Source: Miles Deutscher Finance podcast
Compiled by: Felix, PANews
Dragonfly partner Haseeb recently shared his views on the crypto space in the Miles Deutscher Finance podcast , providing in-depth analysis of retail investor activity, the dominance of institutional investors, the true nature of Bitcoin, and quantum risks. Furthermore, Haseeb explained why AI agents could fundamentally change how people use cryptocurrencies and why this could trigger the next wave of on-chain applications. PANews has compiled the highlights of the conversation.
Host: Since the events in Iran, the market seems to be rising, and the stock market is now at a historical high. How do you interpret the current market situation?
Haseeb: The market seems to have stabilized. Since last October, what you've seen is a complete exodus of retail investors. If you ask the founders of exchanges, they'll tell you there's almost no retail activity, just a fraction of what it was during the 2020/2021 frenzy. Retail investors are fickle, and if you look at key metrics for measuring retail attention, such as search volume, trading volume on exchanges primarily targeting retail investors, and app store downloads, you'll know that retail investors have left.
So who's supporting the market? The answer is institutions. If you look at the overall situation of Bitcoin ETFs, as the overall market fell, the price of Bitcoin ETFs dropped by about 7%, but the total amount of money withdrawn from ETFs was much smaller, indicating that institutions are still there. They constitute the market's bottom line. At this moment, they are the buyers of last resort. Institutions are also the shock absorbers of volatility, which is why Bitcoin hasn't plummeted by 70% to 80% as in previous cycles. Therefore, the total size of ETFs suggests that "smart money" generally believes this sector won't die, but retail investors have indeed left.
When retail investors leave, the crypto market loses a significant portion of its value. Even for crypto ETFs, retail investors constitute a huge part of the demand for Bitcoin ETFs. However, it's not the speculative, quick-money investors who remain; those are gone. Now, to understand the market, you need to answer two questions: Why did they leave? When will they return?
First, why did they leave? Because they lost a lot of money. The market crash was largely borne by retail investors. Retail investors were the ones forced to liquidate highly leveraged positions (ADL), and they were also the ones holding those Altcoin that crashed. Institutions wouldn't use leverage to long on assets like Atom. While some market makers and liquidity funds also lost money, it was far less severe than for retail investors. Second, the crypto market is reflexive. The crypto market is extremely dependent on momentum. When momentum turns negative, it remains negative and continues to fall until some positive force pulls it back up.
Not only have retail investors left, but where have they gone? They've turned to gold, they've speculated on AI stocks, and they've traded oil. They've chased assets that are currently more volatile than cryptocurrencies; gold is even more volatile than Bitcoin. Cryptocurrencies are no longer the "most exciting show on TV." Cryptocurrencies attracted retail investors largely because of their extreme volatility and frenzy. If cryptocurrencies were to become low-volatility assets, their appeal to retail investors would be significantly diminished.
To some extent, since no asset can only fall and never rise and still be enjoyable, no one wants to trade an asset that keeps declining. Therefore, cryptocurrencies need to start rising again, which is one of the prerequisites for regaining retail investor attention. We are starting to see signs of this, as the crypto market appears to have bottomed out. Of course, no one can predict the future, and geopolitics is a significant factor influencing the performance of all asset classes.
The second thing is that AI is currently extremely volatile. You've seen this in gold and commodities as well; their volatility is currently outrageous. The US and Iran are gradually de-escalating. If you look at Polymarket's forecasts, the market believes the likelihood of the war continuing by the end of the year is very low, while the probability of a comprehensive peace agreement by the end of summer is over 50%. Therefore, we are likely to see commodity prices stabilize and the macroeconomy stabilize. But the stock market will likely remain volatile for some time, especially if we see major IPOs this year. If Anthropic or OpenAI IPOs before the end of the year, these stocks will experience wild swings as retail investors finally have a chance to buy them. The same goes for xAI and SpaceX; these are examples of extremely volatile narratives that retail investors love to chase highs and lows.
