Review: Uncommon Core ft. Jordi Alexander

Review: Uncommon Core ft. Jordi Alexander

This is another awesome episode of Uncommon Core from Hasu and Zhu Su. This is a longer episode full of wonderful gems, so I’ll get right to it. Here is my synopsis and some thoughts.

Jordi Alexander is ranked the fourth best in the world at playing games. This is according to the Mindsports Olympics that he has competed in several times. Although he still competes with people who play games all day, he spends most of his time in the markets now. He has a long history with gamesmanship.

Alexander played poker professionally right out of college for half a decade. After this he transitioned in to trading like many poker players do. Interestingly, it was primarily HFT which is not the typical post poker move as it is much more computer science and engineering heavy. After trading the traditional global markets for a bit he got wooed in to cryptocurrency. Now he can be found applying game theory to the crypto markets with great success.

The guys discussion of learning new games was pretty interesting. Alexander says you should focus on the “strategy Legos”. These are game theory building blocks. By that I think he means simple adversarial situations you find yourself in that repeat across several circumstances and games. The art in getting good at games and not a game is in drawing repeatable heuristics out of each game scenario.

To win the game you need the right answer to the specific scenario. To win at games you need to develop a framework for finding right answers. This is super applicable to the investing world where history often doesn’t repeat but rhymes pretty well.

Zhu describes his current method for studying chess. He gets a lesson from grand masters each week. I am pretty sure masters was pluralized when he said it. He briefly describes his learning experience, but I am distracted by the flex. It seems like he has a different chess grand master give him private instruction every week, which is dope.

The fellas throw around the term GTO a few times. I looked it up and this stands for game theory optimal in the poker world. It seems like such a mathematically optimal situation would be impossible to ascertain in games with more players and the dudes say as much. They unanimously agree that a GTO mindset does not work very well in the crypto markets.

Crypto is much further from proving the efficient market hypotheses than traditional markets are at this point. If you invest in crypto markets based on what “should” happen you will get fucked (in a bad way to be clear). The more people in the game the more important the social aspect of game theory becomes. Games with many players, like markets, require a much larger emphasis on game theory elements other than optimal play. Alexander confirms that arguing, or meta-discussion, occurs at every level of gameplay for every game he has competed in.

When presented with a new game, Alexander inundates his brain with more data than he could possibly consciously retain. He then allows for subconscious connections to be made as he slows the info flow down and settles in to playing the game in earnest. He is looking for patterns and recognizing “legos” not memorizing every game element. He admits that this approach may not be best for others and that new games should perhaps be approached differently by other players.

Zhu admits that he often ends up playing the player rather than the game. By this I mean he is much more focused on who he is playing with than on what game they are playing. He says while this is truer in markets than other games it is doubly more true in crypto markets.

He describes the psychological aspect as being way more important than the actual rules of the game being played. I must agree wholeheartedly with him here. I think in these crypto markets some of the rules are still undetermined and many of us are playing different games. Human greed shows up to this game the same as it has to all other games, regardless of the rules that may be in play here.

The discussion flows to certainty in investing. Everyone agrees that owning an asset can create serious cognitive biases. Alexander stresses the importance of probabilistic thinking. Absolutes and certainty can be dangerous in any field of play. In investing in particular this sort of thinking often blinds you to new information and encourages you to fit new data to old biases.

Alexander says that you must never stop receiving and integrating new data while playing. Zhu describes a theory he has about good investors only being certain in transitions. This is a very interesting way to think about changing one’s bias. Zhu claims one of his most important skills as an investor is recognizing when he is wrong. It is not only the recognition of when he is wrong, but why and how. If I am understanding what he was saying, then this mind experiment works best when the choice is binary.

Assuming a choice between A outcome and B outcome, Zhu has been in camp B the last few months. He is thoroughly aware of the arguments in favor of outcome B. He has discussed this situation from the angle that B is likely. He has probably argued with people and possibly written about it. He understands B outcome very very well. He probably understands B’s arguments better than he understands A’s as it is unlikely to happen in his view. As a good investor he is constantly integrating new data.

