The Pomp Podcast - #775 Fear In The Markets - What's Next For Bitcoin? w/ Will Clemente

Episode Date: January 8, 2022

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. ======================= Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience, Exodus has become one of the most popular and loved cryptocurrency apps. It’s supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset’s price history and your portfolio’s performance over time. And maybe the best part, Exodus is integrated with the Trezor hardware wallet - making advanced security easy for everyone. Visit exodus.com/pomp for your free download or search Exodus on the App Store or Playstore. ======================= The fastest way to double your Bitcoin is at MyBookie. Instead of taking an altcoin gamble, invest in your sports knowledge. Set yourself up for success by doubling your first Bitcoin deposit when using promo code POMP at MyBookie. Deposit with Bitcoin and double your initial deposit up to $1000. Crypto is the best way to play at MyBookie because there are no fees, faster payouts and bigger bonuses. Playing with crypto also gets you access to exclusive crypto contests – NFL Crypto Survivor, NCAA March Madness Crypto Bracket Contest and more! Click here to get started. MyBookie accepts; Bitcoin, Ethereum, Litecoin, Bitcoin Cash and Ripple. The deals don’t stop after your initial deposit. Take advantage of our industry leading Crypto Re-up bonus and receive a 15% cash bonus on all crypto deposits made AFTER your initial deposit! Bet anything, anywhere, anytime with MyBookie. =======================

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. This episode is brought to you by Exodus. Exodus is leading the world out of the traditional financial system by building beautiful and user-friendly blockchain products. With its focus on design and user experience,

Exodus has become one of the most popular and loved cryptocurrency apps. It's supported on both desktop and mobile, allowing you to sync your wallet across multiple devices so you can have access to your funds anywhere. You can instantly exchange around 100 different cryptocurrencies straight from your wallet. Interactive charts let you view an asset's price history and your portfolio's performance over time. And maybe the best part, Exodus is integrated with the new Trezor hardware wallet,

making advanced security easy for everyone. Visit exodus.com slash POMP for your free download or search Exodus on the App Store or the Play Store. Again, exodus.com slash POMP for a free download or search Exodus on the App Store or the Play Store. Go check them out. Exodus has become one of the most popular and love cryptocurrency apps for a reason. Today's episode is brought to you by MyBookie.

Instead of taking an altcoin gamble, invest in your sports knowledge. Set yourself up for success by doubling your first Bitcoin deposit when you use promo code POMP at MyBookie. You can deposit with Bitcoin and double your initial deposit up to $1,000. Crypto is the best way to play at MyBookie because there are no fees, there's faster payouts, and bigger bonuses. Playing with crypto also gets you access to exclusive crypto contests, NFL Crypto Survivor, NCAA March Madness Crypto Bracket Contest, and more. You can click on the link in the description to get started. MyBookie accepts Bitcoin, Ethereum, Litecoin, Bitcoin Cash, and Ripple. The deals don't stop after your initial deposit. Take advantage of our industry-leading crypto re-up bonus and receive a 15% cash bonus

on all crypto deposits made after your initial deposit. If you're into sports betting, you gotta to check out MyBookie. Bet on anything, anywhere, anytime with MyBookie. Go to MyBookie today and let me know what you think. 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 this podcast is for informational purposes only we got a bunch to talk about today man prices falling people freaking out but uh i see you staying steady on on twitter so maybe

let's just get a sentiment check before we uh before we jump into actual data uh how are you feeling in terms of what you're seeing people talking about you know publicly versus uh kind of how you once you synthesize all this different data we're about to talk about uh how do you feel Well, I personally try to remove the emotion from it, but I do feel like on Twitter or whatever, you've seen a lot of, you know, just general fear, like anxiety and panic in the market. And, you know, I think this kind of near-term price action has been provoking that for sure. But, you know, I'm trying to just look at this from an objective standpoint and, you know, just read whatever the data is telling me. So I don't really have any kind of like emotional reaction to, you know, what's going on. I try to just like ignore that.

Got it. All right. So when we get started here, the first thing that we've got is obviously the price. And a lot of that is being affected by the PERP futures dominance, all the PERP kind of interest in the market, etc. Before we jump into the actual data, explain exactly what's going on with these kind of futures and how that relates to price in general. What can happen in the futures market that makes price go up or go down as we look at this data? Sure. So anyone who follows me on Twitter has probably seen me posting consistently for the last two or three weeks about open interest and the buildup of open interest. And so what open interest is, is open interest is just telling you the amount of contracts that are open for perpetual swaps. And so the way to think of this is these PERP contracts are just essentially bets on Bitcoin's price.

