Hyblock Capital co-founder and CEO Shubh Varma joins CoinDesk's Ray Salmond on Markets Outlook in the aftermath of the largest hack in crypto history. Varma says the order books barely moved because Binance could cover the $6.3 billion loss and refunded users in coin, not dollars. Plus, what the Democrats' midterm wave means for crypto regulation, why he thinks Bitcoin's next run will come from capital rotating out of the AI trade, and his contrarian call that 2027 will be bullish despite a Fed that's raising rates.-This episode is brought to you by Grayscale, the world's largest digital asset-focused investment platform. Grayscale's mission is to make digital asset investing simple and open to every investor. Learn more at grayscale.com [grayscale.com].-Learn more about CoinDesk Data & Indices at coindesk.com/institutions.

There's only a finite amount of capital in the markets and it's just rotating through different sectors and crypto or Bitcoin had its time, you know, back in 2021, 202022, even recently when we touched 120, but I think right now it's AI that has its cycle and it will come back eventually and I think crypto assets in particular Bitcoin will do well. It's just how long will this AI trade continue?

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Welcome to Markets Outlook by Coindesk. I'm Ray Salmond. So Bitcoin is holding the low end of its range and back above 80,000 today. The largest exchange hack in crypto history has just hit Binance, and the year is winding down on a note of fear in crypto, but optimism.Across the political stage as the Democrat-driven blue wave swept the White House and the Senate and Wall Street rallied on the news. Joining me to make sense of it all is Shub Varma, co-founder and CEO of High Block. Let's get into it. Shub, welcome to Markets Outlook.

Thanks for having me, Ray. Let's get intothis. Yeah,

thanks for coming on. So, let's talk about Binance and Bitcoin and Ethereum.Both coins held up surprisingly well during this historic hack. It was literally the largest financial heist in human history. It's unbelievable. Why didn't the whole market collapse as it has done in the past?

Yeah, I mean, the fact that we just had the largest hack pretty much of all time in on the internet ever, and have only seen Bitcoin drop, not like maybe like from 80K to like about 75K is shocking, considering we've seen October 10th, considering we've seen FTX. And I think it's primarily because Binance has the funds to cover. And so the older books, like at a Hive Block, we look at the older books and we look at the order flow data. And what we noticed with the older book, which is whereThe resting orders are sitting waiting to buy or sell, is they didn't change at all. Uh, there wasn't a large change in that because obviously, the the funds were wiped out from Binance, but the actual order flow wasn't. Whereas in, in previous situations, we did see that. So I think the large reason why nothing really happened in terms of a large price drop was simply because Binance was able to cover it.

That was really the only factor. Maybe financing, they, they could cover the assets that were lost. Um, I think that their customer assets under management are about $129 billion. So, this was a small percentage, you know, the $6.3 billion that was hacked, and then, of course, 50% of it was frozen by Tether and also Circle for USDC. So, I think that played a role inAnd also opening withdrawals quickly because I know in previous instances when large exchanges have been hacked, sometimes they lock withdrawals and then that kind of leads to solvency concerns and worries about is there going to be a bank run on all the assets when they reopen. So, I do feel like uh their crisis management 101 was like top-notch and that did play a role in helping to reassure the market.

Correct. And they actually like they refunded a lot of these assets in coins, so not in dollars. So they were actually creating demand to go out in the market and rebuy these coins, which I'm sure helped these coins from like not falling, let's say 20 or 30 or 40% and kept the damage under control.

