The Pomp Podcast - #783 What's Keeping Bitcoin At $43k? w/Will Clemente

Episode Date: January 15, 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. =======================

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 brought to you by Exodus, the world's leading desktop, mobile, and hardware crypto wallet. They offer beautiful, user-friendly blockchain products that sync across all of your devices, making it easier to send,

receive, and exchange over 150 or more crypto assets in one place. And with world-class customer service available to you 24-7, Exodus always has your back. But the fun doesn't stop with staking and trading. They recently launched a new NFT marketplace where you can buy and sell your favorite nfts on the solana network by partnering with the popular nft platform magic eden they're offering the full monty on verified collections with more added every single day ready to check it out for yourself run don't walk over to exodus.com slash pomp for your free download today again if you want the world's leading desktop mobile and hardware crypto wallet go to exodus.com slash pomp today anthony pompliano runs pomp investments all views of him and the guests on

his podcasts are solely their opinions and do not reflect the opinions of pomp investments you should not treat any opinion expressed by pomp or his guests as a specific inducement to make a particular investment or follow a particular strategy but only as an expression of his personal opinion this podcast is for informational purposes only all right buddy let's get into this we got a whole bunch of stuff uh where you want to start let's start with the price we're just hanging out low 40 thousands what uh what are you thinking here yeah so like the first chart you'll see are just some price levels i drew out so last week we talked about i'd started buying around 41k and the reasoning is just because i saw 40k is just a you know really clear kind of macro support

level it was a prior higher low that we hadn't retested yet and so you know at a minimum you should be expecting a bounce off of the first retest of a macro higher low so did start buying as i talked about last week got a nice little reaction off of that and now it appears that we were setting some kind of higher low posted this this morning or took the screenshot of the chart this morning at like 42500 from there from this area that I was looking at for a little bounce or you know a little micro kind of higher lower here we have seen a little bounce up to what are we at now like 43 to 200 so I've seen like a nice little seven eight hundred dollar bounce off that area so does look like we're setting a little higher low here on kind of microstructure which

is a good sign of course um you know i'm still chilling in spot i think the first area to look at is this prior range low um call that around like 46k to be specific like 45 7 um and see kind of how derivatives look there um and then from there you know if let's say you know it looks like you know perps perhaps are fading the the rally then you know maybe we get a you know a little move up to prior range highs but i'm just kind of playing it level to level um for now but yeah still chilling in in my spot buys that we talked about last week but this is just what i'm looking at from you know purely just a price structure standpoint all right so that makes a lot of sense in terms of where we are right now one of the things that you've been talking about

for a while now that has maybe not concerned but like is definitely worth paying attention to is this open interest and in today's newsletter you call out that it's still high so explain why this is important for people to understand and what this potentially could mean in terms of volatility in the future. Yeah. So last week I felt like we, uh, that might've been the longest that we've ever recorded. We went pretty in depth in terms of, um, describing open interest and funding and some of these, uh, you know, derivatives metrics, but you know, for anyone maybe who wasn't listening last week, um, open interest at a high level is just, uh, if you want like a bit more nuanced explanation, you know, feel free to, to look at last week's video. I

don't want to like reiterate it for people that were listening last week um yeah open interest is just looking at the amount of open contracts so there's you know always balanced out in terms of how many longs and shorts there are open interest just tells you how many of those contracts are open um and so we we are still in this kind of uh area where you know pri you know previously the last four or five times that we've been in this upper area we have seen a flush after that so it's basically showing you like this is a an area where you know open interest is building up sufficiently that you know you get some kind of wipe out and that's not necessarily a bullish or bearish thing um you know as as we've seen in may you know that was a a sign that you know

longs were really aggressive we got the wipe out the end of summer though you know those aggressive shorts that built up and so we had a short squeeze it's just telling you that um the contracts are built up but it doesn't tell you about the positioning so we still do have a lot of leverage built up um as you can see in the last like kind of 24 hours we've actually started to wipe out a bit of the open interest on this move up um and so perhaps that you know that's showing you that you know uh shorts are starting to close out on this move up um but yeah i mean we're still still very high we still wiped out a minuscule amount of oi compared to what we've built up over the last month you know call it like uh maybe like a fifth of the oi we've built up over the last month

so yeah still expecting some volatility in that sense um and some some you know major kind of of liquidation event that we've been talking about for a while but you know still waiting on it i keep i keep posting like on my twitter like when when squeeze that's yeah that's what i'm referring to i'm just waiting for this metric to wipe out of this kind of overheated area so one of the things that you've included in here is this bitcoin entity adjusted dormancy flow and i've started to see more people talking about this i know you've been talking about it a few others and then i recently saw one of the guys at fidelity start posting about these dormancy flows as well uh help people understand in terms of why this is important and i think the key piece is this

