The Pomp Podcast - #890 Bitcoin Is Breaking Out 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 FTX US. FTX.US is the safe, regulated way to buy and sell Bitcoin and other digital assets. You can

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Starting point is 00:03:33 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. Let's get into first chart, Bitcoin price weighted by purpose funding grade. What are we watching here? All right, TLDR, we're not seeing a sort of over leveraged, like speculative sort of longs that we saw for much of 2021. If you think about the two local tops, it's really not, they're not the leverage and the kind of uh sentiment and just uh in terms of if you're just like quantifying um these funding rates just how much basically the longs are paying

Starting point is 00:04:11 uh the kind of like the financing rate for for going long bitcoin it's not there so it's showing that this is really an organic bid um and anecdotally you know luna's buying what lfg is buying 100 200 million dollars bitcoin a day michael saylor's coming in as well uh so it's you know, kind of not this time is different per se. Um, and I still, still like there's some macro certainty out there despite kind of a bounce in all risk assets, uh, over the last couple of weeks. But in terms of being at 47 K, uh, we haven't seen this low level of, of kind of speculative bid and been at this price level before. So it's pretty promising. All right. Next is the purpose funding rate, 24 hour average annualized. This is pretty much saying the exact

Starting point is 00:04:52 same thing? Same thing. Just another way to visualize it. So instead of just the funding rate that you get every eight hours, this is the annualized rate. And so you can really kind of see we've been persistently negative, meaning that longs have actually for some of or most of 2022 have been on and off, been getting paid actually to go marginal on Bitcoin. So we kind of see this level of of bearishness and Bitcoin derivatives. Oftentimes, I mean, you could definitely go lower. But what it's really saying is derivative traders, speculators are actually not overly long and They're getting really, really defensive. So we've seen kind of bottoms characterized throughout Bitcoin's history

Starting point is 00:05:26 with this level of defensiveness from derivative traders. And it's gone lower before this kind of this funding rate. It's gone deeply negative in the past, and we haven't seen that. But just in terms of, you know, not being very overly long that we have in the past, this is a really good sign. Okay. And then if we take a look at the Bitcoin% futures OI crypto margin, this is just falling off a cliff basically since May of last year.

Starting point is 00:05:50 what's this telling us? Yeah. So kind of a mouthful of a title, what it means is that the kind of the character of the Bitcoin derivative market, the collateralization of the Bitcoin derivative market, if you overlay the funding charts we showed with this, what's kind of the story of 2021? Bitcoin goes parabolic, number go up forever. A bunch of people take their Bitcoin and pay a whole lot of basically funding or you pay a huge financing rate to go margin long Bitcoin on their Bitcoin. They all get wrecked. And at one point, open interest as like total Bitcoin derivative open interest was 70% collateralized with Bitcoin itself. So if you think about what Michael Saylor is doing, no one knows what his TVL is like his kind of how much he's borrowing

Starting point is 00:06:31 versus how much he's putting down. But, you know, say he's putting a couple hundred million down and he's getting 200 million in return and Bitcoin can probably go down, you know, 50, 70%. But the character of what he's actually doing is he's taking Bitcoin and collateralizing it to buy more Bitcoin. And that's essentially what the derivative market did in mass in 2021. Now, what we're seeing is stable coin margin, which doesn't have that convex relationship to the downside. If you think about your collateral value going down, as well as your position value going down, that leads to forced liquidations. And so with stable coin margin, there's not that really bad relationship for those that are looking to long. And so in terms of just overall derivative

Starting point is 00:07:10 market health, what these first three slides should tell you is that we're in a much more you know stable uh for lack of a better word position than we were in the past and it's a lot healthier got it and then if we take a look this is the money chart to me this is the most important chart at the moment we're at 48 000 price point uh there's a persistent bid in the market and you tweeted yesterday that the percent of the supply last active more than one year ago this is what second highest highest it's ever been yep uh so we're about i think in terms of percentage terms, it's about 0.3% from its all-time high of coins that haven't moved in a year. In aggregate terms, it's at an all-time high. Back of the napkin math, somewhere around

