The Pomp Podcast - #562: Bitcoin Crashed! Who Was Buying And Selling?! Livestream w/ Will Clemente

Episode Date: May 23, 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 this week’s price sell-off, on-chain metrics, who is selling and who is buying, and much more.  ======================= 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. ======================= Remote makes it easy for companies of all sizes to employ global teams. We take care of international payroll, benefits, taxes, and local compliance, so you can focus on growing your business. Sign up for Remote today and receive 50% off your first employee for the first three months. Check out remote.com/pomp and enter promo code POMP to get started.

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 in the link in the description. In this conversation, we discussed this week's price sell-off, the on-chain metrics, who is selling, who is buying, and much, much more. I really enjoyed this episode with Will. We did it live on YouTube, and I hope you enjoy it as well. Before we get into this episode, though, I want to quickly

talk about our sponsors. First up are my friends over at Revolut. Let's go back to the basics for a second. I've partnered with Revolut, a finance app in the United States and the UK that say they're the simplest way to access crypto. They are putting their money where their mouth is. You can sign up and make three card transactions and get $15. Yep, that's right, $15. What can you do with $15? You can exchange for Bitcoin at any of the other tokens Revolut supports. Yep, they are crypto-enabled.

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Go check out Revolut at Revolut.com and let me know what you think Next up are my friends over at Remote When you use Remote, you can employ people in other countries legally and easily They take care of international payroll, employee benefits, tax headaches And all the paperwork for local compliance Forget about location and hire the best person for every open role using Remote. Remote's platform is easy to use for full-time employees, contractors, and your HR team. Whether you're a major corporation or a small startup,

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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. Hello, everyone. We'll wait a minute here as everyone gets in and get started. Will,

how you doing, man? Chilling. It's been a crazy week in Bitcoin, but hanging in there. Spent a lot of time staring at charts this week, a little more than usual, but doing well. How about yourself, man? I've got no complaints at all. Normally, we've got a pretty good setup, but I am traveling. I'm in New York City, so we're going to do it this way and stream it live. Hopefully, people like that. Let's just jump right into what happened. So obviously, you spent pretty much the entire week looking at the on-chain metrics, and it feels like there's some high-level takeaways. Maybe let's just start there. What at a high level happened this week when Bitcoin's price crashed?

Yeah, so if we just want to get the gist of the kind of TLDR of what happened, I think the major points are before we had this dump, we started to see exchange flows flip kind of bearish. Throughout the entire bull market, we've seen coins continually moving off exchanges. That's been a big narrative that has kind of been driving this cycle. But in the days before the dump, especially the day before the dump, we saw coins move on to exchanges at unprecedented levels for this bull market. In fact, like the day before the dump, we had the all-time high of coins moving on to Binance ever, like in the history of Glassnode's data recording the exchange flows. So, there is like a swath of coins that kind of moved on to exchanges, presumably to sell, right? I think, you know, a lot of times we assume that coins moving on to exchanges is only selling. It can also be things like, you know, people posting collateral or people, you know, on Binance depositing coins to use derivatives on Binance.

But a fair portion of that, it's safe to say, is being sold. So we saw, you know, those flows kind of switch around in the days before, especially the day before Wednesday on Tuesday. We started to see those coins come on exchanges. Another key takeaway is that coins that were sold were younger, which is a good thing because when you see, you know, at cycle tops, it's usually the long term holders that are kind of dumping over at the top and selling it to strength as retail kind of comes in. But what we saw were young coins, specifically whales. So it seemed like perhaps funds that had gotten in and call it the like 10 to 20K band, the coins that were sold were. And when you look at the age of them, that kind of lines up with where that where that kind of 10 to 20K band was. And then there were a fair amount that were sold, you know, that had been bought recently, probably, you know, around that $55K to $60,000 range.

But there were a fair amount that were sold at a loss, which we can get into. The big sudden price drop that we saw, especially that last big wick down to about, you know, whatever it was, $30K, got up to the high 20s on some exchanges. That was really driven by the liquidations, which we'll get into as well. But when you see that big drop, that big sudden drop, a lot of times what that is, is it's this cascade of liquidations, which is what happened Wednesday. A lot of leverage has been wiped out now. We'll get into that as well. But futures open interest is way down from where it was at the beginning of the week, which is a good thing in terms of the leverage doesn't have. The leverage traders don't have as much impact on the price as spot does, which is which is generally good to see.

