TFTC: A Bitcoin Podcast - #515: Understanding the Bitcoin Cash and Carry Trade with James Check

Episode Date: June 18, 2024

Marty sits down with James Check to discuss bitcoin cash and carry. James on Twitter: https://x.com/_Checkmatey_ Checkonchain: https://charts.checkonchain.com/ Newsletter: https://newsletter.checkonchain.com/ 0:00 - Intro 0:50 - Exposition 8:45 - Aussie ETF and in-kind withdrawal 12:04 - River & Unchained 13:20 - What Jim Bianco is missing 21:18 - Who is making the trade 26:03 - Gradually, Then Suddenly & Zaprite 27:40 - Coinbase 30:36 - Realized capital 39:19 - Don’t whale watch 41:59 - Engineering and on-chain analysis 49:09 - Checkonchain analysis framework 55:11 - Wall Street using the data 57:10 - What would disprove the model? 1:00:25 - Profit/loss ratio 1:04:40 - Time off, Will the cycles continue? 1:11:58 - Price prediction 1:15:39 - Managing generational wealth 1:20:04 - Bitcoin in bad economic times 1:28:15 - Bitcoin improving politics and energy 1:35:13 - Wrapping with plugs Shoutout to our sponsors: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠River⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Unchained⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Zaprite⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Gradually, Then Suddenly⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ TFTC Merch is Available: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Shop Now⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Join the TFTC Movement: Main ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Clips ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠YT Channel⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Website⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Instagram⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Follow Marty Bent: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Twitter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠…

this rip of tftc was brought to you by river it's the best place to buy bitcoin go to river.com tftc and enjoy this episode you've had a dynamic where money's become freer than free If you talk about a Fed just gone nuts, all the central banks going nuts. So it's all acting like safe haven. I believe that in a world where central bankers are tripping over themselves to devalue their currency, Bitcoin wins. In the world of fiat currencies, Bitcoin is the victor. I mean, that's part of the bull case for Bitcoin.

If you're not paying attention, you probably should be. James Check, welcome to the show. Long time coming. G'day, Marty. It's great to be here, mate. It's great to have you. I'm going to talk about a lot. I feel like we can dive into a lot of topics here. I reached out to you, though, because I'm an idiot when it comes to this cash and carry trade

and how the futures markets may or may not be affecting price, particularly with the launch of the Bitcoin ETFs, which have launched with a lot of success. I think they now collectively hold over a million Bitcoin. over a million yeah yep and i mean undisputedly the most successful etfs in history and and i just can't think of any asset that could could beat it so i think it's going to hold that record for a long time and i think it's just the beginning too especially when you factor in the fact that rias haven't gotten the green light yet there's a bunch of capital still waiting on the

sidelines and there could be some mechanical levers that are just unleashed where it's all all right, now we need 1% of all of our clients' portfolios in Bitcoin. That could just flow into the ETFs. And we saw that. I actually wrote a piece on this the other day because I think people get stuck not realizing how big Bitcoin is. It's simultaneously enormous and insignificant. And when you look at the, I think it was Wisconsin,

there's like a pension fund and they allocate 180 mil. And $180 million for us is, I mean, that's life-changing money, right? You'd never have to work again. but 180 million they talk about it as it's 0.1 percent of their portfolio and they have it's it's nothing right and they have every expectation to move up to one and two percent so you're talking about 180 million dollars that's 0.1 percent of these guys portfolio and then you realize that bitcoin and this is just a wild stat since the ftx bottom bitcoin's added 1.1 trillion dollars which is 1.1 thousand thousand million dollars like it's these numbers

are just so large and i think we forget that it takes a lot of money to move the asset but then you look at the bond market and the gold market and you know we're we're a fraction of that so like they're very big numbers but we're a we're a small fish in a very big pond now but relative to where we've come from we're the biggest fish you've ever been yeah and that fish is eating too it's going to get bigger in this big pond yeah they take up a large portion of the pond at some point and this is why i reach out to you because going all the way back to 2017 december 2017 when the cme futures launched many people particularly in tradfi and more particularly in gold markets said futures are launched they're going to be manipulating the prices fast forward

to 2024 the etfs launch and now that you have the etf product that is another liquid product that traders can leverage and you know more people like jim bianco specifically i think coming out and saying that this is going to be used in conjunction with the futures price to sort of pigeonhole the bitcoin price and a lot of these commentators are saying wall street is now controlling the price i've seen you've been doing analysis on this zero hedge similarly hasn't been doing like deep technical analysis analysis but uh they've been tweeting every day looks like exchange streets, slamming the Bitcoin futures to keep the price low so the ETFs can buy cheap at the end of the day when markets close. What is going on here? You mentioned the liquidity

that has come to market since 2022. How is that affecting it? What does it take to move the Bitcoin price? And how does the dynamic between the ETFs and the CME futures affect price, if at all? Yeah, no, it's a really dynamic topic. So there's a few things I'll start with, kind of big picture. The first thing is that every asset that reaches a scale that's appreciable will develop a futures market and derivatives markets. Further to that, once you have futures markets, the cash and carry trade exists and it exists for all assets. So first and foremost, this is a very normal thing. Now, the other one that's quite interesting is that a lot of people, I mean, from my perspective, when I look at the market so far, and again, with no kind of

prediction of what comes next it's been a very stable quiet and trending uptrend it's beautiful right we've had less than 20.4 percent of the deepest correction since ftx blew up and that's astounding we've added 1.1 trillion dollars since then and you know even just this year 550 billion dollars something like that so it's an extraordinary rally 18 months of up only to be chopping around sideways like this right now makes all the sense in the world all right markets need to take a breather. Now, what's very interesting is that we're trading sideways. We're consolidating after 18 months of up only. When you have 18 months of up only, you can expect very, very reasonably the consolidation to be on the order of several months. So none of this is like to me, none of

it is surprising. Now, it's interesting that people come out and say, oh, look, it's market manipulation. Now, first things first, market manipulation and like in the sense of gold absolutely happens right let's not kid ourselves it absolutely happens but just because the price is going sideways doesn't mean the market's being manipulated the way the gold is right what it usually means if you go occam's razor what's the most obvious reason for this it's because your expectations are that we should be at a hundred thousand and the market doesn't care about your expectations the market does what the market does right this is this is something that i find as an analyst i always hold i've been listening to you marty you've got your your white pill right which

really important to have it's easy to have the black pill and the white pill um having both at the same time and say like well this could be a top it could also be a consolidation right and always holding both of those two things and trying to assess it in a live fire exercise as the market develops and we get this cash and carry trade and we can talk about the mechanics of how that actually works this has always been there since we've had futures and they really came about in 2018 these are what you call volatility capture strategies now that's the cash and carry trade in futures it's also options people will buy and sell options to capture volatility premiums this is how call it maturation of markets right there's options on everything very soon we're

going to have options on the etfs that will happen as well what we're basically doing is when the market goes through a range expansion so it rallies or it goes somewhere it could also sell off right it's it's trading from one range to another it is always followed by a period of range contraction so you get like an expansion of the price range price goes somewhere else it has to rest it has to kind of consolidate the gains consolidate the losses work out what equilibrium is and then it will move again and during that period of time if you just have a spot market you'll have traders buying and selling the top of the range that's kind of how they're they're capturing the volatility. As futures start to come in, there's different instruments. Some

are pricing the Bitcoin out in six months, a year, whatever the timeframe is. If they're trading at some kind of delta, this cash and carry comes in where you can capture that premium between these two instruments. And with options, you've then got people who can buy and sell volatility. And what this creates is like a, think about like a collar that goes top and bottom and just sucks all the volatility juice out until the market is ready to move again. So I'll pause there. But really, to me, the thing that we haven't seen, I think there's two things. People are expecting that we should be at a different level and the market isn't adhering

to their expectations, which quite frankly means your expectations are wrong. And the other one is that this volatility is like, there's like a juice to be squeezed. Once it's done, the market will move again. And usually that needs a second wave of demand to really kick things into the next gear. yeah the the range bound price trading over the last couple of months makes a lot of sense to me i mean we were up we had all-time high before the having for the first time ever obviously the ets were a big catalyst and drove a lot of flows at the beginning of this year but we're up what 150 percent over the last 18 months maybe more than that and it just makes sense that we'd take a

break. Everybody here in the US is on their summer break. You have the summer doldrums setting in. People not really going to work allocating as heavily as they do in the fall, in the winter. You're leaving it to us, to the poor Aussies down here in winter, trying to hold everything up. You guys just had an ETF launch too. So you're trying your best.

