The Pomp Podcast - #929 Will Clemente On Bitcoin Investors Refusing To Sell Their Bitcoin

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. 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 coinbase wallet your key to the world of crypto crypto isn't made to just buy sell and hold with coinbase wallet you can do so much more collect more nfts earn more with defy and trade

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Starting point is 00:03:27 personal opinion this podcast is for informational purposes only we have the wizard will clemente joining us uh will how are you hey guys i'm good i just got my coffee in the system so I got the block wear, uh, shirt on here. Ready to go. Yeah. Look at that. Those are fresh shirts. All right. Um, all right. We got a whole bunch of stuff we got to get to before we start though. Let's start just with like, how are you feeling sentiment wise on Twitter? Like it seems like people are, uh, cautiously optimistic. How would you put it? Um, I mean, I,

Starting point is 00:04:03 I think the majority of people are just, you know, cautious to bearish. Um, I think that it's also kind of like reflected in Deriv's as well. I don't think, I mean, it's kind of sounds like a cop-out answer, but I don't think anyone is overly bullish. If anything, people are kind of swaying bearish, but, you know, across the board just seems like everyone's at a minimum cautious. All right. I mean, that's not, that's not fun, but that's just where we are, right?

Starting point is 00:04:31 Like it just kind of feels like, man, there's no, there's no catalyst yet to really ignite all the, the excitement. um yeah we'll talk about that in a minute all right uh the first thing i think we want to talk about is this idea of like bitcoin and no man's land i think you've been kind of talking about this for uh for a little bit um and we've got the short-term holder cost basis as uh uh kind of an initial metric to look at but how do you think about this idea of no man's land um and how that relates to these short-term holders? Yeah. So in the newsletter, we've been talking about this kind of value momentum mental framework for approaching the market for a while now. To be

Starting point is 00:05:14 transparent, this is a mental framework I stole from my buddy Avi Feldman, who's a hedge fund manager. But I think in general, you have momentum-based market participants and value-based market participants. And so when we're talking about momentum here at BlackBerry, we kind of see that as several closes above 47,000 at the current moment. And then we see value as the low 30Ks, kind of the 30 to 35K area. For the value framework, that's pretty straightforward, just looking at price structure. For the momentum framework, we have two charts kind of highlighting that. In addition to just the fact that this is a key area from just like price interaction, as well as it's right around the yearly open.

Starting point is 00:05:58 The first chart though we have up is the short-term holder cost basis. So we've talked about this, I feel like a million times here on the show. Essentially, this is just the aggregated cost basis of all the entities that have been in the market for less than 155 days or less than three months. And so this is telling you, you know,

Starting point is 00:06:16 where that average cost basis is for those market participants. And that has a lot of kind of behavioral effects when price approaches that area. So in bull markets, whenever we retest that, those new market participants don't want to sell at a loss when Bitcoin is in a several-month aggressive uptrend. When we head into the bear, though, every time we get an underside retest of that cost basis, people look to exit and break even.

Starting point is 00:06:39 And so as you could see recently, that push up to $47K, we couldn't hold that on several consecutive closes. And so that does appear like it was a failed underside retest. And you see confluence in the second chart, which is the exponential whole moving average. For this, I'm looking at the 180 period weekly version of this. Essentially, this is like a moving average that has a bit more weight, like weighing to recent price action. So kind of like a smoothing factor. The red is just telling you that the moving average is declining.

Starting point is 00:07:12 So this is actually a good kind of like high time frame indicator to look at. As you can see in 2018, this turned red, you know, several weeks before that final capitulation. Again, you know, this does look like we just experienced this failed kind of underside retest, similar to kind of like mid-2018. But again, I think, you know, there's confluence across several things that closing above that 47K area, we can start talking about momentum coming back into the market. But as long as we're below, I don't think it's wise from a high timeframe perspective to step in as a value-based market participant. So above $47K for that momentum threshold, low $30Ks for that value threshold. And that's where kind of me saying we're in no man's land came from because we're kind of in between those two. Makes complete sense. And then if we look at this one day correlation between Bitcoin to the Nasdaq, I haven't seen very many people looking at the one day correlations. What's going on here? This looks pretty crazy. Yeah, it's really unprecedented. So this is just looking at the, as you said, one day correlation of Bitcoin to the NASDAQ. As you can see, we're in, you know, really extremely high territory of correlation. um we had set like a new record at the beginning of 2022 for the highest correlation ever or kind