Right, right. So what's your timeline estimate on when the market fully recovers and what, what type of signals should investors monitor to get a clearer picture of how the market truly stands? So

the primary signal we look for isUh, your spot demand versus your demand on perpetuals, right? So the idea is that demand on perpetuals is more short term and generally leverage driven. And there's a lot of short term buyers and sellers, whereas in spot, you get, you're getting your long term investors. And that's really where price moves because there's less sell, uh, sell, sellers on spot. And so what we look for is the ratio between your perp CVD or your perp buying, selling versus your spot buying and selling. AndRight now, we're looking at a ratio that's around 7 or 8 to 1. And ideally, we like that to drop to something like 3:1, which means uh per CBD is around 3 times of buying a spot. And that's generally a healthy sign. And we're not seeing that at the moment, but we're not also seeing something that's like very bearish, for example. So we're in like this neutral territory. I'm sure that had some, some things to do with the midterms and everybody just being on the sidelines.But uh that's one of the major signals. And of course, you have your ETF inflows, you know, you do want to see institutional demand at the end of the day, and you want to see open interest. Uh, open interest is, is a proxy of essentially how many, um, traders are interested in the market, you know, longs and shorts both. And it's always healthy to see open interest going up, not too rapidly, you know, going up or not too rapidly going down, but generally, you want it to be like a slow and steady increase.Which kind of reaffirms the spot demand.

I've always heard that perps or futures participation by traders when they pile into futures positions using margin.That that's what drives price discovery for Bitcoin and Ethereum and other Altcoin majors. And then there's this kind of conversation that rallies tend to peter out when spot demand or the spot purchasing doesn't follow the perps flow. But to me, it sounds like you're saying in this instance, you are seeing spot participation outweigh perps, and that's also a good thing.

It's, yeah, it's not necessarily outweigh, but it's the ratio, right? So if, let's say perps are outweighing spots 7 to 1, if they then outweigh spot 3 to 1, that ratio is moving towards spot, even though perps are still outweighing, outweighing spot, like spot is growing and catching up on the demand side. And we like to see that it's a healthy sign.And hopefully, um, we can see that like that, that would, is it, that would be a metric that we would look for, not on just Bitcoin and Ethereum, but also on your altcoins.

Speakingof altcoins and meme coins, I don't hear much about them. So alt season, the meme coin fury, it seems long delayed, and, and with the tokenized stocks and tokenized treasuries and real world assets coming on chain, I kind of get this gut feeling that alt season is never coming back. What does the datashow?

It shows your gut feeling. We haven't actually seen anything related to past all seasons over the last 1.5 to 2 years. And what we mean by all season is basically some large percentage of all coins beating Bitcoin's returns over a stretch of duration. So for example, if you track 100 altcoins, usually if 75% of them are outperforming Bitcoin, you can call that as an altcoin season.And we haven't seen that at all, even with Bitcoin going up recently. I think the highest it got up to was like 43 or 41 old coins, but nothing really like a, a true like market all season. And I don't think that's actually going to ever really come back because so much of the market has gone towards RWA's AI, like all these other assets that are available to investors. So it's more of a truly diverse set of uh crypto assets now than, than we had ever before.

So you're saying $1 Doge and $5 XRP, it's not happening.

I personally don't see it happening because uh there's so much other demand. I think there was a lot of capital that was in crypto, and it would, it would constantly be funneled to these 1020, 30 coins when the markets were going up because they had to go somewhere. And now there's not just these 1020, 30 big market cap coins. You have, for example, on these crypto exchanges, you can buy RWAs and you can buy AI equity perks. And so there are a lot of other options where this money can go.

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As a company that's working in data tracking for cryptocurrencies, what type of challenges has this presented for you and how have you evolved?

So the biggest challenge has always been for us because we track um across a variety of exchanges and across a variety of venues. Um, every exchange has their own way of sort of, um, presenting their data. So for example, funding rate, hyperliquid mightUpdate that every hour, whereas in Binance might update it every 8 hours. So putting this all together has always been a challenge. And I think we've done a relatively good job at it. But now we're starting to see something different, which is investors aren't the same type of investors, right? They're not clicking on that old coin anymore. They actually might be clicking on, let's say an oil taker, or they might be more interested in an RWA. So we have to cater to that.And more interestingly, we're not seeing as many humans log into our platform. We're seeing a lot of agentic use cases. And so we're also pivoting and kind of setting our platform up to kind of get ready for this next uh era of trading via agents.