Starting point is 00:07:54 11 million or so, 11 and a half million coins haven't moved in a year. And so this is what you have. This is the reality. And this is why I pay attention to on-chain analytics. And this is why Bitcoin, that number go up technology is you have a relentless cohort of stackers and hodlers all over the world that are buyers of any price. And because of the absolute scarcity, because of the supply and elasticity, Bitcoin will find a bid because of these relentless marginal buyers as marginal sellers get exhausted. That's just the reality of it. And something like this, where you see Bitcoin's never been more kind of scarce or more tightly held over a one year time frame, just kind of validates that thesis. We can kind of feel it anecdotally when you're talking to

Starting point is 00:08:36 Bitcoin hodlers. But this is really just a way of showing it like the supply shock. The reason bitcoin goes parabolic is because marginal sellers get exhausted and new money that comes in has to bid up the price and so not saying that we're there yet or we're going to go parabolic over the next four months it's no guarantee but what it's showing is that supply held for over years has never been this tight and i expect this trend to continue to go up it's quite exciting i wrote this morning all about this idea that in september of 2020 as you pointed out we were at uh all-time high in the supply illiquidity and we had two persistent buyers we had micro strategy in the market we had gbt uh with the arbitrage trade just pouring billions of dollars in we went

Starting point is 00:09:15 from 10 000 to 64 000 between basically uh end of september 2020 until march of 2021 so kind of that four to seven month time period now when we think about that again the illiquidity matches we see that for sure in the on-chain metrics like you're pointing out here we do know of one persistent buyer buying 125 million dollars or so a day at the moment that's about 300 percent of the daily incoming supply will we get other persistent buyers in what size that's all up for question but i think what you're outlining here is when this much illiquidity is in the market and you have any amount of persistent buying pressure it has to move the price in order to accommodate everyone is that kind of a fair categorization yeah a hundred percent and i think you know more

Starting point is 00:09:59 so just the trend is and i see a lot of you know bitcoin maximalists that will that love what that what Luna's doing or that hate it. Uh, you know, and there's some, you know, for some reason, there's not really a middle ground, but I think the reality is what Doquan is doing is completely rational. He realized that, and he just, you know, if you listen to his talks, it was, you know, we basically, or Doquan rather, uh, we were looking for the best sort of collateral and we wanted something that was neutral and mutable and not, not political in any sort of way. And it had a credible monetary policy. And if you're looking for that, the only answer you have in the world today, it's Bitcoin. It's not ETH, not Solana, not any other digital asset, not Luna

Starting point is 00:10:37 itself. It's Bitcoin. And so if we're just thinking about all protocols or stable algorithmic stable coins, right, if you go a level up and I tweeted this out and, you know, we were bantering yesterday about this pump. What is the next logical step if someone's watching what Luna is doing? And essentially Luna is doing is they're using seniorage from the appreciation of the token. lfg is minting the luna into ust selling the ust for tether and buying bitcoin okay long form they're using luna seniorage to purchase bitcoin what's the rational action for every single entity that can use seniorage aka legacy banks nation states it's to acquire the hardest money collateral the world's ever seen to back your currency and i think it's a no-brainer and

Starting point is 00:11:23 something that not a lot of people have, have understood yet. Uh, but that's, that's what really drives Bitcoin into outrageous figures that no one can think possible is backing your weak unbacked fiat currency with absolutely scarce digital money. And I think that's, that's the trend over the longterm facts. You have the treasury bond futures denominated in Bitcoin and NASDAQ denominated in Bitcoin, uh, newsflash they're going down. Uh, what, what is this? Is this just the the continuation of the trend yeah i mean i just like to it's just a fun thought experiment to denominate assets uh in each other you know we can look at usd but i think really if you look at you know kind of relative performance of these asset classes it's quite

Starting point is 00:12:04 clear if i didn't label the chart and just showed you bullish or bearish on this asset what would you say you'd say bearish right denominating anything in bitcoin really over a long-term time frame uh the chart looks terrible and there's a reason for that it's because bitcoin's performing everything. So treasury bonds are trending to zero in Bitcoin. Big tech is trending to zero in sound money and really most everything else. And what we can say is, you know, we've preached this and we preach this, you know, while Bitcoin's down 50, 60 percent, if you denominate your standard of living in the soundest money over the long term, you'll do great. And so it's tough to hold through volatility. It's tough to see your purchases down 40, 50, 30 percent,

