Conversation with Dragonfly Partner: Retail investors exit, institutions step in to support; this year's cryptocurrency volatility is unlikely to surpass that of the US stock market.

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Source: “Miles Deutscher Finance” Podcast

Translation: Felix, PANews

Dragonfly Partner Haseeb recently shared his current views on the crypto space in the “Miles Deutscher Finance” podcast, analyzing in depth the whereabouts of retail investors, why institutional investors dominate, the true face of Bitcoin, quantum risks, and more. Additionally, Haseeb explained why AI agents could completely change how people use cryptocurrencies and why this might trigger the next wave of on-chain application growth. PANews has summarized the key points of the conversation.

Host: Since the Iran incident, the market seems to be pushing higher, and now the stock market is also at a historic high. How do you interpret the current market?

Haseeb: The market seems to have stabilized. Since October last year, what you’ve seen is a complete exodus of retail investors. If you ask exchange founders, they will tell you that almost no retail activity remains—only a small fraction from the frenzy of 2020/2021. Retail investors are fickle; if you look at core indicators like search volume, trading volume on retail-focused exchanges, app store downloads, etc., it’s clear retail has left the building.

So who is supporting the market? The answer is institutions. If you look at the overall Bitcoin ETF situation, as the entire market declined, Bitcoin ETF prices fell about 7%, but the total funds withdrawn from ETFs were much smaller, indicating that institutions are still here. They form the market’s bottom line. At this moment, they are the last buyers. Institutions also act as shock absorbers for volatility, which is why Bitcoin hasn’t plummeted 70-80% like in previous cycles. Therefore, the total ETF size suggests that “smart money” generally believes this space won’t disappear, but retail has indeed left.

When retail exits, the crypto market loses more than half of its participants. Even for crypto ETFs, retail is a significant part of Bitcoin ETF demand. But those remaining are no longer the speculative fast-money types; they’re 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 vast majority of market crashes are borne by retail. Retailers are forced to liquidate high-leverage positions (ADL), and they hold those plummeting altcoins. Institutions don’t typically leverage long positions on assets like Atom. While some market makers and liquidity funds lost money, it’s nowhere near as severe as retail. Second, the crypto market is reflexive. It heavily depends on momentum. When momentum turns negative, it stays negative, and prices keep falling until some positive catalyst pulls them back.

Retail investors not only left but also went elsewhere—toward gold, AI stocks, oil. They chase assets with even higher volatility than cryptocurrencies; gold’s volatility can surpass Bitcoin’s. Crypto is no longer the “most exciting show on TV” right now. The main reason retail was attracted to crypto was its extreme craziness and high volatility. If crypto becomes a low-volatility asset, its appeal to retail investors will diminish significantly.

To some extent, since no asset can only fall and never rise, making investors happy, no one wants to trade an asset that’s constantly declining. So, cryptocurrencies need to start rising again, which is one of the prerequisites for regaining retail attention. We’re beginning to see signs of this because the crypto market seems to have bottomed out. Of course, no one can predict future movements; geopolitical factors are a major influence on all asset classes.

The second point is that current AI is highly volatile. You see this in gold and commodities as well; their volatility is extremely exaggerated now. The US and Iran are gradually easing tensions. If you look at predictions on Polymarket, the market believes the likelihood of ongoing war by the end of this year is very low, and the chance of a comprehensive peace agreement by late summer exceeds 50%. Therefore, we are likely to see commodity prices stabilize and macroeconomic conditions become more stable. But stock markets may remain volatile for a while, especially if we see major IPOs this year. If Anthropic or OpenAI go public before year-end, retail investors will finally have a chance to buy them, and these stocks could trigger wild swings. Same with xAI, SpaceX—these are narratives with extremely high volatility that retail investors love to chase.

Host: So what’s your outlook for the rest of this year? How do you see the market evolving? We just discussed some volatility in the US stock market. It sounds like you think US stocks will be more volatile this year.

Haseeb: Yes, I believe that before next year, crypto volatility will be hard to surpass that of US stocks. My guess is that the crypto market will gradually recover as it is now. But I think the key will be after these big tech IPOs next year. I believe then the crypto market is more likely to see a broader recovery, possibly challenging new all-time highs. Of course, these are just guesses; I don’t have a definitive answer. But a clear logic is: crypto needs to reclaim the title of volatility king to be more attractive to retail investors. If it can’t win back retail buying interest, relying solely on institutional funds won’t push the market to new highs. People are excited about institutional capital, and I think it’s important, but it will mostly flow into crypto equity firms rather than Bitcoin, Ethereum, Solana, or altcoins. To make the broader crypto ecosystem perform well, retail must return. And to bring retail back, crypto must be attractive compared to US stocks.