There's a long side and a short side. And so open interest is just telling you how many of those contracts are open. And so it's kind of a way to gauge essentially how much pressure is building up in the PERP market, but it doesn't tell you the positioning of those contracts or the market participants on both sides of the bet. So I oftentimes get asked, like when I'll post open interest, can you post the long open interest or can you post the short open interest? and the answer is no and that's because there's a long and a short on both sides of every single contract so at all times the amount of longs and shorts is always 50 50 in the perp market there's never more longs than shorts or more shorts than longs what you're trying to do is you're trying to understand what is the risk that's held by both participants on both sides

of the contract so for example you could have like a retail dgen that's long on one side of the contract. Meanwhile, on the other side of the contract, on the short side, it's a market maker. And so market makers are generally delta neutral, which is just a fancy term for saying that they have no directional bias, right? So they essentially get paid a fee for providing liquidity to different exchanges. And so their job is to essentially just provide liquidity and allow people to get fills for their orders. And then they get paid a fee from the exchange for the amount of volume that they're, or liquidity that they're providing to that specific exchange. And so, you know, in that example I just used, right, you have the retail guy on one side and

he's just looking to, you know, access cheap leverage. On the other end, you have a market maker who has no, you know, directional bias because they're hedged. And that's, that's where the, you know, Delta neutral part comes in. They can hedge either if in this case, I'm saying they're short, right. You know, they could hedge by going long in the spot market and then they have no directional bias. And so, you know, that, you know, the risk profile of both participants there is completely different, right? The person taking the risk is the retail person on the long side in the example I just described. And so we can get into in a second, some of the things that you can look at to try to gauge the aggression and the risk that's held by the different market

participants that are making up the open interest, but open interest is solely telling you. And by the way, you can also look at the context of the open where, you know, where open interest is being opened, how it's interacting with price to also kind of get a gauge of that. But open interest in itself, just saying that there's high open interest doesn't mean that it's necessarily bullish or bearish in itself. It's just saying that, you know, you're building up a pressure Sure. And in my mind, that means that you can expect volatility, right? Because you have a large amount of leverage that's built up in the system. Okay. So when we look at this, you had a tweet on, what is this, the 4th of January.

And you basically were saying, if there's anything I feel confident about in the intermediate term, it's that volatility is coming to Bitcoin. And you then later followed it up with a second tweet that, or I'm sorry, there was a tweet before that where you basically, I don't know which direction it's going to go. So I think you were very much like, Hey, volatility is coming. We're just kind of trading sideways here. And that volatility could go up or down. I don't yet have an opinion on that. All I know is that that volatility is coming. So talk us through a little bit as to like, why were you so convinced that the volatility was coming, which ultimately was a kind of a downward move in the price, but what was telling you that that volatility was coming?

Yeah. So first of all, like some people are probably going to look like, you know, listen to this who are a bit you know less sophisticated and say well you're just saying you know price could go up or down like what good use is that you know first of all like i think you you know if you don't have an opinion you don't always need to have an opinion and so in this case um i didn't think that some of the clues from the positioning of the uh of the of the perps was that clear to me as to where you know this was going to kind of resolve um we could talk about what i think at this current state but at the you know at the time that i put this out um And the reasoning is because, like, for example, like the funding setup is just completely different from, for example, summer, where, you know, we were talking about a massive short squeeze because funding was, you know, in a prolonged regime of negative funding and was going further negative as price was grinding up off the lows.

At the time, you know, the positioning was pretty clear to me that, OK, this was shorts. You know, lately, just because we have just muted funding, I don't think it's been quite as clear. And so with that being said, it is useful when you're expecting volatility, but perhaps don't have some kind of directional bias because you can still make a play on that either through options or something called move contracts on FTX, which are essentially bets on volatility. That's why they're called move contracts. And so the reason I was just expecting this was, A, we had this massive buildup of open interest that hadn't gotten wiped out at all, especially when you compare open interest to market cap. So this is really important. This is the in the section of these four tweets, the one in the bottom right. This is looking at the amount of open interest in the PERT market relative to market cap. And why that's important is because you need to get a gauge of how much weight that open interest has relative to Bitcoin's market cap, right? Because you could have, you know, X amount of open interest, but if market cap is five times larger than what it is now, then it has a smaller overall impact on the market.