Yeah, we did. It's funny, actually, there was a couple of people talking about the other day too. I think it's got like 46 Bitcoin in there, right? So we're not talking about the similar scale. But at the same time, Australia is a smaller market um we're also we tend to move much slower so really where's the bulk of our strangely enough australia treats the property market like you guys treat the stock market as your savings vehicle i know obviously americans use use housing as well but australians it's like a religion so the housing is our thing and really the biggest pools of capital is our 401k equivalent so by law

you have to put 10 12 in um and that's kind of where most of the money goes into the stock market And until they're allowed into all these retirement platforms, really it's just hodlers basically buying Bitcoin with whatever cash they've got spare, but most of them are just going to buy a spot. So it's always going to be smaller until those rails get turned on. Yeah, that's good to know. The cool thing about the Aussie one though, the monochrome,

is you can actually withdraw. So if you've got coins in the ETF, you can actually withdraw, which is pretty cool. Which is good to see, a good precedent to see. Because I know some of the ETF issuers here in the United States i think they wanted it initially the sec gave them comments and now cash cash in cash out but i do know i won't name anybody particularly but i do know some of the etf operators here are making it a point over the next couple years to try to get those in-kind redemptions because

that's the way it should be it's tax advantaged um it is also a mechanism to force these etf issuers and Coinbase to make sure they actually have the Bitcoin sitting under the ETF. And so I think it makes sense. And I actually think there's a good argument to be made if the fiscal and monetary mishandling here in the United States persists and inflation gets out of hand, it'll actually be demanded where people say, I don't want the cash, I want the Bitcoin. Well, we've seen many instances over the last, let's say, two years, many many cases where the market has demanded something and whether it be politicians regulators whatever it is the degree of bending the knee of late has been quite fascinating it's important

obviously not to become complacent because you know this whole concept of the goldification it's a real risk right and we'll probably come back to the the cash and carry side but it's a real risk but at the same time it's you know we have seen a lot of concessions get made bitcoin has forced that kind of bending of the knee in many ways i think that's that's just another example, right? Over time, the market will demand the in-kind and, you know, it feels like a matter of time and the ETF issuers know it. This episode was presented by River. River's the best, most secure place to buy Bitcoin in the United States. Go to river.com slash TFTC, set up an account today. You'll be able to DCA into Bitcoin without paying any fees. You'll be

able to give people Bitcoin via River links. You'll be able to send and receive Bitcoin over the Lightning Network and you'll be able to set limit orders. If you want to buy Bitcoin at a particular price below or above where it is now, you can set orders to buy Bitcoin when it hits that price. Go to river.com slash TFTC and set up your account today. This rep was also brought to you by our good friends at Unchained. Unchained is building a financial services platform for a Bitcoin standard. They have over 7,000 clients that are securing over 90,000 Bitcoin with 12,000 keys on their platform. Their platform leverages Bitcoin's native multi-sig properties. Their cornerstone product is their vault product, a two or three multi-sig vault, which allows you to hold

two of three keys in a multi-sig quorum. That gives you full control over your Bitcoin. They also have an IRA product, a lending desk, and they're rolling out a bunch of other products, including an inheritance protocol and sound advisory. So go to unchained.com, set up a call with our concierge onboarding team today, tell them that TFTC sent you and use the promo code tftc at checkout unchained.com and on that point back to the cash and carry trade what do people like jim bianco who believe that the cash and carry trade is being used to suppress the bitcoin price in your mind what are they missing or how are they um miss us uh like assessing the situation wrong essentially yeah so so i'm not even sure that

Jim's got down to that level of nuance. I've been pretty disappointed with Jim's commentary, to be honest, because usually he's pretty sharp and he's a numbers guy, right? So I respect his views a lot. But on the ETFs, it's just been, it's like being his kryptonite. He just hasn't had good takes on it, in my opinion.

So I think the main chart people have probably seen floating around is I think zero hedge, right? As they would do, just share this enormous short position that's been building in CME futures. Now, I've actually been tracking the CME because they're now bigger than Binance. So Binance was the market leader in terms of futures

open interest for a very long time. And through 2023, probably about halfway through, CME actually flipped Binance. So there's two things that happened in 2023 that are quite meaningful in the derivatives world. The first one is that CME became bigger than Binance. And then we also saw options. So Deribit remains the biggest platform for options. Options in open interests also reach the same level of futures. And they used to be like 10%. So options are a much more sophisticated instrument. It allows a lot more hedging and risk management and things like that. So both of these two things, CME and options growing, really speaks to an institutionalization. We have a different set of actors in the market today. Now, the other thing

that I've had floating around, which I'll just kind of put out there before we jump into the technicals of the cash and carry is we haven't had a 20% correction. And when you look at the sell side volume and like the make or take of behavior inside spot markets, disproportionately sell side. So what does that tell you? We've got a sophisticated set of actors. We've seen CME growing, options are growing, and the market has seen mostly net sell side in spot markets. And And yet we haven't had a more than 20% correction. That feels to me like patient buyers who let the market come to them, right? The average player, most of them probably hit smash buy, right?

We just go market buy and just take off the books. Most of the guys who've been acquiring, like when we're talking about these metrics, they're just sitting there allowing the market to come to them. They're patient. They're just allowing the market to do its thing and they're not forcing in either direction. So this feels like more institutional adoption, right? So that's kind of the big picture backdrop. Now, in terms of the short position, so there's a few things to look at.

No question in the first like three months after the ETFs launched, the ETF inflows were massive and by and large, true demand inflows, right? Lots of people buying, looks like retail. Jim Bianco had the point that, oh, it's retail, they're going to paper hand it as soon as we have some kind of sell off. Well, we had the sell-off, and I put out a video just a couple of weeks before that. So in the world of Bitcoin, and particularly the on-chain world, shrimp are actually the smart money.

And you can see there's a chart that I've shared a few times, but it looks at the amount that the shrimps balance, how many coins the shrimp have, and when they bought heavily. They bought heavily into the 2017 top. That was me. I literally bought the absolute top. You couldn't have bought higher than me. And then the explosion in Bitcoin education from 2017 through to 2020, like by the time we get to 2022 and FTX is blowing up, the shrimp actually know what they own. They're serious, serious hodlers, right? How many podcasts are these people listening to? Like I know myself, right? I put myself in the bucket. I'm shrimp in scale, but I probably understand Bitcoin better than most people in Wall Street, right?

so you've got this this very very interesting dynamic where the shrimp are actually not the dumb money so jim has this perspective that they're going to paper hand it and they're going to sell on the dip well it's like these guys actually bought on the 20 like at the ftx bottom when the narrative is that bitcoin is dead for a decade these guys stepped in and bought in size bigger than 2017 and then they actually sold into the etf rip and then we saw this kind of correction and consolidation like retail may not be as dumb as you think jim like and when i think about who's going to be the early adopters of Bitcoin ETFs, it's going to be hodlers who've already got a bunch of spot. And they're like, well, I've got this 401k. Now I can put that in

as well. These are people who are buying because they know what they own. Over time, we will get a dispersion. But to me, it just feels like hodlers are still in play. Now, when we get this record short position in the CME, in the early days of the ETF, the first three months, I ran a study that looks at how much the CME open interest change. So think about this like people opening positions and let's just assume just real back of the envelope math. Let's just assume everything is a short position, right? Every open interest is some guy shorting it as people are claiming. Now, naturally there's someone who has to be buying that as well, but you know, people kind of forget that neutral side of the equation. Let's imagine every uptick in CME open interest

is some guy smashing the short sell. So I compared CME open interest to the ETFs, to the inflows. And what I basically found is that in the early days, the ETFs were massive, like three or four times larger than CME open interest changes. So as a result, that's just net inflow. People are just buying the spot ETFs, cash is going in, number go up. As we go through the correction, and particularly over the last, say, that month and a half, the ETF inflows, and we saw like a $2 billion week the other day, these ETF inflows are pretty much at the exact same scale as CME open interest changes. So in other words, every dollar that's going into the ETFs is being matched by an increase in our very simple model of a short seller in the CME. So you're like, okay,

that looks like these two things are correlated. You've got someone buying ETF and shorting futures. Now this has been happening in the Bitcoin market for years with the funding rates. Funding rates are just a literally a perpetual, it's a future that never expires. There's a premium where you can buy spot Bitcoin today and sell it technically in the future. That's what futures are. You can buy it today and sell it in the future. If you buy Bitcoin at 60K and you sell it in the future at 70K, all you have to do is wait until that future date, right? What is the date of that expiration? You've already bought the spot and now you're selling at 70K. Over the course of that time, the two prices will converge. You collect the premium. So what I looked at is what is the

futures prices. And what we see is that there's about a 10% premium. So what that meant out to December. So that means I can buy, if I'm Wall Street, I can buy an ETF, which is spot Bitcoin, I'd buy a dollar worth of Bitcoin, and I sell $1.10 worth of Bitcoin for delivery in December. And as long as I hold those two positions open until December, I will lock in a 10 cent profit, right? 10%. That is essentially what the cash and carry trade is. And the reason why this premium exists is because people are betting with leverage on the long side in futures. People are literally saying, I believe that the price of Bitcoin is going to be 10% higher by December. People are, there is a net long bias. And generally speaking, when people are net long, right, you've got this

kind of, it's going to go up forever. It's usually the sentiment where it's probably not going to go up forever. So like, that's why this consolidation happens. When nobody believes it's going to go up, that's when there's not going to be enough premium for this strategy to work right and all these positions will slowly unwind and then there'll be that there won't be that kind of equal and opposite arb strategy and then the market's free to move again and so with this particular cash and carry people are looking at so what i'm trying to hone in on here too and obviously zero hedge has been pointing at jane street specifically but retail investors institutions getting bitcoin exposure via the etf you see the daily flows at the etfs isn't somebody external

