The Pomp Podcast - #769 Bitcoin Market Outlook 2022

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. Hey, guys. Today, I've got a really special episode for you. Normally, on Saturdays, we release a conversation with Will Clemente talking about Bitcoin, on-chain metrics, and market structure. Today, Will couldn't join me, so I went ahead and I looked at one of the Blockware reports. And what I did is I went through a number of the different charts and analysis they've included, but I highly suggest you go look at the entire report. I've been tweeting it out on their various Twitter accounts, so go check that out.

Starting point is 00:00:34 Also, at the end of this short episode, I go through a number of the themes that I'm looking for in 2022 as well. Things like regulation, brain drain, and many others. So make sure that you stay paying attention all the way to the end. I hope you enjoy this new episode, but before we get into it, let's first talk about our sponsors. Today's episode is sponsored by NASDAQ-listed btcs they're the first u.s 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 dashboard from across multiple exchanges the btcs data analytics dashboard lets you evaluate your entire portfolio's performance with plans to enable year-end reports and yield earning on

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Starting point is 00:03:36 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 00:04:14 This podcast is for informational purposes only. Hey guys, what's up? Every Saturday I sit down with Will Clemente from Blockware, but unfortunately he couldn't join us this week. So I thought what would be really interesting was to go through the recent Blockware 2021 update that they put out. It's a great, great, great piece of information, and I highly suggest you go and you read it. They went through everything from Q1 to Q2 to Q3 to Q4, and then also included a 2022 market outlook.

Starting point is 00:04:41 So I'm going to go through the charts that they included in that 2022 market outlook, and then I suggest that you go back and you read the rest of what they included in this report. So first, let's start with the actual price of Bitcoin. What we saw, obviously, throughout the year was that Bitcoin's price rose, and then it fell in the summer, and then it came flying back. and now we're sitting somewhere in the mid 40,000s. And so of course, there's a confirmation of the immediate term trend

Starting point is 00:05:06 and it's likely to play out early into the first quarter of 2022, according to Will and the team. And this is signified by Bitcoin either breaking out above 53,000 or below $42,000. And so ultimately, I think that is what we're watching for from a price standpoint, is are we gonna see over 53 or under 42?

Starting point is 00:05:25 But price is obviously not the only thing worth paying attention to in this market going into the new year. There's lots of other things, you can call them fundamentals, if you will, that you should be paying attention to. First, we've got a chart that looks at the Lightning Network itself.

Starting point is 00:05:38 This is the layer two built on top of Bitcoin. And what you can see is that the network capacity, according to the seven-day moving average, has been absolutely exploding throughout 2021. And so the expectation from BlockWare is that they expect to see continued growth of the Lightning Network and expand the monetary properties of Bitcoin

Starting point is 00:05:55 from being solely a store of value to being an effective medium of exchanges as well. The Lightning Network is a big, big piece of that. So I tend to agree with them that that is what we should expect to happen. We're obviously right now are sitting right around an all time high of the Lightning Network network capacity. And so ultimately, there's no reason in my opinion why that trend won't simply continue into the new year. If we then go ahead and we look, we've now have the balance on exchanges. There's across all exchanges on the crypto industry. What we see here is that Bitcoin was coming on to exchanges

Starting point is 00:06:26 all the way through 2017, 2018, 2019, and into 2020. But we got a peak in 2020 of the Bitcoin that was actually sitting on these centralized exchanges. And since about mid-2020, that balance has been going down over time. And so ultimately, according to what Blockware and Will see there, they're expecting to see continued depletion

Starting point is 00:06:49 of centralized Bitcoin exchange reserves as institutional market participants seek to take custody of their digital assets and increase growth of Bitcoin collateralized loans. So ultimately their thought process is that the number of Bitcoins sitting on these exchanges is going to go down over time. Some of that's because people want to take custody

Starting point is 00:07:07 of their assets. Some of it's also because they want to take it off the exchange and use it for loans. And some of it frankly may just be that people don't want to sell. And so leaving it on this exchange just has higher risk and they simply want to just hold onto it themselves. Whatever the reason, I tend to agree that yes,

Starting point is 00:07:21 the number of Bitcoin on the exchange is likely to go down over long periods of time, over six, 12, 18, 24 months. So keep an eye on this because ultimately people can't sell Bitcoin if it's not sitting on exchanges. If we then go and look, it's not just about spot Bitcoin though.