versus if the market cap was half the size it was, and we still had the same amount of open interest, then open interest would have double the effect on the market. So that ratio is a good gauge of how impactful or how influenced the market is going to be by the derivatives. And so in combination with that, the other three charts that I have are looking at implied volatility. And so this is the volatility that's getting priced into options. And so the market was pricing in really low volatility. We were at the lowest implied volatility since the end of summer. So it was just showing you like people were expecting, you know, really low volatility. Generally, consolidation leads to expansion. Expansion leads to volatility. And so like,

i'm sorry expansion leads to consolidation but um you know we've been in this kind of period of consolidation really tight range between 45 to 52 meanwhile we've had this massive build-up of leverage and the options market hasn't been pricing in that volatility so i was i was looking to take a bet on volatility i you know like full transparency i didn't execute on this um so that's you know like what what good is analysis if executed poorly right um so that's kind of a lesson learned from this for me in terms of I didn't actually execute on that. But yeah, those are some of the things that I was looking at and perhaps things that you can apply moving forward between the dynamics in the derivatives market as to when you can potentially

expect volatility. Okay. Now, after the volatility occurred and prices gone down, you began to share that you've personally been buying Bitcoin. You started to kind of enter into the market, which I'm assuming we can take that as you began to become at least short term bullish that we had fallen far enough to some degree. And I think a lot of that is this kind of massive macro support. Describe a little bit what you're talking about here with with these lines across the chart and why this specific point kind of flipped you to being a little bit more bullish. Sure. So, you know, it's interesting when you really zoom out, you know, throughout 2021, we pretty much just ranged between 30 and 60K. And so like, you know, when you kind of draw this out, we have, you know, the bottom end of the range is at 30K, top end of the range is at 60K, and kind of this midline is right around 40. And so, you know, last night I posted that I've started buying because we're down at this macro support level, which the reason why, you know, you always want to go long in two scenarios, either A, at some kind of major support, especially if you have, you know, a large cascade of liquidations in the Bitcoin market, or whenever some major resistance is then flipped into support, because then you're showing that the market has reclaimed strength. So since we broke below 53K, I've been saying that, you know, I've been cautious, right, until we reclaimed that. And what I've been saying is I would either look to buy A above 53, meaning that the market has regained strength, or buy in the low 40s.

And the reasoning is because I think that offers really clear invalidation. And so whenever, you know, whenever you're taking a position, you always want to have, you know, validation set for that idea and saying, you know, you want to speak rather than indefinite form and saying, you know, Bitcoin is going to do this. Right. You see a lot of people on Twitter saying like this is going to happen. That's a terrible framework to have it. You should always speak in if then format. So saying if this happens, right, then I believe this will happen. If this happens, then my thesis will change to this. And so in this case, what I've said is if 53 is reclaimed, I'd be looking to go long. You know, if we go down to the low 40s, I'd be looking to long. And then if we, you know, if we go below, that's my invalidation for that. And so that's why I've started buying some spot here, just because I think it offers a really clear invalidation point, as well as we're at this macro support level.

and so I don't really think there's any level quite as clear from kind of a risk reward standpoint or you know kind of a an invalid like a level that has as clear of invalidation as as 40k up until like the low 30s so that's that's why I've taken a position here as well as if you look at like the the chart below we're looking at the order books essentially just the heat map of the order books whenever I post this people are like how do I read this this looks like the matrix So I understand like, it looks like there's a lot going on. You're just looking at all the bids and asks that are active in the order book. And then you're just plotting them out over price, right?

So you have price, and then we have the lines above our asks, meaning, you know, someone saying, if price reaches this point, I'd be looking to sell, right? Or, and then conversely below we have bids, meaning someone, you know, someone saying, if price reaches this, that's what I deem fair value to start, you know, picking up some BTC. And so what you see is we have this massive bid side support on FTX, which is between like 39 to 41 call. And those orders have started to get filled. So I've seen some people being like, oh, those are spoof bids, meaning like those are bids that, you know, once the price starts going below or starts eating into those bids, they're just going to pull them.

But we have started to see those orders actually getting filled. This is the largest, you know, kind of bid side support that I've seen since the end of July. if you could see kind of in the bottom left, you'll see this cluster of bids that kind of set the floor at the end of July. So like that paired with what we just talked about from a price structure standpoint. And then lastly, just the fact that we have all this open interest. So like if you go to the next chart after the order book, after the heat map, in addition to that, we have this massive buildup of open interest like we talked about, but we've swept the lows now, and we still haven't seen that get wiped out. And so, you know, we saw a couple

hundred million dollars liquidations, but still, I mean, that's nothing compared to how much OI has been built up over the last month since that capitulation at the end of November. And so, to me, you know, when I said, you know, I don't think funding is giving a clear signal as to the positioning of, you know, whether it's long or short aggression, I think the other way you can at this as you can say you know how is the oi interacting with price right where where has the oi come in so generally speaking you know when you have oi coming in um you know as price is going down that's generally shorts when oi is coming in on a move up it's generally people you know taking leverage longs on the way up um you know it's a very general rule of thumb it's a bit more

nuanced than that but um you know looking at that context along with like how is it interacting with price meeting, like, you know, if we sweep some kind of major support level and we lose that, you would expect there to be more liquidations if the positioning was aggressive to one side, right? So, you know, I kept saying like 53 is my line in the sand. We swept right below that. We never got above 53. So, we still don't know if there are a bunch of licks that are up there or liquidity that's sitting up there to be swept and potentially, you know, cause some kind of like short squeeze up in that area. We don't know because we didn't sweep it, but we have now swept the lows and we've basically swept down to the bottom of the previous wick from the end of

