The Pomp Podcast - #1266 Will Clemente | Bitcoin Bear Market Is Over. Here Is Proof.

Starting point is 00:00:00 What's up, everyone? This is Anthony Pompliano. Many of you know me as Pomp. You're listening to the Pomp Podcast, which is my effort to find the most interesting people in the world and sit with them for hours while I ask questions in an effort to learn. So it would mean the world to me if you would subscribe to the show on your favorite audio platform, watch episodes on YouTube, and tell your friends and family about the podcast. My goal is to help millions learn from the world's most interesting people. So let's get into today's episode. Will Clemente is the co-founder of Reflexivity Research. In this conversation, we talk about Bitcoin and why the price keeps going up, how much is related to the ETF speculation, what is going on with various metrics that he's

Starting point is 00:00:43 paying attention to, and how we should anticipate the Bitcoin having next year having an impact on the price. Will is one of the best Bitcoin analysts in the world. I always learn something when I talk to him. And today's conversation is no different. Make sure you pay attention because Will is dropping knowledge all throughout this episode. Here is my conversation with Will Clemente. Anthony Pompliano runs Pomp Investments. All views of him and the guests on his podcast are solely their opinions and do not reflect the opinions of Pomp Investments. You should not treat any opinion expressed by Pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his personal opinion.

Starting point is 00:01:24 This podcast is for informational purposes only. Today's episode is brought to you by Trust and Will. I've gone through a number of different changes in my life over the last few years. I got married, I had a kid, and I had to start thinking about how could I ensure that my wife and my child would be okay if anything ever happened to me. That's where trust, wills, and estate planning come into play. Now, most people, what they do is they get introduced to a friend, an uncle, or someone in their local community. It tends to be someone who's really expensive, a lawyer, an accountant, or somebody who does estate planning, and they just simply are using a one-size-fits-all template and just telling you, pay me thousands of dollars and I'll

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Starting point is 00:02:44 loved ones, having a trust and or a will can literally be the difference between someone being taken care of and someone not. Go check them out today at trustandwill.com. Today's episode is brought to you by BASE. BASE is making it their mission to bring a billion people on chain. What exactly is BASE? It's a layer two offering a seamless experience for both builders and users. With near zero gas fees and rapid transaction speeds, BASE is shaping the future of the on-chain world base is a canvas for everyone with hundreds of apps in the ecosystem whether you're an emerging creator a seasoned developer or someone exploring the on-chain space for the first time base is designed to bring your ideas to life so if you're looking

Starting point is 00:03:25 for a platform where the future of on-chain is being built daily base is your destination join in and make on-chain the next online learn more at base.org or follow along on twitter at build on base. Again, that's at build on base to see cool things to do on chain every single day. All right, guys, I've got Will here with me. Will, I thought a great place to start is Bitcoin dominance. It seems to just be exploding higher. Why is Bitcoin doing so well compared to everything else? Yeah, it's been very interesting to see this over kind of the last couple of months, just for context on what Bitcoin dominance is. This basically looks at the market capitalization of Bitcoin relative to the rest of the crypto market. So as you'll see in the chart here up

Starting point is 00:04:07 on the screen, basically over the last year, and especially over the last couple months, we've seen a really aggressive move up in Bitcoin dominance. And so, you know, what does this implicate? It basically means that Bitcoin shown a ton of kind of relative strength to the rest of the crypto assets. And so, you know, why exactly is the case? You know, we've seen somewhat of a kind of general risk off environment outside of kind of, you know, the top call it five or 10 kind of large large cap tech stocks in the equities market haven't seen a ton of kind of breadth across the board and just in general you know some of the geopolitical uncertainty that we've recently seen things like this uh you know perhaps this is the most kind of bullish uh you