Host: What narrative do you think can bring retail investors back? Specifically, what’s the narrative around Bitcoin? Do you see any catalysts that could trigger this? Obviously, price increases create narratives, but there needs to be more—because I feel Bitcoin has lost some faith. I still believe in it personally; you can definitely see it as digital gold. But with the recent strong performance of gold and US stocks, plus threats from quantum computing and other factors mentioned in the news, some faith has indeed been lost. Are you still a Bitcoin believer? Do you think it has a clear path as an asset?

Haseeb: I think people have overestimated the importance of “narratives” for Bitcoin. Honestly, I don’t think Bitcoin has that many narratives. People just believe Bitcoin will always exist; it won’t disappear. They see Wall Street’s increasing acceptance—Bitcoin ETFs, though new, are already among the most actively traded ETFs globally. There’s huge demand for Bitcoin. If you ask “what’s the narrative?” I don’t see anything particularly special; it’s just expected to continue growing over the next 15 to 20 years. As the Baby Boomer generation ages and hands over capital decision-making to Gen X and Millennials, they will find Bitcoin right there. They will accept it directly, see it as part of the world, a financial asset that won’t vanish. So I don’t know if anything specific will happen in the next two years; I think it’s just a gradual solidification, becoming a more stable, better-understood financial asset.

However, quantum computing is a real risk, especially within the next 3 to 5 years. To reassure people about Bitcoin, you need a clear Bitcoin Improvement Proposal (BIP), community consensus, and a migration plan. Once you see that migration plan, confidence in Bitcoin increases. When the migration is complete, the quantum threat is essentially in the past. I’m quite confident this will happen; you can already see the Bitcoin community starting to address quantum issues. Ultimately, quantum computing will be like the “Y2K” crisis.

(PANews note: The most famous global tech crisis in the late 20th century. On December 31, 1999, to January 1, 2000, many old computer systems and software worldwide might fail, crash, or produce errors due to the inability to handle the “00” year. It was ultimately resolved without large-scale disaster.)

Quantum computing is indeed a risk; someday someone will develop a quantum computer capable of cracking ECDSA (Elliptic Curve Digital Signature Algorithm). But afterward, the question is: have all blockchains completed their migrations? If they have, then it’s no big deal. It becomes like Y2K. People will say, “Oh, this could be a terrible thing,” but “we’re prepared, we’ve migrated, we know how to fix this bug,” and then the vulnerability is patched, the crisis ends, and no one talks about it anymore. That’s how the quantum threat will ultimately be viewed. So looking back, we’ll see the quantum risk as just another chapter, like the Bitcoin block size debate—something that happened in the past and is no longer relevant. Future generations will find it hard to believe it was once such a big issue, because to them, it was never really a problem.

Host: Yes. In your previous podcast, you mentioned that exchanges could even block addresses, using mechanisms to prevent compromised supply from entering the market. But you also pointed out that even if it does impact the market, it will be priced in advance and could instead serve as a bullish catalyst.

Haseeb: Exactly. Suppose next year the Bitcoin community agrees on a new signature scheme standard, giving everyone three or four years to migrate keys. After that deadline, old addresses become invalid, and tokens are burned. Then all institutions and most users will have completed the migration. If five years later quantum computers really emerge, it’s actually a bullish scenario for Bitcoin: first, quantum computers won’t be invented before the full migration; second, a large amount of un-migrated supply will be destroyed. In many cases, the quantum migration will become a bullish catalyst.

Host: That’s Bitcoin’s situation. But what about altcoins and other crypto assets? Retail interest remains low. What’s your overall assessment of this market?

Haseeb: The beauty of the market is that it’s relative. Altcoins have fallen a lot but can also rebound significantly. You don’t need everyone in the world to refocus on crypto for altcoins to rise 30%, 40%, 50%, or even 100% from the lows. So if we see a broader macro recovery in crypto, many projects have substantial room to rebound.

That said, I think retail interest will take some time to return. Retailers are more driven by narratives in altcoins. Unlike Bitcoin, altcoins aren’t guaranteed to succeed over the long term. For Ethereum, Solana, and all other projects, you really need to tell a story about why they matter; because unless you’re a project like Hyperliquid that can print tokens, generate revenue, and buy back and burn, most other cryptocurrencies lack strong fundamentals. The income-generating Hyperliquid-like tokens are a tiny part of the market; most trading is based on expectations of the future. So when talking about future prospects, you need a story about what will happen, and that story must be credible to retail investors. I believe this is definitely feasible. We have all the raw ingredients for success. But people must be excited about the future of crypto. I think the core of crypto has proven its durability and that more influential people believe in it. Look at Kevin Waugh’s testimony in Congress, where he basically said: “Yes, I believe cryptocurrencies are now deeply embedded in finance and won’t disappear; they are very valuable to US interests.” You can’t imagine Janet Yellen or Jerome Powell saying that. We are now in a different world—Federal Reserve chairs are saying such things, and they will be in their positions for a long time. So I believe that among financial institutions embracing crypto, there has been a tectonic shift. Reports say Meta will launch its own crypto wallet later this year. All of this points to one thing: crypto is here to stay. But you need some concrete narratives to truly bring retail back.