November. And we are testing to see if there's liquidity there, right? We're seeing, is that open interest going to budge? And we have seen, you know, some decline in OI, but really, really nothing compared to, you know, what you would expect, right? If this was, you know, really aggressive longs, I would have expected to see a much larger, you know, capitulation event. And so those factors have caused me to look to start buying in. And that doesn't mean that, you know, I'm like all in, but I have started to scale in a position here and I haven't in a while because of those factors. It's like, you know, we're at this again, to kind of summarize, we're at this major macro support. We also have a major bid side from FTX. And also,

So, you know, it doesn't appear to me at least that the open interest that we've built up over the last month is aggressive longs because we didn't see more cascading licks. I was waiting really over the last day or so to really start taking a bit, you know, to size up a little bit in my buying because I was like, okay, well, let's see, you know, let's see if it still gets flushed. We've gone down to like 41 K, but you know, if, if, if this is all longs, I mean, you're talking like a flush down to the low thirties, if this is like really aggressive longs and we haven't, we haven't seen that. Um, and so, yeah, those are kind of the factors that have had me feeling the way that I, that I have been over the last call, you know, 12, 12, 16 hours or so. Um, you know, I, I do think that there's, there's a strong likelihood that if we came back and swept, that kind of 53K area, you could see a much larger wipe out of OI, which we just haven't

seen on this sweep to the downside. So yeah. I mean, first of all, it's a great analysis in terms of understanding exactly what the potentials are, and then also what we have validated and what is still kind of a question mark, right? I think which is a key piece to truly understanding this. You also have a chart, the Binance BTC USD PERP. What is this showing us on this specific chart? Yeah, so in the chart above the futures open interest leverage ratio is what I said was comparing the PERP open interest to the market cap of Bitcoin. This chart is just looking at Binance specifically, the stablecoin margin contracts. And so we've talked about the difference between the collateral being used for different, for perp contracts in the sense of like what's called the convexity, which is just a fancy term for saying like, if you are long with Bitcoin and the trade starts to go against you, not only is your P&L decreasing, but also the value of your collateral is decreasing. And so the likelihood of you, you know, being squeezed out of your position or like a long squeeze occurring if there's a large amount of those contracts built up is higher.

Right. So like the risk for downside potential is higher with stable coin margin contracts. It's the opposite, meaning that like if the trade if you're short with stable coin, you know, with with stable coin as your collateral, if the trade starts to go against you and you have Bitcoin, usually you have like this inadvertent hedge. So like, you know, your P&L is decreasing because you're short, obviously, but your Bitcoin as collateral is increasing in value because Bitcoin is increasing in value. So you kind of have this like inadvertent hedge, right? Versus if you're collateralized with stablecoins, you don't have that hedge. So you're more likely to be short squeezed. And so generally speaking, you know, it's more favorable for shorts to use stablecoins as collateral because think about it. If you're betting on the price going down, why would you collateralize the contract with something that you thought was going to go down?

right? It doesn't make any sense. And conversely, if you were long, you would want to collateralize yourself with Bitcoin, right? Because then your collateral is increasing in value in tandem with the trade that you're making in a bet that the price is going to go up. So you're basically betting that your collateral you're using is going to go up in value. And so this is something that we've seen as well. Going back over summer, we had a large buildup of stablecoin margin contracts, while at the same time, coin margin contracts or Bitcoin margin contracts um when i say coin i just mean general overall crypto because you can do like cross margin where you're you know you can like on ftx for example you can margin a bitcoin long with eth collateral

or with like dogecoin collateral right but um but generally it's mostly bitcoin but you know to to the like the correct way to say it's just like you know coin or crypto margined um you know whenever that's flat in stablecoin stablecoin um stablecoin oi is higher generally that's showing you that, you know, people aren't feeling at least super confident for more Bitcoin upside because of the dynamics we just spoke about. And this is something we saw, you know, over summer as well, and something that we've seen over the last month or so. Stablecoin margin contracts on Binance have been at all-time highs, actually, for the last, call it, two weeks or so. And as I mentioned, talking about kind of how I've kind of been surprised with the fact that we haven't

