The Pomp Podcast - #556 Will Clemente on What Happened to Bitcoin When Elon Tweeted

Episode Date: May 15, 2021

Will Clemente is a Finance Major at East Carolina University. He has quickly become one of my favorite writers on all things bitcoin, including deep dives on various onchain analytics. Subscribe to Will’s new email newsletter here: https://btcbywc3.substack.com/ In this conversation, we discuss Elon’s tweet, Bitcoin’s on-chain metrics, miner accumulation, NVT, whale purchases, and whether the bull market is still in tact.  ======================= Revolut is a finance app in the US and UK, that say they're the simplest way to access crypto. Sign up today at Revolut.com/pomp and make 3 card transactions to get $15, which you can exchange for any tokens Revolut supports. As usual, when you move your money from fiat to crypto your capital is at risk. See T&C's for details. Revolut is a financial technology company. Banking services provided by Metropolitan Commercial Bank, Member FDIC. Cryptocurrency services provided directly by Paxos Trust Company, LLC. =======================

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Now let's kick this thing off. Will Clemente is a finance major at East Carolina University. He has quickly become one of my favorite writers on all things Bitcoin, including deep dives on various on-chain analytics. You can subscribe to Will's new email newsletter by going to the link in the description. In this conversation, we discuss Elon's tweet, Bitcoin's on-chain metrics, minor accumulation, NVT, whale purchases, and whether the bull market is still intact or not. I really enjoyed this conversation with Will, and I hope you do as well.

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by metropolitan bank and cryptocurrency services are provided directly by paxos trust go check it out and let me know what you think at revolute.com slash pomp last but not least is cosmos they're building the internet of blockchains marking a new era of interoperability scalability and usability the free flow of assets and data between blockchains with bridges to ethereum and Bitcoin will unleash the potential of DeFi, NFTs, and much more. You can dive into Cosmos at cosmos.network.com. Again, cosmos.network.com. All right, let's get in this episode with Will. I hope you enjoy this one. 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. This podcast is for informational purposes only. All right, guys. Bang, bang. I've got Will here with me. Thanks so much for doing this, man. Hey, Paul. I hope you had a good week, man. It's great to be back. Absolutely. Let's jump right into it. This week was pretty bullish. It started off and then all of a sudden Elon decided to start tweeting and things got kind of crazy. What exactly happened? Yeah. So, you know, the past couple of weeks in the newsletter and on these podcasts,

we've been kind of describing a bullish setup, right? This consolidation that we've been in now for, geez, it's been two or three months and we've just kind of been waiting for confirmation in either direction. And then Elon around 6 p.m. on Wednesday, he decided to come out and tweet whatever he did about Bitcoin's environmental impact. And that had a big impact on the price in short term. Right after he decided to tweet that, we had $200 million of long liquidations within 10 minutes. So just looking at, you know, just what was driving the price,

that was what caused that huge initial dump that we saw. But it was very interesting to see before he actually had tweeted that, There were, I think it was 19,500 roughly Bitcoins that were moved on to exchanges in the hours before, which is very suspicious to me because then after the dump, you saw this huge outflow of coins from exchanges. So to me, at least, it seems like somebody had some kind of information about what was going to happen. Yeah. And what's really fascinating to me really is here, when you see that much liquidation in such a short period of time, it almost feels like people felt like the market had bottomed. They then were putting this leverage on and were ready to kind of return back upwards. But instead, there was kind of this external event that wasn't perceived in any of the

on-chain metrics. And that's really what drove all those liquidations and kind of caught people unexpectedly. effectively. Yeah, absolutely. And I think this this kind of goes to the whole thing about Bitcoiners are always talking about not to use leverage and just to buy spot because you never know when an event like this is going to happen. And as you just said, I think a lot of the market was expecting a breakout of this consolidation that we've been in for a while and we're starting to add in some leverage back on. And so when this happened, a lot of those leverage traders just it got absolutely wrecked. Yeah. And so talk a little bit more about the Bitcoin that got

moved on to the exchange. What did you see there? Do we know who that was? And then you said there was some Bitcoin moved off of the exchanges afterwards? Yeah. So a few hours before the dump, there were 19,000, I misquoted the number earlier, it's 19,259 Bitcoins that were moved on to exchanges. And then afterwards, so this is just running a moving average. Anyone can see this in the letter. And then I think we're going to have these charts up on the video as well. But you saw, I just ran a moving average over the net transfer volume and there's a huge increase before. And then after there's a decrease in transfer from exchanges, actually people are starting to move coins off of exchanges following the event. But it's hard to know exactly which,