Starting point is 00:07:37 Obviously the interest in the derivatives market is really important. So we've got the options open interest here. And what we can see is that that seven day moving average throughout 2020 into the earliest parts of 2021, there was massive increase in the options open interest across all the exchanges. And throughout 2021, we've seen ups and downs of that open interest. And we've pretty much ended about right where we started, which is pretty interesting to see. According to the

Starting point is 00:08:05 team over at Blockware, what they've said is that with the institutionalization of the Bitcoin market, they expect to see substantial growth in the options market as active managers seek to hedge, harvest volatility and perform other more exotic options strategies that take advantage of the inefficiencies in the Bitcoin market. It's pretty damn cool to see that now Bitcoin is not just some asset for individuals on the internet or random strangers who are buying it. They're simply holding it. There is a true financial market around this. There's all kinds of different financial assets. There's all sorts of different opportunities that people can go ahead and leverage and options is a huge piece of that. So it will likely become more and more popular over

Starting point is 00:08:42 time. One of that's just a function of more people joining the market. Another is that there's actually more types of options available. And then lastly, is that some of the people who were into Bitcoin previously, but knew nothing about options are also going to become more educated on this type of investing as well. If we then go and we look at the actual Bitcoin issuance, it's the next thing in this report, they can see that, however, there is one thing for sure, regardless of what you think is going to happen to the lightning network, regardless of what you think is going to happen in terms of options, interest or spot market, the supply issuance won't change. And Bitcoin will keep pumping out blocks regularly every 10 minutes. And so

Starting point is 00:09:18 ultimately what this chart here is showing us is that that issuance in orange goes down and is very, very predictable. We know exactly 900 Bitcoin are going to come into the market every single day, day after day after day throughout 2022. And so what you can see is the relationship here to the price is something that you would continue to expect. Bitcoin's issuance goes down, price goes up. It's a finite asset. As demand increases for an asset that becomes scarcer and scarcer, the US dollar price has to move to accommodate everyone. And so what we've seen over the historical movements of both issuance and price, and that is what we should expect to continue to see going into 2022. And then ultimately, hash rate. Hash rate was one of the

Starting point is 00:09:58 big stories, I believe, of 2021. Obviously, in May of 2021, we saw China go ahead and ban mining in the country. They had about 60% of all Bitcoin mining within their borders at the time. And so hash rate dropped. In some cases, it looks like it dropped almost 50% or so, and then ultimately came roaring back to close out the year, hitting another all-time high. And so the team over at Blockware, Will and Friends, wrote, Bitcoin's hash rate will continue to grow throughout 2022 as more and more miners join the network. The top public miners alone are expected to bring on 56.5 ehs by the end of the year many large asic orders have already been purchased from bitmain and the new generation machines will continue to be delivered throughout

Starting point is 00:10:38 2022 as long as the price of bitcoin doesn't have a sharp crash these new machines will likely be pulling in revenue significantly higher than their operating expenses so i tend to agree as well that there will be more and more bitcoin miners joining the network hash rate will continue and i think that we will see multiple new all-time highs in hash rate throughout 2022. What's very interesting to me, and this is my personal opinion, not included in the report that they provided, is that the big story that we are watching, or some of the big stories, is one, is the bull market going to be longer than usual? Historically, bull markets in the Bitcoin ecosystem have been about 18 months after the last halving. But now what we've seen is we've now been about 18 months

