The Pomp Podcast - #731 Weekly BTC On-Chain Update w/ Will Clemente

Episode Date: November 27, 2021

Will Clemente is the Lead Insights Analyst at Blockware. He has quickly become one of my favorite writers on all things bitcoin, including deep dives on various onchain analytics. In this conversation, we discuss the bitcoin fundamentals, on-chain metrics, what happened in the past week, and what the on-chain data is telling us to be prepared for moving forward. ======================= This Interview was part of our special 4.5 Hour Black Friday Bonanza on The Best Business Show. Go To My Youtube Channel to watch the full show with a massive guest list. Then go to thebestbusinessshow.com for our Black Friday Sale.. 21% Off In The Merch Store!

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 the lead insights analyst at Blockware. He has quickly become one of my favorite writers on all things Bitcoin, including deep dives on various on-chain analytics. In this conversation, we discuss the Bitcoin fundamentals, the on-chain metrics, what happened this past week, and what the on-chain data is telling us to be prepared for moving forward. I really hope that you enjoyed this conversation with Will, as I always do. All right, let's get 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. All right, let's run through this real quick. We've got a couple of charts we're going to pull up here. The first one is the on-chain cost basis. Explain to us what's going on with the on-chain cost basis. I don't think a lot of people know what this is. Yeah, so what we're looking at here is just the averaged cost basis or the average price that short-term holders have

bought in. Or another way to look at this for technical traders is this is an on-chain VWAP or volume weighted average price and so essentially this is kind of served as like this bull market support band if you will from an on-chain perspective yeah so if you see 2017 this is kind of served as support uh once we broke below that then you know we've we turned into kind of a you know we headed back into a bear market uh got rejected off of that you know had a failed underside retest of that like four times once we broke back below that kind of marked the end of the bear market. As you can see, this also served as support once we got back above after the March COVID capitulation in September of last year, served as support, broke below heading into May,

got back above it at the beginning of September, and then got confirmation at the end of September. But now we're kind of sitting right on that band that currently sits at 53K, which also aligns with technical support, as well as the kind of $1 trillion market cap threshold. And so the way I kind of see this is currently, you know, when you look at some of these broader on-chain dynamics that are saying we're still in the bull market, with that in mind, if you do think that's the case, then the asymmetry is pretty heavily skewed to the upside here because we're close to that, what has traditionally been kind of this bull market support band. And so the way I'm kind of looking at the market is in the first chart, you'll see some of the derivative stuff. I think in the short term, I definitely wouldn't rule out any kind of liquidation driven flush or wick down just because we haven't really seen any flush in open interest as well as funding.

And we haven't really seen any sizable amounts of liquidations, which usually kind of mark bottoms for Bitcoin. And so I wouldn't rule that out by any means, but as long as we're closing and keyword is closing above 53K, I don't see anything to be getting necessarily panicked about. I think we're right along that kind of bull market support band area currently. And based off of some of these other on-chain dynamics, I still do think we're in this broader kind of bull trend. And, you know, I think this this COVID variant news or whatever, obviously wasn't wasn't great for the Bitcoin market as well as legacy markets. But, you know, when I'm looking at kind of these these dynamics that we've we've been tracking, you know, that we're looking to play out over the coming months, et cetera, like I don't I don't see anything that's necessarily changed in those things. If they do, you know, I'll change my outlook. But on the shorter term timeframes, you know, right along that kind of bull market support band, as well as when we look at SOPR, we got a nice bounce off SOPR as well. I mean, the bear case, I would say, in the short term is just kind of from the derivative stuff in the sense that we haven't really seen a real flush out yet, which usually we do see kind of at these bottoms.

Got it. Okay. And then we've got the entity-adjusted SOPRA. It looks like it bounced pretty hard off of one there. Yeah, we've bounced off of one, as we talked about before. One is where kind of the profit and loss balance each other out that's being realized on every given day. So when you're above one, you're in a state of profit. When you're below, you're in a state of loss. So what you want to see in kind of these broader bullish trends is to come back down to that one threshold and retest it. We've been talking for about a month now about kind of how it had started to kind of roll over and we were suspecting that we'd probably come back down and get that retest, which we actually have gotten over the last couple of days. And so seeing that bounce is obviously a good sign. I think the kind of invalidation for me would be seeing SOPR go below one, as well as kind of having this failed underside retest if we were to go below it. In addition to starting to see a liquid supply rollover. And then as we just looked at the on-chain cost basis, going below that and also failing to break back above that. And that's what happened at the end of 2017.