you know, which entity it was, but I find that very suspect because there'd be quite a coincidence. I completely agree. It also looks like about $650 million worth of Tether got printed. What's going on there? Yeah, so after we had the big dump, first of all, we saw one of the biggest outflows from exchanges since February. It was only trumped by one that we saw towards the beginning of April. So in addition, OTC outflows also spiked. So there are definitely some people that stepped in and scooped up some cheap coins. And then, as you just mentioned, there's a lot of Tether printed in the 24 hours following, about $460 million of Tether. And then also we saw just in general, $650 million roughly of Tether moved onto exchanges in the 24 hours following, which obviously isn't signaling Bitcoin buy specifically. Like they could be buying other altcoins as well. But a fair portion of that, it's fair to say, is going to Bitcoin. And it also doesn't mean that they're buying immediately.

They could be just moving that capital onto exchanges and then they're slowly going to wean into a position. but that capital is there on the exchanges waiting to be deployed for sure. And one other thing I wanted to touch on was this metric SOPR. So this is something that we've discussed in previous newsletters and pods. So SOPR just basically measures like the net profit loss of the market on any given day. And during this event, I ran a six-hour moving average and a 24-hour moving average over this metric. And on both of those timeframes, we have the biggest drop in SOPR of the entire bull market. So in the bull market, when we have these crazy price runs, not a lot of people are willing to sell at a loss.

And so when you see a huge portion of the market, or I shouldn't say huge portion, but a majority portion of the market selling at a loss, that's usually a sign of a bottom. and this metric has timed each bottom that we've had throughout the entire bull run so if we aren't at a bottom here and at time of recording we're about 50 300 if that 46k that really nasty wick we saw from the from the long liquidations if that wasn't the bottom then we're very close to it but based off of this this sopr metric which like i said has timed most of the bottoms we should be very close to a bottom here. And, and also we bounced off two major moving averages that kind of serve as a bull market support. So there's the 128 day moving average, which has never been, there's never been a daily close below that moving average during a bull market.

We actually bounced within a hundred dollars off of that moving average. And then we also bounced off the 21 week moving average, which isn't to say if we have one daily close under one of these that the bull market is over and it's time to pack it up and go home. But if we had multiple daily closes below that, I would start to get a little concerned, but we did bounce pretty strongly off of both of those moving averages, which when you look at previous cycles, after we've had those corrections to come back and retest those moving averages, we've had some pretty crazy gains in the coming weeks and months following that. Remind us what the funding rate kind of metric is and then what happened on the funding rates?

Yeah. So the funding rate is another metric that you can kind of use to time the bottom. I think the funding rates and SOPR are two of my favorite metrics to use to kind of get a rough estimate about where we are and if we're close to the bottom in these corrections. So the funding rate is used on different exchange platforms overseas where they have these perpetual swap contracts. So the way you can just think of this is that it's a futures contract that doesn't have any expiration and it's pegged to the Bitcoin price. And so the way it's pegged is they have something called an oracle, which takes like a weighted average from different exchanges, Coinbase, Binance, Kraken, etc. And they're all weighted based off of the amount of volume that they have on their exchanges. And then there's an average price, which is what the Oracle gives these trading exchanges, for example, like BitMEX, right? Or FTX is another popular one. And so the contracts, the perpetual swap contracts are pegged to that Oracle price through funding rates.

So when the majority of the market wants to go long, the funding rate goes up, which means that the longs are actually paying short to incentivize people to take the other side of the trade and therefore peg that contract to the oracle price. So, you know, when the market gets super bullish, it's the funding rates can be a good tool to kind of gauge the sentiment of traders because you start to see that the traders are paying a high premium to sustain those those long positions. And when funding rates go negative, it's showing the opposite. The majority of the market is looking to go short and therefore they're funding longs to take the other side of the trade there. And during the event after Elon decided to tweet that, we saw the funding rates go negative. And then what was interesting, though, is we saw this very sharp bounce back in funding rates. We had a decline for, I'm looking at it now, about seven or eight hours. And then out of nowhere, we just shot right back up, which I find that very interesting.

