The Pomp Podcast - #793 Why Is Bitcoin Is Crashing?! - BTC On-Chain Analytics

Episode Date: January 22, 2022

In today's episode, I break down Bitcoin On-Chain Analytics. Usually, WiIl Clemente joins me on Saturdays to discuss his research through articulating his weekly newsletter. Unfortunately, Will was unable to join us this week. Instead, I go through the Blockware Newsletter to help you understand why Bitcoin crashed this week and what you should do during a crash. This on-chain breakdown was streamed live on the "The Best Business Show." To see the video with the corresponding charts referenced throughout the interview, go to "The Best Business Show: LIVE" YouTube Channel ======================= 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 in today's episode will clemente couldn't join me for our weekly sit down so instead i just break down all of the charts that he put together we try our best to go through the on-chain metric and explain what the hell is happening with bitcoin and why has the price been falling i hope that you enjoy this and please bear with me as obviously I'm nowhere near as astute in these metrics as Will, but I'm doing my best to keep up. So before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is brought to you by Exodus,

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follow a particular strategy, but only as an expression of his personal opinion. This podcast is for informational purposes only. Will Clemente can't join us today, so instead you got me and we're going to go through all the on-chain metrics that Will put together. We're going to talk through why the hell is Bitcoin's price crashing? What the hell is going on? Well, first and foremost is that Bitcoin has now hit an all time high correlation to NASDAQ. The reason why that's important is because there is not necessarily a catalyst on the horizon that is going to lead to more inflows into Bitcoin as an asset. And so Bitcoin is at the mercy of risk off assets for the time being. As those risk assets get sold by Wall Street and other types of investors due to

the Fed's interest rate hikes that are believed to be happening in 2022, Bitcoin is also being sold off. If you look around in your portfolio and you are a professional investor, if you're an institutional investor and you say to yourself, I need to get back into some sort of value stocks or I need to get into more conservative assets, you're going to sell your technology stocks, you're going to sell Bitcoin, etc. That may be different than what Bitcoiners themselves who treat Bitcoin as a reserve asset are doing. But what we see is that on Wall Street, in many of these institutions, we are seeing that they are treating Bitcoin the same as Nasdaq. And you see that directly with the all time high of Bitcoin and Nasdaq correlation. So pretty incredible to

see that there. Now, of course, Bitcoin continues to fall as well. And so if we look at Bitcoin's net realized profit loss, exactly what are people doing? Are they selling at a loss? Or are they selling at a profit. Well, what the Blockware team has looked at is that capitulation seems to be slowing for now, meaning that there's a decreasing amount of losses being realized. And what you can see here is that that red, whenever it is very, very deep below the zero dollar line, people are selling at a loss. But as we see a recovery back towards zero, it means less and less people are selling at a loss. And so at the end of December and into beginning of January, there was tons of people selling at a loss. But now we are returning back

to zero, kind of a break even point. Usually that ends up meaning that we'll go back to anyone who sells after we've crossed back over zero. It's all at a profit. So paying attention to this is important because ultimately capitulation happens when somebody holds an asset, it goes down. And rather than hold until it comes back, they simply capitulate. They say, I'm done. I'm just willing to sell it at a loss. I'm going to go invest my money somewhere else. So capitulation seems to be slowing for now. If we then look at the percent supply in profit, you can see that that is only around 70% or so you can see right here in this chart. And so that is about the same level that we saw over the summer when we actually bottomed out before having a massive recovery. Again,

that does not mean that we are going to get an exact repeat of that drawdown. But in March, April and May of 2021, we were up in the 50 60,000 mark of Bitcoin, we then drew down from that point, more than 50% down to about $30,000 or so. And then of course, that percent supply and profit was hovering just under 70%. It then led to a massive move back all the way up to the all time high of $69,000. Well, now as the price has sold off again, where do we find ourselves? We find ourselves again, right back below 70% in terms of the percent of Bitcoin that is in profit. And so it's an important level to understand as you think about what could happen next. and then of course if we look at the whales what the hell are the whales doing well there's still

a lack of large buyers what do we mean the whales on chain those entities with over a thousand bitcoin they simply are not buying in any material way it's basically just going sideways you can see here with this green line the holders of or the whale holders they simply are just going sideways so even though price is going up and down we still are just seeing sideways movement in order for us see a material move in price upwards what you can see is that usually there's an uptick in whale activity the whales start buying and then price follows of course it's a finite supply asset and if there's an increase in demand then that leads to an increase in price but while we are watching the whales simply just going sideways it means that we shouldn't expect to see any material price