Host: So what's your outlook for the rest of the year? How do you think the market will evolve? We just discussed the volatility of the US stock market for a bit. It sounds like you think the US stock market will experience more volatility this year.
Haseeb: Yes, I think it's unlikely that cryptocurrency volatility will surpass that of US stocks until next year. My guess is that the crypto market will gradually recover, as it is now. But I think the key is after these big tech IPOs next year. I think that's when the crypto market is more likely to see a broader recovery and potentially start challenging all-time highs. Of course, these are all speculations, and I don't know the exact answer. But a clear logic is that cryptocurrencies need to reclaim their title as the king of volatility to become a more attractive asset class for retail investors. If cryptocurrencies can't win back retail buyers, institutional funds alone cannot push the market to all-time highs. People are excited about institutional money, and I think institutional money is important, but it will flow more towards equity companies in the crypto space than into Bitcoin, Ethereum, Solana, and certainly not into various Altcoin. For the broader crypto ecosystem to perform well, you need retail investors to return. And for retail investors to return, cryptocurrencies must be attractive relative to US stocks.
Host: What narrative do you think could bring retail investors back? Specifically, what narrative specifically for Bitcoin? Do you see any catalysts that could trigger this? Obviously, price increases create a narrative, but there has to be something else, because I feel Bitcoin seems to have lost some faith. I personally still believe in it; you can absolutely consider it digital gold, but seeing the recent strong performance of gold and US stocks, coupled with the threat of quantum computing and other factors mentioned in the news, it has indeed lost some faith. Are you still a Bitcoin believer? Do you think it has a clear path as an asset?
Haseeb: I think people really overestimate the “narrative” aspect of Bitcoin. Frankly, I don’t think there’s that much of a narrative to tell about Bitcoin. People just believe Bitcoin will exist forever; it won’t disappear. People are seeing Wall Street’s increasing acceptance of it, and the Bitcoin ETF, though only recently launched, is already one of the most actively traded ETFs globally. There’s huge demand for Bitcoin. If you ask, “What’s the narrative?” I don’t know of any particular narrative; it’s simply that it will continue to grow over the next 15 to 20 years. When the baby boomers age and hand over the reins of capital to Generation X and Millennials, they’ll find Bitcoin is there. They’ll accept it directly, seeing it as part of the world, a financial asset that won’t disappear. So I don’t know if anything specific will happen in the next two years; I think it’s just gradually solidifying its position as a more stable and understood financial asset.
However, quantum computing is indeed a real risk, especially in the next 3 to 5 years. For people to feel reassured about Bitcoin, you need to see a clear Bitcoin Improvement Proposal (BIP), consensus within the community around it, and a migration plan. Once you see this migration plan, confidence in Bitcoin will increase. When the migration is complete, the quantum crisis will be completely over. I'm quite confident this will happen; you can already see the Bitcoin community starting to address the quantum issue. The ultimate answer is that quantum computing will be like the Y2K crisis.
(PANews Note: This was one of the most famous global technological crises in the computer field at the end of the 20th century. From late night on December 31, 1999 to midnight on January 1, 2000, a large number of old computer systems and software around the world may have malfunctioned, crashed, or made calculation errors because they could not properly handle the year "00". Ultimately, they weathered the storm without a large-scale disaster.)
Quantum computing is indeed a risk; one day, someone will build a quantum computer capable of cracking ECDSA (Elliptic Curve Digital Signature Algorithm). But after that, the question is: have the various blockchains migrated? If they have, then it's not big news. It becomes Y2K. People say, "Oh, this could be a terrible thing," "But we're prepared, we've migrated, we know how to fix the bug," and then the bug is fixed, the crisis is over, and we never talk about it again. That's the ultimate fate of quantum computing. So looking back, we'll view the quantum crisis like we viewed the Bitcoin block size debate: it's just something that happened in the past, and nobody will mention it again. Future generations will find it hard to imagine why it was such an important issue back then, because to them it wasn't an issue at all.
