The Pomp Podcast - #755 Bitcoin On-Chain Metrics and Leverage w/ Dylan LeClair

Episode Date: December 15, 2021

Dylan LeClair is the Senior Market Analyst at UTXO Management, a digital asset fund investing in the analog to digital transformation of money and the emergent financial system.    In this conversation, we discuss bitcoin, on-chain metrics, market structure, and what to expect from the rest of the bitcoin bull market.  ======================= My friends at Coin Cloud will give you $50 in FREE Bitcoin when you buy $200 or more at any of their 4,000+ machines. Use promo code POMP to get your free Bitcoin. For details or to find your nearest Coin Cloud machine, visit www.Coin.Cloud/Pomp Coin Cloud has been serving customers since 2014 and has established itself as the world's leading digital currency machine (DCM) operator. More than just a Bitcoin ATM, Coin Cloud machines make it easy to buy and sell Bitcoin and 30+ other digital assets with cash. To find your local ATM and get $50 in free Bitcoin, visit www.Coin.Cloud/Pomp ======================= With 10M+ users, Crypto.com is the easiest place to buy, and sell 100+ cryptocurrencies. The Crypto.com Visa Card gives you up to 8% back instantly, and 100% back on Spotify and Netflix. Also, Crypto.com lets you earn up to 8.5% p.a. on BTC, and 14% p.a. on stablecoins. Get $25 when you download the Crypto.com App with code "pomp". Download the App now: https://crypto.onelink.me/J9Lg/pomppodcast2021 ======================= Ethernity.io: The world’s first authenticated and licensed NFT platform, trusted by over 150,000 members. Digital NFTs and exclusive real-world unlockables, authentic partnerships with athletes and artists. Visit Ethernity.io, where you can buy and sell authenticated NFTs from top notable figures, rights, license, and IP holders you can’t find anywhere else; the start of an entire ecosystem bringing utility to #NFTs. =======================

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. Dylan LeClaire is the Senior Market Analyst at UTXO Management. He also writes a newsletter with Bitcoin Magazine. In this conversation, we talk about Bitcoin, on-chain metrics. We talk about Bitcoin's price, the market structure, and what to expect in the coming weeks. I really enjoyed this conversation with Dylan, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is Crypto.com. They're helping to mainstream the crypto industry, signing major global partnerships with multiple sports, including

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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. We got Dylan. We got Dylan LeClaire is coming on to talk about on-chain metrics and market structure. Dylan, you there? Yo, guys. What's up, man? How are you?

Living, man. Living. Fun times. All right. It's very, very, very fun times. Let's start first just with give me a sentiment check on Bitcoin, the market, macro, etc. Like, how are you feeling right now? Yeah, I don't think we've talked since Bitcoin nuked on the weekend. What was it, two weeks ago? That was fun. Got some liquidations, some volatile price action after some consolidation. I'm feeling good. I think a lot of a lot of people were expecting Bitcoin to go parabolic, including myself. I'm on the record for saying that. But I don't think the structure of, I guess, this bull market or what Bitcoin is going to do in the coming months and years has really changed at all. It's

just, you know, what Bitcoin does kind of takes the path of Max Payne. All right. Let's look backwards before we kind of look at where we are right now. Walk us through kind of your understanding of we absolutely busted through all time highs, went to $69,000. Nice. And then we've drawn down into the 40s uh what's driving a lot of that is that macro shock is that just pure liquidations market got too frothy too much derivative stuff like what's really driving that drawdown yeah i mean so a lot of it is that you know derivatives or you know traders speculators were we're out of position so um you have the underlying spot demand for bitcoin you have people like yourself like you know the listeners of this show um people going out and just buying bitcoin

on Cash App or Strike or Coinbase or whatever it is, and they're exchanging fiat for dollars. And then there's kind of speculators that can use Bitcoin, they can use other cryptos, they can use stable coins, and they can basically on margin or with leverage, bet on the price of Bitcoin to go up. And if you see too many people kind of off sides doing that at once, essentially, when the price broke 69,000 or briefly tapped it there, a lot of the market It was levering up. And so you kind of see even traders that are bullish on Bitcoin, whales with a lot of capital who are long-term extremely bullish on the asset will try to get those and successfully

did get those traders liquidated, make them forced sellers. And so that's kind of what a lot of this price action is recently. I think some of it has to do with a little bit of macro uncertainty. The Fed is starting to taper. I included some charts about, you know, Eurodollar futures and the Dixie, which we can talk about in a minute. But I think there is some sort of, you know, risk off sentiment in markets. We saw the VIX, which is the volatility index for the S&P spike right before that massive weekend liquidation a couple of weeks back, hit, I think, 35, which was the highest it had since January of this year.

