The Pomp Podcast - #827 Bitcoin Frees Us From Censorship NOW w/ Dylan LeClair

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. Dylan LeClaire is the Senior Market Analyst at UTXO Management. He also writes a newsletter with Bitcoin Magazine. In this conversation, we talk about Bitcoin, on-chain metrics. We talk about Bitcoin's price, the market structure, and what to expect in the coming weeks. I really enjoyed this conversation with Dylan, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. Today's episode is sponsored by the Bitcoin 2022 conference. Bitcoin 2022 is the largest Bitcoin event in the world that takes

Starting point is 00:00:41 place April 6th through the 9th in Miami Beach, Florida. All four days will be jam-packed with exclusive content, exciting announcements, and an incredible lineup of Bitcoin speakers, artists, and leaders. Day one is industry day for enterprising Bitcoiners who are looking to build a business or career within the ecosystem. Days two and three are general conference days featuring speakers like El Salvador President Nayib Bukele, CEOs like Michael Saylor, Elizabeth Stark, Jack Maulers, Adam Back, and hundreds more. The conference caps off on the fourth day with the world's first and largest Bitcoin music festival, Sound Money Fest, headlined by rapper and fellow Bitcoiner Logic, featuring artists Kay Flay, Moe, Royal, and The Serpent, Apache, Asadi, and more.

Starting point is 00:01:23 Stay tuned for the upcoming lineup announcement. Last year's conference sold out, and this year's is on pace to be three times larger. So make sure you grab your tickets before it's too late. Visit b.tc slash conference to learn more. Again, that's b.tc slash conference to learn more. Ticket prices increase on January 14th. Use promo code POMP for 10% off,

Starting point is 00:01:43 and I will see you in Miami. Today's episode is brought to you by Fundrise. You all know I believe that the best investors both understand and seek out extreme asymmetry. Fundrise is here to help you do just that. It's the largest direct-to-investor real estate investment platform out there, giving you the opportunity to achieve upside of an asset class previously reserved for institutions and high net worth individuals.

Starting point is 00:02:04 That's right. Fundrise is making high-end private market real estate investing accessible to everyone via an easy-to-use automated platform. Its 1 million users already know that the investment with Fundrise is capable of producing strong appreciation returns and income generation while helping to stabilize a diversified portfolio. That's more important now than ever in our inflationary environment.

Starting point is 00:02:24 See for yourself how over 190,000 other investors have built a better portfolio with private real estate. It takes just a few minutes to get started with as little as $10. Go to fundrise.com slash pomp today. And for a limited time, you'll get $10 when you place your first investment. Again, that's fundrise.com slash pomp.

Starting point is 00:02:43 Go check it out. And when you make your first investment, they'll give you $10 on top of it. Fundrise.com slash pomp. Today's episode is brought to you by Brave. Brave Wallet is the first secure crypto wallet built natively in a Web3 crypto browser. What's Web3? Web3 is freedom from big tech and Wall Street, more control and better privacy.

Starting point is 00:03:03 But there's a weak point in Web3, your crypto wallet. Most wallets are browser extensions, a Web2 technology. That means the same old risks, app spoofing, phishing scams, and theft. Brave Wallet is different. Brave Wallet is the first secure wallet built natively in a Web3 crypto browser. No extension required. With Brave Wallet, you can buy, store, send, and swap assets, manage NFTs, even connect other wallets and dApps, all from the security of the best privacy browser on the market. Whether you're new to crypto or a seasoned pro, it's time to ditch those

Starting point is 00:03:33 risky extensions. It's time to switch to Brave Wallet. Download Brave at brave.com slash pomp and click the wallet icon to get started. Again, go download Brave at brave.com slash pomp and click the wallet icon to get started. All right, let's get in this episode. I hope you guys enjoyed this one. 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.

Starting point is 00:04:13 We got a lot to go over today. Let's start with hash rate. Obviously, last year we saw China go ahead and kick out 60 plus percent of the hash rate. Hash rate went down more than 50%. It's come roaring back. You've got this chart here around the seven day average and also the 30 day growth.

