The Pomp Podcast - #758 Is Bitcoin Bullish Again? w/ 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 the lead insights analyst at BlockWare. In this conversation, we talk about Bitcoin, the market structure, on-chain analytics, and where we go from here. I really enjoyed this weekly conversation with Will, as always, and I hope you do as well. Before we get into this episode, I want to quickly talk about our sponsors. Today's episode is sponsored by NASDAQ-listed BTCS. They're the first US public company to secure many of the top layer one protocols. This quarter, BTCS just launched the beta version of a new digital asset analytics

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Starting point is 00:03:12 You go there, we created the curriculum in hand with many of the leading companies, HR teams within the industry, and we've helped people get jobs at everyone from BlockFi, Coinbase, Gemini, Kraken, Strike, Bitcoin Inc., and many, many others. Head over to pompscryptocourse.com, sign up today, and I'll see you in the next cohort starting in January. 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 00:03:54 This podcast is for informational purposes only. We got a whole bunch of stuff to talk about. Price went down, it went up, it went down, it went up, FOMC, etc. Maybe first, let's talk about your reaction to interest rates not moving yesterday. I know you were pretty bullish on it being a buy the news type event, which it seems to have been. Yeah, you know, I just think, you know, I texted you this in the last couple of days. I just thought that the market had been de-risking over the last couple of weeks. Right. And so whenever you have some kind of note event like this, you know, generally people, the framework I'm going to talk about,

Starting point is 00:04:28 people generally applied to like, uh, buy the, buy the rumors, sell the news, right. Where you have, you know, kind of the insiders getting in first information comes out, you know, the kind of works its way down the informational, you know, totem pole or human centipede of information. By the time it gets to the end, when the event comes, there's no new buyers because everyone's already buying in anticipation of this event. Right. And so, um, my kind of thesis over the last few days, and you know, this kind of why I texted you is like, what I, what I was thinking was kind of this reverse in the sense of, you know, you're selling the rumor,

Starting point is 00:05:01 buying the news because everyone's already de-risking. And then by the time you get to the event, right, that everyone's saying is going to be bearish because they've all risked off heading into it, who are going to be the sellers left? And I think that we kind of saw that yesterday where, you know, the Fed was slightly more, you know, hawkish than I kind of expected them to be. But, you know, I think, you know, the only, real sellers that would have stepped in yesterday are people that, you know, had been expecting the

Starting point is 00:05:29 Fed not to raise rates. And somehow that would affect their crypto, you know, thesis. And so, you know, yesterday, I wasn't really surprised to see that kind of be this by the, you know, by the news event, if you will. And so, yeah, I mean, I wasn't, you know, all too surprised at all by the reaction that we got, you know, as well. You know, leading up to that, we also saw a couple other kind of telltale signs but just from like a fundamental perspective you know i think um just you know doing some thinking as to like you know sometimes you just it's as simple as thinking like okay who are going to be the buyers or sellers for this event um and so conversely like you know the opposite of this would have been like you know the uh the the

Starting point is 00:06:11 coinbase you know which was you know the absolute and the coinbase ipo which was the absolute you know peak of top on april 14th so for some of these events um you know sometimes it's not entirely obvious. Sometimes you'll say, okay, I know there's going to be some kind of reaction, but not sure exactly where it's going to break. For example, I think Coinbase was a better example in that case, where it wasn't so clear, but once we started to see the market break a certain direction, then you would have then become cautious. But during this specific event, I think it was pretty clear that just thinking about who were the sellers going to be left, it's really hard to you know think that you know the majority of those who are going to

Starting point is 00:06:53 de-risk hadn't already done so all right one of the things that i saw that you pulled up we've got a couple of charts here uh that i think is absolutely fascinating is that even though the price has been drawing down we've got this uh purpose bitcoin etf uh it looks like people are still putting assets into this thing so what is this showing us right we're just looking at the holdings of uh the purpose bitcoin etf which is a spot etf in canada um and what we've seen over the last two weeks is their holdings have actually um and by the way you know i haven't done the newsletter this week. So I might mess up some numbers here because I'm not reading off my newsletter, but I think they've added about $240 million to BTC in the last two weeks during this

Starting point is 00:07:29 drawdown, which is anything that's going to significantly move the market, right? But at the same time, it's just more of a sign to see that there is still hunger from people looking to buy Bitcoin and likely institutional or kind of traditional investors that are going to buy through an ETF versus just, you know, take custody of their Bitcoin. So, um, you know, I just think that's a kind of a promising sign in terms of looking at, you know, like institutional flows, if you will. Um, you know, we, I think in total now they hold like one and a half billion dollars in BTC. Um, and you know, this is just, uh, something for Gary Gensler to look at and see, you know, there's definitely an appetite for, you know, spot Bitcoin ETF. Uh, all right.