of these etf issuers looking at those flows and making this trade or is it somebody within black rock within fidelity who's trying to increase their revenue by deploying the strategy based off of the inflows from their clients no i think this is it's even simple of that you're a hedge fund. You don't own Nvidia. So you're getting killed. You're getting killed in the market right now. You're underperforming. What do you do? Well, I could trade Bitcoin, right? I could own that, but now it's not going up. So there's not those kinds of easy wins. There was no question there would have been some hedge funds who just like jumped in on the Bitcoin ETF launches and rode that extra wave higher. But if you think about it, right, the risk-free rate, the risk-free

rate right now is 5% from treasuries. If you can get 10% by literally buying spot and simultaneously, like literally the same day, buy spot, sell future, and you can just sit and wait and get 10%, you're doubling the risk-free rate. And this is effectively a no risk trade, right? The only risks in this trade is essentially that like the ETF issuer blows up, the futures exchange blows up, you stuff up your margin like really if if we take away all the counterparty risk which trad fire doesn't care about because that's all they ever have take away the counterparty risk because that's a that's a default if you remove that this is basically risk-free and this isn't like a rao pal basically risk-free this is like an actual risk-free you're buying an asset today

you've already sold it in december for the future in the future you deliver it in december so as you hold the bitcoin or the etf until december and then what they do is they roll it so let's say this premium still exists and by the way eventually there'll be etfs that do this that literally they buy spot and they'll sell the future and they'll close it in and then they'll roll it they'll close out the position buy the etf roll it out to the next contract right so they just keep rolling the future out now and they collect this 5 10 15 5 whatever the premium is over time and this is literally what funding rates do and here's probably an important element to all of this um in in perpetual markets the funding rate is basically exactly the same mechanism

except instead of being like a fixed i buy and sell it and that's my premium it's going to be fixed as long as i hold it the funding rate actually moves with the market so every eight hours it's essentially reassessing what your new interest rate is this brings liquidity because these guys can essentially come in and provide sell side or buy side they keep the market kind of structured and in place they deepen liquidity so it's generally speaking it's a neutral strategy in terms of like impact on the market it's because you've got a buy and a sell and if you didn't have a buy and a sell you've probably got a sell and a buy so like these things kind of balance themselves out but what they do do is they bring deeper liquidity right they bring more and more people

so that if you do have to put on a position in size, you've actually got the books to deal with it, right? There's enough liquidity there and these market makers are being incentivized by a delta neutral strategy to bring volume, open interest, trade volume, like just overall liquidity to the market. So it's part of the maturation process.

Some people will say it's manipulation, but by and large, it's like, I was thinking about this just before the call. The problem with paper gold isn't the open interest, not the futures market, because futures markets will always exist. They're just a part of a maturing market. The problem with gold is unallocated gold, right? Because you've got these gold bars that you can't actually verify there. You can't really have unallocated Bitcoin because it's either in the wallet or it's not.

There's not really like, oh, is it tungsten? I don't know. Is it like actually like got a serial number? None of this shit matters. for bitcoin you can't really have unallocated bitcoin you can have people betting on the side like a bucket shop style cash um cash settled futures that's fine that's separate that's just like the people who are buying a cash settled future probably aren't buying spot anyway right that's a that's a gamble that's a bet it's different different um style of market whereas

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the the balances right data scientists are tracking this kind of stuff the balances for the etfs are there there are coins there coinbase is a multi-billion dollar company and this is the same reason that like i'm very skeptical when people like oh this this multi-billion dollar business that's making a absolute gargantuan shit ton of money is going to blow up their business by breaking the law i just i just don't see it right these guys are so regulated and again you know we can go down the rabbit hole and say well you know governments can get in get their grubby mitts and stuff in there but like as it stands it just feels like an extremely low probability what is a much higher probability is that people are assigning an expectation to

the market that's unrealistic that that to me is a much more probable outcome than people worrying about rehypothecation yeah i would agree i find it hard to believe that coinbase would be rehypothecating and i'm not the biggest fan of coinbase and have not been for some time but to think that they would kill the golden goose by doing something that's do it just doesn't they print more money by not doing that that's the hilarious thing like they actually make like you think about incentives they're making so much money they're making so much money they don't need to do these hypothecation strategies to make more like they're already printing yeah i do think i mean maybe we can touch on this later but i do think i don't think they're rehypothecating but

i do think all this custody concentration risk within the hands of coinbase getting upwards of a million coins and all the etfs luckily fidelity is the second most popular etf so they're custody in their own coins but hundreds of thousands of coins flowing to coinbase i'm more worried about the cruise missile risk of the government coming in saying all right um here's what you're going do with these i don't think actually still put a low probability on that but that is a big risk and i think custody for the etf should be multi-institutional multi-sig um but i think it's just too early for all these people to get comfortable with it and obviously coinbase doesn't have an incentive to play ball with that considering the fact that

they've accumulated a a large part of the etf market already yeah and and i agree you know back to our previous point i think the market will demand this over time right and a lot of it's being challenged by this you know nuanced uh sub 121 that the sec's got running right i mean that that prevents the the banks from custodying these coins as well and like that's what wall street would prefer they want these big institutions that they trust to go into the custody business and i think that you know over time that will sort itself out and i suspect that we will get a natural dispersion just just by market forces that feels to me like a likely outcome yeah um bringing it back to the cash and carry trade again one thing i'm really interested

to get your perspective on is with the emergence of these larger pools of liquidity deeper markets i have to imagine the biggest effect it has is reduced slippage and like you mentioned the ability for people to get in with size have you run the numbers at all to quantify that like how big of a buy could an institution make without drastically changing the price at any given point in time uh not specifically on that but i have run a uh well it's back of the envelope but with a bit more rigor than an envelope um study because a lot of people bandied around the 118x multiplier right that america did and i just kept hearing this number and i was like okay i have to put this thing to bed so and this is the beauty of on-chain data right so um for those who aren't

familiar. There's a metric called the realized cap, which really is, we should be replacing the market cap with a realized cap. The realized cap is the GOAT tier metric. It is just so important. Basically, rather than valuing every coin at the spot price, we value it based on the price when it last moved. So Satoshi's coins are worth zero, early miners are worth next to zero. However, if Satoshi sold his coins for by any chance, right, they're going to get revalued from zero to $68,000 or $66,000, whatever the price is. Now, if you think about that, Satoshi acquired those coins for effectively zero. If he was to sell one of them at $66,000, someone's got to come in and buy that coin because every seller is matched with a buyer, has got to come in and

buy that coin with $66,000. So that represents a capital inflow into the market. Now, some other poor bugger is going to buy that coin at $66,000. Market's going to sell down to $30,000 or $15,000 and he's gonna bail out at a loss. So he's destroyed capital, but someone's still gonna come in with $15,000 to buy that coin off him. So think about what that's describing here. If we look at it in an on-chain world,

I don't particularly care about some algorithm that's buying and selling on the one minute chart. It's neutral. At the end of the day, they're trying to scalp a couple of dollars off here and there, and some other guy lost a couple of dollars here and there. So is that really a capital inflow outflow?

Not really, right? It's gonna affect the market cap, But because it doesn't transact on chain, who cares? I'm just going to exclude that. It's not really important. So the realized cap is $580 billion today. Now, that means that if you bought your coin at $10K, you withdrew it and you still hold it from back in 2018 or 2019,

you have still saved. You saved $10,000 and it's still saved at that price of $10,000. As the market moves around and coins are revalued, it's telling us that Bitcoin has absorbed $580 billion dollars since it was its genesis right and that includes all the people who lost money it includes all the people who made money all of that combined 580 billion so that's the like the backbone so i decided to run this study because i'm like 118 x multiplier sounds absolutely ridiculous but let's go and have a look and just check it out so the question is what does demand look like and we know

what the output is right if you think about this like a like a function or a equation how much capital had to go in to produce the change in the market cap. And I said before that the market cap since FTX is up $1.1 trillion. The market cap year-to-date is up $550 billion, something like that. So in order to get a $550 billion year-to-date change, how much money had to flow in? So I went down the rabbit hole and go, okay, let's start at the smallest number. Let's imagine that the ETFs are the only thing that drives price. Now, they're not. They're something between 20 and 30 percent of the market right and that's on two fronts by the way gbtc is about 20 30 percent of long-term holder sell side so actually people who are existing holders sold you know three or

four times more than gbtc and on the buy side the etfs the inflows into the etfs about 29 billion 30 billion in total and the amount that the the realized cap the on-chain world has changed is something like five or six times larger than that so ballpark the etfs are something like 20 or 30 percent of the market even if the etfs are the only thing that drives the market right they've seen 30 billion of inflows we've got 550 billion of market cap change for memory that that multiplies like 30x or 15x or something depending off you look at gbtc or not so even if you just imagine in the ETFs are the only thing moving the books. You're still at 30x generously. How the hell did Bank of America get 118x? I just can't work it out. So anyway, by my best estimate, looking at

realized cap, looking at profit and loss, looking at all these different components, I came up with a multiplier that is somewhere between 4 and 6x during a bull market when coins are tight. Now think about what this multiplier actually means. If you have a high multiplier, it actually means that coins are very scarce and strangely enough that's what bull markets are because the hodlers have taken all the coins off the market they stack them away in cold storage the bull market gets going because there's just not enough coins at different prices people keep coming in market goes higher you need like 20 cents to get a one dollar change in the market cap and this works in both directions by the way so the more people are buying and selling this thing right you