So there was more of just a risk off element. You know, it wasn't just Bitcoin. But I think, you know, that's, that's getting priced in and has been getting priced in for the last week or two. All right. Let's talk about now we've got a Bitcoin realized price and currently the market cap sits at about 892 billion, which newsflash is below a trillion for those keeping track at home. But the realized cap is only 461 billion. Tell us kind of what you think this is showing us. Yeah. So I, I kind of color coordinated this chart over time and you can kind of see realized price it's like almost like a non-volatile bitcoin chart right it's it's not as as you know much of a boom and bust and more just kind of a steady uptrend with these these big re-evaluations

uh every you know highlighted in green and so so the green is is basically a bull market and that's when the realized price this orange uh line is is curving upwards going parabolic and so realized cap or realized price. Realized cap is basically the aggregate of every UTXO or every Bitcoin technically on the network when it was last moved. So that's kind of, I like to call this like almost not an intrinsic value, like maybe a subjective value of Bitcoin, the network. And we can see this with full transparency. And so basically realized cap or the realized price has been somewhat of a bear market floor. You've seen it cross under that a few times throughout history, and that's been generational buying opportunities. But I think realized cap,

realized price is like the most pure form of kind of quantifying the monetization process of Bitcoin. And so right now we're kind of in this consolidation phase where realized cap is appreciating to the tune of about 700 million since the bottom of the market in May or in June. And so we're still increasing, but we're not seeing the tens of billions, hundreds of billions of dollars of inflows into the market, which would need the price, which we'd need to see for the price to go parabolic. Okay. And then what about taking this exact same realized market capitalization, but doing the 14 day moving average? You've got these really fancy arrows that you drew on here. What is this showing us? Yeah, it's just the same charges zoomed in a

little bit. You can kind of see what's happening in a closer view. And so I put the 14 day moving average just to kind of smooth out some of the volatility. But what you see is the slope of that realized cap or that realized price increase is kind of showing these market phases. So So the reason that realized price or realized cap goes kind of vertical is two reasons. One, old coins are selling, but that's because of the first reason, which is there's so much capital, there's so much new money flooding into this market, flooding into this asset class. And so you get a combination of those two, you get basically a green bull market. You see this realized price appreciate by maybe an order of magnitude or two. And so we're not in that kind of green phase yet where we're seeing these massive capital inflows. But I think the catalyst is what's to come in potentially 2022 or later. And that's kind of the macro uncertainty and the macro situation that we're seeing play out in real time.

Okay, before we move on to the next chart, I want to go back to the zoomed out version, the first chart that we showed. And again, I'm not a genius, but I can read colors. And every time I see yellow, it's followed by green. I never see yellow, then red. Is that a rule? Is there any like a way to else to read into this? Or do you always get green after yellow? Yeah, I mean, historically, that's what we've seen. The red means essentially that there's on-chain losses, there's realized losses. So a coin's acquired in 2017 for 20K on-chain, and you can see this with full transparency in the Bitcoin UTXO set. Anybody can spin up a full node, download the entire history of the network and see this happening. And that coin later moves for, say, $3,000 in 2019. That's a realized loss. there was a $17,000 loss on chain. You can, if it was one Bitcoin, you know, this is just an example. And so when you see basically like, say at the top of the market in 2017 to the bottom of the bear market, the realized cap decreased by like one, the realized price decreased by like a thousand dollars. And so, so basically the whole time, that whole 80% drawdown, it was just coins transferring hands and a lot of top buyers were transferring those weak hands or transferring to strong convicted hodlers and so yeah i think i think you know the yellow is always followed by

the green because um i i labeled it accumulation slash pre-parabola um and that's just kind of what you see is that you know just steady increase that's that plateaus and you know a slight up trend that's that's kind of the you know mark of a of accumulation trend and then following accumulation that's usually when bitcoin goes parabolic but you know history rhymes but you know doesn't repeat let's see what happens all right let's get to our third chart here we've got the Bitcoin market value to realized value ratio. Explain what this is before you tell us what this chart showing is just for the people that forgot. Yeah, so I'm just basically taking the first couple of charts we showed and we're just running a ratio of that. So when realized

when the when the price goes far above the realized price, you can see basically like the past bubbles in the Bitcoin market, you see this ratio really overextend to the upside. And so that's kind of, you know, even if you're super bullish long term on Bitcoin, the lower this goes, the more attractive it is to buy on a relative basis. And so you kind of see at every top of the bull market, this ratio really overextends. The price has been up at the margin and not a lot of activity is happening on chain in the sense that not a lot of coins are moving. And so any new buyer has to come in and really has to push up this price on the margin. And then there's this massive kind of distribution and reaccumulation. And that's when this ratio kind of bottoms.