Starting point is 00:08:10 Then when we start to look at the supply shock ratios, we've been talking about these for months and months and months and months now uh back in june and july a lot of people uh will remember that you explicitly highlighted this idea of a bullish divergence you've got it labeled on this chart here uh when you look at this is it happening again like how do you look at this and what is this telling us totally so um you know first of all just before we get into the specific chart you know the way i'm the way i'm looking at um and this kind of evolved is the way i see this is like on-chain is macro, right? So we have that kind of giving you the underlying

Starting point is 00:08:46 like broader current of the market. And then we can look at things like, you know, order books or derivatives data, which is extremely important on the shorter term timeframes. And then price action is kind of our confirmation of that. So with that being said, right now we have a bullish divergence

Starting point is 00:09:01 between the liquid supply shock ratio and price, which means that we're seeing supply moving to long-term investors or entities that have very low spending history, meaning they take in and hold at least three out of every four coins that they take in. And this is very different to what we saw over May, or in May, I should say. In May, you saw this decline as we kind of had this relief bounce, if you will. And at the time, if you had this metric, you definitely would have wanted to be cautious, right? Because you're seeing supply moving from entities that were previously

Starting point is 00:09:34 strong hands to now becoming weak hands. So supply moving from entities who take in and hold most of their coins that are now becoming those weak handed entities or liquid or highly liquid entities. And so there's a kind of a key difference between that and kind of the underlying structure of what's going on in the market right now. You don't have fundamental investors that are currently turning into weak hands. And this is also reflected in, and this is kind of a good segue to the chart I sent. It's net unrealized, I'm sorry, net realized profit loss. And so on kind of a similar note, what you'll see here is that currently investors are realizing profits. I mean, I'm sorry, realizing losses more than profits, which just means that you have supply

Starting point is 00:10:19 that was previously bought overhead is now being sold at these price levels. So people that essentially bought the top are now capitulating down here versus fundamental investors that bought in you know a long time ago that are now deciding that this is some kind of fair value for them to sell their btc um you have more so it's kind of capitulation from top buyers i mean that especially happened uh last week as you can see that big big spike down and we've kind of been progressively making you know higher lows than that meaning that uh the kind of the amount of uh realized losses is you know subsiding i mean you know meaning that the kind of capitulation is slowing And so that's kind of ties into the previous chart I looked at, meaning, and what I'm just

Starting point is 00:11:03 trying to say out of all of this is that the sellers that we've had recently, so initially we had this large drawdown, right? Because we had all these over-leveraged longs. And then, you know, recently we've just had people kind of capitulating and that's been getting absorbed by long-term investors. And we're just kind of in this range, right? For the past two weeks, we've just talked about, you know, last week I said I'm a crab market maximalist, right?

Starting point is 00:11:24 We're just, you know, we're just chilling in this range. uh and you know until until we have some kind of clear break in my opinion that's defined as you know getting above and holding 53k um or below 40k um for the bearish scenario um you know until we break either of those kind of uh you know you know invalidation points um you know i think we're still just ranging right and and so like it's really easy to get you know chopped up in these ranges you know i see like twitter sentiment it's like we get to the top of the range and everyone thinks we're going to the moon we get to the bottom and everyone's saying we're going to zero this is like the same thing that happened over summer right like every time we got down to like

Starting point is 00:12:00 30k everyone's oh my god you know 20k you know this is it or we're going to zero every time we got to the top of the range especially when they had like with that one move up to like 40k everyone got like insanely bullish um you know i think i think it's really important to just have these like kind of key uh you know invalidation points that kind of say okay yeah we're you know we've either you know broken to the upside or downside of the range um and to me that's that's 53k which we'll get into in a second, as well as 40K to the downside. I think you definitely don't want to lose 40K for the bulls. I've been cautious since we had all the derivatives piled up and especially after we broke below 53, because I said that was kind of like my uptrend kind of cut off for