Starting point is 00:04:32 What is this showing you and why do you think this is so important? Yeah, so I started the slide deck off today with just a couple of the kind of the fundamentals. So obviously, network security hash rate matters a lot for the Bitcoin network. But it's something that you might not see when you're just looking at the ticker symbol and the price move up and down. So hash rate, we like to look at the seven-day average. Some people do 14-day, two-week average, a month average.

Starting point is 00:04:58 But basically, because of the day-to-day variance of these block times coming in, the moving averages provides a little more signal. So seven-day moving average, network's above 200x a hash. It's honestly quite historic. Just given like the breadth of the drawdown in 2021, you kind of in the second pane in the bottom of the chart, we see that 30 day growth. And besides basically that the China event, you see just how the hash rate relentlessly growing. So the fundamentals of Bitcoin have never been stronger network security up and to the right. And it's becoming a lot more competitive to mine Bitcoin, actually, with hash rate rising and the price kind of consolidating. It puts a little bit of compression on some of these minor margins, which is what we've talked about a lot. Some of the publicly traded miners, denominating them in BTC terms.

Starting point is 00:05:44 It gets quite interesting if hash rate continues to kind of hockey stick upwards. And I think that'll be the story of the next decade is just hash rate relentlessly bending upwards. A lot of analysts think that 300x a hash is in the future for 2022. We'll have to see. But a lot of publicly traded miners are pretty optimistic about that. So definitely an encouraging sign in general, though, of network security. Yeah, it's absolutely incredible to watch just how quickly it kind of came back, how resilient the network's been and continue to hit those all time highs. Another area of massive growth recently has been the lightning network.

Starting point is 00:06:17 And every single time I go and I look at these statistics, I'm personally just shocked and I'm, you know, as bullish as they come. But the growth seems to be even outpacing my expectations. What are you seeing here with the lightning network public channel capacity? Yeah. So, I mean, the Lightning Network is not something that gets talked about a lot in crypto spheres. It's kind of just this thing that's being worked on under the hood. And a lot of these like, you know, open source protocols, apps, different like something like Strike, right, where it's almost abstracted away where you don't even know you're using Lightning. You're just scanning a QR code. I think that's the future. And what it allows for is this monetary asset to

Starting point is 00:06:52 be settled basically instantaneously anywhere in the world. So Jack Mallers is having a talk with the IMF saying, this isn't even about Bitcoin, the asset. This is about Bitcoin, the network and lightening the network, which is a layer two on top of Bitcoin, just being a superior monetary network compared to anything the world's ever seen. And the reality is like almost no one in the world understands that fact yet, that we can settle without really any counterparty risk, we can settle this absolutely scarce monetary asset in a bear type way from peer to peer with no intermediary, with no counterparty, and with no really risk of funds being seized or anything else that you deal with in a traditional kind of third-party settlement network or third-party,

Starting point is 00:07:34 like a Visa, PayPal, et cetera. Satoshi solved that double spend problem and Lightning allows for this instantaneous type settlement. So it's really exciting. And a lot of really smart people and engineers and founders are building on top of this thing. So we're going to see more countries adopt this as legal tender in the future i think that's that's not even a real bold prediction and you know the medium of exchange type uh side of bitcoin is really going to utilize lightning network yeah it's pretty crazy to think about uh the lightning network uh without all the hype right for the most part uh without tons of venture backing um and uh it's just been volunteers on the internet kind of slowly but surely building uh a peer-to-peer network of um you know what at now

Starting point is 00:08:16 is probably tens of thousands of people running these lightning network nodes all throughout the, through the world and really building a actual decentralized system that has instantaneous settlement, nearly free from a fee perspective. And at the end of the day is superior to the legacy banking system, right?

