TFTC: A Bitcoin Podcast - #550: Predicting The Impact of Derivatives on Bitcoin with James Check

Episode Date: October 28, 2024

Marty sits down with James Check to discuss how institutions utilizing bitcoin derivatives will change how bitcoin's price moves. James on Twitter: https://x.com/_Checkmatey_ James's Newsletter: https://newsletter.checkonchain.com/ 0:00 - Intro 1:17 - Explaining chopsolidation and institutional reaction 12:48 - Options and other derivatives 18:54- Unchained 19:45 - A new breed of hodler 27:12 - Zaprite and SOTE 28:44 - Volatility 36:27 - Comparing to previous cycles 42:18 - How would a major crisis affect price? 48:09 - Dispassionate decision-making 51:25 - Will they successfully demonize bitcoin? 58:01 - Institutional alliance and gold 1:09:00 - How high 1:15:00 - James's newsletter Shoutout to our sponsors: Unchained https://unchained.com/concierge/ Zaprite https://zaprite.com/tftc Salt of the Earth https://drinksote.com/tftc Join the TFTC Movement: Main YT Channel https://www.youtube.com/c/TFTC21/videos Clips YT Channel https://www.youtube.com/channel/UCUQcW3jxfQfEUS8kqR5pJtQ Website https://tftc.io/ Twitter https://twitter.com/tftc21 Instagram https://www.instagram.com/tftc.io/ Nostr https://primal.net/tftc Follow Marty Bent: Twitter https://twitter.com/martybent Nostr https://primal.net/martybent Newsletter https://tftc.io/martys-bent/ Podcast https://www.tftc.io/tag/podcasts/

You actually need derivatives for us to get bigger. James Chek specializes in studying the Bitcoin economy and has made significant contributions to the field of on-chain analysis. He accurately predicted this long stretch of consolidation and has formulated new theories on how the introduction of more Bitcoin derivatives will affect the market, many of which he will share today. What are the options going to do as it pertains to price and more importantly, volatility moving forward?

There is no question the volatility profile will evolve and change with options. I think cycles, the idea of cycles is probably breaking down. The full year may not be as clear cut as it used to be. So I'm certainly running on that assumption. Which side of the market do you think blows up first, the longs and the shorts? You've had a dynamic where money has become freer than free. When 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. Was that a bull trap that we just saw last night? Are we bull trapped right now, James? I mean, if you look at the sentiment on Twitter, right, the first daily red candle after, you know, it's the biggest monthly bull flag I've ever seen. Everyone's looking at the hourly shut being like holy shit it's over i i thought we were going to 75k last night yeah it's funny

isn't it like i mean certainly a lesson that i've learned from markets in my time is they love to coax you into like it's an emotional thing and people don't realize you're trading against yourself right and even if you're not trading our emotions live on the daily chart because that's what we see that's what we feel but at the end of the day like you have to look at the big picture and i know it's a bored old trope but zooming out is actually a legitimate thing because if you're one of these big institutional guys i don't care about the hourly chart their traders who do execution worry about the hourly chart for most people right these big institutions they're looking at the monthly and the weekly and saying is this thing an uptrend and i mean it's it's hard

to argue it's a downtrend no it's funny here in the states at least it's typically like a sunday night pump fake where it's 8 p.m on the east coast sunday night football's on gets like halftime the price is running the time you get a bet it's like ah looks like this is dead but let's zoom out i mean i was telling you before we hit record i've been reading your newsletter pretty consistently since the last time that we spoke and i'll let you say but what what is the latest with chop solidation is it over you mentioned the monthly bull flag what is a bull flag yeah for those listeners who aren't well versed in ta yeah absolutely so so i mean the chop solidation being my thesis more or less for the whole time i started writing news that are mid-april right so

we've hit the all-time high we've pulled back a bit and that's when i actually started writing and i think it would have been about early may we started writing about chop consolidation and the the thesis was close your eyes for six months and we'll probably be at the exact same price i'm pretty sure when i wrote that piece it was like 63k close your eyes for six months bulls and bears will get liquidated everyone will be excited and get blown up and six months later will be the same price and there'll be just the bodies of traders all the way to get there and i can't even begin to tell you how many twitter posts i've seen of traders who blew up their accounts like lost millions in this chop and the reason that i had this thesis is markets just can't

go in a straight line right if you spend enough time in this space you realize you get trends and then you get corrections and consolidations and we basically trended up for 18 months right there was a pause kind of halfway through last year but for the most part since ftx it's just being uninterrupted up only with very very small drawdowns right less than 20 which bitcoin normally does like a 30 on a regular basis so and even on a closing basis we only got like 26 percent through this whole chop consolidation process so it was really just about like recharging the gas tank but it wasn't recharging the gas tank on like a small daily time frame on the monthly scale we were tired right you go up for 18 months six months of sideways is about right we're not getting seven

months. But, you know, what this has really done is just built this like foundation, this reaccumulation pattern. I mean, I've seen many people talk about it. Bitcoin has this like bear market floor and then it goes through a bit of a recovery phase and then there's a reaccumulation period. And 2019 was by far the closest analog to this period. But the difference with 2019, it was much more aggressive to the downside. We got really, really nasty wicks, really bad sell-offs um you know it was down like 50 60 percent if you include covid but this was like down 26 we had one wick on the yen carry trade to 32 but like for the most part it's just been chopping sideways if you look at a monthly chart it's just like red green red green bars

just stacked next to each other it's beautiful and what do you think the institutions i mean you mentioned them earlier they're they're looking at the zoomed out chart and obviously we had pretty massive inflows into the bitcoin etfs last couple of weeks how how do you think they've been viewing this summer of chop yeah so i think um we spoke about this i think the last time i was on this carry trade right this and and i do believe that's still a big component of it and there's still a lot of uh misunderstanding about derivatives just in general but this whole carry trade the idea of the carry trade is that there's already a premium in the cme futures which means there is a long side bid so in order to get that premium in the first place people are just generally

you know accumulating and buying when they do the carry trade they have to buy the etf and because bitcoin is fixed supply it's still taking coins off the market right they're not available for sale if they're locked in an etf and also even if they've got a short position on the derivatives so generally speaking i think for the institutions they're seeing an asset that is volatile although a little bit less volatile right so that's going to allow some more institutions to come in It's bigger in size, right? Yes, we've been chopping around for seven months, but we've been chopping around for seven months

between like 55 and 70K, right? This is not 6K and 7K. We're talking about a whole order of magnitude bigger and it's just chopping sideways, right? And if you think about the market cap, we have proven that we belong up here at a trillion dollars, right, for the second time. The first time we attempted that in 2021,

we got rejected. We tried it again. We got nastily rejected in the 2022 bear. And here we are for seven months. Barely 20% drawdown, just chopping around at a trillion and a bit, a trillion and change. Now, these institutions, if they look at those big scale charts, they're just seeing an asset that has holders who aren't willing to sell, right? And that's by and large what we're seeing.

I mean, there's definitely been sell side. There's been kind of two different buckets of sell side that I've seen. There has been long-term holders and OG selling. This is just a real thing. And you can see it. There's like coins. This is the beautiful thing about on-chain data. i can see that coins are taking profit meaning they were acquired at a very cheap price and now

they're moving and they were old and you can't fabricate that right the block changes is what it is the utxos are either old or they're not and they're in profit or they're not so we can see lots of those coins coming back into the market and in the last like month uh really towards the as we come into august and the tail end of september that og like long-term hold of selling really tapered off like markedly almost just went to zero and since then we've started creeping higher there's also been a whole lot of these big buckets right german government u.s government mount gox is distributed like these are huge pools of supply that were moved redistributed and these big institutions right i mean we saw with the german government the market sold off in

anticipation right the actual selling of when the market traded lower before the german government sold most of their supply. As they sold like 48,000 Bitcoin, the market actually rallied through it. Who is there absorbing 48,000 Bitcoin in like a matter of one? It was like, I think it was one week. It has to be just big money, right? There's simply not enough hodlers up here at a trillion dollars to do that. So there's money that's been patiently allowing the market to sell to it. It's not hitting the market bid. It's just saying, here's my price. You come to me, sell to me thank you very much and when you consider the macroeconomic landscape too you have to imagine some of these larger institutional types are doing exactly what you just described

because you you look at the fed lowered rates by 50 bps and you have the 10 year and the 30 year running running higher the yield which is counterintuitive to what you would expect with the Fed lowering rates. You have Stan Druckenmiller coming out and putting 20% of his family office portfolio short bonds, U.S. Treasury bonds specifically, which is a big bet that is very contrarian right now. Obviously, we have the U.S. election.