See, I remember when Bitcoin was a buzzword and blockchain was a buzzword and all these publicly listed companies found ways to inject blockchain into their name or into their, you know, the profile, the literature that they put out.And the stocks would react positively to that. And then now it seems like AI is the buzzword, which makes me wonder about, you know, what you've said about you see different types of investors now and they're investing in different things. So, with the institutionalization of crypto and the tokenization of everything, plus the advances and capability of AI, do retail investors need to trade crypto anymore? I mean, I, I feel likeCrypto will be integrated at an institutional level into RIAs, into 401ks, into pensions, and possibly auto-in invested. So, is there any point? Is, is there a need for investors to log on to Kraken or Coinbase or finance and read candlestick charts and trade crypto anymore?

That's a great question. I think everybody's trying to kind of get to the bottom of that answer and pivot their companies to handle that question.Um, my opinion on this is that this is really good for the industry, right? If you have an index fund that has some exposure to crypto, and basically the, the retail investor gets 1 or 2 or 3% exposure, that's going to bring in trillions of dollars to crypto. So it's very bull, let's, it's a bullish, uh, sort of use case for crypto. The next question, which is, are, does a user have to log into Coinbase or Binance to buy these assets? I think my opinion is a little bit different here. I think in a year to 1 year and a half years, we're going to see.That that concept of logging in won't matter as much because you're going to have so many agents that are going to be dictating trading. AndRight now, one of the reasons retail will sort of touch this index fund is because maybe they have, they have a full-time job, they don't have time to like learn about a specific asset. So they just want exposure. And I think in the future, these agents will do a lot of the research for you. So they might say, put X percentage in this index fund and put Y percentage in this like one particular crypto asset because it has a lot of whatever narrative behind it. And so,I think it's gonna be really both cases and it's gonna be heavily driven by uh.

Let's pivot over to the midterms cause there was a bit of a blue wave last night. President Trump ran on many platforms and one was being the crypto president and the guy that was gonna put America at the forefront of crypto. Beyond the Clarity Act failing and the SBR being, what is it, delayed? Is it shelved?Does it actually still intaking bitcoins and they just don't talk about it. I'm not entirely sure, but, uh, beyond, you know, the, the Clarity Act failing, it seems like he's made good on that promise because they had all three branches of government, right? But with the Democrats now controlling the House and the Senate, from an analyst in a trader's point of view, what's the play here?

Yeah, I mean,I, I question how much is left to do in crypto from the regulation standpoint, because a lot of the big things we were discussing kind of happened or, or some event happened regarding that over the last two years. So, in a way, I feel like the marketwasn't actually very um happy, at least the crypto markets, because we, that would have been reflected in price. And it seems to me that um with these elections, like just right after it, Bitcoin has now reached 80, 810 I think at this moment. And so it's gone up. So I think it's, the market is really saying that like,They want some sort of change, including crypto assets, you know, there's a lot of macro pressure that's been coming from the war and from interest rates and from oil. And I'm sure a lot of that is impacting, uh, crypto, especially when it comes to retail investors. So whether this will be good or bad in terms of regulation, I'm not fully sure because I think, you know, you're gonna have a lot of back and forth and I'm not sure how much will get passed. But the real question is, does the, does the marketNecessarily care about that. Like, does it care about regulation as much as it did, let's say 2years ago.

This is a super simplistic take here, but, um, all of the pro-crypto legislation happening across the House and through the White House seems very beneficial for stablecoin issuers. It seems very beneficial for DeFi companies looking to like build a bridge between B2C and B2B. It seems good for RWA tokenization. It did.Necessarily seem like the greatest thing for Bitcoin itself, right? And for those who invest in Bitcoin, like, of course, it is, but, uh, it wasn't as directly positive as it was for companies building in the space. So, do you think that if there's some pushback on the regulatory front against the crypto industry as a whole, which kind of slows things down for stablecoin issuers, RWA, AI Data Center.Builders and hyper scalers, does that kind of create a place where, hey, AI and altcoins and stablecoin companies, there's, there's less of a premium associated with that trade now, and, um, traders are always looking for risk in the highest returns. Does that create an investment opportunity for Bitcoin?