Starting point is 00:08:38 If I want to send any amount of money, even if it is using my credit card at the coffee shop, et cetera, There is not cash finality. There is not instantaneous settlement. There is not nearly free, you know, from a fee perspective. And so this is superior technology and people around the world are adopting it. And I think you see it in some of these metrics that you're pointing out here. Let's talk about exchange flows. I know you've been looking a lot at that. You've got the 30 day kind of analysis of exchange flows. What is this telling us? Yeah. So people try to get a little too fancy with exchange flows and use it as a top or a bottom indicator. And a lot of times it's not that simple, but I think we can identify a few secular trends here. One is that exchange flows are basically persistently negative for the most part. So coins are coming off exchanges, except for a few just type of big events we saw with

Starting point is 00:09:31 the China exodus and kind of that liquidation event that happened, that mass liquidation event in the May of 2021, saw a lot of coins flow on exchanges. We saw following the Powell kind of pivot and inflation's not transitory in November. We saw some coins come onto exchange, but really the trend since the start of 2020 has been coins are flowing out of exchanges by the hundreds of thousands and just huge numbers. And so I think that trend is set to continue and there will be bumps in the road. There'll be coins coming on exchanges at certain times, maybe the next time all-time high breaks. But the reality is people are increasingly coming to realize that Bitcoin and the native kind of properties of this asset that allow you to self-custody it are really

Starting point is 00:10:10 important. You know, talking about Trudeau and Canada earlier, I caught a little bit of you guys before I came on. You know, this whole thing with COVID, a lot of people are realizing it's not about health. And increasingly, it's just about control. And so, you know, money that can't be seized, money that's not a database entry in someone else's database where, you know, if your political views don't align with theirs, well, your money might not be yours. So Bitcoin in that sense is more important than ever. And increasingly people are coming to realize that. So self-custody your coins, not your keys, not your coins. It's the story of Bitcoin. Yeah. And it's only going to get louder and more prominent, I think. We've got the illiquid supply shock ratio here. What

Starting point is 00:10:49 is this telling us? Yeah. So shout out Will Clemente came up with this one in 2021. And on chain, what you can really see is it quantifies the supply side of things. And really, this primes or sets the stage for the demand side. So price runs when the marginal seller is exhausted. And what we see here is that just the marginal seller or really just kind of this cohort of stackers is taking over. And so just continuing to eat away at that free flow to supply, diminishing that available Bitcoin to be sold on the market every single day. And so a liquid supply, this supply shock ratio, quantifying the liquid supply relative to the liquid and highly liquid supply, you know, don't have to get too much into the weeds with the definitions,

Starting point is 00:11:34 but basically it's just showing, you know, how much Bitcoin is being held by strong hands relative to that kind of that liquid supply. And so it's as attractive as it's been since the start of 2020, surpassing its 2021 highs. And so really what we're waiting for is this big demand shift. And I think we're starting to see it, not even from the inflation hedge narrative, this digital gold narrative, the central bank dilution narrative that we saw in 2020-21. But now we're seeing more so the sense of resistance kind of affect play or start to play out. And so really interesting time in Bitcoin, but the demand side really, or the supply side, what this is showing is that we're primed for a big move when that kind of demand shifts

Starting point is 00:12:16 and comes in a big way. Yeah, it's pretty incredible to watch this. Speaking of kind of this illiquid supply shock. One of the big things that, you know, we've heard everyone from Stanley Druckenmiller, Paul Tudor Jones talk about is this idea that Bitcoiners don't sell, right, for the most part. And the majority of them continue to hold for long periods of time. For those that don't know the story, I believe it was Paul Tudor Jones called Stanley Druckenmiller back in 2018, kind of beginning of 2019. He said, hey, do you want to hear a crazy stat? It's like 87% or some crazy high number of Bitcoiners who held Bitcoin when it was at $20,000 haven't sold even though it dropped all the way down to around $3,000. And of course they then said, well, that's pretty interesting and ended up going ahead and getting themselves and many others to actually start to allocate to the asset class.