Starting point is 00:12:46 Bitcoin. But definitely if we broke 40K, that would be pretty bearish. But to say that we've gotten back out of this range, which has been kind of caught between 42 and 52K, I'd be looking for a break and hold above 53, which we can talk about in a second as to a couple of different reasons why I think that's the case. Okay. Now let's talk about the future perpetual funding rate across all of the different exchanges. This is always fascinating to me, but I think you understand it way better than I do. So what is this showing us? right um so the the purpose based on i mean sorry the funding rate is based on the premium between the per price in the spot index price um and so essentially you're just looking at you know our

Starting point is 00:13:30 our uh you know perps more aggressive or um or spot or spot more aggressive um and so what we see is that whenever whenever we have some kind of major capitulation event or like liquidation event we generally kind of carve out this uh you know kind of regime is what i've kind of called it of mixed and mixed, uh, to negative funding, meaning that, you know, traders are essentially in disbelief. Um, so you saw this, um, after March, 2020, we were just in predominantly, uh, just straight up negative funding. Um, another good example would be, um, September of last year,

Starting point is 00:14:02 after September of last year, we kind of carved out this mixed regime of, of, uh, funding, you know, kind of leaning negative before that big October rally that we had, which is essentially a disbelief rally, um, going off of what funding was saying, because, you know, by seeing mixed funding is, you know, just that literally just means that, you know, traders are uncertain. Right. And then another example would be over the summer, we had mixed to leaning negative funding. And so, you know, seeing funding kind of flip negative as well as

Starting point is 00:14:31 just maintaining this kind of muted level, that's a good sign for the bulls. You know, that's kind of what our base case has been since this kind of initial liquidation event, you know, two weeks ago, we said what we want to see for the bulls is seeing this kind of range, meanwhile, or consolidation, whatever you want to call it, while kind of carving out this regime of mixed to negative funding. And that's kind of what we've seen over the last two weeks or so. We saw funding flip negative yesterday, leading into the kind of fancy news. So yeah, what I'm looking for funding is just to continue to just carve out this regime of mixed to negative as long as continue to range. All right. And then we've got the on-chain cost basis here, which I think is probably

Starting point is 00:15:15 driving some of your kind of price levels that you're talking about earlier. So explain what on-chain cost basis is and then why you're so fixated on the numbers that you're talking about with 53, 40, et cetera. Right. So we're just looking at the average price of which investors bought in on-chain for like technical traders. You know, what I would say is the way to think of this is like a VWAP, so volume weighted average price. And so this price level has been really important if we zoom out you'll see this is served as support for the you know 2017 bull market once we broke below you know we flipped bearish and then we kind of had these failed underside retests the whole way down into the bottom of the bear in 2018 once we got back

Starting point is 00:15:53 above this we you know came back off of the loaves in the bottom of the bear we broke below this about two weeks ago went below 53k and what i said was until we reclaim this i maintain you know kind of this cautious stance and i still do so um that sits right around 53k um that also aligns with kind of technical this kind of nice technical level uh as well as the one trillion dollar market cap threshold um and so you know this is this is why i keep saying 53k 53k i'm sure people are like tired of hearing that um you know that that's kind of where i'm getting that number from so you know once once we get back above that um i'll happily you know load on load on btc um and And just to be clear, I have a DCA that I'm regularly DCing into.

Starting point is 00:16:35 I also have a trading portfolio. So when I'm talking about this, I'm talking about my trading portfolio. If we get back above 53, I'd love to just happily pile back in. But until then, I kind of maintain caution in that sense. So I would look to either buy the 53K break, or I would look to kind of buy if we retest that, that wick down, you know, below call it, you know, between 42 to 45 K with invalidation at 40 K. Um, so those are kind of the two areas that I'm kind of looking to do business, if you will. Um, you know, but, but, you know, for the bulls, you, you want to see 53 K get reclaimed,

Starting point is 00:17:12 but in terms of like where I would buy, yeah, it would either be, you know, reclaiming that, that level or, you know, looking for some kind of, uh, you know, uh, you know, buy below, below this you know uh well you know if we swing the wick you know down to to 42 45k and then invalidation would be at 40k got it joe what question you got well what's going on man good to see you again um so my question would just be around like you personally how do you look at the the more high level macro stuff right so we got news yesterday they're signaling three rate hikes for 2022 how does this impact your view from the on-chain side being like a bitcoin analyst i think it you know it's definitely something you need to keep in mind but at the same time like

