The Pomp Podcast - #846 Investors Are Running To Bitcoin 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. This episode is brought to you by 8 Sleep. 8 Sleep is the single best product that I have purchased over the last three years. It

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Starting point is 00:01:58 only and not to US persons. Visit bullish.com slash legal for important information and risk warnings. Go check them out at bullish.com or follow at bullish on Twitter. 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. 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

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Starting point is 00:03:16 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. Dylan, what is going on, my man? John, running the show. Let's go. How are you doing? Doing good, man. Doing good. Bitcoin's pumping.

Starting point is 00:03:47 What is your sentiment about the market right now? How are you feeling about Bitcoin kind of increasing, having that giant increase yesterday? I mean, it was definitely a massive short squeeze. It was something that I think a lot of people weren't expecting. I was kind of shocked just at the magnitude of it, but definitely not something on a medium-term, long-term time horizon that is shocking at all. I mean, we talk about, you know, coming on here every Tuesday and talking the market and talking about a potential decoupling happening. I mean, that's, you know, these days like we had yesterday, that's kind of what we're looking at, right? Like equities down, kind of chopping around.

Starting point is 00:04:24 Bitcoin up 15, 16% as a lot of sideline cash and managers all over the world are watching. It was definitely something to behold. Nice, nice. And then we have some charts from you that I'd love to get to. um, your first chart is talking about the U S treasury bond yields. Can you talk about what this chart means? Yeah. So, um, over the last couple, couple of weeks, couple of months here, we've, we've talked a lot about the kind of the macro environment. And, um, since November, really the Bitcoin market has, has taken a big hit. And a lot of the stuff that we're looking

Starting point is 00:04:52 at from a market perspective, um, you know, in, in terms of Bitcoin is actually quite healthy. Uh, we weren't seeing a huge distribution happen. We weren't seeing the traditional kind of bear market, you know, the bear market metrics that you see in terms of on-chain, what you're really seeing was those kind of macro sellers, right? Because you had the Fed kind of pivot with inflation at 40-year highs. And really what you started to see was the bond market started to croak. And so you saw yields were selling off in a big way, rising, which means that credit was selling off and the equity market took a downturn as well. And so I think just recently in the actually look to have at least momentarily topped. And you saw kind of a Fed pivot with this next

Starting point is 00:05:38 chart. I have the Fed funds. It's basically the Fed funds futures. So here is basically a prediction market or futures market for how many hikes the Fed's going to get in. So we have it for March, June, September, December. And you can kind of see a big reversal in a lot of these in the middle of February. And at the same time, coincidentally, you also saw the price of Bitcoin bought them in a big way. And so I think that's the market walking back, how many hikes that the Fed's going to get in, basically saying, we're not going to be as tight with future monetary policy. And something like Bitcoin is going to react in a big way to that. Yeah. And we obviously had those rates come down a ton since the pandemic started in early 2020.

Starting point is 00:06:19 But then you have a chart talking about the target Fed fund rates. Can you just talk about what you mean here? Yeah. So this is basically, this next chart is showing this dynamic. in, are you talking about the chart we just showed or the next one? The next one, the next one, the, the target. Yeah. So this is for the March meeting. And basically this is the market's probability of, of how many rate hikes we're going to come in March in real time. So you see basically until like, what was it like January, February, there was like, the market was giving no chance for the Fed to hike whatsoever twice. So two rate hikes would be a 50 basis point rate hike. And all of

Starting point is 00:06:57 sudden in February, what you saw was that probability blew out to 94%, 93.75%. And this chart, I actually put it up yesterday. The market's now giving the Fed a 5% probability of two hikes and basically a 95% chance of only one hike. And so what we saw was kind of this peak moment of hawkishness and equity markets, Bitcoin cratered and the volatility across asset classes really blew out. And so we kind of see with this chart, you see that Fed put almost in real time. It's quite remarkable. And I think it just kind of speaks to where we are in terms of the macroeconomic environment. Yeah. And it's giving it a 0% chance for no rate hike. Yeah. I mean, we'll see about that. I think the Fed's kind of cornered politically. And so

Starting point is 00:07:44 there's a lot of pressure on them. And 25 basis points, it's not that much when you think of inflation at you know seven percent maybe maybe higher with a lot of this kind of geopolitical uncertainty uh happening over in europe so we'll have to wait and see but yeah i think i think more so than anything that 25 basis point hike is just kind of a symbolic thing that hey we're doing something here uh we're not we're not letting this thing uh just completely run on its own gotcha and then bitcoin is obviously a very um volatile asset but it looks like the smp is also pretty volatile based on what you're showing here. Can you talk about this S&P and then the volatility index? Yeah. So we've talked a lot about the VIX, which is this volatility index,

