The Pomp Podcast - #620 The Bitcoin Supply Squeeze Thesis With Will Clemente

Starting point is 00:00:00 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 clicking on the link in the description. In this conversation, we discuss whales buying, new holders selling, minor accumulation, strong on-chain buy signals, and the convergence of fundamentals and price. I really enjoy these weekly conversations with Will, and I hope you do as well.

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Starting point is 00:02:56 Again, publicrec.com slash POMP and use code POMP at checkout for 10% off. All right, let's get into this episode with Will. I hope you guys 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.

Starting point is 00:03:25 This podcast is for informational purposes only. Will, what's up, man? How are you? I'm doing well, man. I'm getting ready to head back to school here in like two weeks, so I'm excited to get out of the house. let's start just with um this whole idea that on-chain metrics and price had diverged that seemed like the on-chain metrics were really strong but price kept falling uh over the last few weeks it now looks like we kind of are getting them to converge back uh and the on-chain metrics are being reflected in price how do you look at that yeah sure so you know for the most part um

Starting point is 00:03:59 you know market price follows what the uh underlying investor activity is is doing on chain uh but we do have these kind of more rare occurrences where price is doing one thing while on chain is doing another um and so like the most recent example of this i could think of before now um was in late january and then before that um in late september after we had this um big crash like 20 to 25 crash before we ran on that big run up to 60k from 10k but yeah you get these you get these rare occurrences where price is moving against on chain and the way i like think this is like the longer that that happens when that information finally gets priced into the market it's going to have a greater effect and so i think the fact that you've had such a large

Starting point is 00:04:46 divergence especially over you know such such a longer period of time um you know several more looking at almost like two months now that this has been going on um really two three weeks heavily uh but the fact that there's such a strong divergence between the two makes me think that once that information is finally priced in there's going to be a huge um effect on price so we've seen nine daily green candles uh what exactly does that mean like what should people take away from that yeah sure so um just like any market bitcoin um you know there's traders and traders use candles um and so for these candles you need to have this um you know a closing and opening for for a different time frame such as you know the daily hourly um if people even look at like minute

Starting point is 00:05:35 candles right like traders that are in there like on this really short time frames doing all that in and out you know day trading stuff um but you know bitcoin itself never closes so you know a lot of people get upset whenever you say oh bitcoin's closing what because people are like oh well Bitcoin never closes, but technically it does for trading purposes. It does. And so Bitcoin closes at I just know because I'm on Easter time. So it's 8 p.m. Eastern time. I think it's zero UTC. And so, yeah. So for candles, you know, you you open and then you close and then there's wicks. And so the wicks are where the price went above or below the close.

Starting point is 00:06:15 Um, and so you can, you know, there's traders that literally analyze these, these candles and, and so they need some kind of, um, open and closed threshold to be able to, to do those analyzations. Got it. And so you created this 365 day, like stock RSI, um, over a 30 day net change of illiquid supply. That is like an alphabet soup of things to say, explain what this metric is. And then, um, it looks like right now, uh, it's starting to show us some pretty interesting

Starting point is 00:06:44 things especially when you compare it to what it's uh shown us over the past yeah for sure um the name is definitely a mouthful like some of the stuff just sounds like really complex it's really not um what this basically is is a way to kind of track the the underlying um supply shock in the market because in my opinion that's that's what drives bitcoin up to have these big price rallies is um you know you have this wave of supply shock and then the speculators come in and ride that wave up and you know take the reins of it and and push it up further on the speculative premium um and so like when you go back and look at bitcoin's history i also threw in uh the newsletter we did this week an example from uh the you know 2017 2018 um you know that time frame um

Starting point is 00:07:30 and what you see is kind of you know at the beginning of the bull market um you know well i should i should start here you know in the bear market you had a capitulation event and then going into the bull market um you have the supplies uh supply shock i like to think of it as a supply squeeze kind of just because it sounds cooler but that's what really propels us into that main phase of the bull market and then on the back end of that um you see you know supply becomes liquid again um and so for anybody who's not familiar basically when i'm saying a liquid or liquid the way you can think of this is like um the the coins moving to like entities on the blockchain that have a very low or high um spending behavior so liquid and and glass that also has something