I think a lot of people are waiting for the results of that election in a couple of weeks before making any larger allocation decisions. But then you have the tried and true alarm bells and precious metals with gold and silver running towards all time highs as well. So despite the fact that Bitcoin has been in this chop consolidation, you do have these external macroeconomic factors at play that are signaling that there may be a shift in the liquidity profile of the world as we lower rates. and that has inflation expectations and outside of Bitcoin, it looks like people are certainly shuffling the chairs and allocating their money with the expectation of something

not going as it has been going the last few years. Yeah, I think that's about right. And the other thing about the election, right, is it doesn't really matter so much what the result is. To take out the politics of it, it doesn't really matter what the result is. Markets can rally on bad news and sell off on good news, right? If you've been around markets long enough, you'll see this all the time. What they don't like is uncertainty.

And the fact that the market, you know, it's slowly getting an idea of how this is going to play out. But once it knows the result and knows that, you know, OK, now we can actually allocate money, there will be people and institutions who take bets early, right? Having a view on where it's going, like for me, probably for you. I don't particularly care who gets in because I think Bitcoin is going to go up anyway because that's not really the problem. The problem is the monetary system. So, you know, my bet's already in play, but there's going to be a lot of institutions just waiting for the rules to be laid out. and then they'll make their allocations because you know they've got different mandates you know they can't weather big drawdowns and the other thing and i wrote a piece on this the other day

the concept of derivatives you actually need derivatives for us to get bigger and in my like core view this thesis i'm currently working to if you look at the hodlers like shrimp and crabs right we're talking about people under 10 bitcoin their balance has been more or less flat for the last 12 months right they haven't really grown their stack and i kind of i spent a lot of time thinking about this and i think there's kind of two big reasons for this the first one is that 1.2 trillion dollars you know it's painful 0.1 bitcoin used to be like two stacks away now it's like a multi-month venture like when you get there it's an achievement right so at this scale people's incomes just simply don't buy as much coin as it used to but the other one there's a

lot of hodlers have been around since 2013 16 even 17 18 they're now getting to the point where they've been stacking for seven years the additional stack is not making a marginal difference to their balance so we're kind of in this like eddy current or this like estuary between um the the original kind of hodlers who got us here but it's very hard to push the market up into the two trillion three trillion dollar mark right it's hard for retail to do that you actually need the institutional capital to move higher but at the same time these institutions they need derivatives whether it be futures most mostly options which is why this options thing is actually very very important because if you want to allocate 50 billion dollars you need to be able

to hedge that risk and if the only way for you to hedge that risk is to short a futures contract or to sell spot you just can't allocate the 50 billion in the first place so we're in this like interesting handing over of the baton from retail who got this to the size we currently are to the institutions and they do need the derivatives they've got the etfs now they've got the futures very soon they'll have the options then they actually have you know options the optionality to hedge their risk which means they can now allocate serious capital so we're in this like transition period between retail dominant to institutional dominant well yeah let's dive into the options because obviously the sec approved options on the bitcoin ets i believe they started

trading at the end of last week i believe one of i think charles schwab um clients got access to the options via their broker dealer portal uh could be wrong there but regardless it seems like they're coming to market um i believe it was jeff from bitwise wrote a long thread last week uh what impact are the options going to have played i've seen many takes on both sides it's going to be a incredible squeeze upwards and others saying uh options are here it's similar price manipulation that we've seen with gold um in your thoughts what what are the options going to do as it pertains to to price and more importantly volatility moving forward yeah there's a lot of interesting dynamics here so um one thing i'll just note because it's important

before i forget it i listened to this really interesting like obscure podcast with david dredge and he's one of these like all-time great volatility managers and he had this really interesting point the guy who was interviewing him is is into bitcoin and allocates to it and david was saying you know until this point i you know i'm a volatility guy people ask me about bitcoin all the time and he goes really i haven't been that interested for a while not because i don't see it as like a tail risk insurance to where the world's going because like, I understand all that. That makes sense. But he goes, the problem is if you've just got retail, like you and I, we earn our salary. We allocate to Bitcoin. We put our own money on the

line. We have a different, I guess, risk profile, how we behave. I'll huddle through the bear market because it's my capital. He goes, what I'm interested in is I want to see when the Goldman Sachs of the world and these big guys come in because they bet other people's money with a bailout behind them. And he goes, that's where you get the real tail risks, right? I want to see these guys blowing up on the wrong side of the trade with options, not like retail, they're a different animal. I can't extract serious money out of them. I can extract serious money out of people who are betting other people's capital with a bailout in the background, right? So that's, that's kind of an inch. I thought that was a really interesting dynamic that that's kind of

alluding to it can get more volatile as these big institutions come on and these derivatives creep in. Now, there is no question the volatility profile will evolve and change with options. There's a couple of ways this happens. One is this thing like volatility capture. So this is kind of what the cash and carry trade is alluding to. It's like extracting a yield. But if you imagine the market rallies and we go into another chop consolidation period, you can essentially have calls above and puts below and capture the like an income stream, right? You sell a call and a put, the market trades in between it, and you're essentially collecting an income, right? At some point, one of those options will get exercised, but then you can essentially roll

them. And the idea is you can generate income by selling volatility and pulling that volatility out of the market. The other side of the equation, you think about who is going to be the one who's, you know, who benefits from options. And ultimately, what are derivatives? They're a tool to transfer risk. Options, best way to think about that is an insurance contract. If you're a miner, you know you have Bitcoin income in the next month, two months, three months. I want to sell that income today, right? Collect a premium by selling a covered call or something like that. I know I'm going to have the Bitcoin, so I don't particularly care if I get exercised

because I'm going to have the spot anyway. But I can collect a premium until that option gets done. So you're transferring risk from the miner's balance sheet to the speculator, right? The speculator's job is to take that risk and be right or wrong. That's basically how these derivatives markets work. And it's why options and futures contracts were invented in the first place is to actually transfer that risk. Now, there is the element of leverage that creeps into these things. So not only can you have people, you know, speculators betting on One Direction and transferring that risk from the producers or, you know, if you're a portfolio manager, I want to ensure my $50,000 Bitcoin portfolio, put an actual buy a put option, you're transferring that risk to a speculator.

but what happens is that people can eventually over lever these things so yes you can squeeze volatility out at certain points in time but like anything right there's always going to be the flip side of the equation which is you can get this explosive volatility where a whole bunch of people are wrong and markets are full of periods and stuff like they're all about people being wrong and then you get these explosive moves in one direction so you know there's a whole series of dynamics that come into it right if you've sold a whole lot of insurance you now have an incentive to defend that level so you don't get exercised and that's where they start playing the spot market but if you kind of envision what all of this is doing it's bringing buyers it's bringing

sellers and that creates depth that creates liquidity that allows bigger money to come in it gets bigger money to be more comfortable with it so all of these things are creating deeper more liquid derivatives and spot markets which allows bigger institutions to come in with bigger capital And this is how you move beyond the $1.2 trillion to start moving up into the $2, $4, $5, $6, $10 trillion markets. Who do you think blows up? Which side of the market do you think blows up first, the longs or the shorts? Well, that's a big difference with Bitcoin is that it actually has, typically speaking, when you look at options, downside. So put insurance is more expensive.