And so I'm not saying we're going to go to this below the green line, which means that price would go below the realized price, which is currently 25K. But that's kind of the ultimate floor. And we see that floor kind of rising every single day. You see these kind of re-evaluation bubbles happen with Bitcoin. It doesn't trade in linear fashion. And so the market value to realized value ratio, I think, is one of the best tools to kind of evaluate this process happening in real time. um and you know despite all the volatility essentially you're just seeing this this asset accrue value in real time with full transparency if bitcoin went to 25 000 i'd sell this table

this computer this microphone everything y'all ain't gonna hear from me i'll be backing up the truck i i hope that happens like likewise yeah we'll be doing uh videos off our phones and sitting on the floor together it'd be perfect uh all right you also uh have two charts here which i don't that we've covered before. The first one is December 2022 euro dollar futures. And I know most people don't know what this is. So explain what we're looking at here and why you think this is important. Yeah. So the euro dollar market or euro dollar futures, it's essentially the offshore dollar market. And what this is showing is essentially it's a futures market betting, essentially betting on the Fed funds rate, right? So this is December 2022. And a euro dollar market

at 100 would mean that the Fed funds rate is at zero, zero basis points. And so if the euro dollar futures market is at 99, what that's saying is that basically traders, the consensus right now in the market is that the Fed is going to hike three times in 2022 from 25 basis points to 100 basis points. And so this is something that I think, you know, even just 100 basis points, 1% Fed funds rate, it's pretty laughably low with inflation at 6%, 7%. But I think there is some cost for concern potentially with how risk assets such as equities and a lot of just really everything in the everything bubble is priced off these laughably negative real yields. And so if the Fed hikes three times, I think there potentially could be some sort of maybe risk

off event or some sort of volatility. And it's just one of the things that we're keeping an eye on heading into 2022. Okay. Then we've got the US dollar currency index, the DXY. Why is this important? Yeah. So it's kind of interrelated with the Fed fund rate, but everybody likes to talk about, including myself, about inflation in the US, CPI, maybe PPI, the producer's index coming in at 10% year over year. But what's really important in terms of the global financial system is the dollar relative to other fiat currencies, because, you know, us in the U.S., you know, domestically, we're worried about what things cost in dollar terms. And when that's rising, we're saying inflation is bad. But a lot of foreigners, you know, there's a lot of foreign

denominated or U.S. denominated debt out there held by foreigners. And so when the dollar is strengthening relative to their currencies, to their local currencies, whether it's the euro, the yen, the renminbi, and China, these foreigners have to sell dollar-denominated assets, and the denominator in Bitcoin is the dollar. And so say in March of 2020, what do you see the Dixie do? You see that super spike, and that's basically the reason every single asset on the planet sold off in a huge way. You can think of it as the dollar was getting bid in that scenario. And so the dollar strengthening throughout 2021 relative to other fiat is notable. And if this trend continues, you can kind of expect some downwards pressure on risk

assets, Bitcoin included. Got it. And then when you start to look at this next chart that we have here, this is the historical daily transfer volume. I have no clue what this means. So you're going to have to educate me along with everybody else. What is this showing us? Yeah. So these next two charts here are a little bit different than our kind of usual talk, but I've seen a lot of chatter recently, especially with Ethereum and Bitcoin and the ETH BTC chart kind of nearing breakout levels. And so we'll talk about that in a second. But what this is showing is the historical daily transfer volume of the Bitcoin network. And I apply just a two-week moving average to it. And then the orange line is what it's showing is what is the transfer volume. And