Starting point is 00:08:27 and it's kind of a sentiment or a gauge of risk off in markets. And so you saw in March of 2020, this volatility index really blew out. And it was at the same time, if you overlay the Bitcoin chart, when the VIX really, really went to like 80, it was the same time that Bitcoin cratered of like 50% in just a matter of days or even in the same day. And so what we see here is we're kind of now entering this regime of higher volatility in general for equity markets. And so if you overlay this on shorter timeframes with the Bitcoin price, you saw that the local bottom in 2022 was when the VIX hit 38. So it was like that local high in the VIX was the local bottom for Bitcoin. And as that volatility came back in, lowered a little bit, Bitcoin recovered, the S&P recovered. And so I

Starting point is 00:09:12 think we're in this regime of higher volatility in general for equities. And so I would expect the volatility to remain there for Bitcoin as well. But it just kind of shows how shaky things are with this kind of regime of high inflation, low yields, and credit markets are kind of gurgling under the surface. Are you looking to see that volatility be correlated in the future as well? Or do you think that's kind of like a one-off instance with Bitcoin and S&P? Yeah, I think it's just kind of this really shows or I guess quantifies kind of the risk on risk off sentiment. And really, if anything, I think one of the bigger reasons why Bitcoin bottomed first is you have kind of two types of allocators in this asset class. I mean, more than that, but generally speaking, you have the kind of crypto natives, Bitcoin native adopters that aren't trading based on volatility and equity markets or credit markets.

Starting point is 00:10:06 And they're just adopting Bitcoin as a monetary asset and maybe increasingly so as kind of something to use as capital flight or to, I mean, people will get upset with me saying this, but as a way to avoid sanctions or maybe in Canada as a way, you know, to not be deplatformed from the financial system. Bitcoin is kind of just this tool that anybody can use in this kind of neutral way. So you have those type of allocators, per se. And you also have just the macro traders, right? And so as we saw, basically two, three, four months of downtrend in Bitcoin markets, equity markets sold off in a big way. I think a lot of those macro allocators, if you want to call them that, sold off their coins.

Starting point is 00:10:45 They sold off their holdings. And so the crypto natives kind of stepped in in a big way. And that's why we saw this momentarily decoupling. But in the future, I expect, you know, that correlation will remain, at least to an extent, because kind of everything, especially Bitcoin equities, is a function of this like central bank liquidity tide. And if they, you know, if the tide pulls back, Bitcoin is going to struggle to do great, even though I think outperformance is still my base case over a longer term time horizon. So I expect the correlation to remain. But I think, you know, what really defines Bitcoin is these momentary periods of huge outperformance for a lot of your returns will be made. Gotcha. Yeah. So those returns will be in like short bursts. And then we have another chart talking about the Bitcoin supply and what has moved in the last three months. Can you can you talk about this chart? Yeah. So, you know, throughout this this drawdown, we've we've highlighted, you know, I have on the show as well as just kind of in general highlighted how strong the on chain side of things were in terms of Bitcoin supply and just how really we hadn't really seen that demand side come in.

Starting point is 00:11:50 So if and when those macro tides turn, which we've seen a little bit, I don't know if we're out of the woods yet in terms of macroeconomic geopolitical uncertainty, but if and when those kind of tides turn in terms of marginal sellers becoming marginal buyers, what we'll really see is a big outperformance. And so what we're seeing here is the percent of supply, Bitcoin supply, that circulating supply that's moved within the last three months is near all-time lows. It's not quite at all-time lows, but it's just there. And so we kind of have this really, really small free flow of Bitcoin out there that are being traded that are available on the market. And so this is just kind of showing just, you know, we're in quite rare air. This is far from what a top looks like. And you can definitely see that from the price action itself. But really, this is just kind of showing how squeezy the market kind of can be.

Starting point is 00:12:39 And so I think this is one of the things that we've been showing. But I kind of love this chart just to show, you know, how primed the Bitcoin market is to explode higher if we see those, you know, marginal buyers return in a big way. And we just started to see that yesterday, in my opinion. Would you expect it a bigger move percent-wise of coins, given what's happened internationally in the last month or so? Or is this kind of right on target? Yeah, I mean, I think really what this is showing is just like kind of that convicted hodler base, just continuing to scoop up those coins, especially, you know, we saw these really low figures throughout much of 2020.

