a bear will see huge gains in the next rally. Still, he remains as bullish as ever on crypto, and believes staking is nothing short of the future of finance, and that DeFi will continue experimenting with different economic models. While most will fail, those that succeed will change the world.

A heads up that this interview was recorded last week, right before the Celsius debacle, in case you’re wondering why we didn’t speak about the elephant in the bear market.

Podcast audio and video was edited by Daniel Flynn and Gary Leuci. Transcript was edited by Samuel Haig.

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👀 Only paid subscribers have access to the full interview transcript below.

Cami Russo: Here we are with Mati Greenspan, founder and CEO of crypto research and advisory firm, Quantum Economics. Mati, it's so great to have you on The Defiant Podcast, welcome!

Mati Greenspan: Good to be here. Thanks for having me Cami.

CR: I’m super excited to talk all things markets with you… Things have been so rocky lately that I think we're all looking for some guidance on what's going on. So what are the main drivers of markets both macro and specifically crypto right now?

MG: Well, I believe that first and foremost, the Federal Reserve and the global central banks, as we know, they've been printing a lot of unnecessary money during the pandemic. And at the moment they're busy taking that money back. The Federal Reserve headed by Jerome Powell, or as we like to call him, J Powell, has basically gone from being the biggest buyer of financial assets in the world… in order to buy, they basically print money out of nowhere. So they end up buying stuff like bonds and other financial assets. And they've gone from being the biggest in the market to being the biggest seller in the market pretty much overnight. And as you could imagine that does a number on all kinds of assets, especially risk assets like stocks, and cryptocurrencies of course, fall into that category. And that's basically what we're seeing now.

CR:Right. I imagine that is what's driving the increased correlation between crypto and stock? I mean, that's been a really interesting trend this year, how those correlations have spiked. Basically, you're saying all these actions by The Fed are hitting risk assets, and crypto is just put inside of that basket. Is that right?

Correlation between crypto and the stock market

MG: The Fed drives the long term, I believe, but correlations between stocks and Bitcoin at the moment are at an all-time high. And that's basically the day-to-day correlation. Meaning if the S&P 500 goes up by 3%, then Bitcoin goes up by 3%. And I believe that's more an issue of trader psychology and also an increased participation by institutional players in the market. The more we see hedge funds involved in Bitcoin, and [during the] summer of DeFi [and] summer of 2021, all of the major players got into crypto in a big way. Their involvement means a greater correlation because if they're taking evasive actions in their portfolio or something like that, that means that they're going to be selling cryptocurrencies along and in line with everything else in their portfolios.

CR: Interesting. So do you expect this high correlation to remain high given that if we expect institutional participation in crypto to increase, then that would mean that we'll continue to see crypto and stocks remain correlated?

MG: Yeah, it's funny… Bitcoin was pitched to Wall Street investors as the uncorrelated asset and the more they get involved, the more it becomes correlated. So yes, I believe for the time being, the more we see their involvement, the more that correlation can continue to rise. However, I do believe that at some point the volatility of Bitcoin, the more we reach full market penetration, will come down over time. So Bitcoin at the moment is seen as much more volatile than most stocks, even though we've seen the bear market has revealed a lot of very sudden drops in some of the brand-name equities. However, Bitcoin is still all in all much more volatile than the rest, [but] it is much less volatile than it used to be historically. So the more we see Bitcoin taking its place in the world as a global currency, we should be able to see less volatility overall eventually. And I don't know when this will happen, but I do believe that it'll be somewhat like the U.S. dollar is today where it is seen as the stable currency and everything moves in relation to Bitcoin.

CR: It was ironic that investors got into Bitcoin expecting Bitcoin to be uncorrelated, but then, because they got in, then it became correlated. You were saying that long term you expect crypto to behave differently.

MG: Yeah, I've always felt this way. Since I first heard about Bitcoin [I believed] that over time the bigger the market cap and the more it takes its place as a global currency, the volatility will taper off and we have seen it tapering off somewhat. And I believe that eventually, and I don't know when, eventually it'll be somewhat like the U.S. dollar is today where everything is measured in Bitcoin and everything moves in relation to it.