Starting point is 00:08:16 called highly liquid which is like a way to look at it even further um have like extremely high spending behaviors so these coins are in and out all day these are speculative traders right then you have liquid coins which are you know are in and out a fair amount and then you have illiquid and a liquid or the way i like to think of it as the strong hands right um these are the people that take in a lot of coins never really sell them these are the long-term investors that are kind of the the um you know concrete foundation of of of bitcoin so um you know kind of analyzing their behavior i think has a lot of signal to it and you know these are the these um indications that that you get from this metric aren't um you know you don't get them often but when they do come

Starting point is 00:08:59 they they have a very high reliability um and so what we have now is you know we had this big capitulation event in the end of may a bunch of coins became liquid um that were previously registered as strong hands and and so what you've had since then is just this really strong rate accumulation um and so like in this broader context a broader context we've actually reached um what i what i've used for this metric as a buy signal where we fully made the rounds from you know full capitulation below this rsi and now we're back above it so to me you know just seeing not only that that we're in a buy signal but um the rate of change from that cell from that capitulation to this new to this new buy signal that's just flashed is really is really um you

Starting point is 00:09:43 know quite incredible um going going back into the queen's history we haven't really seen anything like this aggressive per se like we absolutely you know obviously like i said you know we see these supply shocks every you know every bull run um but but nothing on on um on in the scale of in terms of momentum even even looking back to last year which was you know it's still still a really strong wave but yeah this has pretty much just been vertical accumulation since may and so when you look at things like exchange balances it looks like again uh people are buying bitcoin on the exchanges and they're just taking them off almost as fast as they possibly can is that accurate yeah um so the the exchange flows are are something that i think a lot of people are

Starting point is 00:10:27 familiar with now um you know the way that the premise here is that you know when coins are being moved on to exchanges um they're being sold um you know when they're being moved off exchanges they're going into some kind of like custodial service or cold storage not you know to be held and so this is something that you know a lot of analysts have been following for the for you know the early mid part of this bull run up until kind of mid-april um you know you just had coins just getting ripped off of the exchanges um and so you know in in mid april all of a sudden you had like you know between then and and uh in march i mean i'm sorry in uh may 19th you had like 145 000 coins that came out to exchanges and so you know that that was obviously highly bearish because

Starting point is 00:11:08 you had a lot of people moving those coins onto exchanges to be sold so that was like kind of an indication that you know we were going to need this kind of prolonged um reaccumulation phase because a lot of coins had been sold um but since then since since may 19th we've kind of just been um grinding sideways bearish um well i shouldn't say sideways bear sideways down which is actually bullish for this indicator because it's saying the exchange balances are going down um but this week we've got this really large down drop um and anybody who is on twitter by the way um might have seen yesterday that um there were these huge reported outflows and um i i left that data out this this data is only going up to thursday i left the i mean only up to wednesday i left the

Starting point is 00:11:50 thursday uh data out just because um some some of those transfers were internal it just hasn't been picked up by the last notes here at six yet so i just you know wanted to just be on the safe side and just leave that data out but um even even excluding that um which is showing like like a ridiculous you know uh signature on the chart that's why i just left it out because you know there's no way that that that's true it has to partially be internal um you know it we're still seeing really strong accumulation um in terms of the uh exchange flows as well got it and so when you look at this exchange flow bollinger bands right basically what you're doing is you're overlaying charts on top of each other and then they're telling you hey based on

Starting point is 00:12:28 the historical context when this happens it usually leads to prices going up or down and it literally flashes green or red uh this bollinger band explain what this is and then why is it flashing green right now yeah sure um so like traditionally people use bollinger bands just to kind of gauge um well a to track volatility and then also to see you know in a general sense when when prices are at the bottom of the bands um you know prices are low when when prices are at the top of the bands prices are high and then you can kind of build like this general premise to make other like trading decisions based off of that um but you know i i like i said you know i I think the exchange balances, the flows have some merit to them,

Starting point is 00:13:12 and I wanted to kind of figure out how I could kind of take it a step further. And so on Glassnode, you can run different technical indicators, which the Bollinger Bands are a technical indicator. And so, you know, playing around with them, I, you know, ran the Bollinger Bands over them. I found this interesting somewhat of a signal where you see when this breaks below the Bollinger Band, you know, what that's showing is like there's super aggressive outflows, you know,

Starting point is 00:13:37 that broke out of the band that it's been, you know, that it's been winding in. And so to me, you know, that that's a bullish signal because, you know, once again, you're seeing heavy accumulation, you're seeing heavy buying, people are moving coins off exchanges. And so like going back and looking at this chart, it's given some really good buy signals, you know, going back to like March, 2020.