is only what the fifth or sixth time that this has kind of flashed a signal uh throughout the lifetime of bitcoin which is you know it's it's very rare so it's important to kind of pay attention understand what's happening here yeah shout out to the guys at fidelity i'm happy to happy to teach him a thing or two all right so what is this i'm kidding respect respect to that guy on uh on twitter i like his stuff but yeah so this is looking at um dormancy which is based off destruction and destruction is kind of a cornerstone metric of on-chain analytics so like the example i always use to explain this is like if you have a one coin you move it into your wallet you hold it for 10 days you've now that that coin while sitting in that wallet has now accumulated

or created 10 coin days depending on when you move that coin out that's telling you the amount of coin days that are being created. So for simplicity purposes, for this example, the coin is moved into the wallet, sits there for 10 days, 10 coin days are created. You now move the coin out of the wallet. Now those 10 coin days that have been created are now destroyed. And that's where the term destruction comes from. So if you think about this, by definition, destruction is what we call coin days destroyed, same thing, is going to be high when there's high volume, right? Because you have a large amount of coins that are being traded. So you're going to see more coins being spent or more destruction when there's high volume. And so the way to adjust for

this is dormancy. Dormancy adjusts coin days destroyed for volume to just give you the raw value of destruction itself. And so we take the annualized dollar, like the dollar denomination of dormancy. So the annualized dollar denomination of dormancy and compare that to Bitcoin's market cap and that's where we get this dormancy flow um and so essentially like from first principles like just the like high level of what this is telling you it's just that there's a slowing of smart money spending their coins so in bull markets as we talk about often with like the long-term short-term holders you see the you know the smarter money which when i'm saying smarter money i'm referring to you know more experienced market participants they sell their coins or scale

out into strength and they accumulate back into weakness. And so this is kind of a similar way of looking at that dynamic. So you'll see dormancy peaks when we're in these kind of bullish market structure periods or periods of market structure, I should say. So that's showing you that the older, more experienced market participants are spending their coins. Then heading into the bear market, you'll see this declines, meaning that those same older you know experienced market participants aren't spending their coins as much because bitcoin is at a discount um and so you know in when we look at like long-term holder supply we actually see that they're accumulating this doesn't show that they're accumulating it just shows a lack of

spending uh and so again like this is from first person was just telling you there's a decrease in spending from those you know older more experienced market participants whenever that decreases a substantial amount we push into this little buy zone that's highlighted at the bottom in this green area. So yeah, we've only reached this five times. This is the sixth time that we've entered this zone. So you'll see at the bottom of, I think this is late 2011 here on the left, 2015 at the very bottom of the bear market as we wick down that final wick down at the bottom of the 2015 bear market, at the 2018 bear market at the very low, as well as during the COVID crash. And then the most recent one was over summer at the very bottom at the end of July, we briefly

whipped into the buy zone and we are entering this now. And so, you know, for like longer term investors, this can be used to say, okay, like, look, I'm just going to scale my buys in more heavily as we enter the zone, right? Because, you know, once we enter the zone, you know, we may have like slight, you know, maybe 15, 20% more downside to go. Um, so theoretically, like if we reached the bottom of the buy zone, we'd be at like 30 K. So, you know, this is telling you like, this is a good time to start scaling and start scaling and buys for longer term investors for people who are like more momentum oriented. You can go to the next chart, which is looking at when, when dormancy comes out of the buy zone. So, you know, some people, I saw some comments,

which are completely, completely valid saying like, well, why wouldn't I just wait for this to come out of the buy zone, right? Because then it's showing you that we're coming out of that capitulation area. We're coming out of the bottom. That's completely valid. It's just that, you know, you're approaching the market differently.

Instead of averaging in your buys at the lows, you're waiting to see when the market is like coming off of the lows, starting to regain some momentum off those lows. And it does appear over the last day, you could see where we're barely poking out of there, but it looks like we are beginning to start to begin to exit the buy zone here at the bottom.

So it's something to keep an eye on. If that continues over the next couple of days, I think it sticks. I think it's a little premature to just call like the first day. It's just starts poking out. But if we do start to see this move out over the next couple of days, I do think that's a valid signal to say we are coming out of this buy zone. But yeah, again, only has flashed six times in Bitcoin's history. And it's just essentially telling you that the longer term, more experienced market participants are slowing down their spending and have decreased the spending of their coins. We can see this in other metrics too, like long-term holder supply. They started to distribute their coins a bit when it looked like we were about to re-break all-time highs up to 69K. On this move back down over the last month or two, they have decreased their spending. You have started to see what we call long-term holder net position change, showing you basically the 30-day change of long-term holders' holdings. We have seen that flip green over the last week or so.