Starting point is 00:08:33 of kind of highest block of sustained correlation ever we broke that over the last week or two so as you can see in the on the bottom right hand of the right right hand side of the chart this big block of blue essentially that's just telling you that the correlation is high and so you can see that kind of orange line i drew that was the prior all-time high we pushed above that over the last week is currently sitting at 0.98, which is very high. I mean, Bitcoin is essentially just kind of trading tick for tick with the NASDAQ. And so, you know, I think we'll talk about this in a second. This has kind of been one of the driving forces, obviously, around Bitcoin price action. And so you've seen that kind of rebound in tech towards the end of last month. And you

Starting point is 00:09:20 kind of seen that rollover this month over the last few weeks. And that's obviously translated into BTC as well. And whether Bitcoiners view Bitcoin this way or not, and we'll talk about in a second some of the metrics that are illustrating that Bitcoiners beneath the surface are stacking BTC and kind of convicted as ever, kind of the marginal buyer or seller is viewing BTC as kind of this high beta asset, basketing it in with tech. Got it. And so when you think about this correlation, talk to me a little bit about the there's decoupling, right? So like the correlation goes down. There's also this idea that like tech stocks could just explode. People go kind of risk on again. It sounds like you think the decoupling is more likely to be what happens then like there's a recovery in risk assets. Is that fair? Yeah. So I think, you know, for BTC to move up, you know, just from first principles, you need either one of two things. And it boils down to either A, you need tech stocks to rebound, and that would drag BTC up if we have the sustained period of high correlation. The other way BTC could move up would be if that correlation broke down.

Starting point is 00:10:35 And so with that in mind, I think for the, for the latter, I mean, for the former talking about tech stocks rebounding, I think Darius actually did a really good job and I'm not going to get into that because I think he was, he really nailed it on the head. He's more the expert in that realm. Let's talk about like what it would take for tech stocks to rebound. One of the biggest things, obviously just being like the Fed being extremely hawkish.

Starting point is 00:10:56 But for the decoupling piece, I think that's where I could maybe provide listeners a bit more value with some kind of Bitcoin-centric data points. And so for this decoupling to theoretically occur, I think first just highlighting the fact that markets move in kind of these pendulum swings. What I mean by that is they go from extreme to extreme. And this happens not only with price action, but also narratives and trends in the market. And the trend, obviously, we're talking about here is the correlation to NASDAQ.

Starting point is 00:11:28 So, I mean, when you go back and look at the chart, whenever the correlation gets extremely high, uh, you could even see this at the beginning of this year, it went from getting to an all-time high and then came all the way back down to negative. Uh, and so you get this kind of pendulum swing that goes back and forth. And when everyone, when everyone on Twitter is talking about, you know, this correlation and it becomes consensus, that tends to be when that, that pendulum is beginning to start to swing the other direction. So I think that's one thing just to keep like preset in your mind, the fact that we've had this prolonged sustain of regime of, of strong correlations and as that, um, so, but for that, for that decoupling to occur, you need either like two things, either in the short term, some type of idiosyncratic flow, meaning, you know, some like large buyer stepping in, uh, the Luna foundation guard, Doquan stepping in and buying, uh, the, you know, several billion dollars to BTC has been one example of that. um you know sailor was another example um so i think you know if you had some large entity that stepped in um that could drive idiosyncratic flow in the short term and cause btc to to decouple in the short term i think from the from a broader sense and and um this i have a bit more high conviction on because you know it's hard to say is a large buyer going to step in or not

Starting point is 00:12:43 in a broader sense i think what the data is showing you is that beneath the surface you have a lot of these crypto native, high net worth individual kind of forward looking institutions that are viewing BTC as a store of value. And, you know, despite all of the uncertainty we've got geopolitically and just in markets in general, you're seeing several metrics, which we'll look at the charts in a moment, illustrating the fact that these holders are just holding, right? And so you kind of have this dichotomy of a lot of these traditional finance entities that are viewing BTC as a high beta tech asset, and then these convicted crypto natives, or just people that understand the value proposition of Bitcoin, and they're holding during this time of uncertainty.

Starting point is 00:13:30 This is the time that Bitcoin was built for, right? We have inflation extremely high, geopolitical uncertainty. And so I think what's kind of going on beneath the surface is, my buddy Suzu eloquently kind of phrased this to me as like a supply gentrification. And I think you kind of have this transfer of supply from that one basket of entities I talked about to the other. And so I think kind of this sideways range that we've been in is an illustration of equilibrium between the transfer of the two of those entities. And so I guess with that, we could dive into a few of the charts that I have to kind of back up that thesis. So let's do this idea of how much supply hasn't moved in the last 12 months. And you're comparing the seven-day moving average off of the NASDAQ high. We were just talking about a bunch of stocks just getting actually decimated in the stock market. So what is this showing us?