Starting point is 00:04:41 know environment for for you know high risk assets while at the same time we've seen this kind of idiosyncratic bid around bitcoin uh primarily uh kind of due to some of the etf expectations and kind of front running of that um paired with some people kind of you know expecting a kind of pivot point perhaps in kind of the macro world of rates kind of peaking out obviously you know it's yet to be seen as uh whether we'll kind of see higher for longer uh but it seems like we've kind of you know surpassed the kind of peak uh you know velocity of rate hikes and perhaps that's also led to some of this kind of relative uh strength for bitcoin but you know i think just in general uh you know how these kind of crypto native market cycles go is very similar to uh

Starting point is 00:05:19 inequities where you see kind of high you know high value deep value uh assets kind of you know leading the the charge off the lows and then over time you start to see that kind of liquidity disperse into you know higher risk you know far tail assets same thing in crypto so typically uh the way these kind of market cycles move is bitcoin kind of leads us off of the lows you know these bear markets uh we then kind of see liquidity disperse into some of these like you know fat tail uh you know riskier assets and it's exactly what we saw you know the 2021 period uh 2017 as well and it seems like this is uh you know showing a very similar pattern as well where bitcoin's kind of shown a ton of relative strength and kind of led the market off the lows

Starting point is 00:05:57 so not only has it led the market off the lows but now bitcoin has also reclaimed the 200 week and the 200 day moving average does that mean that the bear market's over and which is up only into the bull market now or should we look at it some other way yeah so for people that kind of care more about the uh technical analysis uh frameworks of kind of approaching bitcoin um what are the best kind of moving averages to look at valuation for bitcoin over the kind of long term uh is the 200 week moving average and so typically the 200 week moving average has been kind of a level where bitcoin's bottomed out historically uh this bear market was a bit strange because bitcoin kind of deviated for a couple months kind of below that level so it had a lot of people questioning

Starting point is 00:06:35 whether this time was quote unquote different uh recently we've finally seen that level kind of reclaimed pretty decisively as well as the 200-day moving average and then lastly i think also uh one thing that's noteworthy from kind of a technical standpoint uh is bitcoin essentially traded in this 30 to 60K range throughout the entirety of 2021 into 2022. 30K was also the level where we saw three arrows go down. So I think Bitcoin kind of reclaiming that is pretty significant, not only from a technical analysis standpoint, but also just from the sense of now Bitcoin has kind of reclaimed price action that kind of came about because of the blowup of three arrows as well as Luna. And then lastly, of course, some of the SBF stuff. I know Luna went

Starting point is 00:07:18 down slightly higher than where we are today, but generally around the same area. But three hours did go down right around that 30K level. So I think it's pretty significant just from a kind of ideological standpoint as well as just kind of a technical analysis standpoint. If you were to survey the market, I think most people would say, hey, Bitcoin's price is going up because people are speculating on the ETF. How do you think about the ETF and its implications or kind of impact on Bitcoin's price? And is it just if the ETF gets approved, Bitcoin goes up?

Starting point is 00:07:47 that simple or is there some other aspects to evaluate when it comes to the etf yeah it's a great question you know i think it really just largely depends on the time frame that you're looking at i think in the short term there's a high likelihood that the etf approval itself is probably short-term kind of sell the news event that's just typically how these things seem to go in crypto uh you have a large kind of front running of these things and the market sells off um you know given the kind of the aggression of the move that we've seen recently you know if this continues heading into the event i think there's a higher likelihood the more aggressive of the rally into the event is that there is probably going to be short-term southern news

Starting point is 00:08:20 but i think medium to long term uh you know it's incredibly positive uh you know there's a tremendous amount of capital allocators that just frankly can't get access to btc uh because of regulatory compliance reasons or maybe they just don't feel comfortable uh you know kind of holding their own keys or trusting a traditional you know crypto native kind of custodial service uh and so i think this kind of unlocks the you know all that capital that's that's potentially interested in allocating to Bitcoin but can't or isn't willing to given the current infrastructure that we have in the market. Galaxy Digital actually recently released a report which showed that they're expecting about $35 billion, I believe, of inflows within the first year and then something like $75 billion in the