Starting point is 00:13:56 And it's also given some, some pretty solid sell signals like, you know, in September before we had that big 20, 25% crash. And then also in late May, before we had the big capitulation. And the way I'm saying a sell signal is conversely to the metric going below the Bollinger Bands, it's when it goes above. So that's showing really strong inflows to exchanges, and that's presumed selling. So when we look at the net realized profit or loss, basically this idea of where people, if they were to sell today, they would make money or lose money. Talk about where we are on this, because it was negative for quite a while, but now it looks like we've gone into the positive again. Yeah, absolutely. So like a lot of the coins that had been trading in the range, and this kind of goes along with what we were saying about this whole reaccumulation phase, we're selling at a loss. So, as people who bought at higher prices were selling at lower prices. And so, to me, that was just evidence of the fact that it was younger market participants, newer market participants that were selling while you had these strong hands that were coming in and buying the coins and were offsetting the selling from those weak hands.

Starting point is 00:15:08 And it was just a matter of, you know, when that when that process completed. But, you know, it looks like now after trading in, you know, a long range of, you know, net losses being realized, we're actually starting to see net profit being realized, which is, you know, which is, of course, a positive thing because, you know, investors are in profit again. And so, you know, they're more likely not to, you know, capitulate. Right. So the other way to the other way to think about it is like you don't want, you know, as soon as we just start to have, you know, a bounce, you don't want to just see long term investors that have been holding off in this range just all of a sudden start dumping their coins, you know, just looking for some kind of exit liquidity. And so to me, like this is not alarming necessarily, but I just wanted to take it a step further. So, like, you had $2.4 billion of realized profit on Tuesday, but I wanted to see, you know, is that coming from people that had bought lower in the range, right? Or is it coming from, you know, longer-term investors that were just looking for some kind of dead cat bounce and exit liquidity to, you know, move out and, you know, they think that the market's bearish. And so, of course, you want to kind of follow what the smart money is doing.

Starting point is 00:16:19 And so just like looking into this a step further, looking at the average age of the coins being sold, you know, that's that's still just kind of sideways. And the overall trend of that is down. So, you know, still younger and younger coins overall being sold. Actually, on Tuesday, when we had that large event of realized profits, the average age of coins actually turned it down. So to me, this is showing that, you know, it's it it's people that bought in this range, maybe in the low 30s. Right. And so they're now kind of like pulling some chips off the table at the top of the range because we still are technically in this 30, 40K range. And then, you know, just to take it a step further, aside from just the average age of the coins, you can actually look at by by age cohort, you know, how much selling has come from the from those different ages. So like, you know, an hour, you can look at coins, you know, between seven and 10 years, between a year and two years, et cetera. And so looking at, you know, coins between one week and three months, you saw this huge spike in that as well on Wednesday.

Starting point is 00:17:16 So, you know, obviously in the last three months, pretty much we've been in this range, you know, between between the last week and three months. So to me, that's indicating as well that a lot of the selling on Tuesday was coming from people in the range once again. Sopra is something that we've talked about nonstop. Remind people what Sopra is and then what you're seeing there. yeah um sober is actually like very similar to that just like the way you you get to it is different um sober is the spent output profit ratio so it's basically looking at the profit of the coins that are trading on any unlike on any given day um and so what you want to see you know in a bull market is that you know obviously coins are going to be trading in profit and um whenever this slightly dips below one which you know below one coins are trading at a loss on an

Starting point is 00:18:01 aggregate right and that one that you know it's just flat it's completely neutral and like in a raging bull market this is a good way to look at you know the second it dips below one you know those are really good buy opportunities in you know in a raging bull market of course you need to look at other things to you know kind of build that premise that you're in a bull market because you know you might buy when it dips below one and you know it's not a raging bull market and you know it just keeps going further down so that's one way that like people i think traditionally use SOPR in bull markets. And then conversely, you can use it in the bear market when you know you're in a bear trend, you know, second that it goes above one. And, you know, if you use other