this is change adjusted transfer volume for those that are a little more technical. But disregard regard to that. But this is showing, the orange line is showing how much volume is being transferred on-chain for every $1 in fees. And so what we essentially see is over the last decade, from 2011, I just chose a date on the chart, to today, despite Bitcoin's daily transfer volume going from $100,000 to $50 billion, the settlement efficiency of the Bitcoin network has stayed the same. And so it's pretty remarkable to see that despite this thing being adopted by millions, tens of millions, hundreds of millions of people, and the on-chain transaction volume in dollar terms increasing by orders of magnitude, the settlement efficiency of

the network has actually, depending on where you're plotting it against, has actually increased. And so for anyone that's saying Bitcoin is inefficient or slow or can't scale, they're not looking at the data or they're uninformed. And so I think it's pretty remarkable when you, when you kind of dig into it. All right. And now the last one we have is you line up Bitcoin and ETH mean transfer volume per $1 in fees. Uh, what is this showing us? Yeah. So this is kind of what I was referring to a little bit earlier. Um, you know, there's a lot of, especially on crypto Twitter or people that are coming into the space. Um, they like to pit Bitcoin and ETH against each other. And I think, I think it's really just missing the point in that

they're two entirely separate things. Um, by far Bitcoin is a global monetary asset. It's political. It's a non-sovereign digital bearer asset that no one can manipulate, that no one can change. It's meant to do two things extremely well better than anything before, and that's store and transfer value across the internet in a digital native way, where Ethereum or other cryptocurrencies, as they're called, are smart contract platforms, or you can build dApps or DeFi protocols and all these sorts of other things. It's not competing with Bitcoin. And I I think the framing in general by most people, especially in the crypto space, you log on to Coinbase one and two Bitcoin and ETH and people say, what's better? What should I own? You know, is ETH going to flip in Bitcoin without really understanding that the two markets that they're competing for are completely different?

And, you know, despite maybe them competing for inflows because people download the Coinbase app, they're really just not competing. So what this is showing is essentially that, you know, I just in the previous chart, we showed Bitcoin's transfer volume per one dollar in fees and basically that settlement efficiency staying constant for the last decade with some volatility. And this chart is showing Bitcoin versus ETH in that regard. And so as Ethereum scales, as blockchains in general scale, with Ethereum doing NFTs, DeFi, DApps, ICOs, whatever the next thing that Ethereum or these smart contract platforms can do, it's in terms of it as a settlement network, a value settlement network. It's far inferior compared to Bitcoin. And so for every $1 fees, Ethereum, the base layer transfers $212 of value with Bitcoin at $67,000 of value. And so I just think the framing is wrong in general. I get a lot of questions.

I get a lot of DMs every day. What do you think about Ethereum? What do you think about Solana? What do you think about XYZ? And I think just in general, the total addressable market for apolitical non-sovereign money in the digital age is a few hundred trillion dollars. and the value of a smart contract platform or whether it's centralized, decentralized or somewhere in between

and you can have that debate all day. I think it's just different. And I think it's a lot less, but that's just a personal opinion. So I think in general, the framing is wrong. And I think this kind of data is pretty interesting to look at. Okay, so I got a couple more questions

and we're gonna take some questions from the audience and my brothers as well. First one is 90% of Bitcoin has now been mined. We talked about it earlier on the show. what's your thought process there? Is that an important milestone or, you know, it was 89.9% a couple of days ago. Now it's 90. It's a round number. It sounds nice, but it doesn't really change anything. Yeah. I mean, I think it's, it's just pretty remarkable when you think about, especially just in 2021, all of the, the, you know, announcements and all of the news of,

of new kind of capital flooding into the Bitcoin mining space. I don't know how many there are, I think 20 publicly traded miners in the United States. And you just, you see just these companies raising massive amounts of capital to invest to mine the last 10% of the Bitcoin supply over the next 100 years. And that supply issuance is, the curve is, you know, front loaded. So you're going to see 5% of that or around 5% of that Bitcoin mined in the next, you know, about four years or so. And so by 2030, I think it's around 99% or very close to it. But just in terms of how much capital, how much resources and how much energy is going to be dedicated to mining this last 10% of Bitcoin issued, it's pretty remarkable. And it makes me it makes me FOMO and buy some more