seen more liquidations and this is like when i posted i said um you know what is this a liquidation a liquidation cascade for ants that's what i was saying i was honestly surprised we didn't see more licks um you know you'll see like we've the red and the top right so like on the bottom half the on the bottom half of the chart that's showing you the stable coin market contracts and the top right you'll see like as prices decline like we've wiped out a tiny bit of oi right like it's but when you look at the amount that we've built up over the last month i mean it's like minuscule right and so um you know that i'm it's just it's just showing you the the another visualization of like the whole uh you know set of dynamics that i rambled on about

for the last 10 minutes okay no well first of all you're not rambling you're educating people second is with supply shock ratios next what's this showing sure so first of all like you know you'll notice that um everything that i've talked about so far and lately that i've been talking about on Twitter, like I haven't really been talking about on-chain much. And so the reason is because twofold, A, you know, I still do. And as I've said for a long time, I see on-chain as the macro of Bitcoin. So the kind of broader, you know, dynamics of what's going on in the market, and it's not going to give you any signal as to what's going on in the next couple of days, whatever. In addition to that, whenever open interest is built up so high, as we talked about

by looking at, for example, the open interest to market cap ratio, right? We're saying that the, by definition, we're saying that the derivatives, the derivatives market has a much higher impact on the overall Bitcoin market structure. Um, and so part of the reason why I've been focusing so much on the derivatives data is because of that, because while we have such a large buildup of OI, that's the most important data that you could be looking at. Um, you know, obviously like, you know, we've had a strong correlation to like risk off and like traditional finance and, um, you know, the fed talking about, they're going to raise rates maybe in like March or something like that. I mean, that's obviously all important. And I'm not saying that's important

at all. Or like, you know, the 10 year treasury is mooning. Like that, that stuff is all very important, but like, I'm not going to sit here and LARP to you and say that, like, I'm a macro economics expert. Right. I'm, I'm, I specialize in looking at Bitcoin stuff. So like, I'm not going to sit up here and start lecturing you on like, you know, macro economics and all that from like slowly a Bitcoin perspective, the most important data that I think you can be looking at right now is the derivatives data, or at least the most important data that you could have been looking at over the last month or so. And so with that preface from just an on-chain perspective, the supply dynamics that we've been talking about still do look healthy.

We have this massive bull div from an on-chain, solely on-chain perspective between, call it the end of November until now. You'll see the illiquid supply shock ratio has just been ticking up and up and up and up. Very similar to what we saw over summer where we had a bullish divergence. And very similar as well to what we saw at the end of September, where we, again, had a bullish divergence there. This one's actually larger than both of those. And so what that is showing you is that supply is moving to entities that have a low tendency to sell. So liquid entities are entities that take in and holds over 75% of the coins they take in. Or the other way to think about it is they only sell less than 25% of the coins they take in.

So generally speaking, these entities are the strong hands in the market from an on-chain perspective. And so we've seen supply continue to move to these entities. You've also seen a slowdown in spending from long-term holders. The net position change of long-term holders has actually flipped green over the last couple of days. Now, this is definitely important, but it's obviously not taking into account the other side of the equation, which is demand. And so what this is really telling you is that the way I like to analogize this is like the fuel, meaning the supply dynamics, the fuel is laid out for a major rally, right? Meaning that, excuse me, the float of Bitcoin is very low, right? The amount of available Bitcoin to be bought is very low, but that doesn't tell you about the demand.

And so this is why the liquid supply shock ratio is more impactful when it's declining than it's increasing. And I know that may seem a little strange, but what I mean by that is if you think about it from first principles, whenever this is declining, what it's showing you is that supply that was previously held by what were perceived to be strong hands, statistically speaking, they then became weak hands. And so you have supply that was previously locked up that's now coming onto the market. And so those are not forced sales, but those are sales onto the market, right? So that's having an immediate term impact on the market because those are market sales versus when you have supply that's slowly getting locked up. It's showing you that it's getting locked up, right? The float is getting dried up, but that's not necessarily telling you that the demand

is stepping in. And so what this is basically saying is like, if, you know, it was like, again, talking if then if then format, if if you start that seed demand step in because of where the liquid supply shock ratio is, you could see an aggressive rally to the upside, right? Because the float is so low, the available amount of Bitcoin to be bought is so low. But that doesn't necessarily mean that Bitcoin is going to rally in the next week or so just because supply is getting locked up because you're not accounting for that demand side. So that's that's the kind of like nuanced view of it there. And like, I don't I don't think this is the case, but this is like kind of the devil's advocate, just because my job as an analyst is always to present both sides to every, you know, to the argument. I think this is the smaller probability side of of the two. But the devil's advocate argument would be if all the supply is locked up, meaning people are most likely locking up supply, expecting higher Bitcoin prices. um you know if if you know you continue to not see upside right if we continue to just have this like slow grind down do you start to see some of these entities that have been locking up supply