Starting point is 00:13:06 You've got this chart here that shows that 60% of circulating supply has been dormant for one plus year. How do you evaluate whether that's a good number, a bad number? Is it going higher? Is it going lower? Like, how do you evaluate this? Yeah. So, I mean, there's not too much like directional analysis that you can apply here. I think really it's just the story of like, it's more so just kind of quantifying what

Starting point is 00:13:27 the people like Stan Druckenmiller and Paul Terer Jones, when they decide to allocate a big chunk to this asset class, what they're seeing. And it's that, you know, there's this cohort of people around the world of investors, maybe not even investors, maybe just savers that come to realize the properties of Bitcoin and say, I want to hold as much of this as I can. And so you're seeing like recently that the supply dormant for one year is hockey sticking up and to the right. And so you can kind of think of that as being bullish in itself. You know, that free flow to supply available is becoming less and less. But really, it's just showing that, you know, up, down, sideways, there's people that

Starting point is 00:14:00 understand that Bitcoin is the best money ever and they're they're getting their fair share. And so, you know, proof of work, you got to you got to put in some sort of capital or you got to, you know, energy expenditure to acquire your fair share of this 21 million. So, yeah, I think that's just a story. And this, you know, one year dormant supply is a pretty interesting metric to look at over time. Yeah. And when you look at that number, how much of that is driven by potentially lost coins or other types of assets that are other holders that might not just be strong holders that are never going to sell, but could be destroyed, lost or anything like that? Yeah, I think I've seen some pretty good estimates about, you know, two to three million coins lost. I mean, I would certainly say Satoshi's million-ish stack is gone forever, whether purposefully or not. And so probably the real, like, you know, total available supply is somewhere around 18 million. I think, I mean, 19 million coins are in circulation right now. And so, you know, total supply available, I guess you could think of like 15 million or so. But really, if you're looking at a lot of these like, you know,

Starting point is 00:15:04 hodlometrics, liquid supply type stuff, I would say only probably about a few million coins are, I guess, up for sale, if you want to call them. And really like, you know, price set at the margin, it's only a few hundred thousand coins that are deciding this daily price. The rest is just being hodled by people that have no interest in exchanging back for fiat currency because they understand the end game. Yeah. You've got this statistic here that says $1.4 trillion in immutable value transfer so far

Starting point is 00:15:29 in 2022. That is a massive number and would put us on pace to destroy MasterCard and a number of other payment systems from just a value transfer standpoint. What's your analysis on this? Yeah. So, I mean, I really could have just said, you know, $1.4 to $6 trillion in change-adjusted volume. But, you know, if we're just thinking about recent events, thinking about what's happening in canada uh really you know freedom money rings and so uh immutable value transfer like the value prop there a lot of people in western countries for the longest time said you know what's the point when i can just transfer money on you know ach or stripe or you know venmo what's the point of bitcoin it's it's slow and efficient and all these other things and then

Starting point is 00:16:12 the reality is they say a wrong thing or attend the wrong protest and all of a sudden your bank your money that you thought you had isn't your money um and so like you know it's kind of somewhat dystopian but the reality is that bitcoin and and it's uh you know value prop has has never been clear for a lot of people and so uh the reality is that you know this this monetary network and its properties aren't aren't you know duplicable anywhere else in the world this proof of work the kind of settlement assurances that come with this this protocol um don't exist in other cryptocurrencies and they don't exist in the legacy system and so you know this increasing trend towards overreach by governments. And really, you know, tyrants is not something that

Starting point is 00:16:51 we want to see, but it's just the reality of how the world works and how it's, you know, where it's where we're going. And so, you know, central bank digital currencies, a lot of this stuff, it's really somewhat of a, you know, less, less freedom for all of us. And so to have Bitcoin here, to have this freedom money is something that, you know, can't be understated. And that's why we keep emphasizing it over and over. Got it. And then when you start to actually look at at this last chart, the CPI year over year versus the Fed funds effective rate. Obviously, we've got tons of talk of inflation, of Fed policy decisions. Seven and a half percent is a frigging wild number. What's the read? All right. So I'm going to read an excerpt from an

Starting point is 00:17:32 IMF paper in 2011. And so just so people get some context to what we're dealing with here. So this was published in 2011 by the IMF. It says, a subtle type of debt restructuring takes the form of financial repression. Financial repression includes direct lending to governments by captive domestic audiences, such as pension funds, explicit or implicit cap on interest rates, regulation of cross-border capital movements, and a generally tighter connection between government and banks. In a heavily regulated financial market of the Bretton Woods system, several restrictions facilitated a sharp and rapid reduction in public debt to GDP ratios from 1940s to 1970s. Low nominal interest rates help reduce debt servicing