Bitcoin. All right. The other thing is that we just saw while we've been talking Lemonade, which is a publicly traded tech enabled insurance company. They've added Bitcoin to their balance sheet. It's a very small amount. It's around a million dollars or so. How do you think about public companies adding Bitcoin to their balance sheet? We've seen Michael Saylor continue to buy aggressively. Is this just a continuation of the trend or do you feel like there's been shift in sentiment among public executives? Yeah, I mean, I think there's still, you know, Michael Saylor is far ahead of the curve. And I think if you're watching this and are actively stacking Bitcoin, you are ahead of the curve as well. You know, these companies and these

corporations, these institutions, they move really slow. Michael Saylor has 75% of the voting rates at MicroStrategy. He can do what he wants. A lot of these companies, you know, like Twitter doesn't even have Bitcoin on the balance sheet and Jack is a CEO. So what does that say in terms of other kind of competing interests and just the information asymmetry. And so I think, you know, that trend is going to continue and it's going to pick up. But just in terms of allocating to Bitcoin from a corporate level, the accounting standards still are kind of unfavorable where if Bitcoin draws down, it's a loss on your earnings. Some of these things, they will change in the future. But I think that the trend where you see pensions, you see corporate treasurers,

you see insurance funds, just, you know, just a small allocation to begin with. They're allocating for years, decades into the future. And I think that's, that's just something we're going to see continue, but it'll take some time. All right, Joe, John, what questions do you have? And then we'll do audience questions. Hey, Dylan, I just want to know, like, just give us your general thoughts on kind of where we're headed for the next three, six, nine months, kind of seeing everything in the market structure, not necessarily price wise, but you're just what you're seeing kind of on chain and your overall feeling. Yeah, so I mean, I would really love, honestly, I think just some more consolidation as as maddening as it is for some that want to see

us go parabolic. I think just from kind of what we're seeing on chain from the derivative side of things where traders keep getting ahead of themselves, I think we're due for some for some choppiness. I think a lot of the speculators, it'd be it'd be great if they left the market. And I'm not not hoping anybody leaves or gets burned. But I think some some boredom would do us good. And I honestly think the next kind of bullish catalyst is, is you're going to see the Fed try to hike, they're going to try to taper their asset purchases. And just off of, you know, going off historical precedent over the last, you know, really 20 years, anytime the Fed has tried to pull back the stimulus, pull back the punch bowl, it blows up in their face. And I don't think

this time is different at all. And so I think that's really when you see Bitcoin just explode is when, you know, the taper, the rate hikes just blow up in their face. And that's when Bitcoin is going to get bid probably similar to March of 2020 when everything sells off and then Bitcoin recovers first and then outperforms everything. I would imagine that would repeat again. And so that's kind of my sentiment over the next really year or so. I mean, however long the timeline takes, I think Bitcoin is more of a macro asset than ever. And I think that's really bullish. Gotcha. Dylan, I've seen some charts recently about just like the general market of the S&P 500 in Bitcoin and the correlation with that. What do you think around Bitcoin being correlated

to other assets or in general to the overall market structure? Yeah, I mean, that's a great point. Bitcoin increasingly as it grows in market cap is just a function, I believe, of the liquidity of the kind of the everything bubble. You know, in traders terms, Bitcoin is just a high beta risk asset. And over the short to medium term timeframes, that is true, right? In March of 2020, when Bitcoin sold off really first, it almost front ran everything selling off. It bottomed before everything else. People said the Bitcoin experiment failed. It's not recession proof. It's not a hedge. It's not a diversification. And when in reality, Pop, I actually remember you having a great post about this. It was just a liquidity crunch. The

dollar got bid. And so I think that's what you're really seeing is that in the everything bubble, everything's going to go up. And then if credit contracts, everything goes down. And really the outperformers are kind of the reaction when they respond to the bust. And so I think that's unchanged and Bitcoin will draw down if equities go down 20%. And that's a good thing because they're going to have to reinflate everything just with the political incentives and everything else. And so over the short to medium term, volatility or correlations to other risk assets don't disprove the Bitcoin thesis that it's the best money the world has ever seen. It just reinforces how overextended, how far gone we are in this fiat credit everything bubble. Yeah, I think that what you're specifically referring to is in March of 2020, I literally wrote the piece and it was like explaining what liquidity crisis are. And I went back and I looked at the 2008-2009 global financial crisis. And I was like, hey, look, when people get scared, when there's uncertainty, when there's some sort of fear in the market, they end up selling their assets and they go for the dollar. They want security. and so like we're in a liquidity crisis don't be uh you know um kind of short-term thinker