Starting point is 00:08:58 two to three years after. I think one thing that's noteworthy in terms of there's been a lot of market commentators that maybe have said the ETF isn't going to create demand. I think one thing that's worth uh kind of keeping in mind is uh sure the etf itself is just a structured product uh you know although it enables you know perhaps people as i just described to allocate to bdc that maybe couldn't before uh i think the the kind of bigger the bigger piece is that you know you'll have uh potentially black rock valley some of these very large personal financial organizations that have some of you know kind of the largest uh you know sales forces you know advisors um and you know just like uh you know people that are kind of discussing with uh very high level uh you know

Starting point is 00:09:40 important people throughout the financial space they're going to be essentially this kind of mass sales force for bitcoin we saw you know larry fink has now gone on television twice in the last couple months first time called uh bitcoin digital gold this last time called uh the recent crypto rally quote-unquote flight to quality uh and so you know i think that's just kind of a prelude to uh what you're going to see throughout the entire organization of people trying to push uh individuals to perhaps you know take half a percent or one percent of their portfolio and allocated to bitcoin through this new vehicle uh that they may potentially see approved uh but you know when you when you're doing at the scale of how large some of these uh you know leading

Starting point is 00:10:14 financial organizations in the entire world are uh you know that that could have some pretty uh large implications for bitcoin's price now we've got the chart here of bitcoin's price performance since the last cycle's all-time high and it looks like uh bitcoin's performance since the 2021 high is generally tracking in the same way that we've seen other cycles track is it just the repeat of the cycle and having will come and price goes up how do you think about this yeah it's very interesting this is a debate that's kind of taking place throughout the crypto community for a long time um you know are these kind of market cycles driven by the having uh is it other things that are just kind of coincidental i think the reality is uh they're kind of unboring uh non-sexy answers

Starting point is 00:10:56 it's probably a combination of each i do think the having you know was extremely important early on uh in terms of just kind of the impact on overall supply and demand you know i i don't think it has a zero effect but i think it's a uh you know much more minimal effect relative to the prior couple having so i think one way to kind of illustrate this is if you look at like the 90-day change in issuance relative to bitcoin circulating supply you can basically kind of see these impulses of you know how how impactful the having is we can see that over the last few havings uh we've seen that continue to diminish as it has a smaller effect relative to overall circulating supply i think uh one way that that's uh you know an interesting framework to think about this is

Starting point is 00:11:35 you know if you're kind of sitting in a bathtub and you know you you push your hand down or drop a rock or something in in the bathtub as a it has a pretty large ripple effect and it's going to displace water across the entire bathtub you're going to leak and do that maybe it'll you know ripple out 10 feet you go in the ocean and do that it's not going to have an impact at all and so i think over time um you know the halvings are going to have a continued uh you know diminished effect on the overall market uh but on the flip side of that i do think uh what's really interesting and is you know strong narrative for kind of the market to get behind uh is bitcoin stock the flow ratio will be higher than gold after this upcoming having and so you know although

Starting point is 00:12:10 we know that bitcoin is superior to gold in many ways portability uh you know transportability uh divisibility verifiability uh you know provable scarcity all these types of things uh it will be on a stock-to-flow ratio basis, more scarce than gold, which is a very, very quantifiable metric that you can kind of use as a talking point. And so I think that in itself is kind of a good meme or narrative for the market to get behind. And outside of that, I mean, what else kind of drives these cycles? I mean, the other clear answer is macro, right? So if you look at Bitcoin's kind of correlation to the year-over-year change in the DXY, if you look at Lynn Alden's work at basically comparing Bitcoin to PMIs and basically kind of tracking its performance relative to the

Starting point is 00:12:53 economy. We can see that it tracks those things fairly closely as well. And then also you just kind of have the, I think, just kind of natural behavioral dynamics of crypto that are also kind of playing a factor there as well. So I think the reality is it's kind of nuanced and a combination of these things. But as you mentioned, as you'll see in the chart, this kind of current performance from what appears to be the cycle low so far is kind of reflecting very similar kind of signatures to what we've seen in previous crypto cycles solely from kind of a time standpoint. Now, one of the most interesting data points to me is the supply that has not moved in at least 10 years is now higher than the total number of Bitcoin that is on exchanges. Is the