in anticipation in anticipation of higher prices um you know do you start to see them get antsy and start to you know move out of their positions i you know it's it's obviously possible but you know by definition this metric is showing you the spending behavior so like statistically speaking these entities hold at least 75% of the coins that they take in. So that, you know, the odds of that are low because there's their literal statistic, you know, spending behavior is very low, but that's not to say that like, you know, that devil's advocate argument is like impossible to play out. It's just, I don't, I think it's on the very low spectrum because of, you know, we're actually looking at like, what is the likelihood that they will do that, which is

less than 25%. So. And the last chart that we have here is the on-chain cost basis. what about that yeah um so this is what like had me initially cautious is whenever we broke below this like if you look at this historically this is served as kind of support in the bull market as well as resistance in the bear uh so like especially once we break below and then confirm from the underside that's when you know that's when you can uh you know kind of have this bearish bias as well as you know whenever we break above and then confirm you know from the from the above So, you know, when we confirm this as support, that's when you can like really start to to, you know, have a more bullish bias in the market. Recently, we broke below. That's when I got cautious in that kind of red circle on the upper right hand side of the screen.

And recently, it does look like we had kind of this failed underside retest. So it's definitely something to keep in mind for, you know, as I talked about earlier, there's two there's two people, you know, there's two types of buyers in terms of trading. Obviously, there's people that DCA into Bitcoin every day. I do as well. I have a trading stack and a long-term holding stack. For traders, you know, you either want to buy support, right? Especially if we have in the Bitcoin market, you know, some kind of like cascading liquidation events, almost always a good idea to buy, you know, some kind of for-selling event, especially just expecting like some mean reversion. So you're either looking to buy support or you're looking to buy when previous high timeframe, meaning like, you know, broader,

um you know uh like kind of more more macro not just like you know talking about like hourly candles like broader time frame resistance flipping into support or or getting reclaimed and so that for for me from an on-chain perspective is the short-term holder cost basis so you know as i said i've started to scale in some buys not fully but i've started to scale in some buys here at this macro support level for all the reasons that we talked about earlier For the people that are a bit more conservative and may say, hey, I'm going to wait for the market to show me strength, you know, those type of buyers, I think this is a good level that you can look at to kind of get a proxy for once that momentum has been reclaimed.

In my mind, if we can reclaim the short-term holder cost basis, then we've kind of reclaimed momentum. So like my kind of mental framework is like, there's generally value buyers and momentum buyers in Bitcoin, right? Because there's no cash flows for Bitcoin and a way to value it. People coming into Bitcoin are either buying it because, you know, there's really strong momentum or because they think it's like extremely discounted. And for whatever reason, you know, the difficult part is identifying, you know, what is your definition of momentum? What is your definition of value?

And so to me, the low 40s feel like a nice value zone. But from a momentum perspective, you know, the 53K feels like that area where we would reclaim momentum. And so for, you know, people who are kind of like these like more high time frame swing traders, what I think is kind of the sweet spot is buying when we come out of a value zone and are then reclaiming momentum, if that makes sense. So you're coming out of an area of that's identified as value. And then you're now, you know, reclaiming what appears to you as high time frame momentum in the market. for me that would be that 53k level so like yeah for for those for those type of buyers that are looking to get back in the market once like high time frame resistance flipped into sport that's

that's kind of that area that i would personally be eyeing joe john what questions you guys got well what's going on man good to see you uh my question would just be around like the retail traders so there's obviously a large sum of people who are just uh dcaing into this they're they're more retail oriented they have a long time horizon they just believe in the asset in general right so watching this, uh, obviously some of them are probably getting nervous, right? Seeing the price decline and they don't really understand the fundamentals, but they know that they're going to be in it regardless. Maybe they go buy some more, whatever it is, but are there like one to two or a few charts or metrics they should be looking at your mind that are like the most

obvious, Hey, these are just things you should pay attention to outside of price that can make them a little more convicted or more worried on the other side of it. Sure. I mean, I think first of all, like the data is definitely supporting what you're saying. Um, you know, when you look at like the holdings of retail so this is like something i've seen a couple like analysts talk about and like um kind of as the the argument against what i'm about to say is that like retail is accumulating like retail is always accumulating when you look at on-chain like that really doesn't have much signal like the rate of accumulation you could you could argue that that does so like for what i mean by that is like retail accumulates more so their holdings