I don't really know what to make of that. But in the previous corrections that we've had in this bull market, we've seen funding rates just kind of creep back up slowly. It was very interesting to see them come right back. But those funding rates going negative in combination with the SOPR, which had gone below the one threshold, which we've talked about before, that on multiple timeframes, those things are giving me a signal that we're very close to a bottom if we haven't reached one. Got it. And when you start to think about kind of the leverage that was in the system, it feels like a lot of that got flushed out here. Yeah, absolutely. So, you know, when you just flat out are looking at the futures open interest, we had a huge wipeout during this event, about $1.8 billion of futures open interest in total, which is a good thing because, you know, in the short term, price then doesn't have as much weight to speculative traders. And it's more weighted by the organic buying or spot buying that's taking place rather than just speculators jumping in and the price being driven up through that way. So I think that's a good thing to see this leverage get flushed out and the greed kind of moving out of the markets in general.

Yeah. One of the things that's so fascinating in your analysis is you're able to look at the various wallets and how much Bitcoin they have in them and kind of what those are doing. Maybe talk us through what you would expect to happen in a bull market between kind of small wallets, medium size and large, and then what actually is happening right now. Yeah, that's a great question. So, you know, there's for the for the very small wallets, I don't know, like point zero zero one BTC to one BTC. You're seeing those those very small cohorts have been accumulating steadily throughout all Bitcoin's existence and they continue to do so throughout this bull market. When you look at, you know, some of the higher cohorts, you see different things. So, for example, like the 10 BTC to 100 BTC has been trending down. The 100 BTC to 1000 BTC has actually been trending up, especially in the last couple months, which I think is something to keep a close eye on because that that threshold is kind of the high net worth individuals, in my opinion. And then you have the thousand BTC up, which is what Glassnode likes to just label as whales.

And that's actually peaked out. And I think Coindesk put an article out about this and saying that it was kind of a negative thing. I just see it as kind of neutral because you started to see these whales trim out of their positions midway through each cycle. And in 2017, they actually, the peak of whales that were coming on the network was around $675, which of course was, you know, very, very far from the top. And it's just something that you start to see them begin to take profits about midway through the cycle. So that's not anything abnormal. But it's something I'm keeping an eye on, just the behavior of these different entities, because obviously, you know, the larger entities tend to be institutions or high net worth individuals, and you can get some signal based off of what they're doing. But I think that 100 BTC to 1,000 BTC cohort is an interesting one to keep an eye on, because

although we had just mentioned the whales are selling off, that cohort is actually offsetting the decrease in supply coming from the larger cohort. So they're offsetting it by, I think it's 86,000. So what that illustrates to me is either, you know, there's just more buying from these high net worth individuals, or also maybe, you know, some of these, the larger cohorts, let's say they have 10,000 BTC in an address, right? And Bitcoin's gone up so much and they want to say, okay, I'm going to de-risk my holding. So I'm going to spread 1,000 into 10 different wallets and that would move them into the other threshold, into that lower cohort. And then also if someone's right on the verge, like let's say they have 1,002 BTC or 1,005 BTC and they sell off a couple or

they throw a couple on to Binance to, you know, mess around with some altcoins, you'll see those specific entities move into the lower cohort. So it's a combination of things. But I think you need to look at all the different cohorts to get the full picture rather than just looking at one specific one and drawing to any conclusions. Yeah. What are miners doing this week? Yeah, that's a great question. So, you know, we've been talking about how miners have been accumulating and throughout the dip, they have just continued to do just so. There's two major metrics that I look at for this. One is the minor net position change, which basically runs this 30-day trailing average on the net position change of what miners are doing. Are they selling

or accumulating? And they continue to accumulate. This metric's actually been in the green for over a month now, which is very interesting because towards the middle to end of last year, from about August to late October, we saw a very similar signature in this metric that they were just kind of accumulating during the consolidation before the next price run up. So in my opinion, that illustrates that they're just waiting for higher prices. There's another metric Glassnode has called minor unspent supply. And it's just basically measuring. And rather than running an average, it's just literally looking at the raw balance of minor wallets.

During the dip, we actually saw an uptick in that. So miners seem like they're still super bullish on the asset and they're expecting higher prices. Got it. And then long term holders feel like another big metric that we should be paying attention to? Yeah. So Glassnode has a metric called it just looks at the total supply based off of what long term holders are doing. And that kind of bottomed out. We did see them sell off after all time highs at the end of last year, but it seems to have bottomed out around March, April. And that's actually starting to move up again, which is interesting. You start to see them reaccumulating at these levels. I guess to them that these seem like more attractive levels to start adding on some more to their stack, perhaps once again, because they're expecting higher prices. Also, they're very similar to the minor net position change.