Starting point is 00:14:24 Yeah, so in green, you're looking at the seven-day moving average of the NASDAQ, the percentage of the NASDAQ off its highest. And so you can see right now we're about 18% roughly, or today it might be closer to 20%. I haven't looked at what the NASDAQ is doing in the last like 45 minutes because I've been writing the newsletter, but I know it's down today, so it might be down closer to 20%. Point is though, NASDAQ down fairly substantially. At the same time, you have an all-time high in the amount of supply that hasn't moved in at least a year. And that's that orange line, or I should say orange kind of area or shaded area.

Starting point is 00:15:02 And so this is honestly pretty remarkable when you think about it, right? You have an all-time high amount of supply that hasn't moved in at least a year, meaning people are sitting on their BTC convicted as ever, despite all the uncertainty we have that we just kind of described. Darius did a great job describing earlier today. And so to me, what this is showing is that there's this hodler base, right, this convicted hodler base that they're just they view BTC as their store value. I think, you know, a lot of kind of there's been several catalysts, even just this year, you know, for example, Russia getting their FX reserve frozen. Maybe it's just inflation running high or just over the last year as Bitcoin ran up, people taking interest in understanding the value prop of Bitcoin. the fact that you've got this growing hodler base and I think this is honestly pretty remarkable the fact that you have people holding with

Starting point is 00:15:57 conviction to this extent despite all the uncertainty and this is exactly what you know Bitcoin was built for so when you see this it seems like there's very much a battle right you talked about this a little bit earlier between the Bitcoin holders who treat this as

Starting point is 00:16:13 the reserve asset won't sell it and then that whole idea of like the traders, the people who are worried about macro, look at this as a risk asset, etc. Is that really the supply gentrification that you're talking about? And that is what leads to that decoupling. And so it's like, we understand that the bases are different today, but we've got to get concentration into the holders. And as that occurs, which is already underway, but as that continues, that's really what will provide the foundation for kind of explosive moves in the future? Yeah, I think so. That's kind of my thesis is that in the next 12 months, conservatively,

Starting point is 00:16:48 we'll kind of see that transfer complete. And I think once that completes, then you'll start to see that, that decorrelation once that supply transfer has completed. And so, yeah, I think you summed it up well there. We can look at two other charts, like briefly, just to like nail that point home. The second one is just looking at the exchange net position change. So this is the 30-day change in exchange balances. This has started to roll back over over the last week or two, back into this like little blue, gray, I don't even know what color that is, zone that I highlighted there. That's showing you the rate of outflows is the fourth highest that it's ever been.

Starting point is 00:17:31 So you're seeing a strong amount of outflows from exchanges, coins coming out of exchanges. So that's another accumulation metric. And then the last one is looking at whale balances. I think this is the most interesting one aside from the supply last moved in over a year. This is looking at all the entities with over a thousand BTC. And then we're filtering out all the known entities that Glassnode has identified on chain. So, OTC desks, exchanges, obviously, is a huge one for obvious reasons, grayscale, QBTC, the purpose ETF. And so, what you get is essentially this kind of filtered whale balances metric, and that's that green line. On top of that, I've overlaid these kind of color changes, and so that's just showing you when their balances are increasing, starting to make higher lows versus decreasing. And so what you can see is that their holdings have been increasing over the last month. And also when this little box I drew is just essentially highlighting this downtrend that

Starting point is 00:18:30 their holdings have been in since September. And I think we're starting to see the early days of perhaps a breakout of that downtrend. I think it might be a little too early to solidly call that a breakout of the downtrend until at least we push above the highs in their holdings from September at the end of last year. But nonetheless, we have seen accumulation over the last month or so from from Wales, which is interesting and in confluence with some of those other things that we just mentioned. And so I think, you know, that's kind of like building the case. I mean, there's a few other metrics, but I've tried to keep it like relatively short just for the sake of the newsletter. But, you know, I think we're kind of building this case for this supply transfer over the next year or so.