increase more in a bull market which makes total sense right because like number go tech number go up technology is like the biggest form of marketing for bitcoin but generally speaking like that chart goes up and to the right um so i don't really personally find that like super useful but i do think like retail exuberance has definitely subsided uh so this is like something i've talked about with like raoul paul and he's been seeing some similar stuff in the data he's looking at as well like one one big uh met like one big basket of metrics that i've been looking at is like the portion of volume that's being taken up by retail uh and so what we can see is like since since kind of april to may it's interesting like a lot of like peak transactional activity

actually happened on that dip down below um when we initially like i'm trying to think how to describe this like we moved down to like i think it was like 47k we came up to like 52 or 53 and And then we moved down to like 30, uh, in like the, in the middle of, of, of May, like on that dip to 47 before the major capitulation, like the last big dip before the major drawdown in summer, that's where you saw a lot of like the peak of transactional activity. Interesting enough. Like you would think it would be on like April 14th, like at the peak of top actually wasn't, um, that's where you saw all that kind of like retail exuberance, um, you know, kind

of, kind of peak out and like the percentage of volume that they've taken up kind of peak Yeah. And then since then, you've seen that decrease along with the amount of the amount of overall transactional volume that's consumed the market has been taken up by like much larger entities. So transactions that are like, you know, a million to ten million dollars or ten million dollars plus. So like I guess what I'm saying is like the kind of the big boys are running the show in that sense now. And a lot of the retail exuberance has kind of been wiped out. people that just come in for the number go up technology when it's only going up and have no conviction at all. So like, that definitely is true.

For the people that maybe are getting shaky. I mean, I would just say like, you know, you need to listen to more podcasts or like read the Bitcoin standard and maybe you also need to reduce your position sizing. Like if, if your position sizing is keeping you up late at night, then maybe you need to cut some of that. Like you should be, you know, you should have enough Bitcoin and your, your, your educational level is definitely gonna definitely gonna you know aid how how comfortable

this allocation is but you know you could go all the way from the spectrum of being like ray dalio right who has like a two percent allocation which is essentially just like a hedge against the fiat system all the way up to someone like the hardcore bitcoin guys who are maybe like 90 90 95 bitcoin pomp i don't know if you're still up in that allocation i know you were at one point but um yeah like you know it it depends on that so like i would say you know there are some like on-chain data points you can look at like hash rate or like user growth over time going up into the right and like obviously that's like insanely bullish for long-term network growth or like the lightning network growing and that being like the second layer being built on top of bitcoin to help

it transition to a medium of exchange but really i think it just comes down to like education educating yourself on like what bitcoin is like if you're questioning yourself because of a price drawdown do you really like fundamentally understand like what's going on with bitcoin Like, you know, this is like one of the most volatile assets in the world. It draws down, you know, 50 to 80 percent pretty regularly throughout its history. Like, have the fundamentals changed for Bitcoin? No, it's just, you know, the price has changed. And so, like, you know, those are the times when ideally you want to be like if you're just like a dollar cost, you know, averaging long term investor.

Those are the times when you probably want to start like averaging in more once it's, you know, kind of below like historically, you know, where you kind of deem, you know, fair value for Bitcoin. For the people that like are losing conviction, I would just say like educate yourself more, whether that's like reading books like the Bitcoin Standard or like, you know, some of these other like articles that are out on like the Bullish Case for Bitcoin by Vijay. And, you know, and in general, just like podcasts, I think the best content, there's like a whole side conversation, but the best content for Bitcoin is like the podcast, like POMPS or Peter McCormick's, which is the second best Bitcoin podcast. My podcast, got to show that. And then, you know, a couple, you know, like you got like the Stefan Levert. I mean, there's all different kinds of Bitcoin education that's completely free out there for you to consume. I mean, like hundreds and hundreds of hours. So I would say like you combat your loss of conviction with educating yourself about what Bitcoin is.

And if it really comes down to it, maybe you just need to reduce your position sizing. Because if you've taken $1 and put it into Bitcoin over any five-year period, that's... So let's say you've had $100, you put $1 into Bitcoin, kept the other 99 in cash. Over any five-year period, that $1 that's in Bitcoin is outpaced the $99 in cash. So it's like, you know, even, even having a small position, I think it's still sufficient in terms of protecting your purchasing power. And like, you know, you need to kind of find whatever, you know, kind of happy median that is for you. For me being 19, I can take a lot more risk, right? Because I could lose it all and I can, I have enough time to make it back, right? Versus, you know, maybe some like my grandpa, right? Who's like 85. I'm not going to tell him to go 90% in Bitcoin, right? He only needs a, you know, 10, 15% allocation because he just needs to hedge his, his spending power and preserve that. So, you know, it depends on the person, but yeah, again, like just educating yourself as well as like adjusting that position size. Joe, those are all great points. And you just started your podcast.