Starting point is 00:12:46 whatever it is. But long term, if your unit of account is superior to others, you'll relatively outperform. And I think that's what we're seeing today. And that's going to be the trend for the next decade plus. Joe, John, what questions you guys got? Dylan, I just want to ask you about how you think about cycles in general. Obviously, Bitcoin has acted slightly different this cycle than the previous ones. Do you think that this is kind of what we're going to see going forward? And just how do you think about cycles in general? Yeah, I've kind of had a little bit of a thesis that the, you know, three-year 80% drawdowns and bull bear cycles are somewhat concluded, that Bitcoin's matured enough to where it's still very volatile. And because of these

Starting point is 00:13:25 derivatives and legacy system volatility, right, much of Bitcoin's recent drawdown from, say, November was because of legacy risk off and that USD denominator and BTC. But I think for the time or like, you know, for the future, what we're going to see is shorter term kind of maybe parabolic runs and then 50% drawdowns. I think really that kind of prolonged cycle where Bitcoin was under the surface and didn't really get much attention around the world other than just kind of being cypherpunk niche internet money. I think those days are slowly coming to an end, even though we still are definitely in a big echo chamber on Twitter and just being kind of the Bitcoiners in general. But more and more increasingly, I think its relevance at a nation state level and a

Starting point is 00:14:11 geopolitical level is stronger than ever. And for that reason, I think, you know, the days of Bitcoin dying for years on end and, you know, just everyone forgetting about it, uh, relatively is somewhat over. John, what do you got? Dylan? My question is just around, like, is this a make or break moment for Bitcoin? We see terror buying a bunch of Bitcoin. We see everything around the world basically acting as a perfect storm. Is this year going to be a make or break for Bitcoin? Yeah. I mean, it's a make definitely, definitely a break. And I don't know if it, uh, I don't know if, you know, Bitcoin goes and appreciate by an order of magnitude this year. I'm certainly extremely bullish and palm funny enough.

Starting point is 00:14:48 I was getting I was getting some heat yesterday saying, oh, weren't you bearish? And I was like, I've gone every single day and every single week and said I own more Bitcoin than ever. How the heck can you think I'm bearish? Yeah, like cautiously optimistic about the global economy because it doesn't look great. But I think in terms of make or break, you see things like Exxon, right? They're saying, hey, we're actually reducing methane flare through Bitcoin mining. All these things that were kind of like niche narrative talking points are actually coming to fruition. You know, legal tender happened last year.

Starting point is 00:15:19 I think we're going to get some fun announcements in about two weeks in Miami at the conference. You're going to see other kind of huge developments like Russia saying, and not that we're a supporter of Russia, but they can use an apolitical neutral currency if they wish for global trade. Things like this, we're really kind of speeding up the event horizon faster than I think a lot of people thought. And for that reason, you know, exponential technology, exponential adoption, I wouldn't be surprised to see Bitcoin continue to rip. And some of these macro catalysts that we're talking about can definitely expedite it even further. When you start to think about sentiment right now, it feels like the energy is building. You can see it on Twitter. Bitcoin searches are up 20, 25 percent globally.

Starting point is 00:16:00 uh you can feel that the uh terra announcement if they're going to buy three billion i saw there was a article i made was in the uh it was the block or uh wall street journal somewhere i read uh a bunch of otc desks or maybe it was actually the ghost frank chaparro was tweeting otc desks are saying that no one's trying to sell bitcoin right now because they know there's a persistent bid in the market like it just feels like it's building is that what you're seeing as well yeah i mean just price action alone but yeah i saw that tweet as well and i think that's directionally head on uh you know who wants to sell when you know there's a huge buyer in the room and i think uh on a micro scale that's the story of bitcoin is that there's a relentless