Starting point is 00:13:14 We saw somewhat of a distribution into 2021 as Bitcoin went parabolic. And since then, we've seen a reaccumulation with a slight deviation of trend with somewhat of this macro uncertainty. But I think really, you know, the exciting thing is that we have potentially a bunch of new allocators into this asset with all of the stuff happening geopolitically from kind of like a, almost like a risk off standpoint where, you know, sovereign debt has become a lot more risky where we have sanction risk, credit risk, all of this stuff happening. You know, there's 150 million people in Russia and, and you really have to feel for them

Starting point is 00:13:49 because there's an autocratic dictator doing all this stuff that, that they probably have, you know, want nothing to do with and their currency devalued by 50% overnight, their stock market crashed by 50% overnight and they're basically shut off from the global financial system. So, you know, it's, it's, I think it's somewhat a little bit insensitive to be like, Hey, Bitcoin fixes this Bitcoin, Bitcoin, Bitcoin, when a bunch of people are suffering and there's a war breaking out. But ultimately this, this does highlight the need and importance of this, of a global decentralized monetary system that anybody can voluntarily opt into, right. The censorship resistance of it. You know, Russians that have nothing to do with Putin are,

Starting point is 00:14:25 are, you know, being punished because of this. And so I think there's, there's a lot of new allocators to this asset that, you know, are going to, going to enter in the next, you know, in the coming weeks, months, years that, that haven't had exposure before. Gotcha. And then you have two charts here talking about the BTC hourly perps. Can you just go ahead and talk about what this chart means? Yeah. So part of the reason why Bitcoin, you know, we, we talk about derivatives a lot and there's, you know, we talk about the macro, We talk about on-chain and really what makes these and those two things matter a lot, but overlay that with derivatives. And that's why you see these really explosive moves.

Starting point is 00:15:03 There's a reason that Bitcoin will do nothing for a couple of days. And then sometimes it seemingly randomly explode 15% up in a day. And a lot of that has to do with how people are positioned in derivative markets. And so we have this perps funding rate, which is basically this derivative market is tethered to the spot market, tracks the spot market through this funding rate. So if derivatives are higher than spot price, what you're going to have is long positions are going to pay short positions just to enter the market. So it really places a financial incentive to keep this derivative market close to that spot price. And with this kind of color scale, this blue and red, we see when that funding rate is positive or negative. And so recently, you kind of see that negative or that short bias, not a short bias, but that negative funding rate, meaning longs were actually getting paid to enter the market.

Starting point is 00:15:57 So we kind of saw like a peak moment of bearishness. And it's been worse in the past in terms of the severity of how negative the funding rate was. But we kind of saw just derivatives market price in worst case scenarios, skew bearish. And traditionally, when you get these kind of periods of overextended bullishness or bearishness, Bitcoin takes away a max pain in derivative markets. And so we just saw basically yesterday, not only a lot of spot allocators with some of this geopolitical uncertainty, but also a huge short squeeze, which is kind of why we saw such a massive move and all that volatility.

Starting point is 00:16:31 It seems like everyone's trying to judge if we're in a bearable market and people don't really know. What are your thoughts on are we in a bear market, a bull market? Are we neutral right now? Yeah, I mean, you know, there's a lot of technical definitions in Wall Street. It's 20 percent off the highs is a is a bear market. And so we've been Wall Street's definition. We've been in a bear market for a while. But I think we're kind of in a in a secular bull. And people may say, you know, a couple of weeks ago, how are we in a bull market? 50%, you know, closer to 60% off the highs. I really just think that traditional four-year

Starting point is 00:17:03 cycle that a lot of people think about of parabolic boom and then 80% bust, that kind of mental model may be a little bit obsolete. I'm not saying we can't draw down 80% or go parabolic again, but just, you know, the profile of Bitcoin, the liquidity profile of Bitcoin, the asset has changed. And there's no doubt about that. And so, you know, you're seeing a lot of people basically use it as a check on the Fed. It's kind of like a signal of central bank irresponsibility. And that's kind of what I was trying to display in the first couple of slides. So to put a bull or bear label on it is pretty tough. And I think, you know, there's some headwinds with the macro environment that, you know, Bitcoin could just chop around here a little

Starting point is 00:17:42 bit. But it is very telling to see this massive decoupling. And I know personally, there's a lot of risk managers that are watching the move over the last couple of days and feeling like they are they are fully underexposed. And so I think that's a catalyst for potentially much higher prices over the coming year. Yeah. We saw we're about 36% down from the all-time high. So by Wall Street's definition, we're definitely in a bear market. Yeah. And maybe something more like 40 or 50% in Bitcoin is more appropriate. So maybe we are technically, maybe we aren't. I think more of a crab market where we're chopping around a little bit is the answer. And then does it matter how long we actually stay down for to be considered in a bull market or bear market?