Starting point is 00:17:53 i'm not going to sit here and like pretend that i'm like this expert macro analyst right and so like i think it's it's almost difficult enough already to keep up with the bitcoin market let alone like predict you know what's going to go on with macro and so the way i kind of look at this is like if if investor behaviors change then you'll see that through price and on-chain data and so those are kind of the two like true tellers because you know obviously like macro included in this like there's a lot of variables right and so to kind of just like get you know the signal of all that information you know in in uh in a concise way you can look at what's the behavior of the investors on chain and and you know the the purest version of that

Starting point is 00:18:34 is just looking at what the price action is telling you because that's the aggregated opinion of all market participants about all information given right and so yeah i mean i don't really i don't really like like try to read too much into what's going on with the fed you know i have people much smarter than me that i listen to in that regard um but yeah i mean in terms of like what people or what the market thinks about it i just watch what happens you know with price and what happens in the on-chain data to kind of gauge what people are making of that because you know that's like literally telling you the reaction of people to all the information at hand so Yep. Gotcha, man. Thanks, John.

Starting point is 00:19:10 Will. So my question is, it's not funny. My question is around kind of the having cycles and where you think we are. So we obviously had a having in 2020. We're going to have another one on 2024, but we went up in, up in the spring, down in the summer, up in the fall. It looks like we're kind of consolidating what people consider a bull market. What are your thoughts around the having in like the price of Bitcoin right now? Yeah. I don't, I mean, I think there's a correlation, but I don't really think it matters to be honest. And the reasoning is because the having, well, A, like having the kind of the supply shock, if you will, that it has on the market is completely diminished from like the first one. So like, you know,

Starting point is 00:19:49 the first having in 2013, it was pretty significant given the issuance versus the amount of circulating supply. But at this point, the next having will pretty much just, you know, be irrelevant in terms of, you know, the magnitude of it. And then second of all, the other reason I'm of talking about like veering from these four-year cycles it's just the type of market participant that we have um you know i think i think uh these are much more sophisticated market participants um and not to say that we won't have you know 50 to 80 drawdowns uh i just i just kind of lean away from this very clean you know looking you know four-year logarithmic kind of we cup up you know have a parabolic blow off top come back down you know you know the just traditional whenever you

Starting point is 00:20:28 you look at like logarithmic regression charts for bitcoin i think i think uh too many people and this is like my pin tweet is like too many people have been trying to you know project the past onto the future rather than think like what does the future look like and so by no means am i saying that we're going to go up forever at all i mean obviously like i've been actually kind of like standing away from that um but you know when someone talks about like what is a super cycle right a super cycle would be you know kind of having these rounded tops and bottoms moving forward uh without any kind of major you know blow-off top so like my invalidation for my idea here would be if we do have a blow-off top like if we have a blow-off top i would i would very

Starting point is 00:21:10 much expect that we have some kind of you know prolonged bear market but until we have you know some kind of parabolic blow-off top i think we'll continue to kind of see these these rounded tops and bottoms moving forward and that's just a reflection of the type of like market position that we have now. Is it fair to say the halving in 2013 wasn't almost priced in because it was so significant on the amount of Bitcoin that got cut in half and then people are starting to realize that it is a little bit or no? Yeah. Yeah. I mean, I think that's the case back in 2013. But by now, you know, if anything, it's just like a psychological thing that people say like, oh yeah, well, whenever this happens, this happens, right? Rather than like the amount

Starting point is 00:21:50 supply getting cut in half actually having like a material effect on you know the supply demand dynamics in the market um with that being said though i don't think that means that you know as soon as the having happens people say like oh well every time there's a having price goes up you know if if if you think that's the case then it just gets front ran right like you know the type of investors we have now in the market are really smart so you know they're just going to say oh well if this happens every time that there's a having then we'll just front run that So, you know, I don't really I'm not like paying too much attention to the hatting moving forward. I just think we're kind of not saying like, oh, this time is different per se.