CR: Yeah, and speaking of volatility, ETH is at 60% from its all-time high, Bitcoin is at around over 50% from its all-time high, and at some point last year, it was feeling like crypto had gotten over these huge run-ups and huge corrections, like maybe it was maturing. But now it's looking like it's like the same crazy run-ups and drawdowns are still the norm. So what will it take for crypto to just really mature and stop having these insane cycles?

MG: Yeah. I mean, I suppose we have to put a separation between Bitcoin and all the rest of the altcoins… The altcoins can be extremely volatile and I believe that on some level they always will be. Ethereum is coming down in volatility of course, but a new altcoin that is experimental should be volatile because it's extremely risky. But I think that it really is a matter of time, the more there's these steady inflows and outflows, buying and selling activity… I think that probably somebody with a billion dollars can probably push the price of Bitcoin, rather easily and even have quite a large impact. I think that the more we see those types of steady movements… if we look at some of the on-chain data, we can see that Bitcoin's average value that's sent during the course of a day is now reaching all-time highs — I believe that the more that goes up, it's basically replacing the dollar in global trade. As much as that happens, that'll reduce the volatility overall because then you won't have a situation where the amount of money required in order to push the price around goes up to a point where it's simply not feasible anymore.

CR: Okay, makes sense. So at that point then what will probably happen is that you'll see cryptocurrencies themselves become less correlated. So maybe you'll have Bitcoin, Ethereum, maybe a couple others be the biggest market cap coins which will likely be more stable or less volatile. And then you'll have the more experimental cryptocurrencies and tokens that will be a lot more volatile, and maybe we'll see those differences in market behaviors. But right now, all of crypto is pretty correlated, but I guess as the sector matures that won't be the case anymore.

MG: Well, I'm not so sure actually, Cami, to tell you the truth. I mean, stocks are quite correlated across the board and they always have been, as long as we've been in a globalization mode in a global market. I mean, there isn't any real fundamental reason why if stocks are going up in China, then they're more likely to go up in Europe, and then the United States comes in and for some reason does a flip flop and erases the gains. But they always have been like that, and it always has been that the world is a moody place and mood tends to affect the way that investors are buying and selling on any particular day hour, or even down to the minute. A specific news event can come out, and even though it probably shouldn't have any real impact on the price of stocks or commodities or currencies, it does. Until now, crypto has been so small that it didn't really join that part of the market. It really didn't join that frenzy of the global mood affecting what's happening on the ground or affecting prices. Rather, it was just playing catch up to the rest of the market and now we're starting to catch up. And now that we have, it's probably easier to see it as a migration. The pinned tweet that I have on my profile right now on Twitter is a quote that I gave CNBC back in 2019, which is that, in the next 10 years, all stocks, all financial assets, anything with a value and that can be traded, will trade as a token. That includes Apple stock, Tesla, and any other companies that might exist at the time. So will correlation between the different digital assets come down? I don't know, I don't think so. And I don't think that it necessarily has to, or should.

CR: That's a great point. So speaking about your broader, longer-term view of the market, I'd love to take a step back and learn a bit more on your background and in quantum economics. What’s the story behind your firm and when was it founded?

MG: I was the senior market analyst at eToro for seven and a half years. I left in November of 2019, just a few months before the pandemic. People thought I was crazy going to work from home, but in the end, it worked out quite well. We do a number of projects involved in research and advisory within the crypto space. Really, we help young projects grow by giving them advice, introductions, resources, and support on social media if needed. And of course, we do a lot of groundbreaking research for some of our sponsor clients, Luno Global is one of our clients that sponsors regular research. Basically, we get together with them, figure out what they want to know, what's tickling the back of their brain, what their audience wants to know, and then we get together. We have about two dozen of the industry's most prolific writers on staff, and they basically do groundbreaking research that's, in my mind, quite newsworthy where we come in and figure out a lot of the questions that you're asking.