get these periods of like a supply shortage and you get a very high multiplier in a bear market we actually see the exact opposite. In a bear market, basically there's a coin oversupply and you need like $5, $6, $7 to move the market cap by $1, right? So you kind of get this multiplier effect. But what I did come to is that Bank of America is 118X. There's a bunch of commentators out there who are like, oh, 100X, 200X, 50X. You're all off by an order of magnitude. It's five or six x at best and when you a lot like it's it's hilarious that people can believe 100x multiplier and then simultaneously blame the market for shorting and like keeping us compressed within a range like you've got to pick one of these one of these dynamics folks so right now

we're sitting at 3.87 i believe i'm seeing on the show yep yeah this is exactly right so this is an oscillator i've got upper and lower bound here um because obviously everything's a bit of range but as you can see on the right hand axis right the highest that we've ever got to ever fleetingly very briefly is 8x right so that basically means that every dollar that goes in you get an eight dollar change in the market cap in both directions you can see it happen in ftx that's like a illiquidity to the downside but then you've also got an illiquidity to the upside most of the time it's illiquidity to the upside and this is another fun kind of narrative people like are bitcoins too volatile it's like well first of all it's volatility is in line with most of the

stocks in the sp500 at the moment but second of all it's volatile during bull markets right so volatility is actually good because it's heading higher by and large yeah that's when you see the bands furthest away from each other just look correct correct yeah the bank so yeah look at the way i understand the bank of america the way i understand the bank of america analysis is they didn't really factor in historical data and they were just using like the most recent data and be like oh it's 186 and the other thing is that when you look at the paper they it was like the absolute top in like march or april 2021 so like they're producing this report and to be fair to be fair to them i can't tell whether they actually did a lot of work to it they basically said that a 93

million dollar inflow which is a very specific number to use as your baseline a 93 million dollar inflow would create a one percent change in the market cap and when you back out what that one percent change is it was you know billions of dollars and that was where they got 118x so to me they probably looked at the coinbase order book and they who knows how they actually measured it but when you put even a little bit of rigor to it which on-chain data is fantastic at doing you just get to a number that's like okay let's let's just kind of constrain ourselves folks we're probably between three and five x and if you use that number you're much more realistic it's not a bad number either i mean it's obviously not over 100 it makes sense like gut feel it it

feels like it's you know within the ballpark and the fact that that multiplier was consistent through history um you know that's just basing it off the changes in the realized cap how much profit need how much does some guy need to inject into the market relative to the market cap change that to me feels pretty real yeah the higher multiplier effect numbers are their great engagement farming tools oh and this is the battle that we analysts face all the time is that the engagement same as whales right if i can leave audience with a couple of things first things first don't anyone who's talking about 100x multiplier ignore them because they just aren't and i've i've shared this report far and wide if they're not reading it and listening to it then

can't help them the other one stop whale watching every time someone posts some chart being like look, whales sold 50,000 Bitcoin. If whales sold 50,000 Bitcoin, we would not be at $66,000. First things first. The problem with whale metrics is if you're looking at a, are you looking at a whale or are you looking at a Coinbase or a Binance cold wallet? Because if you're looking at a whale, they sold 50,000 Bitcoin. But if you're looking at a exchange, they moved 50,000 Bitcoin. But where they move it they probably moved it into custody or a cold wallet and like buying by a whale is actually selling by others like it's literally 180 degrees reverse whale watching in the world of bitcoin is a sport people love to do the alpha in it is zero and i've spent a long time trying to

work out whether there's alpha in it there is not so folks who are doing whale watching i strongly recommend uh not doing it because unless you are actually in the bitcoin node and you are doing the data science yourself you're probably looking at an anomaly you're probably looking at a hot wallet becoming a cold wallet you're probably looking at a you know whoever your data provider is their algorithm hasn't caught up to that particular event it's just so noisy that it's not worth even if you think you're right you're probably wrong so therefore the probability that it's not worth using is high it's a combination of that where it is an early bitcoin or moving bitcoin but most of it is going to a change address that they they control

exactly it's a consolidation it's a custody account there's all sorts of things now now to be fair there are some things like when you see same with exchange outflows right people love to look at exchange outflows most of the exchange outflows that we've seen of late and everyone's like look balances are all-time low it's like yes coinbase is moving it from their exchange wallet to their custody wallet now true that is demand by someone could be etfs could be an institution there's all sorts of people but it's still inside coinbase it's like it's still part of the coinbase entity yeah there's some guys who are withdrawing but for the most part you're looking at internal wallet shuffling yeah it's going from queen base trading to uh their zappo coinbase custody

exactly exactly and you've been in the on-chain analysis game for quite a while now in bitcoin terms many years yeah a while it's been around for six years and i've been in it for about six years and so what let's dive into this this subject is infinitely fascinating because you have obviously the order books on the exchanges the prices on many exchanges across the world and then you can couple it with this on-chain data which is specific to bitcoin and And in terms of a treasure trove of data for analysts like yourself, the fact that the ledger is public is an innovation not only for the peer-to-peer digital cash system and using it as a currency, but also analyzing the system.

So in your mind, becoming as prolific of an on-chain analyst as you have over the years, what does the on-chain data do for somebody in your position like how does it change the game in terms of following these assets and doing reports and trying to educate the market about what's actually happening absolutely so so my background is civil engineering right so as an engineer i like to understand how things work it's about the mechanics of the system and back when i was at university uh i think it was like my very first lecturer he goes all right you know you're all in a civil engineering degree about 30 of you are going to end up in finance and i was like what a joke and here i am right one of the 30 who ended up in finance now granted bitcoin is a

special type of finance but the real and the more i've pondered why he said this and why this was a was the case it's because engineers come in with it we don't get taught economics we don't get taught how the business system works what we get taught is to think about like what matters what's the governing factor in a problem we thought we get taught problem solving and we look at the economy or i certainly do i look at a lot more like a machine i'm looking for what are the big causes what are the big effects how do we link them together and i don't get too bogged down in the details because generally speaking the data like back of the envelope will get you between plus or minus 10 20 of the answer if that answer is close enough then press on right and particularly

for me my background was in uh called geotechnical engineering which is dealing with the ground and the ground is a i mean unlike structures where you get to put steel and concrete wherever you want the ground gives you whatever the fuck mother nature gives you that's it you just get whatever the ground is there and it's a very different game right if you've got to excavate a a basement for a building or a train station or something you may get point zero zero zero one percent of the material that you've got to make a decision off so lots of incomplete information lots of risk lots of probability and your design or your market thesis has to be very flexible you can't have a single piece of information come out and it completely blows out your thesis because

otherwise your building's going to fall down you need to be very very flexible to this stuff so that's how am i like how i became attached to markets because that probability side was fascinating now on chain data as you mentioned it's basically like bitcoin's a big database at the end of the day, it's an append only, you know, you can't reverse the history, big spreadsheet of who owned what and when. But also, which is a really important element, Bitcoin is very grassroots, right? It came from the hodlers and the hodlers are just retail guys, right? Just people out in the world. They're not Wall Street. We're only just getting into the Wall Street world today. We're talking about a very grassroots and also a very emotional asset. There is no asset in history

that more people love, hate, fear, and revere than Bitcoin. I don't know why it is, but it brings out the best and the worst in everybody. And it's a very emotional thing. Now, what's beautiful about this, and the same reason that price charts in the 1920s look exactly the same as price charts today, is because our brain, our brain hardware,

the ape that we still are, has not changed in hundreds of thousands of years. We are the same ancient hardware dealing with new problems. So what Bitcoin's like very emotional grassroots kind of behavior pattern is, is that it's baked our psychology. And you can go and read like Reminiscences of a Stock Operator. You can go and read Trading in the Zone, any of these books that talk about like how you

as a market participant think. Human beings are trained to lose in markets because we're taught to avoid risk and markets are all about risk. So what happens is people make the exact wrong decision at the exact wrong time. you've probably experienced it yourself where you literally buy it sells off like literally immediately you think oh shit it keeps going down that eventually you go okay that's it it's going lower and you sell and then of course it rallies right back to your cost basis you go oh man that sucks you buy again then it sells off again this is this is what human beings are like by default

designed to do now as a result this database that is bitcoin is full of the most emotive core fundamental human psychology that you can imagine. And if you think about what you're looking for, right? If I'm in a bull market, when do I not want to buy? Like if I want to just do a DCA strategy, I don't particularly want to buy when all the guys who bought two and a half years ago at the bottom are selling and taking fat profits, because that's probably going to oversaturate the market at some point in time. I want to wait when the guys that they sell to, the slightly less experienced, slightly dumber money, I want to see when they buy those coins and I'm going to wait until they capitulate and sell. They buy high and they sell low. I want to buy when they sold low

because now I'm getting Bitcoin. I want to buy Bitcoin as cheap as I can, but knowing that it's going up forever, Laura. So essentially I want to improve my cost basis. I don't want to pay too much of a premium, but I'll pay a bit of a premium. But I want to see when the guys who paid a big premium sell low. And this works at all different levels. But ultimately, Bitcoin is such an emotive database. It is full of us operating on our ancient hardware at scale. We behave as a herd and you can see the herd moving. You can also see when the smart money take profits into that heard. And it's not just the world of on-chain because you've got on-chain ticking over. It's like basically the description of the spot market. And by the way, I am 100% positive that if gold