You're already top three in Bitcoin podcast. So congrats. How do you think about the difference and like the psychological aspect of the hype in the momentum versus like the macro environment with rates and other stocks? No, I mean, it's totally a factor. And especially because like, we've been talking for a long time about, oh, the institutions are coming. Institutions are coming. So hype about the institutions. And, you know, kind of the like devil's advocate to that is like, you know, when you have like macro drawdowns or, you know, whenever there's macro uncertainty,

you're going to see Bitcoin sell off. That's the trade-off that you're making by, you know, wanting to have institutions in the market so bad. Everyone was expecting institutions and, And, you know, like, you know, willingly, like, you know, saying so myself, like the beginning of last year, I was definitely in this camp as well. I was like, well, institutions are going to come in. We're going to see more corporate treasury announcements and they're probably going to look to have, you know, a five, 10 year time horizon. Well, in fact, I think what we actually saw was just like more active managers that saw Bitcoin kind of as this like macro trade against the monetary debasement of last year. And so with that being said, now that you've seen uncertainty about monetary tightening, you've seen a lot of those same entities de-risking their Bitcoin position. And so you definitely have seen some kind of correlation with that. And so conversely, I think like the people who are buying are, you know, longer term like, you know, hardcore, you know, crypto thesis investors who are looking at this fundamentally as, you know, an asset class for the future.

And, and you're seeing that, you know, the, you're seeing a transition of, of supply and Suzu had a post about this last night, essentially saying like, you're seeing a transition of supply from these like macro hedge funds or active managers to people who actually have this like long-term, uh, you know, belief in, in this, you know, technology and, and the asset class moving forward. Um, but yeah, I mean, I, I definitely think like over the last month, the main driver of price action has been macro. So you've seen, you know, a lot of risk off behavior and equities and as well as, you

know, we've seen like the 10-year treasury mooning, right? And we've seen the Fed talk about they're going to do three rate hikes next year, probably somewhere around March. And so I think you've seen that getting priced in for sure. Yeah, I mean, and moving forward, I think it's a question of like, are we going to see that correlation strengthen or not strengthen? I think that's a difficult question to answer. But, you know, I would suspect like if your thesis is like you're going to see more institutions come into the market, then your thesis should also be that you'll see a stronger correlation to TradFi.

Well, when you think over, let's say the next week, what are your thoughts in terms of do you expect us sideways, up, down? You don't know. How do you think about just the next week? i mean i think we're set up for some mean reversion at least in the short term like i think i'm i'm dev i'm you know a long time ago when like we first started doing this i would throw out like i you know i i would do out like price price uh you know projections i'd say like i think price is going to reach this and like my thinking about this is as definitely like changed over time because you know you just can't account for all these factors there's so many different variables and so you kind of have to take it like level to level and you know instead of like trying to predict like what price is going to do you have to just look at it and you

know say for example like my thought process for buying here is not necessarily that like oh bitcoin's gonna moon from here it's just like we're at high time frame support we've been drawing down for the last month or so we have a large buildup of open interest and so like when you look at like you know where you see the potential downside versus upside i think that's skewed to the upside right now and so that's just kind of how i think through positioning myself like level to level rather than like looking at you know trying to predict like where exactly is price going to be i think like almost everyone has kind of learned from that uh you know this year we've got like you know everyone from you know myself for sure you know willie woo or plan b with the

stock to flow model um you know i think the trying to trying to look at price and you know call it the next like six months or so, I think is really difficult. I think it gets easier if you say what's going to happen to Bitcoin over the next 10 years. I mean, everyone in the space is, except for the people that are, you know, the weekends that have been getting wiped out lately, you know, are here for kind of the longer term thesis of Bitcoin. And I think it's like not, you know, it's not controversial at all to say that Bitcoin's price is going to be, you know, higher in the next five to 10 years. In the next six months, I, you know, trying to predict like kind of those like midterm predictions i think it is really difficult when you have all these different variables especially

now you know with like macro uncertainty for example um as well as like all the different dynamics going on in the bitcoin market so yeah that'd be my answer i think that uh you were on to something here my friend and uh your level your your lack of uh wanting to do short-term price predictions i think is just a sign of uh of maturity appreciate you brother we will uh we'll do this again next friday hopefully uh we'll uh we'll be talking about prices a little bit higher but hey only thing worse than uh seeing the price go down is not understanding what's going on so appreciate you coming on educating everyone i think that everyone is uh learning a lot from it and uh let's go totally thank you guys and uh yeah i'll see you out there on twitter man

all right later yeah well take it easy guys