[For example], the correlations between traditional markets, on-chain analysis, we do a lot of stuff about adoption in Africa… or the developed world… because, in our mind, it's one of the most exciting places where we see technology leapfrogging traditional [markets]. We even just saw Uganda reversing course, which I thought was quite amazing. They were talking about banning cryptocurrencies and all of a sudden now they're creating a sandbox for digital assets. The Central African Republic adopting Bitcoin as legal tender. We saw Nigeria's central bank also completely reversing course — I like to think that we had a hand in that as well with some of the research and outreach that we did at the time. These are some of the things that we're focused on, but we really stand ready to go anywhere. Each of the analysts on our team has a very specific focus in the market. When I got into Bitcoin in 2013, it was like ‘okay, here's Bitcoin, it's right between crude oil and gold on my watch list’. And nowadays, the industry has become so diverse that you really need dedicated people on each and every sector. We also have a spinoff company called Quantum Expeditions, which is now building a mining facility in west Texas, which we raised money for. Actually, we over-raised a bit, people on Twitter showed us a lot of support, and we're very thankful for that. We're gonna mine a lot of Bitcoins pretty soon.

CR: Okay, and I'm wondering if you also do investment within Quantum Economics or if it's purely research?

Staking As The Future Of Finance

MG: So yeah, I have actually. We're looking into a few options for money management and formation of funds, but of course, those are always very time-consuming and expensive. So [there are] a lot of different things that we're looking into, but nothing to announce at this time. I do have an active account on eToro, which is the firm that I used to represent, and [I’m] doing not too bad actually. So anybody can come and see my performance and the cryptos that I'm holding in the eToro account. And people in the United States can even copy me, basically, mirror my portfolio there.

I see staking and staking rewards as nothing short of the future of finance. I'm staking on a number of protocols including some that I'm advising. There's the Revolt Network which is an aggregator on the Binance Smart Chain, as well Lunar Crush, who I'm advising, has recently implemented staking rewards right through their platform, they're giving 25% annually. I'm also staking on Near Protocol on several of their different options, and Supremacy Game is a really cool NFT robot fighting game that I advise, and they've recently introduced staking through their platform as well, which is pretty handy since I have a bunch of their tokens, more than I could ever spend in the game. So it's nice to earn an extra percentage by providing liquidity. I believe it's a very sustainable model.

CR: Nice. So lots of staking it looks like, are you also active in DeFi yield opportunities, yield farms that sort of thing? Or do you prefer more passive sorts of strategies?

MG: Yeah… I believe… it's only a matter of time until decentralized finance takes the place of centralized finance. It's understood that bonds, which is basically lending your money to the government, are a dead asset and you can do things much more efficiently and much more profitably by having these DeFi staking options and yield farming protocols. We're not quite there yet, but I believe that the transition is coming to where normal investors… are going to say ‘wait a second, why am I lending my money to the government and losing money after we calculate for inflation when I can go to the DeFi market and actually earn a respectable yield by lending my money out to a liquidity firm who's using the money and using it for a good purpose, and then I get a percentage of the commission or something like that.’ In my mind, this is where we're headed.

DeFi’s Integration With Real-World Assets

CR: So do you believe that financial markets will increasingly be more like the current DeFi markets in the sense that it will be investors interacting directly with smart contracts using non-custodial wallets? Or do you think it'll continue to be this mix of CeFi, DeFi, and FinTech? Where do you think general investment is going?

MG: We obviously can't really know the future, but as much as I understand and I can foresee… the current market and the current DeFi market is very aloof. It's very up in the air and there's very little tying it down to the ground, which is why I believe Circle recently made headway with their Teller Protocol, which actually offered a home loan and actually awarded a home loan to one of their users based on their credit score and stuff like that. That's basically tying [DeFi to] the real world… [DeFi] as it stands, is people lending money around, but nothing actually tying it to real businesses, and the more we bridge that gap between new-age finance and traditional finance, the more I believe we'll have this use case.