Host: Yes. In the last podcast episode, you mentioned that exchanges can even block addresses, and there are various mechanisms to prevent compromised supply from entering the market. But you also pointed out that even if it does affect the market, it will be priced in beforehand and could then become a bullish catalyst.
Haseeb: Exactly. Let's assume the Bitcoin community finalizes a new signature mechanism standard next year, giving everyone three to four years to migrate their keys. After that period, the old addresses will become invalid, and the tokens will be destroyed. Then all institutions and most people will have completed the migration. If quantum computers are indeed available five years from now, that would be absolutely beneficial for Bitcoin: first, quantum computers won't be invented before the full migration; second, a large amount of unmigrated supply will be directly destroyed. In many cases, quantum migration will ultimately become a bullish catalyst.
Host: That's the situation with Bitcoin. What about Altcoin and general crypto assets? Currently, retail investor interest remains low. What's your overall assessment of this market?
Haseeb: The beauty of the market is that it's relative. Altcoin have fallen a lot, but they can also bounce back significantly. You don't need everyone in the world to refocus on crypto for an Altcoin to rise 30%, 40%, 50%, or even 100% from the lows we hit. So, if we see a broader crypto macroeconomic recovery, I think many projects have a lot of room to recover.
That said, I think it will take some time for retail investors to regain their interest. Retail investors are more concerned with narratives when it comes to Altcoin. Unlike Bitcoin, Altcoin aren't guaranteed to outperform in the long run. For Ethereum, Solana, and all the other projects, you really need to tell retail investors a story about why these things matter; because unless you're a project like Hyperliquid that can print money, generate revenue, and buy back and burn tokens, almost no other cryptocurrency has that kind of fundamentals. If you look at Hyperliquid-like tokens that generate revenue, they represent a tiny fraction of the entire market; the vast majority of the market is trading on expectations of the future. So if you're talking about expectations of the future, you have to tell a story about what will happen in the future, and that story has to be credible to retail investors. I think that's absolutely feasible. We have all the raw elements needed for success. But people have to be excited about the future of cryptocurrencies. I think the core of cryptocurrencies has proven its enduring nature and that more and more powerful people believe in it. Look at Kevin Warsh's testimony before Congress; he basically said, "Yes, I believe cryptocurrency, as part of the financial landscape, is now deeply entrenched, it's not going away, and it's extremely valuable to the American interest." You simply can't imagine Yellen or Powell saying something like that. We're in a completely different world now, with the Fed Chair saying things like that, and the Fed Chair going to be here for a long time. So, I think there's really been a dramatic shift in the financial institutions embracing cryptocurrency. There are reports that Meta will launch their own crypto wallet in the second half of the year. All of this points in one direction: cryptocurrency has taken root here. But you need some concrete narratives to really get retail investors wanting to come back.
Host: You mentioned in a tweet that cryptocurrencies with financial attributes are experiencing explosive growth, which has been one of your major arguments this year. You also talked about the demise of non-financial crypto assets. I'd love to hear your arguments on this and why you believe it's such a huge opportunity. I've also looked into the investments of the Dragonfly Fund. Clearly, you've invested a significant amount of money in this direction.
Haseeb: I've always believed that cryptocurrency is fundamentally about money and finance. All large-scale successful projects, such as Bitcoin (digital gold), Ethereum (financial smart contracts), DeFi, ICOs, RWA, stablecoins, and prediction markets, are related to money and finance. The stories about cryptocurrencies being used for supply chain tracking, the metaverse, games, and social media are largely self-indulgent meta-narratives fabricated by VCs and industry insiders—even Zuckerberg fell into the trap. Back then, many VCs invested in Yuga Labs, Axie Infinity, OpenSea, etc., which we didn't participate in because those games weren't fun, and decentralized social networking wasn't practical. It turns out I was right; the true product-market fit for crypto is money and finance. This is why, for so many years, we've been investing in DeFi, stablecoins, exchanges, and other areas close to the core of crypto; and why we still have the right to continue investing in this area even after many misguided VCs have been eliminated.
Host: So what are you looking at in the financial crypto space right now? Is it prediction markets or AI agents?