And then as well, we've seen things like average spent output lifespan looks at the average age of the coins being spent. All these different kinds of metrics are all basically telling you the same thing that this one is. So I want to skip ahead real quick to the graph that you have here of the supply held by retail. And I think that's a good place for us to kind of wrap up because what you're talking about here is with these dormancy flows is like there's only happened so many times, right? This is the sixth time this has ever happened. But regardless of high prices, low prices, you know, whatever's happening in the macro environment, et cetera, this chart that we have around the supply held by retail, it's just straight up into the right. And is it fair to say that looking at this visualization tells us that retail doesn't care about the price. They just continue to kind of dollar cost average into this. Or do you read it some other way?

Yeah, exactly. If I was, you know, looking to, you know, present Bitcoin as an asset class, that's like a 10, 15 year long investment to some, you know, investment fund. Like I would show this chart. This would be one of the charts that I would present. And the reason is because it's showing you that over time, there's a cohort of people that are steadily DCAing into the asset, no matter if it's up, down, sideways, whatever. I mean, the chart literally goes up and to the right.

And so, you know, retail doesn't have a substantial impact on the price in the short term, but over the long term, they definitely do. And so what you'll see is obviously retail's holdings increase more so in the bull market because there's new market participants that come in, but there is a fair amount of those market participants leave in the bear, but you do see that there's some stickiness there where this continues to grind up in the bear market just at a slower rate than during the bull. So if you look at, you know, 2011, if you look at the two 2013 double pumps, if you look at 2017, you'll see that the rate of increase of retail's holdings goes up. But even after, you know, the blow off top euphoria, you know, this does continue to slowly grind up. And so the way I kind of see this is like number go up technology, as we like to call it as Bitcoiners, you know, is the kind of best form of marketing for Bitcoin, draws in new market participants. And some of those market participants that are just complete speculators and are coming in because the price is going up, they leave whenever the number go up fund stops. But you do see that during that period, a fair amount of those market participants do educate themselves about the asset class, understand the value proposition over the 10, 15 year long period plus.

And they do continue to dollar cost average into the asset over time. So this is just showing you that over time and this is one of like the biggest criticisms of Bitcoin is like you'll hear people say like, you know, a large percent of supply is held by a small portion of people. This is really complete nonsense. So, A, because of this chart here, which is showing you that over time, retail is taking up a larger portion of supply. So the trend is in the right direction. B, you know, they always like to show you like the top 10 Bitcoin addresses and then compare that to the overall circulating supply of Bitcoin and how much those addresses hold. That's a terrible way to look at it. And it's just like either intellectually dishonest or lazy, in my opinion. And the reason is because it's like analogous to saying like, you know, the USD circulating supply distribution is bad because a large portion of it is held by banks. It's like, yes, it's held by banks, but banks are holding those dollars for millions and millions of people. In the same sense that you're seeing whales, which are actually custodians or exchanges holding Bitcoin for hundreds of thousands, if not millions of individuals. So that's not even shown in this chart. This is just showing you people that are taking custody of their Bitcoin in cold storage. But again, this isn't even taking into account the fact that a lot of retail tend to hold their Bitcoin with custodians or other exchanges.

And so, you know, that that FUD around Bitcoin supply distribution just is is inaccurate. And, you know, it's just not taking into account any type of nuance whatsoever. You're killing it, man. What what two questions you guys got? Will, what about hash rate? I saw you tweet about it earlier that, you know, hash rates hitting an all time high again and networks more secure than ever. But how do you think about that when it comes to price or like kind of network adoption? Is that something where it's just, hey, healthy to check on every once in a while, make sure the network is getting more secure and stronger? Or do you think that it has some kind of adjacent connection to price over like a shorter period of time also?

So, you know, first of all, I think before talking about price, I think it's really incredible just to think about the recovery of hash rate since the summer. I mean, think about it. You know, we had one of the most important countries in the world, definitely in the top three that came out and said that they were banning Bitcoin mining. We saw all that hash come offline and come back online in a completely decentralized, uncoordinated way. You know, it wasn't like there's like a Bitcoin organization or Bitcoin company telling people to redistribute their hash here and here and plug it back online and helping them. And, you know, it's just completely the network just completely, you know, put itself back together through, you know, just this completely decentralized manner. In that sense, it's really incredible to see that.