Starting point is 00:11:17 since the last halving. And there's a lot of people who still think that the bull market is going to continue. If that occurs going into Q1 or Q2 of 2022, I think a lot of people will start to buy into the idea that the bull market is actually going to get longer and longer as we get more and more adoption. That would make sense. On top of that, there's another storyline around Bitcoin and the 10-year treasury yield. Obviously, people think that that treasury yield is inversely related to all sorts of risk assets. So you would expect as the interest rates or treasury yields go up, then all of a sudden tech stocks and other risk on assets would sell off. Inverse relationship. but there are a number of weeks in the month of december where the bitcoin price has been tracking

Starting point is 00:11:55 almost lockstep with the 10-year treasury yield and so if that was to continue into 2022 and we actually saw interest rates get moved up and the yields go up could bitcoin's price go up as well that in my opinion would be a narrative violation many people expect that bitcoin would sell off if interest rates rise but in some crazy way maybe that's not the case and so that's something to watch i don't know what the answer is but that's something that i'm watching going into the new year. A third theme that I'm thinking about going into the new year is that there is a brain drain on legacy Wall Street and Silicon Valley. There are tons and tons of talented people, both young and older, that are leaving their legacy jobs at corporations or startups and saying, I want to go

Starting point is 00:12:33 to the frontier. I want to go where the innovation is happening. I want to go where the experimentation is occurring. And they are leaving in droves to go into the Bitcoin and crypto market. And so that brain drain of both legacy tech and finance, I think, is only going to accelerate. some of those legacy corporations will get into the crypto industry and they'll start adopting some of these technologies and they will try to keep their talent that way but others are simply going to throw up their hands and say we can't pay these people enough we can't keep them here so we're just going to have to lose them but the brain drain will only accelerate going into the new year and then lastly the other thing that i'm paying attention to and i'm making sure that i'm

Starting point is 00:13:09 working on in terms of understanding what's happening is regulation obviously something like Bitcoin has gotten the seal of approval from the SEC, the CFTC, and other regulatory bodies around the world. It's not a security and it's being treated that way by both the market and also corporations that support it in various ways. But there's a lot of questions about other types of assets, about other types of smart contract platforms or other types of technology that's been built in the industry. What are regulators going to say about that? Are they legal? Are they not legal? Are they legal within certain variations to the existing rules? Do only the existing rules apply with no variations? How do you enforce the rules when it comes to things that have

Starting point is 00:13:45 decentralization? You can't actually put a smart contract in jail. You can't find it. In some cases, you can't even shut it down. What do you do to actually enforce the rules once you've decided on the rules? These are all big questions going into 2022 that I don't have the answers to. The regulators don't have the answers to. The multiple market participants don't have the answers to, and neither do the lawyers. Everyone is trying to figure it out in real time. That's part of the excitement, but it's also part of the sober view of making sure that you're paying attention to what regulation is happening in the industry. So ultimately 2021 was a great year. Bitcoin's up 65% or so for the year. And I think there's a lot of people who previously knew

Starting point is 00:14:22 nothing about Bitcoin or cryptocurrencies or other various assets in the industry. Now they're participating. Now they're buying and selling the assets. They're holding them. They're building technology. They're building companies and projects. And I think that the more smart people, the more capital we can get into the industry, the better. And so if 2021 was a great year, I expect 2022 to be an even better one because now we have the tailwinds. There's intellectual capital, there's financial capital, and ultimately at the frontier, that's where people dream. It's where people dream of building a better world. That's where people dream of actually changing the world. I think that's exactly what's happening in this industry.

Starting point is 00:14:55 So it's exciting. It's fun. I think 2022 is going to be the best one yet. So I'll see you guys in the new year. I hope that you guys enjoyed this little preview, both of what I think is going to happen but also will clemente the blockware team and their report i suggest you go and you go grab that read through what they saw happening in q1 q2 q3 and q4 of 2021 2022 is going to be a fun one and i can't wait to see you there

The Pomp Podcast - #769 Bitcoin Market Outlook 2022

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