I'm sure the leverage will come back. But for now, it's it's been wiped out. Like one way to look at it is the funding rates. But the funding rates have been negative since Wednesday. So it's showing that the traders are not looking to go long right now and funding is pretty much dead. and then the coins that the coins that are being sold now you know i think it's just going to take a while for for the coins to kind of uh sift into new hands that are that are not going to sell that process of kind of reaccumulation if you will is going to take a little bit of time for sure yeah and then what you said really kind of um in your analysis that uh to me was super interesting was this idea of the energy value and i know that this is part of the whole idea of like the bull

market still being intact but maybe explain a little bit uh about this energy value um and what exactly that is how it works and why it's important yeah so this was a um a model created by uh charles edwards he's famous for creating like the hash ribbons and then he's also created this energy value based on the hashing going into Bitcoin. To be honest, I don't know the exact calculation that goes into creating it, but it's based off of the energy input that's going into Bitcoin, which is correlated with the hash power going up. So it was interesting. We touched this energy value that Charles Edwards has created for the first time ever in a bull market. And so he posted something and he said, this is the, you know, the generational opportunity to buy Bitcoin, the best big opportunity to buy in a bull market because we touched this energy price that I think if he was saying if we had broken that, then he would have kind of flipped a little more bearish.

But the fact that we bounced off of that, he in his opinion, shows that we're still in this bull market. Got it. And then when you talk about the kind of age of coins and the funding rates, I think that we've covered that in past videos. So I don't want to spend a ton of time on that. Sure. But I do think that the liquidations, I think it was over $300 million in liquidations, happened within like 10 minutes. And that really drove that kind of deep price, you know, kind of drop. Talk a little bit about that.

Is that a big number or have we seen that before? Yeah. So, you know, what led to that was we saw 59,313 coins moved on to exchanges within four days. And then so that spot selling obviously starts to push the price down. And then traders all have stop losses set. So if I'm taking an entry into Bitcoin, I'm a trader at whatever, I'm just making up a number here, 50,000. I set my stop loss at 48,000. So that's basically a risk mechanism where um if bitcoin falls below that especially if i'm using leverage um i want to have a tight stop loss so that um if the trade goes against where i think it's going to go that i don't i don't uh lose a lot of a lot of my position um so what happens is when when spot

starts pushing the price down um especially below a kind of a key liquidation price that's recognized by the broader market, you start to get this cascade effect where a lot of traders stop losses or liquidation prices are hit, and then they have to sell, they're forced sellers, and then that cascades the price even further down. So, what we saw was, you know, we had that spot selling that was driving the price down, but as we were going down, the leveraged traders kept trying to step in and long every single time they thought it was the bottom, the whole way down. So, you know, obviously in previous videos, I've been talking about how I've been, you know, bullish and kind of describing this bullish setup, which, you know, I still think holds true in the mid

to longer term. Obviously, I kind of miscalculated the short-term price action a little bit. But, you know, I think it did become obvious, though, that we were going to keep going down once this began um because what happened was every time the price dropped down leverage traders stepped in and tried to go you know whatever trying to go 20x the bottom um and and they thought they were going to ride the thing the way the way up as they they're like okay this is the absolute bottom i'm gonna go super long leverage here it kept happening and so i was like we're gonna need some kind of big flush and then on wednesday morning we got that uh we got you know It was over $303 million of long liquidations within a 10-minute period.

And the market can't sustain that kind of selling, especially when it's very fragile like it was on Wednesday. So that was what caused that big, nasty wick that we saw down to $30K or whatever it was, $28K on some exchanges. Got it. And then in the letter that you wrote yesterday, you talked a lot about like the first real capitulations for the first time since March 2020. And you even talked about kind of SOPRA and a dipping below one. Maybe talk a little bit about those on-chain metrics and kind of why you think that was kind of true capitulation that we saw earlier this week. Yeah, so Glassnode has this metric called NUPL, which is called Net Unrealized Profit Loss. And so the way you kind of think of this is like when we get to the top of the bull market, people people stop taking profits because people think that things go into the moon and they're like, all right, I'm not going to sell because this thing it's done a thousand, you know, a thousand percent is going to do another thousand percent. And people get very complacent and stop taking profits.

And so this metric, NUPO, it kind of has these different zones where it kind of identifies the market behavior based off of whether people are taking profits or not. And so you have these different zones. There's capitulation, hope and fear, optimism, anxiety, belief, denial, and euphoria and greed. And so we got up near, and there's two, there's a longer term NUPL and then the shorter term NUPL. And the longer term one, we actually got near kind of at a euphoria agreed in call it, you know, mid February when we were really on a tear. when we went from like 30k to 40k in like a week or whatever it was 10 days um but now on the on the shorter term time frame um we're in kind of this deeper capitulation um that we that we kind of dove into on wednesday which meant that you know people were kind of panicking and then they're starting to um sell a lot more than they have at any more any other time in the in the bull market