had a blockchain, you'd see this. If bonds had a blockchain, you would see this. You would be able to see all of these transactions. You'd also see all the manipulation and shit going on as well. But Bitcoin, because of just the way it is, it's like a perfect lens into human market psychology. And we combine that with futures, ETFs, spot order books, whatever it is, because the Bitcoin market is obviously dynamic, but the on-chain is like this big piece of glue that connects them all together. It's like the connective tissue of data that goes between the ETFs, goes between the exchanges, between the futures markets. So to me, it's just endlessly fascinating. And in your view, what are some of the most high signal on-chain data points that

you use on a day-to-day basis yep so uh basically if i was going to point people to two metrics it's going to be mvrv and sopa and they stand mvrv is the market value to realize value probably a lot of people have seen it the best way to think about these two metrics they're actually siblings when i look at on-chain data and actually on my website if um uh check on chain uh you'll see there's a button called the on-chain what i call it on-chain framework basically that one there I've got I split up the market and how you like describe data it's different axes um one side is are the coins moving are they unspent are they coins that people still hold and MVRV describes how much profit or loss people are in right this is it this is it here so

basically imagine that big cube is the bitcoin supply and what I'm going to do is split it up into three different axes the x-axis is are the coins moving or not and on any particular day one percent of the supply kind of transacts a lot of that's like the same coin transacting more than once but the vol on chain volumes about one percent of the total supply so you've then got are those coins in profit or in loss right you've got people who are holding coins are they up are they down are they at break even people who are spending coins are they taking a profit are they taking a fat l are they at break even mvrv and sopa describe those two buckets show me whether people are in profit or loss based on the coins they hold and think about this right every hodler

and i don't care how diamond handed you are if you keep ratcheting your unrealized profit the amount of like portfolio green you are from 100 to 200 to 400 to 500 to a thousand to ten thousand at some point maybe not you but some other guy is going to sell i don't care like at some point some other guy's going to sell. And eventually that sell side overwhelms the inflowing demand. So MVRV is telling you how in profit or in loss is the market. At bull market peaks, you generally get to like MVRVs of three or 3.5. This means everyone's up 250%. Someone's going to sell. At bear market bottoms, you've got massive unrealized losses. Who can actually carry those unrealized losses, only the hodlers, right? Only the hardcore hodlers can actually carry those

losses. You have wiped out all the speculators, they are gone. SOPA is the systematic. So I can see that everyone's in profit from a high MVRV value, but are they actually taking it? Because the taking of those profits is actually what puts a top in. Because unless people are selling, we just keep gapping higher until we find a liquidity pool. SOPA is telling you, you just hit that liquidity pool. People are now selling, they're taking chips off the table. And when people are worried about why the market's not rallying, like right now, it's because long-term holders are still locking in this like base level of profit. They're still taking chips off the table. Granted, much less than they were, but SOPR is telling you when people are actually taking

profits and you'll see it. SOPR will have these enormous negative prints below one at bottoms. you can see like that's a bear market that's a bear market that is a capitulation when it goes it goes and um we actually released a report uh back in i think it was we label it by weeks but week 46 uh 2022 which is when ftx blew up and we saw this just enormous red candle on sopa and basically my colleague um uh basically wrote that in every instance where we've ever seen this it was the ultimate point of capitulation and of course that was the exact bottom yeah and oh i thought i put the soaper chart in there here it is logan so we pulled that up to see it it's fascinating it's i am one of the monkey-brained bitcoin holders um i typically

just accumulate and smash by every market bottom every market top and i always at some point in the cycle i'm like all right maybe i should look at on-chain metrics but failed to do so but the data that you've accumulated and present on your site check on chain.com go to charts.check on chain.com to check out all these charts um it's something i got to utilize more basically for if you look at sopa and in particular we look at short-term holders short-term holder sopa and mvrv it's very simple if you're a hodler buy as low as you possibly can short-term MVRV short-term SOPA because the lower they are the more likely we're at a dip or if we're in a bear market you're buying at the point of absolute capitulation right so just

using short-term SOPA and short-term MVRV to buy as low as you can don't don't buy when it's high because that's telling you that people are in and about to or are taking profit and you probably don't want to buy when some other guys who's been around for a lot longer is selling into that rally yeah and so i'm looking at the soper chart right now it looks like the 22 ftx capitulation was the lowest since 2015 so that was probably the best opportunity that's what we call the uh the single cycle hodlers they buy at the top in 2021 they hodl they hodl they hodl they get to the absolute bottom and they go i'm done i'm out i can't deal with this anymore and they sell everything we see it every single cycle that's those poor guys who bought

the highest selling the lowest that's the bottom tick um and it's funny because you look at um you know you may get phone calls or you know you've got kind of like the social proof gee it feels pretty bearish out here and then you look at on-chain metrics and you're like and it looks pretty bearish here i gotta be a contrarian i gotta step in yeah what do you think this data is going to do for wall street analysts are you are you privy to any institutional investors who are on top of this and and get it or you think it's still a bit foreign to them um so it's both so first things first um the some of the names who have come into this space you know they're doing this thing over they're saying this thing over here but they're then doing this thing over

here and actually getting deep into the data um there's also a lot of commentary where people like oh you know i don't it's public data so therefore there can't be any alpha in it and i can't even begin to tell you how much work i've tried to put into convincing firms like guys i this is why i write the reports and make the videos i'm like i know the alpha is there and first things first no one understands it this is so untapped it's unbelievable um and the funny thing is like you know some people use it for trading some people use it for what i do which is a bit more macro scale, like understanding the mechanics. I just want to understand why. I want to know why things happen, but why it's so consistent. And it's been like, I came into the 2021 cycle and I hold this

view today. At some point in time, these metrics will break. And I'm constantly looking for when those metrics break. And suffice to say that the times when I've assumed they were broken and acted accordingly have actually been the times when I've been the most wrong. so in a very strange way i'm always looking out for why these things will break and change they just don't seem to break until they break i'm going to keep trusting them as they work with one eye keeping an eye out for when they start to fail but so far they just they just seem to work so i think wall street will they will get there they're a long way off at the moment but there's some early movers and some of those early movers are pretty pretty serious characters

But yeah, some distance away from broad scale adoption. What would convince you that these models are broken? So it's a great question. One is I was starting to look at these ETFs, right? So obviously you've got these ETFs and then it's like you've got trade volume off book. And it's like, okay, well, that's going to be a factor. So I started really thinking about this. And we've actually seen the, I came to this conclusion, which is a bit kind of left to

feel. But we've actually seen these ETFs happen at least twice before in the past. I would argue potentially three times. What are ETFs? They are a big pool of capital where coins go off-chain, essentially. They're held in some big custodial wallet. And then there's a whole lot of trading activity that happens beyond that. So my base assumption is that thus far, on-chain metrics just continue to work. They just do. At least from my perspective, they continue to work. So that's my core assumption. When have we seen a big pool of capital that takes Bitcoins offline and then there's a bunch of trading that goes off off book? That probably has some kind of an impact in market. Well, 2017 with the launch of exchanges and Binance and shitcoin trading, that was kind of that, wasn't it? There was a big pool of capital that pulled coins off book and there's a bunch of trading going on. Then we saw it again in 2019, where we went from like 4k to 14k. And that was because plus token Ponzi, which absorbed like 2% of all the Bitcoin in like three months in China. That also is a big pool of like spot driven demand that's sucking coins off chain, putting them into some single wallet. So we kind of saw ETF number one back in 2019. It just happened to be a Ponzi scheme. We then saw GBTC in 2021, which was a big pool of capital that pulled coins off chain.

A bunch of people were trading. Like GBTC was ETF V2. We saw the ETFs happen in 2021. And here we are with the spot ETFs. And granted, they're the most, they're not a Ponzi scheme thus far. They're not a Ponzi scheme. They're not a closed end fund that, you know, was rorting their customers. Here we are with, you know, a free market, you know, as best as it can be in Wall Street.

a free-ish market of choose your etf and we're going to buy and sell coins and they'll flow in and out we've seen the second or the third however you want to measure it fourth pool of capital that pulls coins off chain and they keep moving around right in trade volume so that was the thing i was trying to pay attention to and look for it really the way that bitcoin the on-chain data stops working for bitcoin is we end up in a world where everything happens off chain and as an analyst That just means I have to expand and say, well, okay, well, if it's all happening on lightning, which is a very, very low probability, but if it all happened on lightning, then we've got to start mapping what the lightning network's doing and combining it with like settlement in and out. And, you know, it's the same way that the economy, if you want to analyze the economy, you use relatively broad brush metrics, right? You're not measuring every individual business.