Glassnode has a metric called long-term net position change, which is the same thing. It's running an average over the trailing 30-day difference of the behavior of this cohort, the long-term holders. And that's been in the green for over a month as well. So that's illustrating a very similar picture. One metric I wanted to touch on was NVT. So NVT was the original on-chain metric that Willy Woo came up with. He likes to analogize it to kind of a PE ratio of the Bitcoin network as kind of a way to find a fair valuation of Bitcoin based off the fundamental investor activity. And it's just a very simple ratio of market cap to the on-chain transactional volume.

So, NVT, when it's going up, it means that the market cap is growing faster than the underlying investor activity or on-chain transactional volume. And when it's going down, it means that the on-chain transactional volume is outpacing the growth of market cap. So, it's a very simple ratio. But that ratio has been trending down since January. So to me, that's another indicator of what we've been talking about recently, about how we're just in this consolidation. And two other things you can look at, realized cap, right? So that's a good way to track capital inflows to the market because realized cap is similar to market cap, but it's based off of when coins last move. And we've seen this huge increase the year to date. We're over $300 billion added to RealizeCap, which is showing that there's capital coming into the network. And as that new capital comes in, it's setting this new price floor for Bitcoin.

And then if you take realized cap and then divide it by supply, you get realized price and realized price actually crossed the 2017 all time high market price of twenty thousand dollars this week, which is, in my opinion, a really good sign that you're seeing capital come in and flow and flow in at these higher price levels and kind of set a new floor for us. And then on a very similar note, if you just look at the on-chain transactional volume itself, we continue to just build this huge zone up near, you know, these $40,000 to $60,000 price levels, especially in that, you know, $54,000 to call it $57,000, $58,000 range. There's a lot of support there. But even as far as it just coming down to about forty five thousand to sixty thousand, there's a lot of distribution in that area, which is showing to me that we're not at the top. Because when you get to these these tops, there's increasingly parabolic moves until finally we have this big blow off top. It's not like we consolidate for, you know, granted, this is my first bull run, but I'm just looking at the data, but I'm sure anybody that's been in a bull run before can vouch for this, that you don't just consolidate sideways for two, three months and then just fall off cliff.

You have these huge price run-ups. And then when you get up higher, people stop selling, people start to get greedy and people stop taking profits and you don't have a lot of distribution, a lot of on-chain volume distribution at those top levels. But we're seeing the complete opposite right now. We're just seeing this huge zone of support, which is just another way to illustrate that we're just in this big consolidation. I think, you know, the price action that we saw on Wednesday certainly put a damper on how soon that we would break out. But it's nothing that changes any of the on-chain structure. I've been getting a lot of people asking if, you know, that price dump changed anything.

And in my opinion, it changes nothing. It's just a short-term price move. But when you're just analyzing the fundamental investor behavior on chain, nothing that we've been talking about has changed at all. Yeah. It just feels like short-term, everyone freaks out. Long-term, we're still good to go. Bull market in check and consolidate for a little bit, and then we'll see what happens in the future. Yeah, and it's a really good thing. In my opinion, I think the volatility is very necessary because you see all these short-term speculators or people that haven't done their full research on, A, what Bitcoin is or how the price behaves. Anybody that's been in Bitcoin knows we have these crazy price swings. I think in 2017, we had like seven or eight corrections over 30% on the way up. And this is just part of the way Bitcoin behaves. And, you know, when you have these big price drawdowns, new, you know, the stronger hands step in and scoop those coins up from those weak hands that panicked and sold off. So I think the volatility is very necessary for moving coins to strong hands, which then allows price to move up from there. yeah where can people find you on the internet or uh or subscribe to your email

yeah man so right now uh for anybody listening uh pop and i started a newsletter on my sub stack it's btc by wc3.substack.com and then also we're putting out a friday letter on pomps which i'm sure most of the people on pomps podcast are subscribed to but that's kind of a weekly recap and then of course we're doing these uh saturday podcasts to kind I've run over everything from the week, but the ones I'm putting out on my channel are kind of, you know, just the weekend recap, if anything's changed. And then I'm doing as well, a Wednesday recap of just anything, you know,

touching base in the middle of the week, if, if needed, if there's, if nothing has really changed in the on-chain structure, I'm probably not going to put out that Wednesday letter, but if we see something happen, like this week, I put one out because we had some interesting developments in the on-chain structure. So I'll be putting out two to three of those. week between uh my newsletter and pomps you can find me on twitter at w clementi uh and then three eyes at the end because i am the third in my family but uh yeah other than that i'm pomp and

i are going to keep pumping these out and i'm glad uh you guys are finding some value in these i really enjoy doing them doing a fantastic job keep it up my friend and we'll do this podcast again on saturday yes sir appreciate you