Starting point is 00:13:36 Bitcoin that has not moved in 10 years, is that just lost Bitcoin? Or is there a way for us to understand, no, actually, these are just long-term holders who are now holding on to more Bitcoin than the amount of people who actually have bitcoin sitting on an exchange yeah it's a really interesting uh point i actually got this uh chart i'll give a shout out to this guy jimmy on uh on uh twitter for his last name but shout out to jimmy i think this is really interesting for a couple points so what you just described um a it just shows there's obviously as you mentioned a large amount of coins that have been lost uh you know these are these are in the chart we're looking at coins that haven't moved in at least 10 years uh so you know before 2013. uh so there's

Starting point is 00:14:15 probably a fair portion of that that's frankly lost and the other piece is of course you know just seeing a massive amount of belief from individuals by looking across not just the amount of supply that hasn't moved in at least 10 years but when we look at the amount of supply that hasn't moved in at least a year we look at long-term holder supply long-term holder supply just reached an all-time high as a percentage of overall circulating supply when we look at it just outright it's just the number of coins held by long-term holders that always just goes up only but when you look at it more importantly as a percentage of overall circulating supply uh that just crossed an all-time high of over 76 percent uh so in other words you know over

Starting point is 00:14:48 three out of every four btc are held by long-term holders at the moment which is pretty incredible uh you know of course higher prices will incentivize you know new sellers but for the time being bitcoin's being pretty tightly held and uh yeah i think the the metric that we have up on the screen with with kind of the amount of supply that hasn't moved in at least 10 years relative to the amount of supply and exchanges is it's just another reflection of that so i think uh i don't have it in front of me but i think it's over 600 000 more btc haven't moved in at least 10 years than around exchanges. So basically, over 600,000 more BTC are locked up, presumably a fair portion are lost and out of circulation forever relative to the amount of supply that's

Starting point is 00:15:25 currently on exchanges that's available to be bought today. Now, the last thing I want to talk about is this MVRVZ score. You and I have been talking about this for years. There's basically this red zone, which seems to be where the tops of bull markets hit. And then there are these green zones which seem to be the bottoms of the bear market uh during this bear market it seems like you know this exact same uh trend played out and we got into that green zone we went sideways for a little bit we're now out of it describe a little bit about mvr vz score and kind of how you use this to evaluate bitcoin yeah so i think uh just to kind of take a step back you know one of the really interesting things that uh you know kind of the transparency of bitcoin's blockchain enables

Starting point is 00:16:09 is we're able to analyze the market in ways that aren't potentially possible with traditional equities or other assets. And the reason, of course, for that, again, is it's completely transparent so we can see all the transactions. And there's been a ton of different interesting variations of what you can do with that ability. But one of the most interesting variations, which has now been around for about five years now and still, in my opinion, is arguably the of best valuation uh metric from a crypto native standpoint for for btc is this mvrb ratio so we'll kind of break it down exactly uh you know what is what does the acronym stand for and what does it mean um it's based on this uh metric called realized price so realized price is essentially

Starting point is 00:16:51 the aggregated cost basis of the network uh the way this is done is by looking at the last price that every every single coin last moved uh and then you're able to divide that by circulating supply and especially get this this aggregated cost basis and so when you compare that to what the current martial trading price is of course you know again price is set on the margin right so it's you know whatever you know buyers and sellers are transacting at today not necessarily a reflection of what every person on the planet you know feels like the value for btc is at when we compare that marginal uh current trading price to that realized price uh we got this mvrv ratio so it's market value relative to realized value uh and so uh the kind of conclusions you're

Starting point is 00:17:29 able to come to uh with by using this uh are basically in the bull market whenever uh you know you see this ratio get very high approaching that red zone that you described uh fundamentally what's that saying it's saying that uh the kind of current marginal trading price is trading at a high multiple to that aggregated cost basis and so by definition market participants are largely sitting in a large amount of unrealized profit and so have a high incentive to want to sell and then conversely heading back into the bear market uh whenever we get into the kind of the green zone that you described and this is something that we use in the back half of the year i kind of called out basically you know unless these these metrics are broken uh this is this