People are willing to insure their portfolio. Bitcoin actually has, if you look, it's called the volatility smile. you're basically looking at how expensive is volatility on your left tail sell-offs and your right tail which is ripping to the upside and this is what i think jeff jeff parks was talking about this bitcoin actually has a positive on both sides meaning there is more volatility on both tails the equity market basically it just grinds higher and then has these nasty sell-offs bitcoin has face ripping rallies and wild sell-offs so it actually has a true volatility smile. And I mean, that's just vol, right? It can literally explode in both directions. In my view,

if you look at the way the world's going, I mean, look at the gold chart. It's telling you what is going on. The right tail is going to get pretty wild, I think. What's up, freaks? This rip of TFTC was brought to you by our good friends at Unchained. Unchained is here building the Bitcoin bank of the future. It starts with their vault product, a two or three collaborative custody vault, which allows you to hold two keys. Unchained holds one. on top of this, they're building incredible products. They're trading products. You want to buy and sell Bitcoin. You can do it through their trading desk. If you buy Bitcoin directly into cold storage, if you don't want to sell your Bitcoin, you can borrow against your Bitcoin with

their lending desk. They have an IRA product, which they recently dropped the price down to 21 cents. So if you want to roll your IRA from traditional assets into Bitcoin, Unchain makes that extremely easy. You're able to hold your own keys. Again, it's the bank of the future. go to unchained.com use the code tftc when you check out for any of their products you'll get 50 off check out their concierge onboarding if you're looking to do it the right way unchained.com use the code tftc and i mean how wild do you think you get because going back like i think this is a good setup to the next chapter and what does a hodler look like you explain like long-term ogs hodling they have their archetype but now as we get into a deeper deeper market

with more liquidity getting multi-trillion dollars decatrillions eventually like what do these new hodlers look like to you and what what type of price dynamics uh outside the options the volatility introduced by options is that introduced because there's one thing i'm saying 1031 is i think this could be the cycle of bitcoin being paired with structured credit with longer durations which creates like a new type of long-term hodler um and when you think about the the amount of liquidity particularly focused on on credit markets that could be immense but then you have this intra-trading as well um not sure if i explained that well but just trying to get into something we were discussing earlier which is the piece you

wrote a couple of weeks ago was zooming out and looking at the the hodler archetypes that that exist and potentially will come into existence as we transition to the next chapter yeah i mean there's a whole lot of dynamics here right like if you think about and you've probably seen this in your youtube stats and and all that who is the average bitcoiner right the bulk of them millennials they are millennials right that's that's the dominant majority of people who are watching bitcoin content like from every single metric i've ever seen in terms of like the social demographic millennials giant bulge there's some people who are younger some people are older most millennials whereabouts are they in their journey right if you've been in bitcoin for a number of

years you've probably been you know you've got a decent enough stack in this cycle i mean i i do have a a kind of general concept and again i think cycles the idea of cycles is probably breaking down the four year may not be as clear-cut as it used to be so i'm certainly running on that assumption but let's just if we talk about the cycle the next 10 years right five years six years whatever that kind of general period is i think this is probably going to be the cycle where a lot of those millennials right they're doing two things one they're probably going to have a nest egg they go holy shit well they actually look at the number and they go it's actually pretty pretty big right i kind of kind of did it right good job but then they're also

moving into a period of their life where they're starting families buying homes you know my favorite saying for bitcoin is like what is bitcoin for me it's my savings what do you use your savings for whatever the fuck you want and you know for me it's a house right at some point i'm saving for a house uh if i look at the i mean the australian housing market is is wild right it's gone up 40 50 since 2020 but it's down i think last i checked in december actually so it's actually better than this it was down 75 in bitcoin terms so i can buy four times more house than I could in 2020, whereas the average person is down 50% on their salary.

So where are those millennials going to be? They're probably going to be either using their Bitcoin, just sell a bit of it to actually pay for these things. I mean, you'll never pry all the Bitcoin out of Bitcoiners' hands, right? You might get 5%, 10%, but for the most part, they're going to just sit tight. So I think there's going to be this transferring of the baton where the market will have to finance Bitcoiners

progressing in their life, and then they'll just huddle the rest. but I also think you're right in terms of that like structured product that feels like the next real evolution whether it's Bitcoin getting added to like a global index because it is really a bit of a global index it is one of those diversified assets where you can put it into like you know five percent three percent I think we saw Fidelity recommending like up to five percent for their clients there's all these like just just put a little bit in here right go from zero to something and that dynamic just tucking it into that ETF putting into that global fund putting into that pension fund, just little bits here and there. It's very hard to get your head around the size

of the numbers in the traditional finance world. I think one of the most instructive things for me that's happened in the last 12 months was Wisconsin, that the pension fund added 0.1%. This is $180 million. And that's like, they don't care because it's such a small component, but they expect to get to 2%. And you just start thinking about how many pension funds and global asset allocators have 0.1% that is hundreds of millions of dollars. It's just enormous capital, right? So these are some of those dynamics I think is probably going to play out. I think the structured product is interesting. It's like you've got a debt instrument and then you're attaching like a Bitcoin kicker to it. We'll probably start to see things like that. We'll

also see ETFs that are just like, you know, covered call strategy. So people can actually earn an income off Bitcoin's volatility, which again, yes, they're extracting volatility over here but what they're also doing is adding depth to both the options market and to the spot market in order to achieve that so all of these things just allow bigger capital for more money it's how this market starts to evolve yeah and we were we were talking about it before we hit record too the idea of micro strategy copycats when we think about these different pools of capital there's different type of hodlers that's why i'm partial towards like structured credit like dual collateralizing a commercial real estate project with the real estate asset and Bitcoin

over the life of a 10, 15 year loan, that Bitcoin's locked up in that loan for 10, 15 years. But obviously, Michael Saylor and MicroStrategy have proven to be very successful in their speculative attack of fiat capital markets to accumulate as much Bitcoin and have their stock price benefit as a result of that. And it seems like there are many others that are looking at what they're doing and saying, we should be doing this too. But this is a new type of buyer where the Bitcoin isn't locked up in the way it would be in a structured credit product. You can have much, much weaker hands at this level. Oh, yes. No, I really enjoyed your chat with Dylan the other week because he's got a lot more insight on the mechanics of this. I think

that for me, when I look at MicroStrategy, it's breathtaking what he's doing. Just incredible the way that he's playing the capital markets. It really is a sight to behold. We haven't seen all that many companies kind of click on to doing this. And personally, I think that's actually good. I don't particularly want to see too many companies doing this for one reason. They just won't have the stones that Michael Saylor has in that bear market, which will come. and the closest analog that i can think of is actually miners so miners have forever been pro-cyclical and that means that they huddle too much in the bull which squeezes supply and gives us juice to the upside but then they huddle way too long and they end up selling usually near the

ass end of the bear so you've got this like you know they buy it and hold it at the best times and they sell all of it at the worst times and i can only imagine if we start getting these like Like the day that GameStop buys Bitcoin to like save itself, that's like the reddest of flag for me, just shooting up in the air going, okay, we're getting pretty close to euphoria at this point. So, you know, there'll be all these dynamics, but I kind of don't want to see too many companies do it a little, like putting some on the balance sheet, yes. But at the same time, I think there's just that one component, you can kind of see it,

right? All these zombie companies saying, oh, Bitcoin's my get out of jail free card. And it's like, nah, you're going straight to jail. this rip was also brought to you by good friends at zap right if you're a bitcoiner and run a business or an independent contractor you should be accepting bitcoin as payment if not you then who if we believe that fiat is systemically fragile and is a risk the rails that that currency runs on are risk as well you need to begin accepting bitcoin as soon as possible invest in the future of your business create a redundant rail by accepting bitcoin as payment