Starting point is 00:16:39 amount of buyers and and bears although they've had a you know pretty good few months here uh long term it if you're a bear on bitcoin you lose all your money um uh that's just kind of the harsh reality or of the situation is that absolute scarcity and a growing group of buyers of last resort leads to number go up and it's it's quite that simple i mean people people like hate on the bitcoiners for being dogmatic and all that other stuff but once you come to that realization uh of of there's buyers of last resort it's absolutely scarce we know where this is going then you can just kind of cut back the noise and and enjoy the ride i mean the sentiment was was pretty bad a couple weeks ago at 30k but you know a lot of people got really good buys and

Starting point is 00:17:21 And so maybe maybe we rock to new highs here and still cautiously optimistic about about credit markets and all of those other things that we've talked about. Seems like still the macro environment is kind of deteriorating, getting a yield curve inversion probably in the coming months, which has predated a recession since the 60s. So those are the things that I'm watching for. But Bitcoin's relative outperformance is extremely strong. What's your biggest concern right now or what's the one thing that would make you change your mind? uh i mean long term for for bitcoin it's it's truly i mean there's only really one thing it's that if we saw hash rate basically fall off a cliff which is not happening whatsoever um and i don't know what would spur that development that's my long-term thing is i expect hash rate for better or worse to go up forever um and that sounds kind of crazy but maybe forever is a little

Starting point is 00:18:10 bit of a of an exaggeration but over the short term it's really just uh you see the dollar strengthening against a bunch of other fiat's you see the credit system although it's bouncing it's it's still somewhat uh deteriorating and unwinding with with uh rather quickly and so those are the things that just that i'm just watching for in terms of uh have nothing to really do with bitcoin it's just that usd strength btc usd is a trading pair that's all i'm saying and that's why people i guess are perceiving that i'm bearish uh but really if you're if you're in it for anything more than the next few months or the next maybe quarter or two really you should you should i mean, you should be stacking every day anyway, every day, every week, automate it, and you're

Starting point is 00:18:48 going to be a winner over the long run. Last question I have for you is MicroStrategy, obviously taking the collateralized loan here, doing so from Silvergate, which is an FDIC-insured bank, as you pointed out. What's the importance of that in the market? Yeah, I mean, I don't think people understand that Silvergate's a Fed member bank, right? So they're collateralizing, they're taking Bitcoin collateral. It's a no-loss business for Silvergate. Collateralized Bitcoin lending, It's a no loss business if it's done correctly. And so I don't know the details. I don't know the rate. I don't know the LTV, but it's a no brainer for lenders. And really at a, you know, at a certain market position, as well as, you know, kind of an LTV, it's a no brainer for corporations.

Starting point is 00:19:29 Right. If you can get cheap debt because it's over collateralized, then why not? And Saylor's obviously got a whole bunch of financing and kind of debt instruments already. But I mean, it's really interesting. I expect more and more corporations and entities to do it themselves, as well as other banks, right? Like, why aren't we in this business? It's no loss because it's over collateralized. And so I think it's just a start.

Starting point is 00:19:51 And I think that those wide scale speculative attacks are what sends Bitcoin to six figures and beyond. It's a pretty incredible time to watch this occur. It was just announced while we've been on here that a $600 million hack occurred with one of the bridges, the Ronin network. Um, and, uh, obviously Bitcoin security, uh, pretty damn important as more and more people start to trust their economic value, uh, in a network. So not your keys, not your coins. That is true. That is true. All right. Where, uh, where can we send people to follow you on,

Starting point is 00:20:26 uh, on Twitter or, uh, or subscribe to the newsletter? Yeah. You can just find me on Twitter at Dylan McClare underscore newsletters in the bio. We write about some of the stuff we're covering today. I appreciate you guys bearing with me today. Sorry about the audio visual troubles, uh, tuning in for my phone, but hopefully that won't happen again. And, uh, everything goes smoothly next time. I think you're doing a great job. Who cares? If you got good ideas, you could be literally yelling through a megaphone. Who cares? Smoke signals will take anything you got as long as we get the information. So I appreciate coming on and, uh, next Tuesday, hopefully we'll be doing this in person for, uh, for the Bitcoin

Starting point is 00:20:59 conference. Wow. In Miami. So I'll have to see you guys. Come on down. Let's go. All right, buddy. Sounds good. See you later. Peace. 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 - #890 Bitcoin Is Breaking Out w/ Dylan LeClair

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