It's all very much under construction at the moment, which is why I find it fascinating that DeFi summer even took place to begin with in 2021, where we saw so many institutional investors, VCs, and whatnot rushing towards DeFi even though the use case is still very disconnected from the real economy. However, what we're seeing right now is the testing of new economic models, and a lot of them are gonna fail, especially now during the bear market where we're seeing a massive shakeout where some of the ones that maybe didn't have the strongest fundamentals probably won't survive, or at least they'll survive in a very diminished state. But it only takes one or two that actually make it in a big way to essentially change the world.

CR: That's fair, I agree that right now, DeFi seems very endemic.

MG: I believe that… new economic models are being tested at the moment. And especially now in the bear market, we're seeing a lot of them fail and that's a natural process. But if only one or two or three of these new models end up making it and end up being sound we can literally change the world and make it a more fair and equitable place for all human beings. And that prospect is certainly worth all of this experimentation in my mind.

LUNA’s Collapse As A Symptom Of The Bear Trend

CR: Speaking of DeFi and the market right now, do you think that we have seen most of the repercussions of [the LUNA] implosion, or do you think we'll still continue to see the ripple effects? If so, where do you think those are?

MG: Yeah, to pointedly answer your question, I believe that the repercussions are already behind us. However, more broadly, I would say that Luna is a symptom of the bear market much more than the other way around. With free money flowing from The Fed, LUNA could have continued for many more months, possibly even years. As long as there's new money coming in to feed the monster, it could have gone on forever. However, you can't continue to offer 20% in a bear market, 20% is difficult in a bull market — it's possible, but difficult. And I've even seen banks offering 20% in bull markets past before we saw such manipulation of interest rates and stuff like that… That was reasonable when I was growing up. In a bear market, it's simply unsustainable. I don't believe that they managed it correctly and they didn't start taking back that 20%. Rather, it was that 20% was feeding the new users and they ended up taking out from the treasury in order to sustain it. And I believe that that was one of their downfall mistakes, that when it came time to pay out the treasury to continue the [yield] on UST, there was nothing left.

But what are the repercussions? This is the thing that really gets me is — LUNA's market cap was about as big as Lehman Brothers, and Lehman brothers was one of the big hallmarks of the 2008 financial crisis. That Lehman Brothers collapsed and the government didn't deem them ‘too big to fail’ or hand them a bailout or anything like that. Lehman Brothers had a knock-on effect which I believe was a contagion basically, and it affected many other markets as well. Whereas LUNA, they sold off a bunch of Bitcoin that day, maybe over a two or three-day span, but the selling of Bitcoin was pretty much over — the losses were pretty much, in my mind, contained to the people who'd invested in LUNA, which hopefully most of them understood the risks that they were getting involved in. I'm certain that there were some people who weren't, but I believe that most of the people who invested in LUNA at least were somewhat diversified in their portfolios.

I also believe that there were many billionaires involved that probably took the brunt of the biggest losses — CZ, Sam Bankman-Fried, unfortunately for them, lost billions on this. So yeah, I believe that's behind us, but the bear market will continue for as long as The Fed keeps on tightening. And I think that by the end of the week, we should be a bit smarter about inflation… As long as inflation is actually coming down, I believe The Fed can ease up on some of this pain that we're seeing right now. They’re the ones that control the dollar, and they basically control most of the money in the world. So they're really the ones who are causing this pain, and they're the ones who have the power, unfortunately. At least until we get off of that system and move on to something new, they're the ones who are calling the shots at the moment.

When Might Quantitative Tightening End?

CR: And do you believe that the rate hikes will continue as long as inflation isn't under control? Or do you think there's a point where The Fed politically can't afford to continue raising rates, even if inflation doesn't come down? I mean, does that play a role as well? Will it say ‘okay, it's been enough bloodshed in the markets, let's stop raising rates, even if inflation doesn't come down?’ Or do you think we'll need to see better inflation prints for rate hikes to stop?