The second that his new data suggests to him that A is more likely than B to be the outcome, he has his superpower unlocked. He still has the emotional and intellectual proximity to the ideas espoused by camp B, while now thoroughly understanding why the A arguments may be more valid. It is at this time he finds himself in a superposition of understanding where his true power is unlocked. This is such a cool way to think about things.

Although I don’t have the strength of conviction yet to feel like a superhero when I change my mind, I can relate to this a lot. I do find that I can articulate both sides of an investment thesis better when I have not recently had financial stake in its outcome. For me it is distance that helps get rid of emotions and fosters my understanding. I can understand your problems better than I do mine because I care much more about my problems.

For Zhu it seems to be the opposite when he changes his mind. It is the temporary lack of distance from both ideas or points of view that gives him understanding. This is one of the coolest ideas I have heard for a while.

Alexander was pleasantly surprised by the groundswell of political activism that resulted from the United States government misunderstanding cryptocurrencies. In fact, he sees the market action as having been buoyed by this outcry in reaction to poor legislation. In general, Alexander is cautious when trading around large market events.

He is a man who appreciates knowing who he is playing against. As both an avid player and winner of games, he is very cognizant of when he is playing a game with someone who has more information than he. If there is a large event, be it political or social, and he does not feel like he has all the requisite information, he will stop playing. He does not want to sit at a table with a player who has inside information. This makes perfect sense to me. This is a dude who preserves his edge.

Discussion of market info leads further into discussion of market expectations. If everyone is expecting something to happen, expectation builds in advance. If expectation continues to build, eventually you cross the Rubicon. I believe this is referring to a Napoleonic invasion, but I may be wrong here and I don’t want to check.

The Rubicon is most likely a river in Italy. Once the army had crossed the Rubicon, there was no going back. The Rubicon is the metaphorical point of no return. I’m certain of that bit. The options available before and after crossing the Rubicon are vastly different. Once the market has worried about something for a requisite period, the participants have positioned accordingly. To an extent, both options are priced in, the lack of price movement reflects uncertainty of outcome rather than the belief in either outcome.

Once the pressure has built past the point where the Rubicon is crossed the options for pressure release change. Once resolution is found, the pressure will release violently, and often up. Example: the recent treasury amendment fiasco ended up in about the worst way possible for our market. Price reacted to this bad news by going up.

Before the Rubicon was crossed, the news could make price go up or down. Once the psychological Rubicon was crossed in the market, any news is good news. This is because the market values certainly above all else. Certainty is bullish, even if it is a bearish certainty. Once the market has pondered a question too long, any answer is bullish. I had heard this sort of pressure discussed previously, but this is the first time I heard it mentioned in this way.

Zhu states, “No news is bullish or bearish. Thinking makes it so.” Expectations drive these markets and there’s some people expecting weird shit these days. He says that any altcoin can go up 5x for no reason at this point. We have certainly seen things pump for no reason. While Hasu and Zhu agree that a good bit of the cyclicality is gone from crypto markets, Alexander sees a huge role of btcD in the new cycles. Speaking of cycles, Zhu reiterates his belief in the supercycle while clarifying it a bit.

By this he means that crypto adoption is the most important trend of our generation, not that price can’t go down at times. The guys all pretty much agree that large btc up moves should normally result in an alt season after it for a time.

Getting to the real meat and potatoes of the market, the guys discuss bitcoin dominance in the light of the ongoing L1 wars. We have a low btcD environment now that has Ethereum looking to dethrone the corn. We also have a sloppy L2 roll out on Ethereum that has given credence to the alternative L1 theses. Complicating matters further, many L1s are now pivoting to being a better L2 for Ethereum. The paradigm of the best and the rest is changing a bit.

All these factors combine to create an interesting future of possibilities. When talking about Ethereum flippening bitcoin, Zhu brings up an interesting idea. This idea is that once ETH flippens BTC, then we enter a reality wherein, like Dirt Nasty’s “Da dip”, when I flip you flip, we flip. In this dirt nasty complex, the other L1s would quickly be repriced upward. This would be a complete domination of the tech thesis of crypto over the moneyness thesis. In this DNC flippening scenario, as soon as eth flippened btc, sol, avax, ftm, atom and probably even ada would be likely to flippen btc as well.