understand what's happening uh prices may go down you know more but ultimately the liquidity crisis does get solved especially if the government steps in and then that day bitcoin fell 50 and i gotta say even though i you know uh conceptually understood what was happening uh it still doesn't feel good right you know you buy after like the 20 down but it goes down another 20 you're like okay cool like you know i'm a genius that goes down more like dude what is this going, you know, how low is this thing going? And, uh, is this maybe not a liquidity crisis, but are we watching it go to zero? Uh, and you know, obviously, uh, the, uh, what I call the fear buys ended up being a pretty good, but, uh, but it's crazy. You know, even when you know

that, uh, this is how liquidity crisis work, they still don't feel good for anyone, uh, who, who's living through it. Right. Yeah, exactly. I think that's, that's why it's also important to not, uh, be overexposed. I mean, you can, I'm, I think we're, we're all extremely bullish on Bitcoin, but even having, you know, 2x leverage on your Bitcoin position, right? Where if you're allocated to Bitcoin with 200% of your net worth is pretty dangerous, right? Because these events can occur, right? Bitcoin was on a Saturday night two weeks ago, it was down 20%, right? Like these things are going to happen again, whether it's natively in Bitcoin with the derivatives market or the macro uncertainty causes Bitcoin to completely unwind and it kind of cascades on

each other, right? So, you know, always having that pristine collateral, the Bitcoin that you're stacking, if that event occurs, then you can take advantage of that increasingly. So with, you know, the ability to collateralize your stack, get fiat liquidity, all these things, Bitcoin's increasing like financialization, it's actually an ad positive, but you never want to leave, you know, you never want to become a forced seller in one of these events. It's the worst thing you can do. And so I think that's just important to say. Correct. I'm going to take a couple of questions from the audience real quick. I'll just fire them at you. You go ahead and let me know what you think. So first one comes from YouTube user Luko, who says, Dylan, are people

selling for the tax year? I think that's probably something to do with it. Bitcoin, despite the recent pullback, despite the kind of mid-year bear market, would be down 30 something percent from the all-time high. I mean, it's still, it opened the year at 29,000, right? So there's still a lot of gains on the table. And so you're seeing, I think you're seeing that in equity markets, you're seeing that in Bitcoin, just if you're looking at, say, like S&P, the momentum has stalled. There's definitely some profit taking. And maybe there's some wash selling, right? With Bitcoin, if you buy it at 60K, then you can sell it at 40K and harvest that capital loss and rebuy right back, which you can't do with legacy. So I think that is occurring, but just kind of one of

the many factors in the market today. Okay. Vincent McKeever asks, do you believe there's any market manipulation by whales happening right now? No, I think the opposite, to be honest. I I think when people say market manipulation, they're actually mistaking it for a free market in the sense that Bitcoin has the UTXO set. There will only ever be 21 million. You can verify ownership on chain and any manipulation that is occurring is free market forces. If someone with 10,000 Bitcoin wants to market sell on BitMEX right now, they're completely open to do that. And that's a free market at work. Volatility is expressing itself in this asset class through derivatives or spot.

and that's just all free market forces. And so in a world where the Fed comes and saves the day every time the stock market falls 20%, people aren't used to this kind of wild volatility and no circuit breakers, no intervention, right? This is the wild, wild west. And I think that's the way it should be. So in terms of manipulation, no,

I think it's actually quite the opposite and it's a beautiful thing. All right, then we've got Lloyd Gonzalez ask any price correlation to days people get paid. Have you seen any analysis where there's either a heavier buying or any sort of price fluctuations when people actually get paid on like the first and the 15th? Uh, not that I've seen, I think, uh, in terms of if you're looking at just kind of, um, recent, uh, price correlations, I think, uh, the thing that

has merit is if you're looking at, uh, kind of session times. So I think over the last month or month or two, and this, this may be off, uh, but I saw a pretty good post about Bitcoin's performance during, uh, United States market hours during Asian market hours, and then, uh, kind of the time in between and and during asian market hours over the last month or two and we saw this in the summer as well uh bitcoin has underperformed pretty pretty good uh and versus when the u.s is a is like you know trading or open even though people are buying 24 7 right like i'm buying hourly on strike um but regardless i think um you know there is some merit to maybe uh different regions or different uh time zones uh selling selling off and and that's just something to see