Starting point is 00:22:28 I just think like we have a different type of market participant. And so the market structure is going to change and it won't just be a repetitive, you know, four year cycle. I just think kind of that's like intellectually lazy. And I think like that's just, you know, it would be very nice for crypto natives because then they could just, you know, buy in the bear and then just sell off in the bowl and then just chill until the next you know bull market you know i i just don't think that's that's really gonna how that's gonna be how it goes you know i think also like talking to some people who are um you know obviously i'm a kid so like i'm i don't talk to like a bunch of institutions but talking to people who do um you know like i i don't think you're gonna see like capital you know coming into the space slow down and also you know it takes time so like over the last year or so if you had you know

Starting point is 00:23:11 different institutions that are looking to allocate, you know, it takes them, you know, sometimes like a year plus or two years plus to, you know, be able to, to, you know, get to the point of making the decision that they want to start allocating to being able to actually allocate, especially for some of these like public companies or like big, you know, like bureaucratic institutions. So, you know, I, I just think like over time you're going to see the market structure change in

Starting point is 00:23:33 my base case for what that will look like. It's just that we have these rounded tops and bottoms. And then the invalidation for that is if we do see some kind of like paramount blow off top gotcha well before we let you go i know that you know that you're young but you're one of the most informed hardest working hungriest people in this entire industry and rather than you thinking about it from the sense of hey i don't talk to that many institutions you should think about they should have to pay me a hundred thousand dollars an hour to talk to me because i got the goods that they need right that's why you ain't talking to them because

Starting point is 00:24:05 They can't afford you. That's why. True. Facts. Facts. Thanks, Paul. All right, man. Listen, where are we on the follower count?

Starting point is 00:24:15 How is that going? I think we're coming in here close. 470. Getting close to 500, yeah. I told you, boys. Everyone watching the show, go follow Will on Twitter right now. 26,000 more followers to go, and we got 14 days. will that's less than 2000 a day if my public math is right you could do this man come on

Starting point is 00:24:39 will do you think uh this is kind of a random question but do you think that most of these financial institutions whether it's uh you know hedge funds private equity funds you know people that are more focused on public equities or whatever do you think that they'll have on-chain analytics experts like hire them in the future yeah like okay so the way i think of on-chain is like right now we're looking at uh kind of like these these like market signals or like investment signals right and we're trying to like make predictions of saying like what are the behaviors that you know market participants have partaken uh you know previously whenever the market's in a state of exuberance versus like this depressed state and then looking for these kind of rough

Starting point is 00:25:19 zones of saying like the mark bitcoin is you know under or overvalued and so where i think that kind of evolves over time is like if we're all right and bitcoin becomes you know the money of the world right and everything's valued in sats and we're you know the whole world is using bitcoin and dollars no longer exist or you know whatever kind of extreme of that concept that you stand with um you know bitcoin as it grows will the on-chain data will shift from being more like market related in terms of like trying to make investment decisions more so to like economic data in my opinion. So like, then it'll shift to, you know, we're looking at what's going on with, you know, on-chain investors. And of course, like all these metrics we have, like, it's still very

Starting point is 00:26:03 like early innings, you know, it's like, in my opinion, it's still like the, you know, third or fourth inning in terms of like, you know, the progression of on-chain data and where it's going to get to go. I think we may be in the first inning, right? Like I still think it's super early. You're more bullish to me, but yeah, like, uh, I think, uh, yeah, I think like over time, it'll definitely transition to, you're more so just going to be analyzing this economy that's built on Bitcoin, right. Versus, versus like trying to, trying to predict, you know, if, if the market's going to go up over the next couple of months or not. And so like, that's why that's, that's why I'm really in the space is like, yes, I think now you can kind of get an

Starting point is 00:26:40 edge in the market, especially pairing it with other things and not just looking solely at on-chain data but you know it helps you kind of build this more balanced view of everything going on in the market but over time i do think like on-chain analysts will almost become the like economists of this you know new bitcoin centric um you know economy that we're in so that's kind of like my my mental framework for you you're a legend my friend we appreciate you have fun tomorrow and we'll pick this up again uh next week we'll figure out some time around christmas thanks man yeah i'll be i'll be taking it easy in the mountains tomorrow so enjoy willie mountains all right see you buddy all right cheers guys

The Pomp Podcast - #758 Is Bitcoin Bullish Again? w/ Will Clemente

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