The DNC is allowed by what Zhu refers to colloquially as “the postmodern inter-subjective value thing”. This thing refers to the idea that we can only value things against other things. This makes intuitive sense to me. If a smart contract platform were to become more valuable than bitcoin, then all the other L1 smart contract platforms would appear cheap.

Shit that appears cheap gets marked up. While this reflexivity in our market could lead to the DNC, it can also go the other way still. The fellas tell us listeners that nothing will remind us bitcoin can pump like a bitcoin pump. Whichever of these scenarios is more likely, the ultraflip would most likely offer more insane profit opportunities.

Back to Alexander, and his appreciation of knowing what game he is playing. In his view, ethereum has had a bit of trouble deciding what its game is. No doubt it has many uses, but whether or not it is money, platform or ultrasound technology has yet to be decided. To this, the poet Zhu asks whether, “the philosophy of bitcoin will be more important than the utility of ethereum?”

Alexander speaks for a bit about the wonderful distribution that bitcoin has achieved already. When imagining a perfect money, he admits that he would still like to rely on the distribution of bitcoin for his new money. This distribution is what has given bitcoin its political strength.

Ultimately the politicians don’t give a fuck about the technology of the money we use, its flaws or benefit. The political power a money has is conveyed by who holds it. Alexander points out that the incentives of the humans that the money is distributed to is infinitely more important than its consensus mechanism. Hasu notes that the heterogeneity of holders and the political alliances that have been forged are invaluable to bitcoins political success.

Speaking of political alliances, Zhu describes a dinner he had with a friend who’s name I couldn’t catch. This friend informed him that bitcoin is super huge with the tea part and much of the rest of the GOP in America. He described a future in which bitcoin becomes “the flag of liberty for the western conservative establishment.” They discussed a reality wherein support of bitcoin is the primary divider between what they call woke a non-woke capitalism.

In this world non-woke capitalists defend their right to proof of work by a willingness to wage war. That’s a big yikes man. As an American whose past labor is now largely valued in bitcoin, this stinks. Liberty is a weird buzz word in this country that means different thing to different people. Sometimes it means the right to do violence to others. I do know that as I type this, the “western conservative establishment” over in Texas made abortion illegal.

These are the same people that put my niblings in danger in Florida. There, a “tea party” republican has made it impossible for elementary schools to have the children in attendance wear masks. Children of that age can’t be vaccinated. My niece is ill with covid now. Her illness was made unavoidable by the same folks who would go to war for my favorite store of value in this imagined future.

I agree that the asset being loved by a diverse set of people is a good thing for the longevity of the asset. I am loathe to see this coordination technology politicized by those in my country who have successfully politicized so much. Anyways man, this reality could see a huge resurgence of the money thesis of crypto. If this leads to other countries adopting bitcoin, that will lead to a virtuous and reflexive flywheel of government adoption or something.

The fellas talk a bit more about how cool it is that bitcoin is emerging as such an important voter issue. Alexander points out that the messiness and awfulness in a lot of American political rhetoric these days could make BTC a more important issue. If so many of the issues affecting voters are complicated and ugly to think through, the idea that many people could be single issue voters over crypto makes more sense. Being for or against, an asset class that either has or hasn’t affected you financially is straightforward.

Zhu calls Janet Yellen weak here. I believe he was referring to her response to public outcry, but additionally, I’m of the opinion Zhu could take Yellen in a fight if need be. Alexander thinks the full effects of the crypto positive voters will not be felt for a while. Zhu is of the belief that through backward induction, the fear of this coming voter block is already acting on the body politic.

Certainly, the appeal of what can be done with cryptocurrencies is evident to many different voters already. The conversation is brought back to the idea of game theory Legos again for some examples from the crypto markets. Alexander starts by discussing some Legos from the DeFi realm. One obvious Lego is the Ponzi Lego. Many projects use this to wonderful effect. There must be a utility Lego attached to the project as well, or the success is short lived.