You're getting a broad brush view. There's error bars around stuff, but by and large, directionally, you can generally get pretty close. So as long as people are still transacting on-chain, in my opinion, we'll still be able to use this stuff for many, many years to come. And of course, it will evolve and analysts just have to evolve alongside it, which is, you know, that's part of the fun for me. It keeps it dynamic. And what area of on-chain data do you think is most underutilized or that you're really interested in exploring more and digging into and trying to maybe create new metrics, new multiples? Oh, yeah. So my favorite area by far is, you saw on that previous chart, the axis profit and loss. Because

at the end of the day, what drives us to make decisions? Profit and loss. It's just the nature of the beast. Investors respond to their P&L. You may not as a hodler, but some other guy does. And if you're not selling, someone else will. So looking at people's unrealized profit, people say, what's your price target for the top? When's the top going to happen? And my answer is always the same. First of all, I got no idea and I don't know. but show me the mechanics and i'll tell you what's the top so what does a top really look like at the most fundamental level too many people buying too many coins too high of a price that's that's what actually puts a top in usually the characteristics of those people is they're less experienced they

heard about bitcoin on the news they bought bitcoin for the first time and the sellers have been around for six years seven years eight years they know what's up they bought low they're selling high so what happens if people are realizing of locking in profit the whole way up people are then buying and buying and their cost basis is going higher and higher what does a top look like it's when price sells off just a little bit below their cost basis and you get this cascade of fear and panic and then one guy's sell becomes another guy's stop loss and then you get this like that's what precipitates a bear so what i'm looking at and it's an area that i'm doing a lot of exploration in to try and understand where this top forms i want to look at the acceleration

of everyone's having a great time to now everyone's having a shit time right i want to see when it goes from everyone's in profit to no one's in profit and that that drop is and you can see in this chart here actually the tops are clear as day you can see that there's just this precipitous decline in people's unrealized profit and loss falls off a cliff, that is usually where the market has now flipped over. And you have to put at least one bear market goggle on and say, well, now I'm looking for signs that the chain is starting to die and we're not getting as much activity and blah, blah, blah. There's a whole lot of mechanics here, but essentially you're looking for that, like not much loss to some loss. And it's like interest rates going from

0.1% to 0.1%. In absolute terms, it's very small, but in relative terms, that's a 10X increase. You're looking for those, there's not much loss. Now there's a bit of loss. That's usually an exponential change that happens near the top. Yeah. And so just by eyeballing that chart, it seems like we have a bit more consolidation to go. Maybe a bit more. Yeah. I mean, right now I characterize the market in the bulls, quiet and trending, which is where we rally, we go sideways. We rally, we go sideways. Very stable, very, very stable, very mature price action. 2021 was not that. If you go back and look at 2021, we just went straight up. There was no support built and we filled in that circle on the way

back down. So 2021 built absolutely no support and we paid the price for that. Right now, we are building support at 30k then at 40k then at 50k then at 60 we're like we're literally stair-stepping higher once we really get going we move into the um volatile and trending and this is very commodity like most like the stock market there's no volatility when it heads higher because it's like a manipulated straight line but with bitcoin it gets volatile on the way higher so once we move into that volatile phase that's when you're in the euphoric period and in my opinion that's when there's a timer right now i don't think there's a timer on this bull if we just kept doing that we could keep doing this forever it just could keep going higher but at

some point it's going to get euphoric and once things get euphoric and people's cost bases are swinging around like crazy you've probably been there it's exhausting you get tired after like six to twelve months you're like i can't do it anymore that's why markets get tired people just can't do it anymore and on that note like how do you think the next 18 months play out obviously we just had a having maybe that's a good first question do you believe in the having being catalyst for upwards price pressure and if so considering the market structure now with the emergence of etfs and options coming to market and there'll be more options coming to market more options etfs are we in a new era do you do you believe the four-year cycles of diminished

returns will continue do you think this cycle's an anomaly compared to last are we going straight to a million up forever laura uh or is it in your mind going to be very similar to cycles of cycles past yeah i mean all great questions so the on the halving side no question it has an impact is it big no right i did a study a little while back where i looked at how big the halving actually is um uh and again trade volume is not the perfect thing to compare it to which a lot of people do and i did as well a lot of people compare it to trade volume but technically trade volume is both directions halving is only sell side but even so even so when i was talking about before as an engineer i try to focus on the things

that drive like the nine i don't care about the 10 give me the 90 the 90 factor is more important etf trade sorry the um the halving is a hundred times smaller than the the impact of the halving the actual 450 coins that we booted out that's a hundred times smaller than the etf trade volume it's like 250 times smaller than spot trade volume and it's 1800 times smaller than futures volume it's a footnote. It's like, yes, it's only sell side. But even if you whack it, 50% discount on all the other stuff, it's just not big enough to care about. So it matters, but it's not major. It's still millions of dollars coming off the market as sell side. So it's going to have an impact. It's not going to be a negative. Let's put it that way. In terms of where I kind of see

the market going, I've been enjoying Jeff Ross's talk about the bull crab. I think people should get used to the bull crab. It'll go a lot more sideways now, but we're not seeing the same drawdowns. I mean, again, 20%, we normally get 25, 30, 40% corrections all the time. We've only just had a 20.4. That's the deepest we've been. So we are seeing a less volatile market. I think people are going to have to get used to a bit of boredom because we're probably, I mean, so far, the market looks extremely healthy to me. There's a lot of people calling for, you know, topping patterns. I'm not seeing it yet. Obviously always got an eye out for it, but it just doesn't, it doesn't feel like a top here. It could be, but it doesn't feel like it yet. I've not really seen

many of those things kind of cascade to the downside. So I'm still relatively constructive. I do think that over time, there's going to be more Wisconsin pension funds who are allocating 0.1%, which is more money than God. So I think you're going to start seeing this happen more and more. So the way I would describe what I think is coming, it's going to be just a slow unfolding of the passive bid this passive bid will start to come in the fact that it's less volatile actually makes institutions more comfortable the bigger it gets makes them more comfortable the more of their peers they see buying into this thing people get more comfortable so i think that that broad scale is going to be very constructive over the over the long term

um you know people get caught up on the one hour candle the amount of times you see people on twitter being like oh look you know it's dumping i'm looking at the price i'm like what do you mean What do you mean it's dumping? It's within the same trade range. So people get overexcited over and they over index on the small scale. So for the most part, I think the market looks really healthy. I struggle to find too many bear cases at this point, aside from people drawing lines on charts. And in terms of the diminishing returns, so I put basically zero weight in the concept of, oh, we went all time high before the halving, or we can't dip below the previous cycle peak none of this stuff really matters again show me the mechanics and i'll show you the results

kind of the way i look at things um we could absolutely i mean diminishing returns there is no law of nature that says that we have to have diminishing returns and if i was to place a bet it would absolutely be on we're probably going to blow out that that narrative the four year cycle is a more interesting one actually because it was the one narrative that everyone thought would die last cycle and it was the only one that survived so again until it breaks metrics I kind of like the four-year cycle because I think duration is a real metric right the time since right how long does it take a bear market to recover ultimately that's a human psychological thing how long does it take us to like get over the things that that happen there's

also a capital component but a lot of the duration I think duration has a bit of a bit more semblance so in that instance you know it it may well be it may well be that the four-year cycle remains but again it's like on chain i will keep believing it's there until it fails and i'm always half an eye on watching in case it fails yeah that does feel like this steady bullcrab is materializing and i i don't mind it at all it allows you to focus to to accumulate you're not worried you're not getting fomo um and once we get euphoric the clock starts ticking so in a way the high if you want Bitcoin to go higher, bull crabs are exactly the way you get there. And how long does that clock tick historically once it starts ticking? Six to 12 months. I mean, if you think about

2021, we broke high. Usually the euphoria stage happens when we break all-time high. So that would be potentially the first time that we see, let's call it like a change in market structure. historically speaking as we break the all-time high you go into the euphoric phase if we go to the next one or two legs higher and it's still quiet and trending sideways rally sideways rally that would be a break in market structure that would actually be like we we could be heading a lot higher than people expect if we on the other hand we start to get real like just starts ripping higher and you get this euphoric burst um and remember that's over the medium term you're not looking at like oh it's going up and it's euphoric so you know it has to be euphoric and just keep

being euphoric that would once you get to that phase it's like six to twelve months the market usually can't keep going too much longer than that people just get exhausted capital gets exhausted it goes too high too fast too many people sell too many coins and too much dumb money comes in and buys too high so you know that that's the general frame of reference 21 we went from you know december to april i believe april was actually the all-time high from an on-chamber perspective it's clear as day um that that was the the sentiment capital all-time high the second one in november was a was a fake peak in many ways but um you know that was five months six months that's that's kind of it you could argue november is a year but you know that was kind of

a strange cycle by that metric yeah and in the extension of the bullcrab scenario let's say this continues for the next year and it's a very healthy step function up into the right uh movement what does that do in terms of upside potential in your mind he wants he wants a price i want a price prediction i want a price prediction so my i come at this again you know once you go to price predictions it's it's anyone's guess but um my fundamental price target as like a conservative estimate is 10.8 kilograms of gold right whatever the price of point eight kilograms of gold is because that's how many gold how much gold there is per coin uh and that's i mean we all know it's going to consume gold so that's you know last i checked