using ZapRite and reduce risk for your business. I've done this for my business here at TFTC. We use ZapRite. It allows you to easily create invoices, payment links, or connect e-commerce stores, connect your wallets or custodial accounts, and be set up in minutes. We can also connect our bank accounts,

our Stripe accounts, our Square accounts to accept fiat as well. The time is now, freaks. The fiat system is fragile. Invest in the infrastructure that de-risks the future. Invest in yourself. Bitcoin payments with ZapRite. go to zap right.com slash tftc to get 40 off their annual subscription zap right.com slash tftc 40

off this rip was also brought to you by our good friends at salt of the earth you got to be hydrating freaks and while you're hydrating got to be getting your electrolytes this is the best electrolytes mix that i've ever come into contact with pink himalayan salt with calcium magnesium potassium sodium no sugar it tastes incredible my favorite is the orange and the pink lemonade go to drinksote.com that's drink sote.com use the code tftc when you make your purchase and you'll get 15 off i'm telling you get on it freaks you're gonna love this stuff we've been talking about this a lot at 10 31 to like what is the evolution of this strategy look like and i certainly think there will be the zombie company we need to get ourselves out of the situation

where we're going nowhere no prospects for growth and use the attack on the capital markets to develop a bitcoin strategy to get ourselves out of this hole but i think for it to be successful in the long run it's going to have to be done via companies that have strong cash flowing businesses under them where um they can leverage this micro strategy strategy to an extent but at the end of the day they have enough cash flow and they're actually producing productivity uh in growth throughout the economy that allows them to service that debt if they ever get in a pickle like if just zombie companies with no cash flow i think that is not in the best interest of the bitcoin price in the long run agree but i think the one thing that and certainly what i've learned the

most by watching michael say a lot and you know it's funny because it seems really obvious in hindsight but the role of volatility right volatility is always a thing people say oh bitcoin's too volatile but if you think about it so well if an asset's not volatile you're not going to go from zero to 1.2 trillion you're not going to go from 1.2 trillion to 10 trillion right without volatility, you need volatility to move. So Michael Saylor has really injected volatility, you can see it in his stock price, he went sideways for like 30 years. And now it's just the most, it's ripping to the upside, you've

got three x levity ETFs on it, like it's chaos. But at the same time, he's added, I mean, I actually don't know what the multiple is, but he's, you know, 1020, I think, like 1000 x, whatever it is, in terms of how he's grown that stock price, it's, it's unbelievable. So injecting that volatility back into markets. This is the thing I've always found so fascinating about like commodities versus equities. Equities just don't have volatility, right? Certainly in the last decade and a half, they just grind sideways, they get the occasional vol spike to the downside, someone steps in, bails it out, up it goes again.

So it's this like really artificial, look at the world around us, it's volatile as anything, right the shit happening all over the place bitcoin's volatility reflects the world in my view it's like a more normal and organic i understand it right things happen on a sunday night you get some kind of headline about conflict or whatever it is bitcoin trades up down left right it i find it so funny that all these trad fire guys who just they hate bitcoin but then the moment that something happens on a sunday they post the bitcoin chart because it's like a lens into what's going to happen on monday morning so it is becoming that global act that global index But at the same time, there's like this volatility coming back, right?

Making volatility a part of market cycles again. And volatility allows people to capture yield. It allows people to trade things, allows growth to, you know, assets can't go up in a serious manner and reprice to the upside and the downside, but to the upside without volatility. And I think volatility is good. People should actually get more used to volatility. And I got this long term thesis that Bitcoiners have dealt with volatility. we see our net worth go up and down you know 300 to the upside down 80 four or five times in like

a decade you're hardened up you've got this like hardened up nature to you that once you get into a decision making capacity and the world's volatile around you you can keep a cool calm head and actually make these decisions right it's that low time preference thinking so i think there's there's so many benefits to the world being a little bit more volatile and in a way bitcoin and MicroStrategy is kind of injecting that back in as a good thing, right? It's taking away the negative connotation of vol. It's forcing people not to be complacent. 100%.

You can't just ride the liquidity spigot anymore, which is a good thing. And I mean, getting back to this, like volatility reentering the Bitcoin market, particularly after this six plus months of chop solidation. I mean, you mentioned it at the beginning. We've got a monthly bull flag. What does that mean moving forward? how volatile how quickly if at all do we get from here on out because obviously it's october october are we getting october this year yeah i love that right the moment that october was the

headlines uh we sold off i can't remember the price was we sold off you know 10 12 percent almost immediately so when we talk about a bull flag this is a technical again i don't do a great deal of technical analysis but i understand the general concepts um a good way to think about markets they they are they do adhere to the laws of physics you cannot just go up in a straight line, you must have corrections and consolidations along the way. And what that does is people who people always buy too high, and then they sell low. And who are they selling to people with a higher conviction who are waiting for a better price. Now when you get just markets ripping to the upside, the pullbacks are smaller and smaller, it doesn't actually allow people to get in,

people start to FOMO and you get a real explosive top. And really the March ETF high was one of those explosive tops. People are going, holy shit, we're going to 100k. I've got to buy this thing right now. And of course, that was the maximum period of euphoria. You then get this process of redistribution. Top buyers, they buy high, they sell low. Long-term holders, they take a bit of profit and take some chips off the table because they're seeing the asset at a bigger size. They now have the ETFs to actually sell to. There's a big bid on the spot side. But overall, you've got this kind of downward trending channel. And the way I would describe the last six months is extremely structured really just trading within a really really well-defined channel like a top

bound and a lower bound just bouncing between them as it as it ranged down but there's a general concept that markets that are trading lower right assuming the asset isn't complete dog shit right so let's just talk about bitcoin here when an asset is trading lower eventually it will break back to the upside right downtrends break to the upside eventually and exactly the same uptrends will break to the downside eventually because nothing can keep going up in a straight line nothing will keep going down in a straight line in the world of bitcoin right shit coins will go to zero if we're doing so from that perspective it's amazing to me to see all of these people saying oh but it's a it's like we were on bear market territory people saying oh this thing's you know

it's a downtrend for seven months that's so bearish yes the maximum drawdown was 26 if you go back to any previous bull cycle, that's like the smallest drawdown. So you've got seven months of yes, trending lower, but downtrends break to the upside eventually. So when we talk about a bull flag, if you look at the monthly price chart, it looks like a flagpole where the market's ripped into March, and then it's just chopped downwards and sideways for six months. And what that's doing, it's allowing the market to redistribute coins from people who don't know what they own to people who do know what they own. Now, of course, sometimes those things can break down.

You actually get some kind of a top formation. But usually speaking, if you go back to 2021, those rounded tops, they were ascending patterns, right? The price was going higher, but with less momentum. That's actually a bearish sign because you've got less buyers. The market can't keep going higher. We actually had declining sell side during those tops.