uh you know play out over over different time spans it's interesting to look at Awesome. All right. We've got two people who asked pretty much the same question. So Estevan Torjic, I believe is how you pronounce it. And then Salim Al. They're basically asking about protracted cycles or do you believe in a lengthened kind of bull market cycle? And kind of that goes to the question of like, how do you expect maybe the next 90 days of the new year kind of Q1 to play out as well? Yeah. So I am a believer in the lengthening cycle thesis, if you want to call it that. I think in the early days, I mean, Bitcoin is always just driven by additional adoption of people understanding the monetary asset. But I think disproportionately, the halvings played a huge effect in the early days, just with the relative size of the new issuance being cut in half. Whereas now the inflation rate of Bitcoin annualized is about 1.8 percent, decreasing that to 0.9 percent in 2024 is significant. and in the sense that no one can control it and stop it from happening. But in terms of relative market impact, I think it's smaller than it was in the past. And so the lengthening cycle thesis, I think, has a lot of merit. And I think more so, you know, there's this kind of underlying adoption curve. If you want to look at, say, realized cap or realized price of that occurring, that's great.

But more so, I think, especially in the coming years, the Bitcoin adoption will be a result of kind of the macro environment and people being forced into an alternative, a viable alternative, you know, with something that can't be printed. Richard Stevens asks what your opinion on the stock to flow model is. And I'm assuming that the thought process is obviously in November. It seems that there was some sort of violation of kind of Plan B's opinion. Now, again, I think his view is that the stock to flow model isn't necessarily violated. But how do you look at stock to flow, the accuracy or efficacy of that?

And has anything changed there? Yeah, people, you know, people always have strong opinions on stock to flow. And I was always just of the opinion that it was a really cool way to kind of visualize absolute scarcity and supply and elasticity. You know, I, when the stock to flow model was released in, I believe the spring of 2019, I FOMO stacked very, very hard. So I'm grateful for plan B and, and it was kind of one of the things that made the supply and elasticity and the programmatic scarcity of Bitcoin click for me.

And I think it did it for a lot of people as well. And so, you know, is it invalid or valid or is it statistically significant or all these things that you can kind of look at? I mean, I don't know. And to be honest, I don't really care. I think, you know, plan B has opened a lot of people's eyes to Bitcoin and kind of this reality of the absolute scarcity of it. And so, you know, whether the model is valid or not, or is various, you know, stock to flow, cross asset model, all these different things. I think it's just, it's just, you know, all models are invalid. Some are useful, right? So none of this is, you know, true per se. It's just, you know, it's just a way to kind of think of things in different ways. And so I don't really know. I just, I think it's a cool way to kind of visualize it. All right. And then how do you think about lost coins or Satoshi's coins? Earlier, we were talking about Chainalysis has an estimation that 3.7 million Bitcoin are lost. There's estimations that Satoshi has, you know, 800,000 to a million Bitcoin. If that is true, and let's just use round numbers, there's somewhere between kind of four and a half to five million Bitcoin that are lost or held by Satoshi. That would be a big percentage of the total 21 million Bitcoin supply. Like, do you have any idea in terms of how accurate those numbers are? And also, do you have any thoughts in how that impacts kind of future price or supply demand economics?

Yeah, I think, I mean, for anybody that hasn't kind of dug through the Bitcoin talk forums and all that, there's some pretty early OG discussions about all this. And it's kind of fascinating to dig through it all. Satoshi actually was quoted saying lost coins are a donation to everybody to make the coins more valuable. And so Satoshi's coins or presumably Satoshi's coins, a million of them or something around there having never been moved, it's kind of an altruistic donation to everybody. And so it's kind of one of the things about Bitcoin that as you really fall down the rabbit hole, you kind of come to understand is that if I acquire this thing, whether it's through mining or through – if you acquire Bitcoin in any sort of way, it's proof of work. you're exchanging some sort of valuable uh good or service and someone else is paying you with

with bitcoin uh and if you never sell that if you never put it back on the market well it's it's increasing everyone else's relative purchasing power it's it's basically increasing everyone else's productivity um so it's a pretty interesting kind of thought experiment in the sense that you know say if michael saylor never sells bitcoin well you know everyone else in a way almost got a little bit richer uh and so i think i don't know i don't know how many coins satoshi has i don't know how many are lost. I think the 2 to 3 to 4 million ballpark is pretty accurate. But over time, I think, you know, more Bitcoin will be lost. And so, you know, your purchasing power will increase as a result. And so, you know, it's a pretty cool thing. All right. And then the last

question I have is, obviously, we've seen the El Salvador Bitcoin backed bond. And that seems to be a pretty interesting way for nation states to get more exposure to Bitcoin, but also to give certain types of investors who couldn't buy Bitcoin directly, some exposure as well. What's the implications of that or the impact on the market? And do you think that we'll see more of that happening at kind of the municipal or nation state level, you know, as we kind of continue here? Yeah, I think it's really, it's a really interesting model, especially for countries that can't print their own currency, right? El Salvador was that first nation that is dollarized, that doesn't have a central bank, that doesn't have their own currency.