And it also eliminates one of the biggest, you know, fuds or criticisms around Bitcoin, which was always that, like, the majority of hash rate was held by China and that could propose some existential threat to Bitcoin. it's you know it's funny like the same people that were making that argument were the same people that were like oh look all of bitcoin's hash rate came offline it's like you can't have both man like it's one or the other and this is just shown to those people that you know that bitcoin is extremely resilient and yeah again like showing that bitcoin's the security around bitcoin is at an all-time high so this also you know one could argue that bitcoin is more valuable because of, you know, the security is higher in correlation to price. I think like that's one argument that people will make.

I do think it's kind of like a chicken or the egg or the egg or the chicken, right? Like it's hash, hash, I think follows price in my opinion, just because the interest to mine Bitcoin follows the price appreciation of Bitcoin. Some will argue the other way, but I think it's one of those arguments where it's like, you know, it's just the chicken is chicken before the egg or the egg before the chicken. Gotcha.

John? Well, so when we think about that, those retail holders that you were talking about that consistently are growing based on the distribution of Bitcoin, how does that fit into the macro sense of adoption? So we've seen a few things come out recently in Brazil this morning, but how does that all fit into like the whole view of Bitcoin? Yeah, again, I mean, I think this just shows you that there's, you know, the user growth of Bitcoin is just up and to the right over time, accelerates during periods where Bitcoin's price is appreciating, right? But even during the bear market, that continues to grind up. You see the same thing in just the raw number of users on the network, right? So if we look at something like net entity growth, so just looking at the amount of new entities coming on the blockchain versus the inactive ones that hold no Bitcoin and aren't

active on the network at all, and looking at the difference between that, I mean, that metric as well trends up and to the right over time. And so, yeah, I completely agree. I think this is just another thing to throw in the bag with some of those other metrics in terms of showing that over time, you know, Bitcoin is being adopted more so, more so. You know, we got like El Salvador over the last year. I think the Bitcoin bond might be an interesting catalyst in terms of if that thing gets oversubscribed, which I don't know about you guys, but I think there's a good chance that it does get oversubscribed too.

I think you'll have other countries that are, you know, having a close eye on that, I'll say. And yeah, I think that's another potential catalyst for even more user growth. But yeah, I mean, I think over time, you're just going to see this continue to trend where it's going. And that's just up and to the right as new people look to use Bitcoin to protect their wealth. and as you know the value proposition increases as you're continuing to see currency debasement around the world so especially in these you know um you know these countries that aren't as fortunate as like the u.s right like a lot of people in the u.s see bitcoin as like purely a speculative asset right in which a lot of money managers in the u.s do see that um and so uh you know they just see bitcoin it's just like a risk on speculative play right and you saw like a lot It's just de-risking over the last two months as we saw risk off behavior and equities because of, you know, the Fed talking about monetary tightening, which we still haven't done anything, but we've been, you know, talking about tightening monetary policy.

But, you know, overseas, if your currency is debasing at, you know, 40, 50 percent a month, you know, that's completely different. Like you need Bitcoin to preserve your wealth. It's just, you know, I think in the US, we're very privileged. And, you know, some of the people that are baffled, like, how come we see user growth on Bitcoin when price is down so much? You know, I think you really need to try to put yourself in the shoes of the less fortunate in other countries where, you know, maybe you don't actually have the reserve currency as your native currency. Very true. Will, where we stand right now, when you think about how you're allocating your own personal capital, this is not financial advice for anybody else, but have you changed anything in terms of what you're personally doing? No, again, last week we talked, I bought around 41K on the retest of that macro higher low, which is at 40K. I didn't snipe the bottom. Again, I bought around 41, but I'm still chilling in that and chilling in spot. I think we at least get a move up to the prior range lows, which is around 46K. We'll reevaluate there and we'll see what derivatives, you know, structure looks like. And then either,

I think we probably set a kind of macro lower high there, or we can push up to the 53K area, maybe set a lower high. But I mean, the way, you know, the way I'm, I'm kind of evolved my thinking now, it's just, I'm just looking at things from level to level. Right. And we'll see when we get to the next level and we'll reevaluate there. But yeah, for now I'm chilling in the, in my spot buys from last week. Haven't, haven't touched them. All right, my friend, we will talk to you again next week. Keep up the great work.

You have for months now, almost a full year actually, kept everyone informed. So keep up the good work. And every time we talk, I just, I appreciate the fact that I can tell that you're doing a lot of learning in between the conversations. So keep working hard. And there's a lot of people who are counting on you. So you ain't got all the answers, but you got a couple, which we appreciate. Thanks, brother. Yeah. Thanks for having me as always and uh yeah i mean i'm just you know learning making mistakes and trying to share what i what i figure out along the way like everybody else so appreciate appreciate the time and um you know i'll see you next week man all right sounds good buddy later all right take it easy guys