We broke below, but then couldn't get back above. We got rejected off of that. Whereas after coming out of the summer, we did get back above. So, you know, looking for a couple of those things is kind of my invalidation, if you will. Um, but you know, aside with, with the shorter stuff, like shorter term stuff aside, um, none of the kind of macro cyclical behavior that, that, you know, we've been tracking has, has changed over the last couple of days. Um, and you know, if you're, I didn't throw any of that stuff in the newsletter this week,

just cause it was, it was a bit shorter, shorter than usual because Thanksgiving, I kind of threw it together this morning, but, um, you know, check out some of the stuff in that thread that I have pinned on my Twitter. And there's like 20, 22 different metrics that you can look at for that. The last chart I want to go over, and then I know that we've got to let you go, is the supply shock ratios. You've highlighted here with kind of the bullish divergence. Talk to us a little bit about what the supply shock ratio is showing us and then what these diversions mean. Yeah, this is a metric I created with Willie back over the summer.

You're essentially comparing the weak to strong hands. So you're looking at the liquid and highly liquid entities and running a ratio of those to the illiquid entities. And so what we see is whenever we have these kind of dislocations between the metric and price, it resolves in the direction of the metric. So if you see, you know, back in September of last year, we had this move up in price. Meanwhile, we had, you know, a drawdown in the ratio. So we had a bearish divergence where the oscillator is going one way, price is going the opposite. That resolved to the downside in price. And then conversely, after that, you know, we had a price drawdown as well as the ratio starting to tick up.

And then that resolved to the upside. I had a couple of these bull devs earlier this year in January. There was a pretty substantial one as well as a minor one in March heading into kind of this this, you know, mini bear over the over the summer. We had a pretty strong bear divergence between the oscillator as well as price because you started to see supply becoming liquid and kind of the weeks leading up to that drawdown. So the same thing at the end of 2017, you saw supply becoming liquid in the weeks before that drawdown. And so since then, saw a bullish divergence, which, Pomp, I remember very vividly us talking about on here. Over the summer, oscillator was grinding up. Meanwhile, price was grinding down. Another bull div at the end of September earlier this year when we came back and retested 40K, oscillator was grinding up, price was grinding down.

That resolved in the direction of the oscillator moving up. And just recently over the last couple of weeks, we have, again, a very strong bullish divergence between the oscillator. It's been ticking up pretty heavily. Meanwhile, price has been moving down pretty heavily. So I'm personally expecting that to resolve in the direction of the oscillator, given that it doesn't start to roll over, because that's just what's happened historically. As we've seen, and especially over the summer, we saw sometimes it can take several weeks to kind of resolve itself. But going back in Bitcoin's history, it's hard to kind of find a time where that hasn't really resolved in the direction of the oscillator. Got it. Real quick before you go, just general sentiment. You still feel pretty good, even though price is drawn down? Yeah, I mean, I think as long as we have these kind of clear kind of invalidation points that we talked about a couple of minutes ago, the broader sense, I think we see higher Bitcoin prices over the next couple of months. You know, I think whenever legacy markets have a substantial drawdown, you're going to see that in the Bitcoin market as well. And, you know, I do think there's a fair case to say that we probably have another kind of flush down given some of the derivative stuff we looked at. But, you know, when we talk about, you know, kind of the broader picture for, you know, more long-term holders, I don't think necessarily that we're heading into any kind of multi-year bear market given where the data stands now. You know, if data changes, I'll change my mind. You're the man.

Will the wizard. I appreciate you jumping on very quickly. I know that during the holidays, it's hard. Oh, look at, look at you getting a little golf clap from two geniuses over here. We got you, Will. Will, by the way,

Will's definitely going to hit 500,000 followers. He's been, what are you at, 430 now? Something like that, yeah. Yeah, bag it. Put it, I told you, book it. Book it. He's definitely hitting 500K before the end of the year.

Listen, I appreciate you so much doing this. Have a great rest of Thanksgiving weekend. Wait, I got one question real quick. Tell your family I said hi, go ahead. Will, who is a better host, me or him? I don't know, man. Joe gave you a good run for your money. Let's get it.

Appreciate you, Will. I appreciate that answer. Appreciate that answer. How much you Bitcoin you have to send him to? I ain't even sent him nothing for that answer. Appreciate you, Will. All right, Will, thank you, buddy. All right, guys, I got to jet.

You guys take it easy. Thanks for having me on.