And Soper is similar in the sense that Soper looks at, you know, the behavior of buyers and sellers on any given day. And it determines, OK, what is the average, the aggregate profit of the coins on those days? And so for the first time, like I've described Soper in some of the previous letters on very short time frames. but SOPR just running a like a broader seven-day moving average which is taking a little bit more of a zoomed out view for the broader bull market we actually dipped below that that SOPR level on Wednesday which was the first time we had dipped below SOPR on on a broader seven-day moving average since September I think you remember when we had that that fairly big crash was like 20, 25% towards, I think it was like mid, mid September, late September when we were

stuck kind of, you know, getting the bull run kicked off there. But it was the first time we had a solid breakthrough that, that loss threshold since, since then. So yeah, the market, the market's definitely underwater. When you also look at the realized cap, that's another way to kind of look at this. So we've talked about this before, the realized cap is the market capitalization based off of um i'm sorry it's the capitalization based off of when the coins move last so when when coins let's say you know someone bought at a hundred thousand and they never moved the coins well yeah those hundred thousand coins are worth whatever three point uh if they bought them at a dollar now they're worth 3.8 billion dollars right but the only 100 000 would be added

to RealizeCap because that was when the coins were moved last. And so we actually saw RealizeCap go down throughout the dip, which means the following. So if we had seen it go up, that would mean that the coins that we're selling were last moved at lower prices. But since we saw RealizeCap go down, it means that the coins that were being sold had last moved at higher prices. So, for example, if a coin was, you know, last moved at 64K and now the coin sold at 40,000, well, all of a sudden, $24,000 was removed from realized cap because the coin was last moved at 64K and then now it just moved at 40K. So, I think that that shows that the market was realizing losses um pretty heavily on on wednesday and it appears to be people that

had gotten in and um you know in the last week to month we saw a lot of selling coming from those those uh that cohort of coins probably people that had you know just kind of speculatively got in in the last month or so yeah and it feels like as we saw those young coins sell off We also saw some some movement in Wales as well. One of the things that you highlighted is the OTC desk outflows and why that spike. Maybe talk a little bit about that. Yeah. So, you know, for for high net worth individuals and institutions, they're not going through exchanges. A lot of them are going through OTC desks. And so, you know, when you see spikes in that, that kind of, to me at least, illustrates that those high net worth individuals and institutions are buying. And on Wednesday, we saw this huge spike in OTC outflows, which was a good sign.

You saw those institutions come in and buying the dip. You know, on a similar note, I think this is interesting to note. when we were kind of bouncing off the bottom of that 30k bottom it seemed like a lot of the buying was coming from the U.S. because Coinbase that that's the that's the exchange that the U.S. mainly goes through and then Binance is mainly Asia, BiffinX, OKEx those are more Asian Asian-based exchanges but throughout you know when we bounced up Coinbase was trading at like a $3,000 premium to the other exchanges, which means that whoever was on Coinbase was absolutely smashing the green button. And I think that goes to show that there's a lot of U.S. demand

around those levels. And so when you start to look at stablecoin flows, I think that's another thing that you highlighted in just the importance of kind of how much capital is flowing in the system either buying or ready to buy yeah so you know following the dip we saw a fair amount of tether um moved on to exchanges and the first hour after the dip we saw over 500 million dollars tether moved on to exchanges um and you know if you just look and zoom out at kind of the net flow day to day um you know after after the dip we've seen this big uh kind of if you will dense cluster of inflows of daily inflows the the biggest spike i think was around when elon musk bought it like the beginning of february the biggest single day spike but we're seeing continued inflows day after

day um since since that div so i think that that's interesting you know when you look at um stable coins a lot of times that can help you kind of get a gauge of yeah maybe that capital isn't buying right now but yeah it's sitting on the exchanges and it's kind of waiting to be deployed so i think stable coin flows are something you have to look at this cycle that weren't around and you know in 2017 obviously because they didn't exist back then um so it's kind of a a non-bitcoin blockchain metric that i think is important to take a look at got it and then one of the things that's the most fascinating to me is this whole idea that the bull market's still intact but there's a lot of data that suggests uh actually things were starting to heat up and and it felt

like okay we may be getting overheated now they're actually cooling off so things like reserve risk explain what that is and kind of why that's important yeah so reserve risk is not another one of those kind of uh broader cycle metrics that that you look at um to kind of identify either the bear zones where the market's kind of oversold and then as well these um these overheated zones so reserve risk is is the calculation for it is price divided by hodl bank so the way you could just think of this is that when price is low and confidence is high that's when that's when reserve risk is low. But when price is high and confidence from from holders is low, that's when reserve risk goes up. And so then at the end of the bull market, price is high and confidence is very low.

Price is very high. Confidence is very low. So you get these overheated zones usually over like point point zero two in terms of that. in the reserve risk ratio. But what we're seeing now is, you know, we got up to kind of call it halfway of where we've gotten in terms of overheatedness compared to the previous cycles. And then now we're just in this cooling off period, which shows that price is going down, but confidence from the longer term holders isn't moving or is actually going up. So I think this is a good way to kind of show that, yeah, the bull market is, you know, we're cooling off here, but it's not over because we didn't reach that overheated euphoric zone. And then what about MVRV? Yeah. So, MVRV is a very simple ratio of the market capitalization to the realized cap.