The Ponzi Lego can be used to kick-start growth but is not in and of itself a useful product. When this block is recognized, one must ask oneself if the protocol can continue to exist once it is removed. The effect offered by inclusion of this brick is temporary. He brings up an interesting example I have wondered about myself in Axie Infinity. The growth incentives are there, but is the game fun enough to play if you weren’t earning money? How long will that community be able to scale? I am excited to find out. Another DeFi lego, is the pool one and pool two block.

This is where you must provide liquidity to earn a token, then you need that token to provide liquidity elsewhere on the protocol. This makes the price of the token incredibly reflexive. When this Lego is deployed, the price rises are faster, but so are the drops. On the more memeish side of the market, the Legos are indicative of a coordination game.

In these sorts of games, the social cohesion is important. This mean that not only do you foster community, but you attack defectors and out-members. You call people paper hands and tell them to HFSP. The most recognizable Lego here is stigmatization of the other. Were cool, you aren’t. Social pressures can create a shared mission. The problem with these games is they actually take coordination. Alexander sees the doge phenomena as a coordination game without a coordinator and thus doomed to fail. Elon had a chance to coordinate the masses, but he unsurprisingly biffed it.

Zhu is much more bullish on doge than the other dudes. Ladies love doge he informs them. While lots of Zhus thesis about doge makes sense I believe it is based on fundamentally incorrect assumptions. I agree that doge has recognition and lots of people like it. I don’t believe he understand why people have fomoed in as well as he believes he does though. Zhu, while brilliant is wildly disconnected from what he refers to as “robinhood people”, “normies” or “beer drinkers”.

Luckily, Hasu calls his buddy out briefly on a weird assumption. Hasu wonders why Zhu would assume most people are looking for the least serious way to invest. Zhu references some of Marc Cubans insights into the doge community. I don’t believe Mr. Cuban is very representational of the “normies”.

Zhu is predicting the behavior of Mr. Cuban also does not remember what it is like to be poor or financially uninformed. Idk who is right in their doge predictions. I do know a shit ton of beer drinking normal folk. None of them behave in the way Zhu describes.  I agree that doge is interesting in many ways. Something that is widely dismissed by one group and lauded by another is reminiscent of btc in earlier times.

Alexander describes an interesting paradigm around public perception of the crypto space. While meme stocks may not be very serious, everyone agrees fraud is bad. Everyone recognizes that anything that hurts new entrants to the space, can cause them to soon exit. If more money is coming in to crypto than out of it, we crypto traders and investors are playing in a positive sum game. In these games everyone can win.

If financial fraud, shitty tech or awful narratives drive people away from crypto for a while this changes. If money is flowing out of the crypto system in the aggregate, then us that remain here are playing in a negative sum game. In this game I cannot win unless you lose. Sometimes we both lose. In Alexanders view intercrypto tribalism has a chance to make the system negative sum for periods. If you aren’t a jerk, you can make more money. Speaking of tribes, you don’t have to publicly be in the BTC tribe anymore.

Everyone on the podcast agrees, bitcoin does not need you anymore. It has made it. Ethereum still needs some championing, but it should not inherit the toxic maximalism from bitcoin. Hasu is of the view that if you are curious or interested in innovation, there isn’t much place for you in the bitcoin community. I agree with him a bit here. It does seem that there’s a lot less curiosity and excitement from that camp. It was interesting to hear Zhu say that Ethereum adoption can be good for bitcoin adoption. It is interesting how bitcoiners want to do DeFi on bitcoin now.

At first it was just a dumb illegal idea ethereans had. They end the discussion by talking about maximalism some more. The maximalists are super loud but not the majority. Don’t listen to the loudest people. Try to get off crypto twitter for a while. This was an awesome episode. If you made it this far, thank you for reading my opinions on these dudes’ opinions. Reach out to them for questions about their podcast. Reach out to me if you find reason to.