1.2 million australian so whatever that is 750k or something uh american dollars uh now that's kind of a fundamental basis right how long it takes to get there who knows look i i i would i've been saying 250k and i think 250k it feels like it's not it's not an egregious number and what i was saying before about um bitcoin is big relative to us it's big bitcoin is big relative to where it has been but it's a blip it's a blip in the grand scheme of things so how many wisconsin pension funds allocating 180 million right as point one percent i mean they're looking to allocate up to one to two percent fidelity recommended a three percent portfolio these numbers by our multiplier of three to five x are enormous now they're gonna take a long time to

happen but when you just like you know spitball some numbers 250k still puts it in the realm of like it's still much much much smaller than gold but it also is fulfilling a role that is like competitive as a neutral sound reserve asset um you know i wrote a post the other day where you look at all the regulatory stuff you look at all the capital changes you look at the wall street side you look at the etfs if you had to explain all of these things to me back in 2018 my head would have exploded because like that that cannot happen there's no way that all of these things will happen in six years and yet here we are bitcoin is front and center in so many elements whether it be political or otherwise it's just this is wild stuff like it is it is on the map now

and more and more people are going to want a long-term um long-term allocation so it makes all the sense in the world that you know 250k is still small it it's still small but it's also enough for people to say hey that's meaningful for me and this is probably a a good point bitcoin has to the market has to finance bitcoin as lifestyles i've been thinking a lot about this a lot of bitcoiners are going to be approaching the stage where they've gone from saving their proof of work to now going, oh, shit, that's like a meaningful amount of money. They're going to look after it now. And I think that psychological element, you have to buy houses, you're going to have Bitcoiners who are going to finance families and private school. The market is going to have

to finance all of these things because that's what savings is for. Your savings is for improving yours and your family's life. That's what it's ultimately, what else is it for? So I think a lot bitcoiner's are going to um take that approach and so they should right they should take their proof of work and cash it in for lifestyle chips um you know i wouldn't recommend the lambo but looking after your family and and looking after yourself absolutely right that's that's what your savings are for don't waste your money on our lambo freaks absolutely not no keep driving i'm a big advocate of the subaru right the engine's going to outlast me right just keep the thing who's taken over your subars your toyotas keep it simple that's it and i mean on in terms of

bitcoiners coming into a lot of wealth as the price goes up that's one aspect is cashing in the bitcoin that you've accumulated and saved for lifestyle chips in the short to medium term but i think i saw you write a thread and maybe an article on it as well thinking long term in in terms of generational wealth and passing it down to your children and grandchildren, that's a second-order effect of this newfound wealth. Yes, obviously, you want to enjoy the fruits of your savings while you're living, but hopefully you're wise enough and conscious enough to understand that you'd like to pass them down too.

And there's many things to think about in that regard, particularly how do you actually do that. Oh, 100%. And I've been thinking about this quite a lot because, you know, it's the Bitcoiner's journey, which is my journey, right? I'm a Bitcoiner. And when I look at the demographics, it's mostly millennials, right? Millennials are the primary demographic in, I'm sure your podcast downloads, certainly my YouTube channel. Where are millennials in their life? They're getting into the family building, home building stages. And, you know, you start

thinking about your own mortality. You start thinking about, hey, you know, and I love this test. You just ask your loved ones, hey, can you spend a single transaction from my cold wallet? And what you immediately work out is like, holy shit, if I'm not there to guide them, those coins are going to somewhere in Nigeria or they're going to get lost or they're going to download the wrong wallet. Like there's so many ways it can go wrong. So I've been thinking about this problem quite a bit. And, you know, you realize that my realization was that me as a Bitcoiner, I've spent a lot

more time thinking about my proof of work and my coins and my security than my family had. Right. And you can't expect them to just like work it out because it may not be that easy. um you know bitcoin itself just transacting on bitcoin itself to me it's second nature i don't think about it but people who've not used it before got no idea right they're like i don't understand what all this transaction data is and i can't operate sparrow wallet what the hell is going on here what do you mean i have to move an sd card between this little calculator and my

laptop right they got no chance so um you know just just thinking about self-custody is super important as well by the same token so how do you get a solution that's like self-custody has all of the benefits of self-custody but builds in the fail-safes and like i eventually i just had this light bulb moment i was talking with peter dunworth from uh from bitcoin advisor and man it just the light bulb went off i go self-custody is a stepping stone before people start moving to some kind of collaborative custody i just i feel like and not everyone some people self-custody is the exact right solution um for for whatever stage in life you're in but i think more and more people are going to start realizing that collaborative security is a very very sensible

option for planning in the inheritance baking in what happens if you don't come home one day you know having this key security like you know talking to my mate if he lost his keys he like he just loses five percent of his brain power every day worrying about shit what happens if i lose my key what happens if the house burns down what happens if x y and z there's all these different things you're like imagine if you could just remove all those things and build in the fail safes so i really think it's going to be an area of growth um is the the custody setup the inheritance planning i think it's and there's a few fantastic businesses being built in this space so um to me i find that area very very exciting yeah i do as well obviously unchained to sponsor this show

they've really been spearheading that collaborative custody model you mentioned bitcoin advisors peter and the team there are really focused on this on-ramp doing something similar and i think it's only a matter of time because that i agree if the price goes up those hardware robots get very heavy that that's and that's the thing right you don't think about what your coins are and i've been talking about this a lot recently people are about to move from the saving proof of work to the oh man this is now serious this is now serious money and you know it takes what two three cycles then you're like i mean i gotta protect this now this is this is meaningful so that's that's kind of the world that people are in and that's why i think it's

gonna be it is gonna be a boon um in terms of just like giving bitcoiners a solution that they may not even know that they need but they might need in five years time yeah um a bit of a tone shift tier but curious if you've seen this in the on-chain data or maybe you wouldn't see it on the on-chain data but the bitcoin existing in this interest rate environment um and maybe not even the interest rate environment specifically but more in uh bad economic times and i think the data is becoming clear in the here in the u.s despite what the government is putting out there and they're saying that jobs data is good that cpi data is good but it's becoming abundantly clear that inflation is still a problem yes they've reduced the rate of inflation but it's

still going up higher at 3.3 percent per year as of last week and building on higher highs and then the jobs data which they're trying to paint as rosy here here in the united states at least it's becoming abundantly clear that it's good because most people are going getting second and third jobs and um they're not they're not going back they're not really going back to their tech jobs and so do you have a view on bitcoin in a macroeconomic environment in which you have a global economic slowdown yeah it's a great question it's actually one that i puzzle over quite a bit and um you know whilst whilst everything i've said so far it feels very confident something that i'm always conscious of is that this is a bloody hard market to read

and even some of the strangely enough actually if i wind back the clock so 2019 is really where i started getting into this financial plumbing and macro and all that stuff and i remember back then there was generally like a consensus all the guys on macro voices generally had a pretty similar perspective and they were contrarian as far as i was concerned now a lot of those guys are on two sides of the fence some agree that we're going to have a crack up boom some people think that we're going to zero like there's actually a divergence between the contrarians and I in a way that's kind of what a market needs you kind of need people to be on both sides of the fence and I think you know some of the most qualified people to make this claim are all

saying the same thing it's the hardest market they've ever had to read so I think that's being humble enough to know that you have absolutely no clue and just trying to build a longer term thesis and I think this is another concept in the short term and this is why people get chopped up in chop consolidation right we're going sideways people get destroyed it's because people try to apply their short their long-term thesis to the short term or vice versa they apply their short term thesis to the long term it's a very clear bias that gets people wrong quite a lot when i look at the i mean as an engineer if i was to look at things and say well what's the cause and effect the concept of fiscal dominance i i switched on to that pretty quick because i was like yeah that

makes a lot of sense. If you've got more government spending, yes, we should have a recession. Yes, the stock market should sell off. Yes, a lot of things are very concentrated and very unhealthy. But the government's also spending an absolute boatload of money every day. So like you put those two things together, it's like, well, they might be papering over a lot of the stuff that rationally should happen. But if you look at it from a mechanical perspective, they're juicing so much money in that it doesn't surprise me in any way, shape or form that we just keep going higher. Now, I did put out a tweet the other day, which again, I have zero edge, none whatsoever in NVIDIA. I haven't looked at a single thing about their books, but I've looked

at the chart. I'm like, that looks horrific. That chart looks absolutely ridiculous. And the fact that it's one of, you know, the meme where it's like one guy or a toothpick holding up the whole world. I mean, it's basically holding up the stock market and the stock, where go the stock market, so go the American economy. And to me, you know, Nick Szabo would say that centralized entities are security holes. That looks like a single point of failure to me. And I don't know anything about the books. But if even somebody believes there's something wrong with the books, and that thing starts to fall, then good Lord, who knows what happens then. But what I do know happens then, is no matter where that falls, no matter what happens in

terms of the recession, no matter what happens in terms of how far down we sell, what are they going to do they're going to kick that can as hard as they can because no one wants to deal with this problem nobody so the end result right taking my long-term thesis and not applying it to the short term number go up right corn is going to go up because they don't have an option they may bandy around and credit to the one thing i found quite interesting people mock the central bank they mock the how ridiculous it all is but they all believe what they say don't they because the jaw-burning that they're putting into play has people worrying about i mean they're worried about so many things like they're gonna kick the can they have no choice but they've done a

fantastic job at convincing the market that you know everything's relatively under control and they're gonna manage rates and all this stuff but i mean look at this bloody chart what do you again, I got no edge, but it looks like a lot of things that generally, you know, what goes up must come down. And it's not so much that it has to come down. The concern that I have is it's the only thing holding everything up. That's the concern, right? That's the problem. And that's really the underlying mechanics of the economy feel very shaky. And you've got one superstar, you know, the magnificent one that's kind of keeping everything together. But maybe the world is just going to bifurcate into a magnificent one, and then a magnificent not

much that's that's that could kind of be the way things go but it's very hard to read it is and you hear so many conflicting narratives within ai which is arguably holding up nvidia and its stock is this whole hype cycle around artificial intelligence and is it actually the innovation that sam altman and others would have you believe or is it sort of petering out um that's something and there's also the physical side right like like bitcoin mining there's a lot of lessons from bitcoin mining yes people may be using the ai do you have the infrastructure to plug those chips in or are you going to buy too many chips and they're going to sit on the shelf for six months before the actual racking is even developed there's a whole lot of mechanics that like it will only