Starting point is 00:18:11 costs while high incidence of negative real interest rates liquidate or erode the value of government debt. So what's happening? High inflation, low interest rates, domestic captive pension funds, and all these other sorts of capital sitting in bonds, tens of trillions of dollars worth. What's happening? The real value of that capital is eroding in real time. So what we can take from this? Well, it's not so much a coincidence, more so that they're following a playbook. And if you're sitting in bonds, if you're sitting in debt securities, you're guaranteed to lose. So thankfully, we have an escape valve. Christine Lagarde, the chair of the ECB said, if there's an escape valve, they'll use it. And the reality is that

Starting point is 00:18:51 Bitcoin increasingly is becoming this escape valve for people. And not many people realize it. And a lot of people deny this fact that it's some sort of inflation hedge. But I wouldn't think of it as an inflation hedge on the CPI reading on a Wednesday or Thursday morning. That's kind of missing the forest for the trees. The reality is that digital gold, this absolutely scarce monetary asset that can't be censored, that can't be taken away from you, is this hedge against government tyranny, but also financial repression, which is the only way out of this unprecedented debt spiral that everywhere in the world seems to find themselves in. So it's more of a playbook than anything else. And I think, uh, you know, you, you'd be wise to have some Bitcoin in your

Starting point is 00:19:32 portfolio. What's your read on the Canadian, uh, government Bitcoin freezing assets, the whole nine yards. Yeah. I mean, a lot of things to say, and I think, uh, you know, I've, I've definitely made my opinion kind of, uh, loud and clear on Twitter. And I've had a lot of people, you know, uh, give me their, you know, or I guess like frown upon my take that it's not about health. And I think it's becoming increasingly obvious that it's not about health and it never really was. And so you're seeing, you know, places like Canada and Australia and New Zealand, you know, clamped down super hard on their citizens. And it's it's it's scary. It's definitely scary. I mean, I live, you know, an hour from the Canadian border and probably won't go for a long time. So, you know, Bitcoin is hope for these people. And, you know, freedom money rings.

Starting point is 00:20:17 I guess that's all I have to say in regards to that. But I think Trudeau and a lot of those, you know, government cronies are on the wrong side of history. Joe, John, what questions you guys got? Dylan, what's up, man? I like the mustache. Keep that going. Don't let him him come after you. All right. My question would just be around the supply side and the buyers. Right. So I think we've seen and we've talked about this multiple times of how retail continues to buy and just dollar cost average into this asset time over time again. But from the institutional side, like what are you looking for there? And like, I guess from like a bull case scenario, if we think if Bitcoin is going to go where we all think it's eventually going to go, like how much of that is institutional based versus just the retailers continuing to buy into this asset? Yeah. So, I mean, retail was definitely, you know, they were like here to Bitcoin almost a decade before a lot of this like institutional capital and, you know, that ever growing base of retail buyers is still going strong. But I think the institutional capital that's, you know, moving, that's moving funds off of like, say, the real yields and looking like or say like pensions, endowments, all these other sort of funds.

Starting point is 00:21:20 They're trading off what's happening in legacy markets and somewhat of a risk off sentiment and price action and equity markets and credit markets like we've covered in previous episodes. That definitely has an effect on their allocation and where they're moving capital. So that's kind of why we're seeing, I think, some sort of consolidation for the time being. You're seeing certainly some institutions or maybe the ones that are a little more prudent are saying, hey, we need to we need to up our Bitcoin allocation in times of uncertainty, because not only is there inflation risk, but there's credit risk everywhere in the fiat system. But, you know, for the most part, I think we've seen somewhat of a halted kind of allocation from a lot of these these big money funds until more like central banks kind of go off their hawkish stance a little bit. So even though inflation is 7% and the Fed funds is still zero and the 10-year treasury is still at 2%, yields are laughably still very negative in real terms. But I think there'll be a pivot.