Yeah, absolutely. In fact, I think when the bull run comes for Bitcoin, it's going to be off the backs of this AI trade.And off the backs of some of the narrative that you were seeing with stablecoin companies, etc. because at the end of the day, the way I look at it is there's only a finite amount of capital in the markets and it's just rotating through different sectors andCrypto or Bitcoin had its time, you know, back in 2021, 202022, even recently when we touched 120, but I think right now it's AI that has its cycle and it will come back eventually and I think the crypto assets in particular, Bitcoin will do well. It's just how long will this AI tradecontinue.

From the standpoint of aggregate volumes across the entire crypto market, especially for the majors like Bitcoin and Ethereum, the market's cooled off. Like if you look at aggregate volumes from September.versus October, and now we're in November. There's been a double digit pullback in spot and Perp's volumes, right? So that does show that there's a little bit of apprehension going into the end of the year. Do you think that carries over into 2027? Or are, is there some sort of silver lining that investors are missing?

I don't see, I mean, you usually need a narrative that brings in a large amount of volume, right? And so the question is, what is that narrative?Well, the one thing I know is the, the spot order books have dropped. They're around 20% lower than they usually are historically. But the perpetual order books, there, nothing has changed. In fact, it's around the same, despite, you know, the last bearish year. And so if you get order flow, you get volume that comes in with a bullish order book, especially in perps, price can pump very easily.And so, the question becomes, what is that next narrative? And I think if in 2027, the idea is that this AI trade will sort of get disrupted a little bit and capital will rotate, then I can see very quickly, whether it's February or whether it's like November, I can see it very easily shift back into crypto.

I, I feel like the narrative of the bull market got a little bit off the rails though, because when Warsh was nominated, weren't we supposed to have lower interest rates and quantitative easing and a great economy and nowNow it looks like the Fed's stepped into a hiking regime. There's a hike possibly penciled in for December. Does that hiking regime extend into 2027? So, uh, talk to me about some of the longer tail developments on the macroeconomic side that you're projecting for 2027 and what that might mean for crypto.

So, this is an interesting question because I think on the one hand, a lot of this is expected, right? Everybody knows price hikes are coming.And they might come for at least half of 2027. And so, how much of this is already priced in, right? And the, the second question is, historically,Every time it's very bullish or bearish sentiment, usually you see the opposite, right? So when FTX happened, it was the most bearish thing you could think of for crypto. And that actually marked the bottom. And then when we had sort of all of these positive events happening post-election, the idea was, OK, now everything's going to sort of, price will go up, but it actually didn't. And suddenly we had like a surprise event with Iran and the rates and all this type of stuff. So,is, is now when everything, you know, the idea is rates are being hot, our, our rates are going up and that might dry liquidity and therefore it's bearish Bitcoin. If this is all known, a lot of times it sets up really good opportunities for players in the know, especially Wales, to buy this bearish demand and accumulate. And so, I personally think 2027 will beMost likely the opposite of the consensus sentiment, which is bearish. And I, I actually think at least the second half of 207, 27 or even possibly the, the first quarter, be quite bullish for crypto.

I love how you always take the other side of whatever the, you know, investor bias is and look deep and long into the market to find where's the alpha, where is the kind of countertra that, that no one's considering. So I, I like your contrarian mind.I think that sums up the current outlook pretty well, and our listeners are ready for 2027. So, it sounds like Binance is OK because they are liquid. There's no sort of solvency crisis there. Uh, the market may continue to be a little bit soft going into the end of 2026. Maybe we hit 900, um, and ease off a little bit and markets get hot again in Q2, Q3, Q4, 2027.Uh, altcoins may never be coming back, but the trade-off is, uh, it's easier for investors to get yield via tokenization now. So, thanks for joining us today, Shub.

Thanks for having me, Ray. Excited for the future.