Starting point is 00:18:39 metrics that once again determine you are in this bearish market, then you can use that to, you know, as kind of sell signals instead of buy signals in a bull market. But anyway, so right now we've gone back above one. And what I would like to see here is us to either A, kind of like stabilize above one or B, you know, have some kind of price correction. You know, today we're down like 2%. I would like to see, you know, like some kind of like 5, 10% plus correction and for us to bounce off of one. And to me, that would be a really good sign, you know, that we have, that we're back in a bull market. Before I turn it over to my brothers real quick to ask you a couple of questions. What about miners? What are they doing? Are they in profit? Are they not? Are they

Starting point is 00:19:21 accumulating selling? Yeah, this is interesting because, you know, miners played a role in the capitulation event that we had down in late May. And, you know, probably part of the reason why we kind of chopped around in that range for a while and kind of was moving, you know, sideways bearish. But, you know, for almost two months now, miners have actually been accumulating. And, you know, part of that is due to, you know, we had this big drop in hash rate, and then you had this massive, like record difficulty adjustment and so now the miners that are still on the network are like extremely profitable um and so you know it you know it's just from you know first principles it makes absolute sense why you know you're seeing this really strong accumulation joe john what

Starting point is 00:20:02 questions you guys got well what's going on man uh big fan of your work i only open up his email the day that you write i appreciate it i got you uh i'm gonna go over there and smack that That was a pretty good one. It took me like 30 minutes to think of that. So no. So for people that don't look, don't necessarily have kind of background in financial markets, don't look at technical indicators, don't kind of look at any of these on-chain metrics, but they own Bitcoin. They see it as whether it's a store of value or just part of their long-term holdings or financial strategy. Should they be caring about on-chain metrics? Are there certain things that they should be looking at? Where do they start? Is it important, et cetera? Yeah, absolutely. You know,

Starting point is 00:20:46 I think there are some people that just don't care, right? Like there's people that are just, I'm going to DCA. I'm not, I don't care about any charts or anything. And then there's people are definitely out, you know, out and spoken on Twitter. But, you know, I think on-chain can be useful to, you know, just kind of have some directional awareness, right? Like, yeah, maybe you're not going to make a trading decision based off of it, but with some people just to, you know, like to enjoy, you know, knowing kind of where we are in terms of, you know, traditional market cycles or, you know, what's the behavior of the investors on, you know, just so they can be, you know, prepared and, you know, just aware of where, you know, kind of where

Starting point is 00:21:22 we are. And so, you know, I think for just people who are going to hodl and just, you know, they don't care about, you know, price fluctuations, I think there can still be some value for them there um in in terms of like how to how to go about like learning on chain i you know i think there's a couple good newsletters um of course like i'm going to show my own but glass node also does like an excellent newsletter um willie woo does one as well but his is 50 well i think it's 50 a month um but you know mine's free and glass node is also free so for people who are just like looking to just dip their toes in the water um i think those are two really good options and you know those go straight to your email as well so you know that's a good way to get started

Starting point is 00:22:04 also you know glass node on their website they have something called glass node academy and it's just at you know it's completely free it's just um basically like an introduction program to kind of get a you know good understanding of of kind of like the uh you know very entry-level metrics and things like that will thank you for doing this um i also enjoy your letter every day when you write it, I make sure to like it as well. Um, I am curious what you like, what you use to look at on-chain metrics, what services, um, are out there available, which ones do you like, which ones do not like, um, and like, is there anything people should basically be looking at or staying away from? Yeah, sure. Great question. Um, I, you know, I think, I think overall, um, you know,

Starting point is 00:22:45 it's, it's still a very, um, niche, like little, little segment of even Bitcoin, um, the whole on-chain analysis community so you know I think I think the on-chain community does a good job of kind of policing itself where people will call each other out for bad work and so like I don't think necessarily there's any any providers that I would say to stay away from you know I personally prefer Glassnode just because I think I think they have some really interesting data especially around entities I think there's a lot of signal in their entity data that is proprietary to them So I see merit in them for that reason. But, you know, there's other really good data providers out there, including Nick Carter's Coin Metrics,

Starting point is 00:23:27 which I think is probably one of the more popular ones, and then also CryptoQuant, which is based out of South Korea. So, you know, there's some other small and up-and-coming ones like ByteTree I know of. They're based out of England. And then also WhaleMap. They do some really interesting, unique data, you know, kind of tracking whale movements. and they've come up with some creative metrics there. So, yeah, you know, it's still a small, very niche thing. So, yeah, I think overall, like, it does a good job of kind of policing itself.