Starting point is 00:22:21 They can't taper a Ponzi, essentially. And so that's when a lot of this institutional capital comes back in a big, big way. Russia has obviously been in the news a lot lately. but recently they came out and we're talking about lower taxes for people using electricity for crypto mining. What is your sentiment about all of that? And kind of, they now, I believe in August of last year had around 11% of the Bitcoin mining in the world. What is your read around what's going on over there? Not trying to get political. Yeah, I'm by no means a, you know, a geopolitical analyst. I would just, I would just say that Russia, you know, very natural

Starting point is 00:22:59 resource rich. You know, they export a lot of energy, obviously. And, you know, they've increasingly tried to basically get off the dollar system, get off that kind of swift Fedwire system, de-dollarize their reserves. They're holding, you know, a lot less treasuries and a lot more gold. And so I think Bitcoin is a natural fit, whether, you know, Putin straight up adopts it as as, you know, legal tender currency or they buy Bitcoin for reserves. That's another story. but I think it just, it naturally makes sense. I think it would be, you know, a blunder of a move if they did something similar to what China did in terms of, you know, just kicking all their miners out. It makes, it makes almost no sense. And so I think it actually, the game theory says

Starting point is 00:23:39 they embrace it and whether they explicitly embrace it and come out as, you know, proponents and supporters is another story. But, you know, it's a quite natural fit given that, you know, the natural resources in Russia and also just like the geopolitical environment and, you know, the history of U.S. sanctions and all of the like. So I think it's a natural fit and we'll see where it goes. But the game theory says, you know, full go for Putin and Russia with Bitcoin. Well said. Dylan, last question we have for you. You don't know this because it happened while we've been talking, but Canoco Phillips, which is a hundred billion dollar oil producer, they've publicly just announced and admitted that they are actually mining Bitcoin in the,

Starting point is 00:24:19 I think it's pronounced Bakken kind of formation, which is in kind of central part of the United States. So we've got one of the largest oil producers in the world that now is saying, yes, we are mining Bitcoin within the borders of the United States. What's your general take on these energy companies doing this and kind of now talking about it, it looks like? Gradually, then suddenly.

Starting point is 00:24:42 Yeah, I mean, it's all coming. They're all going to come. I mean, right now, the production cost of Bitcoin, And I mean, it varies based on, you know, your cost of power and your rig costs. But, you know, a lot of these publicly traded miners are producing Bitcoin for $10,000 with a market price of $44,000. So and a lot of like, you know, say like Great American Mining and a couple of these companies are just taking like waste natural gas in the in the Bakken where these guys, I guess, just said they're mining Bitcoin and they have almost no marginal marginal cost to this. It's waste energy and they're mining Bitcoin with it. And so, you know, every oil and gas company is going to is going to enter the space in a big, big way. And so I think, you know, we're still at the phase where it's a lot of the kind of early adopters. But, you know, they're just the financial incentives alone say they're all going to come. So, you know, gradually, then suddenly. And it's nice to see another one, another one of those dominoes fall.

Starting point is 00:25:35 I completely agree with that. Last, last, last question. Sentiment check from you. Obviously, with Bitcoin kind of going a little sideways here, people seem to be a little bit quieter on the internet. What's your general take as to where we are and kind of what to expect over the next couple of weeks? Yeah, I mean, I think equities are still a big driver, risk on, risk off, you know, what's happening, whether, you know, there's a deleveraging in the legacy system or not. I've been watching credit markets quite closely. They still don't look too great. We covered that on the last show. So I think that's kind of interim, you know, short term risks. But I mean, I came out and I said, I think it was about two weeks ago, glad I increased my Bitcoin allocation to 105%. So, I mean, I'm long and strong, you know, no wavering beliefs here. Nothing's changed in that, in that sense.

Starting point is 00:26:27 I love it. Joe, John, you guys got anything else? No, man. Dylan, thanks for coming on, man. Thanks Dylan. Appreciate you guys. All right. We appreciate you. Keep up the great work. See you next Tuesday. Peace. Later, buddy.

Starting point is 00:26:39 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.

Starting point is 00:26:59 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.

The Pomp Podcast - #827 Bitcoin Frees Us From Censorship NOW w/ Dylan LeClair

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.