Host: You mentioned in a tweet that financial attribute cryptocurrencies are exploding, which is one of your major points this year. You also talked about the decline of non-financial crypto assets. I’d love to hear your argument on this and why you see it as such a huge opportunity. I also looked into Dragonfly’s investments. Clearly, you’ve bet heavily on this direction.

Haseeb: I’ve always believed that fundamentally, crypto is about money and finance. All the successful large-scale projects—Bitcoin (digital gold), Ethereum (financial smart contracts), DeFi, ICOs, RWAs, stablecoins, prediction markets—are related to money and finance. The stories about crypto being used for supply chain tracking, the metaverse, gaming, social media are mainly VC and industry-created self-indulgent meta-narratives, even Zuckerberg fell into that trap. At that time, many VCs invested in Yuga Labs, Axie Infinity, OpenSea, etc., but we didn’t participate because those games weren’t fun, and decentralized social wasn’t useful. It proved I was right—the real product-market fit for crypto is money and finance. That’s why for many years we’ve been investing in DeFi, stablecoins, exchanges, and other core areas; and why, even as many illusionary VCs are eliminated, we still have the power to continue investing in this space.

Host: So in the financial crypto space, what are you currently looking at? Prediction markets or AI agents?

Haseeb: Both. We are major investors in Polymarket. Recently, Polymarket announced it will launch perpetual contracts because for scalar predictions (like valuations), existing binary options greatly disperse liquidity and are inefficient; retail investors mainly want to buy assets that can go up or down. That’s the main reason they launched Perp. On the other hand, the intersection of AI and crypto is where I spend a lot of my time, especially “agent payments.” We’ve looked at many API gateway projects that allow AI agents to perform tasks via API (pay for computations, solve CAPTCHAs, web searches, etc.) using crypto and stablecoins on demand, without needing to register accounts.

Host: You mentioned on Twitter that “cryptocurrency isn’t designed for humans, but for AI agents.” How do you see this evolution?

Haseeb: Almost all software interaction methods will change. AI agents will be your first interface with software. Current crypto user experience is terrible; it’s not how humans want to interact. Why remember 12-word private keys? Why use currencies with 15 decimal places? Why look at incomprehensible smart contracts? But for machines, all this is perfect. Machines understand APIs; they never leak keys in plaintext. 15 decimal places don’t matter to AI. Humans can’t read Solidity code, but AI is essentially a crazy programmer; it can parse and understand smart contracts in half a second, knowing exactly what it’s signing. For example, during a hacking attack, humans still need to get notifications on their phones and manually operate on a computer to withdraw funds, but your AI agent can monitor positions and mempools instantly in the background. It can even withdraw your assets to a safe address before cross-chain hacker funds arrive. With enough computing power, top-tier cybersecurity models will be available for everyone. When all this happens, with AI involved, cryptocurrencies will become as safe and robust as traditional finance. Why trust banks? Because banks have systems to ensure you don’t accidentally send money to North Korea. In crypto, no one stops you, but in the future, AI will serve as that intelligent filter, doing the same.

Host: Does this open the door for billions of people and AI agents to adopt crypto? Do you see this as a major industry turning point?

Haseeb: Absolutely. But it won’t happen overnight because current AI agents aren’t smart enough; they hallucinate and make spelling errors. But it’s like the development of AI programming tools—they will quickly evolve from uncontrolled “wild horses” to fully safe “airplanes” that won’t crash. Once models mature and are trained in on-chain environments, the public’s perception of crypto risks will be thoroughly overturned.

Host: In that world, who benefits the most? Bitcoin? L1s? Or DeFi?

Haseeb: If massive numbers of people come to the chain because AI agents make crypto safe, they will definitely buy trusted mainstream assets like Bitcoin. Some might think Hyperliquid (leverage trading app) will benefit, but I believe it’s on the wrong side. New entrants aren’t here to gamble. Those wanting to gamble are already gambling. You wouldn’t give your AI agent the command “go trade leverage,” just like it’s foolish and boring to send a friend to gamble on slot machines for you.

Host: But what if you think your agent is better than others? Wouldn’t that turn into a financial war between agents? Also, with fiat onramps lowering barriers, will ordinary people find it easier to participate in applications?

Haseeb: First, now Hyperliquid and Polymarket already have fiat onramps; many users don’t even realize they’re using crypto wallets. Friction in deposits and withdrawals isn’t the main barrier to trading. The real factor is risk appetite. High-risk-tolerant people have long been on-chain. The ones who can bring about tenfold explosive growth are the risk-averse ordinary users. Currently, very few of them participate in crypto. When the market becomes fully safe via AI, they will flood in. What will they do? They will buy stablecoins, real-world assets (RWAs), like tokenized S&P 500. Currently, “savings” and “passive investing” are almost nonexistent on-chain. Once long-term passive index investing matures on-chain, this ecosystem will see a complete explosion.

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