And so it was like, all right, I'll just plug into this open monetary network and build around it. And so, you know, I kind of suspect other nations that are in a similar position will do the same. And in terms of the Bitcoin backed bonds, I mean, the entire kind of sovereign debt bubble, right, there's 100, 200, I think, you know, I would say around $400 trillion of assets, you know, really more so debt that are priced just, you know, basically completely backwards. it's you know real yields are negative everywhere so all of these contracts are guaranteed to lose money if fiat is debasing and and what we know about fiat is it has to do base and so you know a bitcoin back bond and giving kind of these capital allocators an alternative that you know potentially with a lot of upside is very very interesting uh and you know i don't know if if the bond has officially been subscribed to or not but uh it'll be interesting to see how it trades

and i think uh with with it kind of being on the liquid network we'll see this oh you know these Bitcoin-backed bonds trade on, say, a Bitfinex or an FTX, just like other kind of crypto assets would. So I think that's a pretty interesting kind of development as well. Got it. Joe, Joe, you guys got anything else? This is super valuable, Dylan. So thank you so much for taking the time to come on. Dylan, how do you think about drawbacks? Do you think that we're going to see another 80% drawback or something like that, whether we hit that top of the cycle yet or not? But do you think when it does come that we'll see that? Yeah, I mean, I think in terms of an 80% drawdown, what you really need is a blow off top. And we got that to an extent,

but not really. I think the summer almost was a bear market in itself. And so for an 80% drawdown, what you'd really need is some mega blow off top. And with Bitcoin at a trillion dollar asset class or 890 so billion, I think it's a lot harder to do compared to when Bitcoin was a $10 million or a billion-dollar asset class. And so for an 80% drawdown, three-year bear market, I think, I don't know, that's not my base case at all. I think we're kind of more so, say, like the rounded tops and rounded bottoms that we've seen in 2021.

I wouldn't be surprised at all to see that continue. And actually, that's somewhat of my base case. Bitcoin just kind of chugs along over the next one year, two years, however many years it takes until there is no more cycles and Bitcoin, you know, kind of melts away all the fiat, but I think we're still a little bit away from that. And so, you know, the, the 40, 50%, 60% drawdowns, but not so much a three-year cycle or three-year protracted bear. I think that's more so kind of my base case, but, you know, I've been wrong in the past, so we'll, we'll see, I guess. Gotcha. Quick follower update. He's

at 97.1 thousand followers from closing in on a hundred K just absolutely blowing by people. If you hit it on Christmas day That's legendary He's going to hit 100 in the next 2-3 days But can we still get to 150 You think That's tough Bob I wouldn't count it out

It depends what the price does I think we got a shot I lost my Check mark for wrong think For what For wrong think on Twitter Wait what happened uh i don't know i don't know wait you lost your blue check mark yeah the day jack left

no way jack left yeah oh get the hell out of here hey twitter folks i know you're watching listen give it back that's what we need give it back to him why'd you guys take that from him that wasn't yours to take that was his he earned that was there any explanation or no i know it just said i wasn't notable anymore they said bitcoin's price fell too much never mind they said oh you bitcoiners shut the hell up jack ain't here no more that's all all right man listen thank you so much for doing this i dropped uh your uh uh twitter uh link into the chat make sure you guys go follow him uh obviously they're gonna take his blue check mark the best way to get revenge is to let's get him to 150 000 followers by the end of the year uh but i appreciate all

the hard work you're doing i think people are learning a lot so uh for those that don't know dylan is going to be coming on every tuesday now moving forward so uh that's how we welcome people he's part of the union he's definitely not part of the union dylan do you want to know the fastest way to get uninvited to the show is join the union just so we're all clear here that's not true dylan it's a mandate i thought i already joined you already did and we told we uh we pay out in bitcoin we haven't sent you yours yet but now the union is paying out people i thought the union is supposed to collect the it's kind of like a ponzi scheme we collect money and we just pay it back money we take a fee to process the money that we send it back out yeah all right we gotta

go i appreciate you coming on man we'll do it again next time later buddy