MG: So as the old saying goes, ‘the beatings will continue until morale improves.’ At this point, as we know, The Fed has been under fire for insider trading, and Jerome Powell himself sold about a million dollars worth of equities just before starting this harsh rate hike regime. Now, obviously, central bankers are among the most ethical people in the world, not, so we can't really make any direct correlation. However, if you're asking politically and as far as Joe Biden is concerned, inflation is the killer, right? So that's the enemy that they need to get under control much more than the markets because Biden can handle a market crash and get reelected, he can't handle 8% inflation and get reelected, and there's only so much he can do to blame Putin for this because people are smarter than that these days. So yeah, as far as The Fed's motivation is concerned, it's to get inflation under control at all costs. And yes, I believe that they will continue to beat the markets until that is under control.

CR: Got it, okay. So we’ll really have to wait and see inflation prints for guidance on where the market is gonna be headed.

MG: Six months ago Bitcoiners were all like ‘yay, inflation is high, Bitcoin's going to the moon.’ And now, these days, they've changed 180 degrees. ‘Oh my gosh, inflation is high, what am I gonna do? The Fed's gonna continue to raise it.’ It is a bit silly, but this is where we are.

Will ‘The Merge’ Be Bullish For Ethereum?

CR: Yeah. Changing gears a bit to Ethereum, there is potentially a huge positive catalyst coming up with The Merge. This has been announced over and over again, so you would think that this is already reflected in the price. But I don't think crypto is a perfect market, I think there's a lot of information asymmetry, and I think most people don't really know what's going on in the nitty-gritty of things. So I'm not sure if The Merge is really priced in. What are your thoughts there?

MG: The way things work in testnet is almost always not how they'll end up working once you put it on a live version. In my mind, there's a fear, as far as the economics are concerned, with reducing the fees too much. Now, first of all, we don't know how much The Merge is going to actually affect fees. Certainly, lower fees are better for financial inclusion, they're better for onboarding more users — there's probably, I don't know, more than half the planet right now who simply cannot use Ethereum because it's just way too expensive. So that'll help them onboard.

However, reducing the fees economically is something that is prone to reducing the price of the asset simply because the fees are the network's way of retaining value. So if you push something through the Ethereum network, if you're pushing $1,000 dollars worth of value and the fee is gonna be $60 on that, the network is actually retaining that $60. If you're pushing $1,000 dollars worth of value through Ethereum, and the fee is only $0.08 how much is the network really retaining? So higher fees means more demand on the token. If you need $60 to pay for each transaction, you need more Ethereum in your wallet in order to process 10 transactions, it's just a fact of life. Whereas a lower fee means that you'll be able to process hundreds of transactions with only $50 in your wallet. So the demand on the token will go down in my mind. There's a trade-off like I said, if we're onboarding billions of users that might keep things up.

However, the fun thing about Ethereum is that it's not like Bitcoin where the economics are set in stone. The Ethereum Foundation has before and will again tamper with the rate of issuance of Ethereum. So if they feel like there isn't enough demand on the Ethereum token, they can change that, right. They can just make sure that there's less Ethereum coming into the market and [voila,] problem solved. So that's the ace up their sleeve, I think. But how The Merge is going to affect the price of the token, I don't believe that the speculation, moving forward, is really the strongest factor here.

CR: Hmm. I mean, The Merge itself isn't supposed to really impact fees since it's just the consensus mechanism that's being changed, sharding isn't being included at this stage, or anything else that will help Ethereum scale… It's the stuff that impacts the prices like the burning mechanism and how inflation changes with The Merge, but not really fees.

MG: What do you think is gonna be the impact?

CR: I'm really not sure. I actually do think that The Merge is priced in. I think it's been a long time coming and I think most whales know about it, so whatever impact the news had has already been incorporated in the price. I think it'll be a non-event price-wise, but nonetheless important for Ethereum to continue on its roadmap until it can actually scale. But yeah, The Merge right now, I think the purpose is to make Ethereum more decentralized, giving a greater number of people access to running a node instead of having to have all the infrastructure needed for Proof-of-Work. You just need to stake 32 ETH, or a fraction of that if you're going through different third parties.