So you've got less sellers, prices kind of going higher, but it was really telling you were running out of steam whereas here you've got this nicely descending pattern descending patterns break to the upside eventually and that's what i mean by a bull flag it literally looks like a flagpole and then a flag on a monthly basis if you zoom into the hourly chart it looks like chaos it looks like the nastiest bear market you've ever seen but zooming out that's all within the context of allowing the monthly chart to just take a breather have a rest right recharge and then away you go again and it's funny how psychology leaks into this is seven months of

chop um trending lower and a lot of people have checked out and particularly if you're not already in bitcoin it and i tweeted about this the other week but i'm it's very reminiscent right now it will always be reminiscent because the way bitcoin having cycles work and cycles work just more generally it's like for some reason there's always an election year during a having um things typically pop off in the fall but um compared comparing all the cycles that i've lived through maybe 2013 2014 um through to 2017 uh and obviously forward to today it feels a lot like the fall of 2016 now and i don't like it bitcoin started floating up um and flowed up somewhat slowly from like 600 to 1100 between october to march i believe and then things

really got popping in like june july obviously into the the blow off top in the end of that year but just remembering and i actually have like journal notes from this time i can go back and read and read some of them the other day and you can i remember being like bitcoin's going up nobody's paying attention it sort of feels like that right now where if you look at google trend search data like bitcoin search volumes at all time was and yet um people have been paying attention for as long as we have we're going like oh i i remember this feeling i remember what this environment was like and what happened after yep 100 so i wasn't around in 2016 i bought the 2017 top so that was me up there but from a just a um from my studies and just kind of

understanding how this market works 2016 is very close analog so and i think a lot a lot of 2016 is actually because it's a spot driven market, right? 2016, there was no derivatives. So very, very spot driven. And yes, derivatives and futures and all that are at an all time high in terms of open interest. However, we still have a very spot dominated market. In fact, I would say that the current market is much more spot dominated than it was in 2021. 2021, it was all about the perpetual swap. Everything was about futures. And the only spot element there was that GBTC bid pulling in like 660,000 Bitcoin in four months, right? That was the spot bid.

But for the most part, it was just leverage. This cycle, most of the leverage is also paired with a spot buy, right? And I did a chart the other day where I was looking at the ETF inflows. We've seen like 2 billion in the last couple of days. That 2 billion is paired with about 1.8 billion coming into the CME futures.

So that to me looks like a lot of buy spot, sell future, right? But remember, the reason the future has a premium because people long so generally speaking there's a long bias to these things the other period that's very similar is 2019 although much more bearish right and we also had a you know there's a lot of sell side going on that there was the plus token ponzi absorbed like two percent of the supply and then the ccp sold those coins and we didn't find out until we were down like 8k and you know it was just it was chaos back then and then we had march 2020. but really 2016 2019 by far the closest periods there's a couple of similarities to that like mid-2021 although that

mid-2021 sell-off i remember the chinese mining ban that was a really really important i need to actually write a piece on this the chinese mining ban in my view wasn't what started that bear market usually markets like they need a catalyst when there's already something baked in the cake it just needs a catalyst to trigger it the gbtc going from a premium to a discount was what really happened suddenly you've got a 660 000 bid that just disappeared the market started curling over leverage was really high everyone was betting on 100 000 and then the chinese mining ban was just the match that got flicked in and then away we went and that sell-off was like 50 down that broke the bull sentiment and in a piece i did yesterday how do you

how do you determine when a bear has really kicked in because a lot of people are talking about this chop consolidation saying it's a bear market. And my whole thesis really for the last six months has been trying to distinguish, is this a bear or is it a correction? How do we actually distinguish those two? And that mid-2021 point is actually a really good reference point. Both in mid-21 and in this chop consolidation, we had 30% of all Bitcoin was underwater, right? So on a just is the coin above or below its cost basis, 30% of all coins at the worst point were below their cost basis. So then the other one is how bad is it? Because if you bought a coin and you're down 5%, that's another day in Bitcoin. If you buy a coin, you're down 50%, that destroys

your sentiment, you feel bloody awful after it, and you start making decisions going, I'll take the next exit liquidity pump. So then I start looking at unrealized losses. And in 2021, it was massive, it was like 20% of the Bitcoin market cap was just unrealized loss, really nasty stuff, bear market starting. In this chop consolidation, the peak, the high water mark on the yen carry trade was about 7%. So you're comparing 20% underwater versus 7%. Very typically in a bull market correction. So all through 2017, 5%, 7%, 6%, very typical. So we never got the scale of the damage, right? It just wasn't bad enough. Yes, 30% of coins are underwater, but they're underwater by five percent or four percent or three percent and hodlers can handle that so in

many ways this chop consolidation looks a lot more like a bull market correction than it does to some kind of really nasty bear bear market starting bull sentiment shattering event we just didn't get that and that's been a real grounding anchor for me it's just because a coin is underwater the next question is by how much yeah that's really good info to have and that's like again going back to that's why i love talking to you because you come equipped with data that um allows people to uh detach themselves from the emotions that come from these cycles and i mean just speaking for myself like having been through many of these cycles the emotions still get to you oh you're still like oh you're up on a sunday night like oh we're going to 75 and then it's like ah

take a step back zoom out um but with all that in mind like is there anything in your mind that could like prevent the bull from from materializing just thinking of again going back to the macroeconomic landscape it does look like there's some systemic weakness despite what many uh economists would would lead you to believe again looking at the treasury markets and i've been doing a lot of sluicing on people covering covering banks particularly bank of America. You just had Warren Buffett sell off a huge chunk of Bank of America, which he's held as one of his largest positions for decades. And it seems like some of the savvier institutional types are shuffling the chairs on, or not shuffling the chairs,

but they're positioning themselves expecting some economic turmoil moving forward. Like, do you think some major economic crisis could throw a wrench in any potential bull market that may lie ahead for Bitcoin? Or do you think this is potentially a cycle where it becomes a true safe haven and people seek safety in Bitcoin? Yeah, it's a great question. So I think first things first, we're going back to the topic we had before, it's going to be volatile, right? Things are going to happen because there was probably about six months ago, maybe eight months ago i remember i took a screenshot of my my podcast feed right all the the new episodes that have come in and it was just top to bottom markets going to zero deflation is coming watch

out for the bust boo boo just every single thing was like i'm the most giga bearish i've ever been and of course the market went up despite all of that right so you've got all these experts saying oh no it's the end of the world blah blah blah and now we're seeing this kind of reflation starting to kick in, right? People are starting to believe that hang on a second, markets are at all time high, Fed's cutting cycle, inflation actually might come back, like you've got all these like interesting dynamics. You know, arguably, the Fed should be raising rates, not cutting rates at this point in time. So then you've got to look into all those kind of, you know, why is it political? Is it you know, what is it because the government's just paying too much in interest? I think the

thing to really recognize is the world is in a very, very volatile place. And very few, I would argue probably no traders have ever experienced this kind of market before, right? You hear that the Druckenmills of the world and these guys, they'll say, no one, no one in the world has done this before, right? No one has dealt with this. So in that regard, there could be things that happen on a Sunday night and Bitcoin is the only way for them to express their view. I would also say that many of these institutions, they simply haven't done the compute cycles that you and I have. I know why I hold Bitcoin is because after whatever this volatile ride is, I want to own it at the end of that journey. Because I did a study a couple of weeks back, where I was basically

looking at in this chop consolidation range, how many days out of Bitcoin's life does it go up 1%, down 1%, or nowhere. And over a third of all days, Bitcoin goes absolutely nowhere, right? Less than 1% move in either direction. So if you think about if you're a long side trader, right, you put on a position there's a 33 chance you're going to go nowhere which means you'll be wrong if if it goes down there's the other 33 so you've only got a one in three chance of being correct on any single day this is why day traders get blown up all the time because the odds are actually you know one to three but if you look at that on a big picture view on like a quarterly basis it's massively skewed to the upside right these traders you actually do you get these like single quarters

where it's plus 100%. And then it goes sideways. So Bitcoin does nothing most of the time, and then explodes to the upside and the downside sometimes. So many of these firms are not ready to trade this kind of stuff. They've never seen an asset that trades this way. And then you've got the world going through inflation, deflation, sovereign debt crisis, conflict, elections that are just complete circuses. Pick your poison. There's so many things that can create the swings and the upside and the downside but over the macros trend bitcoin is one of these assets you will perform better as just a buy and hold because if you're there for those explosive quarters where it just all happens and bitcoin reprices that's what you need to be there for and you know how