Haseeb: We're looking at both areas. We're a significant investor in Polymarket. Polymarket recently announced the launch of perpetual contracts because existing binary options greatly dilute liquidity and are inefficient for predicting scalar values (like valuations), as retail investors simply want to buy an asset that can go up or down. That's a huge reason they launched Perp. On the other hand, the intersection of AI and cryptocurrency is where I spend a lot of time, especially on "proxy payments." We've looked at many API gateway projects that allow you to use AI agents to perform tasks via APIs (paying computation fees, solving CAPTCHAs, web searches, etc.), paying only with cryptocurrency and stablecoins on demand, without needing to register an account.
Host: You mentioned on Twitter that "cryptocurrencies are not designed for humans, but for AI agents." What are your thoughts on this evolution?
Haseeb: The way almost all software is interacted with will change. AI agents will be the first hurdle you face when interacting with software. The current user experience of cryptocurrency is terrible; it's not how humans want to interact at all. Why remember a 12-word private key? Why use currency with 15 decimal places? Why do I have to read a bunch of incomprehensible smart contracts? But for machines, all of this is perfect. Machines understand APIs and will never reveal keys in plaintext. 15 decimal places are irrelevant to AI. Humans can't read Solidity code, but AI is essentially a crazy programmer; they can read and parse smart contracts in half a second, knowing exactly what they're signing. For example, in the event of a hacker attack, humans still have to check their phone notifications and manually withdraw funds from their computers, while your AI agent will instantly monitor positions and mempools in the background. Even before the hacker's funds cross the chain, it can instantly withdraw your assets to a secure address. As long as there is enough computing power, top-tier cybersecurity models will soon be available for everyone. When all this happens, due to the intervention of AI, cryptocurrency will become as safe and robust as traditional finance. Why do you trust banks? Because banks have systems in place to ensure you don't accidentally transfer money to North Korea. In the crypto world, no one can stop you, but in the future, AI will become that intelligent filtering system, doing the same thing.
Host: Does this open the door to cryptocurrency adoption for billions of people and AI agents? Do you think this is a major turning point for the industry?
Haseeb: Absolutely. But it won't happen anytime soon because current AI agents aren't smart enough to produce hallucinations and spelling errors. But just like the development of AI programming tools, it will soon transform from an uncontrolled "wild horse" into an absolutely safe "airplane" that won't crash. Once the model is mature enough and trained on-chain, the public's perception of the dangers of cryptocurrencies will be completely overturned.
Host: In that world, who would be the biggest beneficiary? Bitcoin? L1? Or DeFi?
Haseeb: If a massive influx of people comes to the blockchain because AI agents make crypto more secure, they will definitely buy mainstream, high-quality assets that everyone trusts, such as Bitcoin. Some might think that apps like Hyperliquid (leveraged trading apps) would benefit, but I think they are on the wrong side. The new influx of people isn't here to gamble. Those who want to gamble are already doing so. You would never hand over your money to your AI agent and say, "Go and play leveraged trading for me," which is as foolish and pointless as asking a friend to play slot machines for you at a casino.
Host: But what if you think your agent is better than others? Wouldn't that turn into a financial war between agents? Also, since the availability of fiat currency deposits and withdrawals lowers the barriers, wouldn't it be easier for ordinary people to participate in the application?
Haseeb: First, Hyperliquid and Polymarket already have fiat currency deposit and withdrawal channels, and many users don't even know they're using crypto wallets. Deposit and withdrawal friction isn't the main obstacle preventing people from trading. The real logic is risk appetite. People with a high risk appetite have already found ways to be on-chain. The real drivers of 10x explosive growth are ordinary people with low risk appetites. This group currently participates very little in the crypto market. When the market becomes completely secure through AI, they will flood in. What will they do after entering? They will buy stablecoins and real-world assets (RWAs, such as tokenized S&P 500 indices). Currently, there is almost no "savings" or "passive investment" behavior on-chain. Once long-term passive index investing matures on-chain, this ecosystem will experience a complete explosion.
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