MG: I suppose that might lock up more Ethereum into staking and maybe take some of the supply offline… I was always under the impression that it was supposed to reduce fees, but if you're telling me that's not the case I think what's the point, right? I mean, in my mind the biggest problem with Ethereum right now is the fees. That's what makes it prohibitive for people in developing economies. Most people in Africa, they know Bitcoin and they're using it, but they have nothing to do with Ethereum or any of these NFTs or DeFi — it's just too far from them, it's unattainable.

CR: Yeah, I think that's the role of Layer 2s and side chains at this point more than the Proof-of-Stake mechanism. So the hope is that bridges to Layer 2s will be better and more usable, and Ethereum will be cheaper through those platforms, but the mainnet itself will continue to be really expensive to use. That's until sharding takes place.

MG: Isn't that the same argument that the Bitcoin maxis use? It's like ‘oh, we need to rely on Layer 2 because the Layer 1 is never meant to scale.’

CR: Yeah, it's pretty similar actually. I think the difference is the level of computation that you can get on Ethereum versus Bitcoin, [which] continues to be better on Ethereum. But anyways, I think it's pretty similar actually. Layer 1 is the most secure layer and then Layer 2s provide scalability.

MG: Yeah, I've had that conversation with Adam Back more than once, he really drives that point home. And it's funny now that you mention it as part of Ethereum, because I always thought that the point was to make Ethereum itself more scalable. But what you're telling me actually makes a lot of sense — it’s like you can't make it much more scalable than it already is, but you then need to rely on Layer 2 solutions, which are happening anyway.

CR: Yeah, it's slowly happening. It's really tough to use those Layer 2s, but it's getting better.

MG: It's gonna be up to the end protocol to make it user-friendly, and [it’s] the developers that are touching the users at the end of the day. [So they will need to] make sure that they're integrating those solutions properly.

CR: Yeah, exactly. Maybe the upside of bear markets is that developers will be heads down with no distractions building those better, more usable protocols and apps.

MG: Yeah, we can only hope, but at this point, the bear market is so severe that some developers are finding it tough to continue and fund operations and that can be part of these cycles that we go through, and it's only the ones who are either the most well-funded or the most committed that are gonna be able to make gains during the bear market, and making gains during the bear market pays off exponentially in the bull run.

Who Will Be Hardest Hit By The Bear Market?

CR:True. So right now, if the bear market continues, which areas in crypto do you think are the most at risk? Where do you see companies or projects shutting down?

MG: Oh boy, it's everywhere. It's gotten to be pretty severe at this point. From the smallest projects, a lot of whom have already gone under — I've seen projects already preparing their eulogies, so to speak, for the smaller ones, For the bigger ones, some of the exchanges are already laying off staff. So everybody is in hunker down mode at the moment. I mean, there's nobody, no part of the market that's been spared from this. It's getting very difficult to make new deals. What we're seeing now is pretty brutal. And I do hope that this is the end of it, the darkness before the light at the end of the tunnel.

CR: Yeah, do you think that is the case because a lot of projects had their treasuries in volatile tokens? Or is it also a matter of there [being] less demand for whatever it is that they were selling, or a combination of both? Where's the pain coming from?

MG: Certainly that's what we saw with LUNA, was that they were holding their reserves in Bitcoin. Those were supposed to be holding up, and that's why Tether was fairly immune. There was a run on Tether, I actually spoke with Paulo do [while] the Tether peg was in question and we saw Tether down at $0.95. And he was like ‘look, we're holding U.S. dollar bonds, we're not dumb like LUNA who are holding Bitcoin, and now their purchasing power is down 50%. We're trying to peg to the U.S dollar, therefore we need to go hold dollar-denominated assets which are liquid.’ They're mirroring The Fed and buying bonds. And now that people are selling Tether, they're actually mirroring The Fed again and selling bonds. But that's where they need to be in order to remain stable. So certainly, any projects that's holding their reserves in volatile tokens, they've been hit the hardest.