many people you when you're trying to convince people about bitcoin right they're like oh don't worry i'll just buy it when it's the time it's like no you have to position yourself long in advance and then just wait right the hardest thing i mean bitcoin is just doing absolutely nothing and just waiting and just but eventually you get these tail events so i think we will get volatile swings in every direction that's why these options are going to be in my view the killer product for wall street finally they have an asset that is truly volatile they can trade options on there's gonna be vol strat capture strategies the whole lot but those swings on both directions is really where those this is what david dredge talks about i don't care about

the expected return i don't care about the you know the bell curve in the middle you make your money on the left and the right tails that's where the money is actually made and from his perspective it's like and it's even better when the people who are blowing up on that left and right side have bet other people's money with a bailout behind them because that's the big money that's where you pull the the huge returns out of yeah so you're saying it's going to get interesting absolutely and it's going to be really easy to get shaken out and you know sticking your i did a piece recently i was talking about we live on the daily chart our emotion like we live day to day we check the bitcoin price our emotions live on the daily chart but your decisions should live

on the weekly and the monthly chart right so just extract the the emotions from the decisions put your decisions on the bigger time frame let your you know the emotions will always get to you it's a constant battle you have to constantly fight yourself from FOMO and fear right you're always going to be fearful when it's trading lower even like even the Mt. Gox guys I love this kind of analog these Mt. Gox guys bought their coins in the hundreds of dollar range right for peanuts they got their coins back at about 68k when the market sold off to 53 where do you think their emotional state was they're not looking at their 200 price point oh I'm only down it you know I'm only up 45 000 percent now it's like no they feel like they've got their coins at 68 and now they're

down that's how they emotionally feel and that's a real like in terms of how you think about these markets understanding where your emotions live versus what your decision should be is just such an important skill for a hodler to learn because otherwise you will get caught up on the twitter narrative you'll go looking for all the reasons why it's selling off it's almost never the reason the narrative on twitter is almost always just an excuse people wrap around something that was already forming months in advance right so people like oh look etf flows that's why we're going higher it's like no we're going higher because hodlers refused to sell and a bunch of people bought the lows for seven months that's why we're going higher it's got nothing to do with the etfs

etfs is just that like final kindling that gets the ball moving yeah yeah no now you got me thinking like the volatility that i can't imagine i'm just thinking is the the extent and the the gravity of the mount cox mount cox blow up just like an appetizer for what one of these large option trader funds blowing up is going to look like absolutely and look i mean and does it not that it's a not that it's a risk that i really factor in but i see a lot of people saying oh coinbase doesn't have the coins for these etfs guys that's not the risk you should be worried about the risk is that they have way too many coinbase has so many coins it's unbelievable the biggest risk is that something actually goes on there like it to

me that the most catastrophic risk that i think can happen to bitcoin right now is that something goes wrong with coinbase custody that is the the gorilla in the room that no one wants to talk about so don't worry about them not having the coins worry about how many they actually already have that's the real risk and if you're listening and you have your coins on coinbase do your part to uh distribute that that concentration risk away from them um the uh god what was i just gonna say the um give me a second here between institutions volatility mount gox something else is gonna bring up slip my mind though yeah um it'll come to me lost it completely lost it first time sorry i think i cut in there and that's the uh

illusion thought no it's um we're seeing that like broader trends of of where we're going and particularly if uh that's what i was going to bring up like the volatility like the um the gold chart is what comes up a lot is the volatility um that happened during that period particularly with the gold price and that seems like we could be heading into that territory with bitcoin with the options and the macroeconomic sovereign debt crisis backdrop yeah no i think that's actually like spot on absolutely spot on i think that is the framework that most people should go into this thinking is on the macro scale it's going to look like a parabola that's unstoppable on the monthly scale right when you start looking at what's going on week to week

month to month there'll be drawdowns there'll be swings hard to be drawn there'll be chaos right on that like rate of change basis it's all over the place but on the macro scale right they're not paying off this debt anytime soon it's not going to happen so you know they have to print the money this is the the do not you can't stop the train it's going to happen yeah and we have some circumstantial evidence that central banks even believe this with the papers that were recently written by the european central bank and the minneapolis fed branch which basically i mean the ecb tried to basically say that bitcoin has failed as a payment system it's a zero-sum game the hodlers are going to get extremely wealthy and if you don't get in uh and you're not if you

don't have bitcoin it's going to be at the detriment to you and then the minneapolis fed essentially coming out being like uh we recognize that we're gonna have to keep printing insane amounts of of debt moving forward we should probably make bitcoin illegal for individuals to hold and just try to accumulate as much as possible and issue debt into ad infinitum um so that we can keep doing this like they're even beginning to admit it uh though they're trying to paint bitcoin as the big boogeyman that is that was astonishing over the last week was to say oh You have the ECB and now the Fed basically feeling compelled to to respond to Bitcoin success and paint it as a boogeyman. It's funny, isn't it? Like it is almost the best thing they could do because they're basically saying, like, don't look at this.

It's a perfect Streisand effect. Don't look at this thing. Right. If Bitcoin was irrelevant, there wouldn't be any papers written on it. But the fact that it is relevant and it is growing and it is seeing this uptick. Right. It's no surprise that they're writing this as the market's starting to push higher again. if the market was trading lower they wouldn't be writing this stuff um i did find it very interesting when you see like the ecb and again i don't know how they end up you know who has to review these things and what the process is for writing a piece like that but did nobody just say you just explained how assets work like yes when they go up the people who bought them earlier

get wealthier that's the whole point and what they're missing and i mean i obviously understand it. What they're not talking about is the fact that, well, really, it's just you destroying the denominator, right? What you're doing is saying that everybody has to hold this paper while we print it. And it's, again, they need people to hold the paper. This is the other thing, right? The system needs bag holders. This is why they regulate funds into having to own X amount of treasuries. They need someone to hold the paper as they do the debasement, right? And the more people that opt out into gold, silver, Bitcoin, whatever it is, assets, stocks, the more people who opt out the fewer bag holders exist for the paper um so you know this is the game that they

have to play a bit i was very impressed i'm like surely surely someone there's some seniority in the ecb read this paper and goes god we look like idiots we can't publish this like it's got to go it's got to go out so you know directions from above well and that i mean do you think they'll have any success and i mean the ecb both the ecb and the fed papers almost explicitly called for laws against holding bitcoin and that's i've actually had a conversation earlier on another show i was on it's just like curious battle testing this off of bitcoin it's like do you think socially they'll be able to successfully demonize bitcoin hodlers and the asset itself it's an interesting question convince because like if i think about like at a retail level

or if i think about people that in you know in my world that aren't into bitcoin they wouldn't know what the letters ECB stands for. They wouldn't understand what that even is. So the vast majority of... I don't think this is targeted at retail. This is targeted at the institutional guys who are starting to think about this. It's more or less... If you think about what's the number one thing when you hear institutions wind back the clock two years, what's the biggest thing that most institutional guys and TradFi guys would say? There's the volatility, which is fine. But the other one is they're going to make it illegal. That was always the big risk vector. They're like, if it was ever going to get successful, they'll make it illegal.