Starting point is 00:24:00 I appreciate that. Will, when you think about what people should do with the metrics, I know that you and I have talked about it before. Is this something that you think should just guide their overall view of kind of the macro environment of Bitcoin? Do you think it's something that they should be trading on? do you think that uh it's just kind of one data point it's the bible of data points how do you think about it yeah um you know the way i think about on-chain is it's best used to find broader

Starting point is 00:24:25 trends you know you can look at on-chain and like you can watch like the intra-daily exchange flows and you can drive yourself absolutely crazy doing that like you know i i think the real value is following like what's going on over multi you know multi-week basis multi-month basis you know where are we in terms of um you know a broader sense and kind of gain this kind of like directional awareness and you know in terms of um you know how is the kind of like underlying investor activity looking because on-chain is basically like x-ray vision of the market and you can see what all different kind of entities are doing by age you know by their size if they're exchanges if they're you know retail whatever um and so like i i think that's that's

Starting point is 00:25:08 the best way to use it is as kind of like this foundational premise in a broader sense um and like if i was going to make any trading you know decisions i would use it that way but i also think you know it should be used in confluence with other things you know i think um all good traders you know look for confluence across you know multiple different kinds of indicators so you can use things like technical analysis you know order flow analysis follow liquidity um you know whatever it may be but i i just see on chain even even if you don't um see it as like your primary way to analyze the market i still think it's a very strong um supplemental uh way to analyze things and at least kind of give you this like situational awareness as to you know okay yeah

Starting point is 00:25:51 we're you know seeing strong accumulation we're still not in you know bear territory um and so you know i think you know uh we're still in this underlying bull market even though price action is perhaps saying another thing or you can maybe you know use it to have that foundational premise and then use the technical analysis to get more of kind of like a accurate entry or you can use order book flow analysis to get like you know more solid entry um and so yeah i think it it's best used with other things right and looking for confluence amongst you know like as many things as possible if you get you get confluence amongst on-chain technical analysis and fundamental analysis and you know whatever you're looking at like order books and stuff you know that that to

Starting point is 00:26:33 me is like the ultimate buy you know and and this is what we had been tracking over the past month is like you had this confluence with volatility where volatility was really tightening up you know it looked like volatility was was getting ready for this massive move um and at the same time we have we've been tracking this you know quote-unquote supply squeeze um where we had more and more coins getting re-accumulated um you know by those strong hands from from the speculative trader so you know i think there was some there was some synergy in that right where you had these uh this confluence across across two different things and and um you know i think those those are the best opportunities will you're a legend where can we send people to find you on

Starting point is 00:27:14 twitter or subscribe to the email yeah sure uh thanks for having me on pump this is this is really fun and uh it was nice to meet your brothers as well um i'm on twitter at w clementi I, I, I, um, and then I had the newsletter that's free goes out every week. And then, you know, sometimes I'll send out an intra weekly one. If, you know, if I, if I see something like super interesting, um, but it's, it's WC three, I'm sorry, BTC, uh, by WC three at sub stack.com. Um, and it's also in my bio on my Twitter. So you can just click that. People, uh, people in the comments love you, which means that, uh, you're doing a great job. so keep it up uh i think that you're gonna end up passing uh joe and twitter followers by the

Starting point is 00:27:55 end of the year but that's just my thought process what's joe at uh 275 oh he sized you up he said what's joe at he's like do i got a chance i think you got a chance well what are you killing it i think i'm at uh like 155 or once he's at 156 so uh last year joe was at zero will what you you were at what at the beginning of the year uh all right like 2000 2000 to 155 in about six months joe you went from what at the beginning of the year zero to two seven no you didn't have zero at the beginning oh i'm talking about last year uh i don't know i'd have to check his growth is more will's growth will's growth will's uh hockey stick in it right now all right we're gonna see that like that's the big uh that's the big competition i want to see joe on a tear

Starting point is 00:28:46 lebron james retweeting them he's just but will man will's got the beast apex predator bitcoin community uh is a little more passionate than sports i think sometimes hey some would argue that bitcoin is uh better than new york yankees but uh that's all right well thanks for doing this man yeah no problem thanks so much guys appreciate you talk soon buddy

The Pomp Podcast - #620 The Bitcoin Supply Squeeze Thesis With Will Clemente

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