However, for exchanges, their volumes are down. Their volumes are way down, so that's their revenue, right? So, if Coinbase was making ridiculous revenues when volumes were up in the air, what we better hope is that they were acting like squirrels at the time and burrowing some of that money away for a rainy day, because that's the only way that they can survive the winter. It's a simple matter of hibernation, they need to then reduce costs, lay off staff, and make sure that they're more efficient.

The only part of the market that hasn't really been hit yet, or hasn't been hit hard, is Bitcoin miners. Where we can see the hash shrink somewhat, staying stable, it's still extremely profitable to mine Bitcoins. Even though there has been some level of selling of mining equipment, we've seen prices on mining equipment going down lately because the price is going down. Maybe they're a bit less profitable than they were before, but anybody who's running on not even the latest models… as long as they're not paying silly retail energy rates [they] should still be profitable. And we're seeing mining activity, especially in west Texas, continue to expand. So we hope, knock-on-wood, that doesn't get hit or completely obliterated. If it does, we'll be okay and we'll be able to make gains during that as well.

CR: Yeah, it's interesting. We have an article on The Defiant on how hash rate for Bitcoin and Ethereum are both new records — that was a surprising development, I guess. Why do you think hash rate has remained high?

MG: Because the ones who have gone offline are the ones who are paying retail rates for energy. If their energy costs are very high or [they] are using older machines, those are the only ones who have gone offline, but the bulk of the hash rate is coming from efficient miners who are running new machines at lower energy costs. So that's gonna make up the vast majority of mining and hash power. So there has been some level of capitulation, but only on those, on those [who are paying] the higher cost for electricity and the less efficient machines, which are a very small portion of the market.

What Bitcoin Needs To Recover

CR: That was such a surprising stat. And then wrapping up, do you have a target or a forecast for Bitcoin’s price by the end of the year?

MG: I don't know. My answer for this question is always that I can say with a 99% certainty that Bitcoin will be within between $100 and $1M by the end of the year.

CR:If not a specific number, do you have a general trend?

MG: Bitcoin reduces its volatility, finds a base level, something like we did in the bear market of 2018. We found that at $5,000 per coin, that was the level, and it stayed there for several months. And then we saw that again in 2019 where it stayed at $10,000, it just stayed there for several months. I think that if we can hold $30,000 until the end of the year, that would be incredibly healthy for Bitcoin. As much as we see less volatility and a more stable price, the more people can use it in day-to-day transactions and long-term contracts. And that's the key to adoption is those long-term contracts, because right now, nobody in their right mind is gonna sign a contract that is in Bitcoin terms.

It's gonna last more than a year. If you're building a building or you have a media partnership or anything like that… you can't set a price in Bitcoin because it's just too volatile. The more we see the price of Bitcoin stabilizing, the more people are gonna be able to use it as a basis for their calculations, and that in turn causes less volatility and more stabilization. And that's the key, that is what’s good for Bitcoin, that's what helps Bitcoin grow.

CR: So you do see Bitcoin becoming this exchange mechanism beyond digital gold, like something that [functions] as a store value. You see this as something that you can buy coffee with in the future?

MG: Well, no, I don't think that we'll be able to buy coffee with Bitcoin per se. Certainly not on the Layer 1, it doesn't work like that. I mean, sometimes it works pretty quickly, you get a confirmation within five to ten minutes, sometimes even faster and depending on which services you're using — but sometimes you send a Bitcoin transaction and you're waiting for hours and there's still no confirmation. So no, it doesn't work like that. And even if it's only $0.40 per transaction, or $0.50 cents per transaction, that's still way too much for a $3 to $4 payment. So I don't believe that Bitcoin itself will be usable for a cup of coffee.

However, I do believe that we'll get to the point where people can run their businesses on Bitcoin. If you have contractors who are willing to accept a flat Bitcoin rate and you have clients who are willing to pay you in a flat Bitcoin rate, then you can manage a business on it. And the more businesses we have like that, the better it is for the stabilization of Bitcoin — it's a virtuous cycle.

CR: Alright Mati, thank you so much for joining me and taking the time. This has been a really interesting discussion on the crazy markets that we're living in right now. Thanks so much for providing your insights and guidance!