take one of those like worldly constraints to hit to put the put the brakes on this whole thing and the concern is because it's the only thing running and then if it's the only thing running it's because everyone owns it and if it's the only thing everyone owns it's the only thing everyone can sell so it becomes this like you know what can go up quickly can come down very quickly much like uh bitcoin in 2021 it goes from 20k to 60k in short order build no support on the way up there ain't no support in the way back down yeah yeah i with bitcoin in this scenario does it become a flight to safety that's the question i have i think the the model is that it will it will suffer like everything else it will be a liquidity event everyone sells off

but it's going to be one of the first to recover because again the can kick will come in and people know that bitcoin's going to be the number one asset to to deal with that can kick yeah i mean it happened in 2020 right exactly bitcoin fell first fell hard then recovered rather quickly yeah and the other one is that a lot of people are looking at the two they're looking at a 2008 or a March 2020. And I would hazard a guess, given that markets rhyme and don't repeat, I would hazard a guess that people looking for 2008 and 2020 probably won't get what they're looking for. It'll look something different. So, you know, it'll be one of those things where people will try and bake the last war and they'll base it on the last war, but that may not be how

it plays out. Yeah. No, you've had the narrative that higher for longer is going to break something structurally behind the scenes. And who knows that may be manifesting, particularly in commercial real estate markets now but does that pose a systemic risk to the rest of the season is the rest of the system is yet to be seen i mean the australian housing market should be falling over right now at seven percent mortgage rates because we're not we're all variables and yet it keeps plugging new highs every single week plugging new highs like there's other forces at play yeah we live in interesting times james oh yes it's uh thank god we have bitcoin though What a grounding anchor.

Even just the intellectual puzzle that it poses, that part alone has kept me so entertained and so intrigued for so long. I mean, I love Bitcoin for how much it taught me, way more than university, you know, as much as eight years in engineering. So it's a powerful tool. And I've said this before, I can't wait for our politicians to own Bitcoin because they might start making some long-term bloody decisions.

Yeah. that's what i mean that's been the most bullish thing here in the united states over the last eight weeks is the fact that the politicians are being forced to talk about bitcoin it seems like they're being forced to be on the side of bitcoin as well which is good yes it's not often the australians will uh will tune into what's going on over there in america but uh i think this this this could be different because this is a complete circus but i'm fascinated to see how it plays out yeah it's uh it's gonna be an interesting six months not even four months till the election yes it is i don't think biden's gonna actually make it to the the finish line

i mean it's it's it's a pretty grim it's a pretty grim layup uh i mean it's it's funny because like you look at these things and we all see it it's like is that really is that really the best guy like you got 300 what 330 million people over there can you pick a guy in a suit off the street just just that guy over there right the guy drinking his coffee run him yeah you can literally go in the corner of six in congress here and find somebody to be a better candidate astounding i think the the framework that i've been looking at is that we're no longer in the world where politicians come from business or from unions or real world experience they're all career politicians um and you know as a result they just lack the life experience of understanding how these things

work right they have no understanding um bitcoin's role in the energy side which i know you're you're pretty pretty bullish on is in my view in terms of like a thing that gives me a lot of hope it's that it's the fact that bitcoin will be a forcing function and ai to an extent as well a forcing function to fixing our energy supply because as an australian that's what concerns me is the fact that we are dependent on other nations for our energy supplies despite the fact that we produce a stack of natural gas we don't take anywhere near as much advantage of it as we need because we keep trying to build windmills and solar panels and it's like guys the sun goes down like at what point do we deal with the problem the sun goes down um and you know supply chain all that stuff

so that's i'm super bullish on it fixing the supply side of things the energy side you guys have a lot of natural gas over there on that island that prison island that you live on well the other one is that we've got so um eric uh what's his name from uh macro voices he was saying that if we if australia if we look at like oil and saudi arabia oil to saudi arabia is australia it's a nuclear. We have so much uranium here that we would just, that's like 46% of reserves. And we're not even close to starting that process of actually tapping it. And nuclear power is banned here, which is insane. I'm hoping that we get there, but like we should be a nuclear superpower in the sense of we have the best engineers, we have the best extraction, we know how to build

this stuff when we don't, but that's where Australia should be going. And we're just so far from the mark in fact here's a here's a fun fact for you all um there's a uh north of sydney a place called newcastle um it's kind of the second biggest um second biggest town in in new south wales and a lot of ports there a lot of um you know shipping and mining outputs and things there's been these wind turbine blades for offshore wind that's been sitting on the docks the years like actually years just rotting away and they're now going through a whole process of saying to the public oh you know do we have approval to put these wind turbines up people like what do you mean you've already bought them they go well actually those wind turbine blades

were bought for a different wind project that was inland but they're so large that they can't fit on the trucks to actually take them out there so they just so they've bought these wind turbine blades just sit there on the docks rotting away because they literally can't transport them on the road infrastructure to get them out there. I mean, it's just the most perfect summation of government policy you've ever seen. Do you have hope that your politicians or more importantly, the citizens of Australia will get politicians in place to enact sensible legislation? I wish I could say yes. There's been obviously events in the last couple of years have concerned me on that front. We don't have a very good crop either. Granted, at least again,

you don't trust a politician as far as you can throw them. At least one side is starting to talk about a more pro-nuclear stance um you know i had a debate with my friends the other day who i disagree with generally speaking on these things and uh he opposes nuclear because the other party that he doesn't support likes it i'm like bro can we look at things from like a factual energy can we look at things from an energy perspective not a blue team red team couldn't couldn't separate the two but you know that's that's part of the challenge we really need to break out of this bipartisan framing that dominates the world right now it's everywhere you see it happening in europe right now these snap elections in france and people freaking out about the transitioning

of the parties within the eu parliament obviously here in america it's hyper polarized that's what they want they want you red team versus blue team find the other yell at him don't look at all the politicians maybe the orange and white pill that's what it's all about because it's and that's the thing right you go to conferences you meet people within the world of bitcoin and you can see behind their eyes they've done a level of proof of work that most people haven't they've been through and actually the the tumultuous ride of seeing your net worth dissipate by 75 plus percent multiple times that hardens you up right so at some point you've got a bit of grit you've dealt with some hardship and that is actually like from a character building perspective

there's something about it that just helps you ground in rational thinking and i just hope that we get to a point where more bitcoiners get into more positions of decision making and just slowly but surely the game theory plays out yeah that's white pill talking to turd demeester about this if you just look at as the price goes up the amount of bitcoiners that enter the top one top 0.1% and how much capital they actually control within those wealth brackets, it goes up pretty quickly as the price goes up. And with that much capital, you can deploy that capital to do things that make the world a better place. And as you should, and whether that world is the broader world or your own world, I think that's a stigma that I'm a big fan of is

diamond hand as much as you can, but don't not sell because of a narrative. Improve your life. It's your savings and treat it as such. Yes, completely agree. James, we've got to do this more often. This is a pleasure. This is a pleasure was all mine. Before we wrap up, is there anything else you'd like to add? Any final thoughts for anybody listening?

Yeah, I mean, Check on Chain's a new venture. I think we're about 10 weeks in to the journey. But yeah, checkonchain.com is kind of the new venture. It's a sub stack and there's a charting website, which is all free as well. and you know really i love long form writing it helps me i do long form but also video because some people like the the video side um some people read some people do both but i just love exploring what bitcoin's doing right it's it's such a fascinating machine under there and the the framework i like to look at it from in our tagline we try to be your bitcoin personal trainer and the

idea is it can be hard to huddle right is it is it the top is it not the top and i don't know but let's try and work it out and it's about training the reaction function and just being prepared for like i did a report called chop solidation expect chop solidation and here we are two months later expect chop solidation right just helps get you in the zone to understanding what is possible um what is probable and uh you know make decisions accordingly yeah we'll link to check on chamber the charts and the sub stack in the show notes check it out i I mean, the work that you did for Glassnode was incredible. I'm really excited to see you branch out on your own

and really go after this because I think, again, like I mentioned earlier, there's multiple times throughout each cycle I'm like, I should probably have a better grasp of this on-chain data so I don't make emotional decisions and can see the broader emotions of the market and make decisions based off of that and not my own monkey brain.

Well, and then we also have a masterclass. So each, probably two weeks, we roll out a piece to just like explore from a very ground level. with starting with basics what is the realized cap what is mvrv what is sopa and just step through these one by one and then after we finish that we'll do a advanced courses so there's not only like the market analysis but we're also teaching people how to use this stuff as well so and some people just like to understand right just understand why and when the market sells off or rips higher that when they understand why it makes it easier to hodl and that's that's really

the goal yeah well thank you for doing it thank you for joining hopefully this is the first of many conversations because i'm sure there's going to be a lot more to talk about in the future as as the market develops absolutely well i'll be in nashville as well so if you're floating around we shake hands get a beer yeah see you in person uh absolutely a little over a month thank you for joining us enjoy your tuesday i'm gonna go enjoy my monday night and uh we'll uh we'll do this again at some point soon good on you mate been a pleasure peace love freaks Thank you.