To me, what are they doing this for? It's to remind those guys, you watch out, we're going to make it illegal. And they're like, oh, I can't touch it yet. They're trying to keep those guys off because who's reading an ECB paper? It's Bitcoiners and TradFi guys like this, right? Bitcoiners, gold bugs and TradFi guys who want to be told don't buy this thing. And when I left my engineering job, I sent out an email and it was basically like, you on work on this bitcoin thing i know many of you probably won't understand this decision it doesn't

you know you probably haven't even heard of bitcoin here's a couple i think they're like like 10 points where here's what the narrative is here's what's really going on energy you know human rights all these things and my last point was think about the incentives of the media and put the ecb in this right think about the incentives of the media would you rather considering you don't own any bitcoin and it's gone on this tremendous run right it would have I can't remember where I was training at that point in time, 2021, probably close to now, 50K or something like that. Would you click an article that's telling you, you kind of missed a really important thing. You kind of fucked up there. Would you read that? Or

would you rather read something that goes, no, you are right to have missed it. It's a scam. It's used for all these nasty things. Don't touch it. They're going to ban it. Don't worry. We are going to ban it. Of course, they're going to click the thing that confirmation bias tells me I made the right decision for ignoring it this whole time that's the incentive of this system they want people who already have this predisposition that the government's going to ban it to be reminded by the government we're going to ban it don't you buy it right that's that to me that's what they're doing it for that's a great take and i wonder if again going back to like it can it be successful because obviously we've mentioned bailouts the target audience of these papers

are institutions who historically have been bailed out particularly this century are they having like is the um the marginal benefit of each subsequent bailout enough to convince them or that that yeah you're going to ban it and we should stay away from this or if do you think putting your institutional investor cap on they're looking at the problem approaching 36 trillion dollars in debt here in the united states macroeconomic geopolitical risk going parabolic um are they do they have the intestinal fortitude to basically look the fed the ecb any central bank in the eyes and say no i'm calling bullshit like it's obvious that you're going to continue down this path that makes my job way harder and my purchasing power way less over time and we're going to go because

The reason I'm getting at this is I do think we're at a pivotal point in Bitcoin's history where we probably need, despite what any cypherpunk may think, we need institutional social support of this asset to really ensure that we can reap the benefits of the Bitcoin that we've accumulated up until this point. Yeah, I mean, I do. And as much as it goes against that cypherpunk ethos, and, you know, in many ways, how many other $1.2 trillion assets exist out there that are just retail holders? There's none. Like, there's none. They eventually, and this is what I try to write in my derivatives piece, right? It's kind of just a sobering thing. It's like, look, you can't swim against the tide. You will drown. That's just how these things work, right? So you can't change the direction of these things. an asset that gets of an appreciable size will eventually develop a derivatives market and without a derivatives market an asset is capped in how much it can actually grow this is just truth why because in order to get to a 10 trillion dollar market cap you need the guy with a 50 billion dollar position to be able to hedge 40 billion of it in a liquid options market if he can't do that he can't allocate the 50 billion in the first place so that the only way he can hedge that is by selling it, right, which means why you don't get to that higher level. So that derivatives

component is really important. From that perspective, right, you actually do need people to be able to hedge their risk. Now on the Treasury side of the equation, and just like TradFi in general, I mentioned before that everyone's talking about deflation, and you know, we're going into a nasty bear mark, and stocks are going to go to zero. And, you know, some of these predictions were insane. But there was, you know, what, two months ago, everyone was talking at recession, recession, recession, right? That was the Duma narrative is all that recession. And what do people do? They pile into bonds. Because historically speaking, when you get a deflation or a recessionary period, bonds are the correct trade. Doesn't the systems of power,

if they need people to hold this shitty paper, don't they need to convince them that there's a bear market coming and that you should probably buy these bonds, right? They're salesmen. They need these institutions who are conditioned for years and years and years that down means bonds anything goes down buy bonds volatility goes up means the market's selling off i should buy bonds this is how the most investors have been conditioned and it will take a long time for that conditioning to be worked off and you know again i haven't been in markets long enough to really say this convincingly but generally speaking i think the rules changed after covid I think that's probably becoming a more consensus view that the rules probably change.

We don't really have the same system because a lot of these things just flipped over, whether you call it fiscal dominance or the return of inflation or whatever it is. There was just like a switch that flipped. The old rules are no longer as relevant, but everyone's going to keep operating under the rules they've trained on for their whole life, right? Some of these guys have been in the market for 40 years. in fact maybe some of the more senior veteran guys who've been there for that 40 year 50 year period they know the rules of flips because they can see the difference right they're that experienced they can see the difference most people have only ever seen in a deflation buy bonds so the systems of power they want people to believe that it's going to go lower they want people to believe that you

know we're going to hike rates until the market falls over it's like they need people to buy the bonds. And if you think about what happened in the last two years, they essentially took away, you talk about the unrealized losses on the banks, they basically forced them to hold those bonds because they destroyed their purchasing power. They now have to hold them for the 10 years to maturity. Thank you very much, Mr. Bagholder, you're going to hang on to those bonds because you can't sell them. Right? This is like, it's so clever how they've done it. But at the end of the day, someone has to hold the paper, they have to convince people to buy the paper. And it's going to take such a long time for the market to start working out that maybe those rules don't work.

And really, the gold chart, in my view, is really the story of right now, because it is telling you that the rules have changed. Gold doesn't run. And actually, here's a good exercise. I pulled out the gold chart the other day, I was just flipping through my trading view. And I've got the gold chart, like the full scale monthly chart or monthly or weekly for the full history. And initially, I was like, God, that's a weird looking Bitcoin chart. Holy shit, it's not Bitcoin. It's actually the gold chart and if you look at through the whole 80s yes it took 20 years to do it but it looks exactly the same as the 2018-19 bear market identical right you've got this big long descending triangle breaks down gold is just a slower version of bitcoin right it's it bitcoin's just fast

speed running the whole uh the whole gold experience yeah and what's called out right now like 27 28 27 yeah yeah how high do you think i mean you think i can get to like 10 000 this run up like well that's i mean because that's the the big um the big elephant in the room is sovereign debt i mean i completely agree covid completely changed the game so you cannot control or excuse me you cannot trust the central planners anymore not that i was trusting them before but i think it's become well apparent and And as you were describing that, it's going to take time. And COVID was a marked change in sentiment.

It actually reminded me of when I worked at a managed futures fund and we indexed commodity trading advisors. And this was right around the time of like right after QE1, Operation Twist and QE2 is when I was working at this fund. And you saying that reminded me of conversations I would have with CIOs at these ctas where they hadn't lived in the world with bailouts to the extent of 2008 and so this was like 2011 2012 and they were still reorienting themselves and their strategies to world of which which you had zerp and infinite qe and they underperformed massively because they um still

believed that that they were living in an environment that existed pre-2008 and i think it took them a while to actually adjust absolutely yeah the rules change and it just takes these guys time because you've been conditioned for years to trade in a particular environment on your question with gold i actually really liked uh luke groman had to take recently and i hadn't really thought about it from this perspective i kind of clicked a little bit this idea that gold doesn't have any other purpose as much as peter schiff will disagree if you price gold based on its dental usage you don't want to hold gold right it's not a very high price if you're just pricing based on on uh gold fillings so really gold is like primarily monetary premium that's really its

use case right it's monetary premium bitcoin its only use case is monetary premium right because that's all it is it literally you can't use it for anything aside from storing and moving value that's its only job and this idea that like if you go back to the 70s you had these problems where the oil price would rise and when the oil price and you kind of put oil and the dollar in the same bucket here. When oil and the dollar rise, it creates stress globally, right? Because energy is your primary input. If your energy becomes more expensive, it's harder. Your debt is US dollar denominated. If the thing you need to buy, the dollar, to pay off your debt gets more expensive, both of those things create stress. So the system really can't have the

release valve be oil because it has a utility purpose. We actually need it for the economy to work so how do you reflate and actually get capital as the ecb would say how do you impoverish everybody else in order to make the system healthy again you need an asset that if it goes up it's not going to blow up the system so it can't be the dollar it can't really be um it can't really be oil it can't be bonds because we're kind of very close to the zero bound right five percent is kind of the long-term average of bonds you're probably not going to go below zero so you can't really inflate bonds in terms of their price. So what asset do you have left to inflate and kind of the most harmlessly recapitalize the system? There's only two candidates. There's Bitcoin and