Starting point is 00:18:26 Yeah, I mean, I'm not not too sure there. I mean, in terms of how how I'm playing it, I'm happy to accumulate. I know, you know, it's it's nothing but a thing like like I've been saying. And so, yeah, I know you pop guys are feeling no different. It's just nothing but a thing. And I don't really worry too much about the technicalities of a bull or bear. It's just, you know, it's just the market. Gotcha. Gotcha. Yeah. And then we have another chart talking about kind of the Bitcoin price and then open interest. Yeah. So this is just kind of showing that short squeeze, right? So we have open interest contracts. And for viewers, for every short, there's a long. There can never be more

Starting point is 00:19:02 longs, more shorts. It's always equal positioning. So what do you see when Bitcoin is pumping from, say, $42,000 to $44,000 like it did yesterday? We see how underneath the pain, how open interest tanks at the same time. What that means, and maybe they're liquidations and maybe they're not, I believe a lot of it was just shorts closing out before their liquidation price. But open interest tanking as Bitcoin's pumping means that the move was shorts covering their positions. And actually, the open interest was declining as a result. So it was people that sold their Bitcoin via derivatives, sold Bitcoin derivatives, and then had to cover as the price was rising. And so that was basically a textbook short squeeze yesterday.

Starting point is 00:19:45 So there's just kind of a visual on what we're talking about in terms of, you know, these derivative market dislocations. Gotcha. And then moving forward, how are you thinking about kind of your Bitcoin and what you're doing in the market with your personal money? Is it just still accumulating here or? Yeah, I mean, you know, I've been I've been growing my Bitcoin stack and a little bit of a cash position for for a while here. I for the most part, I'm always a buyer. And so while I do kind of do a little bit more stuff with derivative market positioning that I would probably advise for the average person in terms of, you know, just maybe sometimes shorter timeframe, medium timeframe, positioning, hedging, all that sort of thing. You know, I'm a buyer every hour, like I've said, and I'll happily do that at the highs. I'll do that at the lows and everywhere in between because I think Bitcoin is the best money the world's ever seen.

Starting point is 00:20:33 So, you know, there's the trading aspect of it. There's the market analysis aspect of it. uh, kind of, you know, asymmetric risk reward opportunities, but longer term, you know, there's, there's nothing that can compete with Bitcoin as a monetary asset. And so in that sense, it always makes sense to be a buyer. Yeah, I agree. And you and myself as well, I think we have the advantage of being young, um, being able to take that kind of long time horizon instead of, Hey, I need liquidity within two years, five years, whatever it may be, uh, with sailor's quote, because the best time, the best timeline for investing in Bitcoin is forever,

Starting point is 00:21:04 um and never selling it so we'll see where the technology goes and then eight sleep is one of our sponsors here what like crypto trades 24 7 so how has your sleep changed over the last year or two as you've gotten more into it yeah i mean it's definitely uh especially with with you know having some maybe some positions trading uh all that it definitely makes it fun uh to you know never to never have an off day, uh, trading 20, 24, seven, three 65. I mean, uh, it, it definitely doesn't help probably, you know, it'd be nice to have a, have a weekend off here, but it makes it exciting. And, uh, you know, so oftentimes the biggest moves come on like a Saturday night or something crazy. So, uh, you know, it probably doesn't help my sleep schedule to be honest with

Starting point is 00:21:48 you. Gotcha. Gotcha. All right. Thanks Dylan for joining us. I really appreciate it. Um, we also, where do we send people to find you on the internet? Yeah, you can just find me on Twitter, Dylan Leclerc underscore. A lot of the charts I showed today are a sneak peek or preview of the monthly report we're dropping on Wednesday. So check that out for the deep dive. You can find that in the link in my bio. So it's a letter that I produced with Bitcoin Magazine covering kind of all the stuff, macro, on-chain analytics, Bitcoin derivatives. We like to kind of put it all out there. So I appreciate you having me on and you're killing it solo today, man. I appreciate that.

Starting point is 00:22:25 catch you later 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 pompscryptocourse.com to learn more, and I'll meet you guys for the next episode.

The Pomp Podcast - #846 Investors Are Running To Bitcoin w/ Dylan LeClair

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