movement upwards until we see an uptick in that whale activity and then if we go and we look at the futures, start looking at some of these derivatives, the more exotic products, what you can see is that the three-month basis for futures is down roughly 6%. It means that you can long the spot market and short the three-month Bitcoin futures contract, and you'll capture approximately a 6% annualized yield. That is far from the 45% yield that you were pulling in last spring, but it beats 0.6% that you can get from a one-year treasury bond. Will just absolutely crushing it on this analysis. And so as you see that drawdown all the way back from April and May of last year, up around 40, 45%, as we've come down now sitting around 6%, it just deters some

of the interest that we were seeing in Q1 and Q2 of last year. And so again, that doesn't mean that the interest won't return. It doesn't mean that the interest is gone forever. It just simply means that right now, if you go ahead and you pull on this cash and carry trade, which you basically are pulling is about 6%. But you at one point, we're pulling 45%. It's important to understand why some people may be allocating or not allocating to the actual market. And then ultimately, if we go ahead and we look at the weekly close, as Will points out, there's still three days left before that weekly close. And a weekly close below 40k leaves no clear levels of support before the $30,000 area. And so ultimately, as you look at this here, you can see,

we'd rolled all the way up about $60,000 or so. And then we crashed in May back down to around $30,000. That $30,000 level ended up serving as a really, really strong support. From there, then what we got was a rally all the way back up to 69,000. And now we've come back down below 40. So ultimately, that weekly close is going to be really important. Do we close above 40,000? Or do we have the weekly close below 40,000? If it is below 40,000, there's a high likelihood that we could see something in the low 30,000s. Again, nobody knows the future. History does not serve as a predictor of the future.

But what we can do is we can look at how this asset has behaved previously. Now, one of the things that I'm personally very interested is the idea that Bitcoin specifically is a volatile asset in US dollar terms. We saw over six different times in 2021 where Bitcoin drew down more than 20%. There was a 50% drawdown in Bitcoin's price in 2018.

There's a 50% drawdown in Bitcoin's price in 2020. There's a 50% drawdown in Bitcoin's price in 2021. And now that we're seeing a sell-off of Bitcoin in 2022, just understand this is not new. You don't have to panic. You don't have to freak out. What you do have to understand though is exactly how this asset performs

and understand as best you can as to why it's performing the way that it is. A lot of folks over the last two years or so that previously didn't hold Bitcoin that work at large Wall Street institutions or the institutions or organizations themselves. They started to adopt Bitcoin, started to buy it, and they thought that they were long-term holders.

But they treat the asset like a risk asset. And so as they fear the Fed's interest rate hikes, that that cheap capital become more expensive in the market, and that some of the unleashed demand will actually dry up a little bit, they start to sell those risk assets. They rotate their capital from risk on to risk off. They want the value stocks.

They want the value investing. They want the conservative investments. They want to risk mitigate. And so if you're on Wall Street, if you're an institution, if you're a large asset manager, Bitcoin to you is the most risky thing you own. You're a seller. You're not trying to hold it. You simply treat it like a growth stock or a tech stock. But Bitcoiners, those are, in my opinion, the most important people because we just hit an all-time high in Bitcoin holders that have a Bitcoin address with a balance of at least 0.01 Bitcoin. It's an all-time high. Bitcoin miners, the hash rate just hit an all-time high. The

underlying fundamentals, the Bitcoin natives, they're undeterred by the price movement. In fact, they're continuing to stack sats. They're continuing to secure the network. And ultimately, what we have is we have price completely diverging from reality of the Bitcoin fundamentals. And over a long enough period of time, price and fundamentals have to meet again. The question is just what's going to happen between now and then, and how long will that take? So I hope that you guys enjoy this and we'll continue to keep looking at the data. Will will be back next week. And my guess is he's going to have a bunch to update us on. Thanks so much for listening to today's episode. I really hope you guys enjoyed this one. Make sure you're subscribed on Apple, Spotify,

or your favorite podcast player. And if you're looking to try to transition to get a new job in the Bitcoin or crypto industry, we've got you covered. Head over to palmscryptocourse.com. we've developed a curriculum with the top teams across the industry it's a three-week intensive training program with over 50 events packed into that three-week time period go to palmscryptocourse.com to learn more and i'll meet you guys for the next episode