gold. They're the only two assets that if you were to inflate it and give wealth effects to a bunch of investors, right? Let's just imagine for a second that gold went to $10,000 or $20,000 an ounce. Think about all the gold holders out there, right? Yes, a lot of them are central banks. a lot of them are people with just gold in their safe people with etfs what are they going to like gold's eventually going to go into a bear market they can take that capital and buy other stuff right they can buy bank stocks they can buy equities they can do whatever they need to do to push that money back in and recapitalize the system uh luke roman talks about the the fed's got this operating manual where if they just revalue the price of gold they can suddenly

deposit trillions of i think it's four thousand dollars every four thousand dollars an ounce it goes up they can deposit a trillion dollars into the tga scot-free imagine if gold goes to 20k suddenly they can just take that trillions of dollars either pay for infrastructure pay off a bunch of the debt get debt to gdp down you need an asset to recapitalize the system that its inflation doesn't blow up anything else so it can't be oil it can't really be commodities bitcoin and gold are the primary candidates that you can inflate even silver because it's used in electronics and all this kind of stuff like you probably don't want silver to go too high either because you want these industrial metals to be cheap because that's going to help the world not

blow up you kind of need gold and bitcoin to go up so ironically enough the ecb is not wrong they do need bitcoin to impoverish people it just happens to be that's how you how you recapitalize the system that's the game that's what they're trying to do yeah i don't hate it there's a bitcoin holder and uh small holdings of gold on my finger but um yeah it's gonna get wild i know i asked you last time uh how high everyone wants to know so i have two answers to this question first one is the practical one the second one i'll just have some fun so in terms of the practical one um we're talking about unrealized losses before as like bear market creating flip that around, what creates a, you know, an uptrend will break to the downside eventually. What creates

that downtrend? Too many people see a fat green number in their portfolio and go, yeah, I'm in, I have to take some, right? So unrealized profit getting really, really high is that level where we start to see people sell. Now you've got to remember that just because people are selling doesn't mean there's not enough demand to just punch through it. So I use things like you'll here MVRV ratio, right? There's various forms of this. It's basically modeling how much unrealized profit is in the system. So as it stands right now, if we get up into like the 120, 130,000 realm, that's where we get to a point where hodlers can be expected to start seriously ramping up their sell side, right? So in that 100, 210, 120,000, that's where that real sell side is going to kick

in. Now, that doesn't mean demand can't punch through it. It certainly can. But that's where we'll see a lot of metrics saying hodlers are taking some chips off the table here and eventually that will overwhelm things so that's a moving target right that can continue to climb as demand creeps in but that's where it stands as of right now in terms of where i think we're going to go right having some fun with this thing um when i play around with these ideas right and i my old man's got bitcoin i have to pare back where i think it's going to go because otherwise he just thinks i'm insane you know i wouldn't be surprised if we got to 250 in the next you know i don't know three years something in that kind of period i am certainly in the camp where i think bear markets

are not going to be 80 down i think a lot of people are going to be expecting that 80 down and they might get a 50 or a 45 or a 65 and then away it goes again i i don't think we're going to get again it depends on all sorts of factors but i think generally speaking unless we get game stop buying at the highs right if we get game stop buying at the highs maybe a 70 but if we don't i think that the the bears will be more muted so i think people will lose track of where the top is right where is the cycle where did it start is that a bear i don't know did we just go through a bear maybe right so there's all these interesting dynamics so look i think 250 is reasonable right it's not completely ridiculous we'll get up into the hundreds i think that's i see so many people

just talking about this is where it's going to end like trad fire guys it it makes sense at 100k it makes sense at 250k um i think the the concept of relative value bitcoin's about 10 of gold i think it's about less than that now now the gold's run but if bitcoin can get to 25 of gold right i think you and i would agree that bitcoin is a superior asset to gold and you know case in point if you've ever bought physical gold it is a real pain in the ass you got to go to a physical place you got to pick it up, you got to store it in a safe, like it's a physical thing. Now, that's great, because it's self custody. But it's a I could also buy Bitcoin sent to my cold card and will take me a fraction of the time doesn't even require a bus ticket. Right? You've got all these

different dynamics where Bitcoin is just vastly, vastly superior. So can it get to 25% of gold? Of course it can, right? That's kind of obvious. So can it get to 100% of gold? Not anytime soon. But what would 100% parity be? Well, it'd be about 10.8 kilograms of gold per Bitcoin right now it's just under one one kilo right 30 ounces or something like that so you know that's that long-term view you know my price target's actually in gold terms right 10.8 kilos that's my that's my actual number um which is i i think that's like 600 000 700 000 i mean something ridiculous yeah and it's funny like the gold the bitcoin overtaking or reaching parity with gold's market cap has been a meme in bitcoin for so long but now gold running like that it's a moving

benchmark is going up way higher and like if it goes to 10 000 you gotta 5x the the benchmark price which i think right now they're around two thousand dollar gold it was what like six hundred thousand dollar bitcoin and like if gold runs to to ten thousand dollars and stays there for a while like that's three million dollar bitcoin and the other thing i think is actually quite interesting I've been just observing how markets work. And there's this, I recently actually bought some platinum. And the only reason I bought platinum is because historically speaking, it trades at a premium to gold.

Right now it's at a 65% discount. And I do know that a lot of investors have not ridden this gold wave, right? It's been mostly central banks and people in the East buying gold. So they're only just saying, oh shit, I missed the run on gold. So that's why silver starts to move because it's like the poor man's gold, right? You're going to buy the cheaper asset. and let's have this very simple thesis like well you know if platinum's currently trading at a thousand bucks could it get to 2700 probably you know that's that's not a bad little return so like

and i expect people to go on this like catch-up trade and in many ways bitcoin is that catch-up trade as well right because it's a sound money asset that is still monetizing and really it tends to follow gold like six months you know in the in arrears so i do think this like catch-up trade thing is a very very real concept we see it all the time in the crypto space right you get fucking some shit coin runs they go oh i missed that one don't worry i'll buy the next one down you get this waterfall effect we see it in equities as well right the big caps run then you get this rotation down and i can't help but feel that these catch-up trades are probably going to kind of kick in so i bought some platinum because i just want to test the theory i want

to put some money on the line actually test and see whether this happens right get some skin in the game so i'm kind of invested in the outcome but i do think bitcoin is going to sit in that catch-up trade as well because why is gold running okay if i once i form a thesis on that can i apply that to any other assets that haven't already run oh look there's probably like three or four of them i'll buy one of those yeah all right you heard it here first james is a no platinum analyst platinum maxi james thank you for your time and your research your newsletter i've been loving a newsletter if you're um interested in shedding the psychological volatility that you will inevitably go through uh if you hold bitcoin i highly recommend reading james's newsletter you

get that at uh check on chain.substack.com check on chain.com you'll find it there's a newsletter yeah it's uh incredible stuff and you're putting out uh quite a lot of content too yeah we're getting and we do we do a video and uh written post for every single one because some people like to listen, some people like to read and the way it works for me, when I write the piece and I develop the charts,

I write the piece, that's where I do my thinking and that's where I like really consolidate ideas and then the video is me kind of wrapping the whole thing up. So they're the same thing. Some people read and watch. In fact, we did a survey a little while back.

We've got a really like organic distribution. 25% of people read, 25% watch and 50% do both. So it kind of services all those different angles but the the take we went with is uh with your bitcoin personal trainer and the idea is that like you know the market is it's it's like being in a live combat sport right you're continually fighting all these different pieces of information and ideas should i sell should i buy am i scared

am i not and the idea is just to ground people out and say well let's let's focus on what really matters do we care about how people are in profit are they taking profits like and just sequentially stepping through doing the routine you know you go to the gym you do your reps and you you get much better at surviving these things and it's going to be increasingly important as volatility increases so better start early freaks that's it james i hope you enjoy the rest of your day thank you and i'm sure we'll be catching up at some point uh as the volatility increases 100 good on you mate thanks for having me on all right peace and love freaks Thank you.