And so, it's another metric where, you know, you can identify these overheated zones. And then there's another kind of a subset off of this MVRVZ score, which basically adjusted for volatility and gives these very distinct overheated zones. Neither of those have we hit any kind of overheated mark in what I'm looking at. And, you know, we're cooling off a lot on both of those. What that shows is, you know, the market cap is going down and the realized cap has gone up i mean i'm trending looking this over a two to three month period since call it you know the end of end of january uh beginning of february and and this has been trending down since then so um you know that that's showing that we're just kind of in this cool off period

and once again we haven't hit um at least a historical overheated zone um so yeah i think that's uh that's just another metric you know there's there's like three or four of these and And I think the key takeaway here is like we haven't hit overheated zones on any of these yet we're cooling off. So if unless Bitcoin does something that it's never done before, the bull market isn't over based off of Bitcoin's historical action. Got it. And then maybe the last thing is just talk about the volume distribution and then we'll let everyone go. But I think the volume distribution is really interesting, kind of comparing where we are today versus historical bull markets. Yeah. So, you know, in each bull market, you see around like 2 to 3x the previous all-time high, this big base of capital kind of flow, and we see this big consolidation. And we started to see that, you know, call it around, let me say like mid-40s to call it 58k, especially between 54,000 to 58k.

You saw a lot of coins moving hands. Over 25% of supply has moved above the $40K threshold. And what you see at bull market tops is, you don't see a lot of distribution. So, you know, if you look in the newsletter, you see, I saw some comments that it looked the same. I mean, I suppose it looks the same in kind of the pattern of it, but the actual density, the percentage of supply moved at each of those levels is not even comparable, because especially in that, you know, in that $54,000 to $60,000 range, we have a lot of distribution there, meaning, you know, a lot of coins, a lot of people bought in at those levels, a lot of new capitals flown in between that $40,000 to $60,000 band. So, you know, at the top,

A lot of coins don't change hands, whereas now we're kind of seeing the opposite in the zone that we're in. So the signature of that in terms of the URPD, if this if that was the top, it would be kind of unprecedented as well. And also, you know. Two other things, you know, the stock to flow deflection. I think this is very interesting. You know, a lot of people are calling the stock to flow model dead, but it's had a bigger deflection than it has before this is like the third largest deflection it's had to the downside so that you know that's that's one interesting thing to keep in mind i think i i'm a general proponent of the stock to flow i don't follow it in terms of like the the exact price but in a general sense i think there is a correlation there between um you know the

supply and price so i think that'll be interesting to take a look at and also willie woo's um nvt price which um i think it's only been broken um for you know significant amount of time not just like one daily close um one or two other times i think once in 2017 and once in 2013 and we're very um undervalued relative to that ratio which is just like a very basic ratio of uh like the network the market cap um to the to the like the on-chain transactional volume and so you can kind of think that is like we're undervalued compared to the underlying investor activity that's going on in the blockchain. So I think that's another thing I'm going to be keeping an eye on because that model has served as a good pricing mechanism for Bitcoin throughout its history. So I think,

you know, if Bitcoin goes into a bear market from here, it would be pretty, I think a lot of these models that we're all using would kind of be invalidated, which, in my opinion, isn't going to happen because they've worked for all of Bitcoin's history. So it's something we're definitely going to have to keep an eye on over the next couple of weeks. But based off of the data and the historical action of these different indicators, I remain bullish. And I think we are still in that bull market. It's just going to take some time at this point for the coins that kind of panic sold over the last week or so to kind of uh find their way into uh strong hands but um yeah i would say you know kind of base case expect consolidation over the next couple weeks or

so i mean this is going to take some time now um i think this is this is we're still in consolidation but it's just gonna it's putting a damper on how long that we may break out of the consolidation It may be a while for, um, for that process to happen, but I, I, yeah, I still remain bullish. Awesome. This is a fantastic work, uh, for those that are listening live, uh, or watching, um, afterwards, I'm putting in the chat right now, Will's new email. Uh, he's doing a fantastic job. So please go subscribe to that. And then every Friday, he's going to be writing a guest post, uh, for the pomp letter. So make sure you're subscribed there. And then, uh, we're going to do these every saturday sometimes they'll be live sometimes they won't um but hopefully you guys are

all learning from this so will thank you so much for uh for taking the time to do this you're doing a great job and hopefully people are enjoying it thanks a lot pomp you know have a good weekend man and uh i'm looking forward to getting some bitcoin pizza you gotta get that out to raleigh i'm working on it