Starting point is 00:18:05 is likely you know somewhat of a bottom here um essentially what this is showing is that uh the current market trading price is below that aggregated cost basis so the inverse is by definition uh the market is underwater in aggregate or kind of they're in a state of unrealized uh losses um so you know you can kind of use that to say generally you kind of want to purchase assets whenever you know the market's underwater experience it's a ton of pain and there's force selling etc and so this is just kind of one way to kind of kind of look at that uh and so i think you know how do you kind of apply this today i think you know it's perhaps not super actionable at the moment but i think like the one conclusion that you can take i think

Starting point is 00:18:43 you know this is best used kind of on the extremities of the valuation uh kind of you know spectrum on the chart but uh which you could kind of come to a conclusion of today is that bitcoin is still largely uh you know kind of quote unquote underheated or you know paper maybe perhaps isn't kind of the state of like very very uh you know deep value uh but still is very far from kind of overheated uh which is achieved whenever we see those you know very high multiples relative to the aggregated cost basis now obviously as bitcoin has risen there's been quite a bit of excitement and people kind of uh realize hey maybe this isn't going away how do you see the next 12 months or 18 months playing out in terms of having uh coming up obviously

Starting point is 00:19:24 they're just national debt there's a bunch of these issues that are all coming together just like given the information we have today looking out over the next you know 18 months or so what is your expectation or what are you looking for yeah i think one of the most interesting things is um i track closely on velo data which is one of my favorite data providers um especially the kind of trad fire uh cme based data around bitcoin um primarily these are more traditional financial institutions that trade on the cme which is why i think it's interesting to look at relative to you know a binance or who will be or an ftx or whoever um and when we look at kind of the cme futures activity what we've seen over the last couple days is this massive influx in activity

Starting point is 00:20:04 both on open interest for for cme futures which reflects the amount of contracts that are open as well as volume uh reaching by far uh the highest that it ever did on a single day throughout the entire year at over six billion and the second kind of highest day throughout the entirety of 2023 was just over four billion uh so you're clearly seeing kind of interest from more of these kind of traditional financial institutions i think this has also kind of been uh reflected in looking at basically the uh the percentage of overall open interest so if we look at like the open interest across all the different uh you know futures exchanges um all the crypto natives as well as cme you see that cme futures open uh interest has now reached an

Starting point is 00:20:42 all-time high out of the overall uh open interest across all the venues for for btc i think it's at 26 25 or 26 percent um so obviously a fourth uh so i think this is interesting again same thing i just described just looking at volume out right um the percentage of of open interest uh drive from the cme reaching an all-time high basically you know kind of signals to me that you're seeing on a relative basis more of these kind of traditional financial institution uh kind of players kind of dipping their toes in the water and so i think you know over the next 12 to 60 months to answer your question you pair that with with kind of you know the etf to onboard people uh you know i think this kind of alludes to this idea that the the kind of makeup of market

Starting point is 00:21:24 participants in crypto is proper at least in bitcoin uh is probably gonna look uh pretty different over the next uh you know one to two years and beyond that makes a lot of sense tell us about reflexivity and kind of what you guys are doing there before i let you go yeah absolutely uh feel free to check us out at reflexivityresearch.com uh we do a ton of different deep dive work in crypto you know 20 30 40 page kind of deep fundamental research on various different crypto protocols uh macro events as well as of course uh dynamics going on bitcoin we just did a bitcoin q3 overview uh last week some of the information that we pulled uh for today it comes from that as well so be sure to check that out and uh i think there's there's

Starting point is 00:22:03 20 25 kind of free reports that we now have on uh on the homepage of the website that you kind of sit through and check us out awesome i appreciate the time to do this i always learn something every single time we talk my friend uh we'll definitely do it again in the future

The Pomp Podcast - #1266 Will Clemente | Bitcoin Bear Market Is Over. Here Is Proof.

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