Starting point is 00:19:16 So I've talked to a few people that think that perhaps happens closer to the end of Q2 into Q3, I think conservatively in the next 12 months. So when you see this all going on right now, I see Luna Foundation obviously buying a bunch of Bitcoin, $100-plus million a day. There's rumors slash maybe it's been confirmed at this point that Justin Sun is going to go and he's going to replicate the same thing. Like, is that something from a catalyst standpoint that could just be a bunch of these stable coins all start backing their stable coins with Bitcoin and there's enough buy pressure to really kind of change the dynamic in the market and the price has to go up to accommodate everyone? yeah i mean i think if um you know tron started to back their you know reserve like reserves with bitcoin that would be more in the camp of talking about like those short-term idiosyncratic flows but then as well it somewhat ties also into the basket and so does everything that dokuan's been doing of that supply transfer to crypto natives um and you know by the way i think like whenever

Starting point is 00:20:18 this transfer finally completes and if a decoupling theoretically did occur, I think it would have, I think first of all, it would be quite powerful, right? And the second thing is I think it would have a lot of reflexivity, meaning as you start to see that decoupling, people are looking at this and saying, wow, crypto and Bitcoin more specifically is moving independently. I need to take note of this. And almost that kind of FOMO of missing out on that, that change in trend of correlation kicks in and that drives the correlation even further. So George Soros talks about this idea of reflexivity.

Starting point is 00:21:00 I think that's extremely present in the Bitcoin market, but I think it applies to narratives as well. And I think, you know, a decoupling, which is something that hasn't really occurred for the last two or three years since large institutional players really started getting involved in Bitcoin, I think that would have a high aspect of reflexivity to it. Yeah. It, um, it definitely feels like, uh, when you and I started doing these, uh, conversations in the summer of 2021, that was, uh, very obvious that we were kind of going through this consolidation. Uh, and at some point people got kind of tired with the message, right. Or bored of the message of like, Oh, it's building, it's building, it's building. And it's like, yeah, like a big portion of it is just being patient. And then when it happens, it explodes. Right. And when it explodes, everyone's kind of in hysteria and like, how did that happen?

Starting point is 00:21:51 But these are the moments where you almost lay the groundwork for those explosive moves and nobody knows, is it a week away? Is it a year away? Right. It's really, really hard to kind of understand that. But definitely a lot of these metrics, I think, are telling a story that is pretty compelling. Yeah. And I mean, I think it would be difficult to get some massive capitulation.

Starting point is 00:22:12 Like, you know, a lot of people are talking about, well, we didn't have, you know, we haven't had like a bear market capitulation. I think a couple of things about that. So first of all, like we didn't have a capitulation in my mind to the upside during this quote unquote cycle or whatever you want to call it over the last two years. The second thing is all these metrics that we've just described, you know, we're seeing heavy accumulation. I think that's almost acting as a force pushing up against the sell side pressure. Right. And the third thing is like the positioning in the derivatives market. So we've talked on previous shows about the percentage of the futures contracts, collateralized Bitcoin versus stable coins

Starting point is 00:22:50 has come down about 50%. And so the convexity of those contracts, the setup of the current futures market right now has a lot less potential convexity if we did get some type of capitulatory spiral than it was set up in March, 2020. I mean, the other thing too, as people were jacked up heading into the halving at that time, the futures market now is relatively defensive in positioning. And then the other argument I would make to that is the liquidation engines of the current exchanges that are dominating volume, especially like FTX, is a lot less aggressive than BitMEX. So unless we had some massive capitulation in macro and in traditional markets, which I think would just cause margin calls in BTC as well, because in that case,

Starting point is 00:23:40 people have to sell what they can sell, not what they want to sell. But aside from that, I think it'd be difficult to see some huge capitulation that a lot of people are kind of theorizing. What are you looking forward to most over the next month, 30 days? In terms of markets or just like in life in general? no markets oh um i think i think it'll be interesting to see do we see follow-through for the fed like from the fed first of all um and the second thing is inflation obviously like do we start to see at least like the month over month uh numbers start to peak i think that could drive although i think we both understand there's kind of this like relativity bias to that right but um

Starting point is 00:24:31 I think that could drive this, like, at least short-term narrative of, oh, inflation is peaked. And, you know, I think a lot of politicians would kind of, like, try to, like, hammer that drama, especially as we, you know, the Democrats are, you know, I don't like to get political, but, you know, the fact is the Democrats are, you know, facing a lot of, you know, political headwinds right now from inflation. So I think if that started to occur, I think that would be a narrative that would start to really kind of, like, get driven by those entities. Completely agree. All right. We got to go, but can we get a quick plug? Where can people follow you on the internet? Sure. W Clementi, I on Twitter. You can check out our newsletter at BlackWareIntelligence.com. But thanks for having me on, Pomp. Really appreciate it. And I'll see you next week. You're doing a fantastic job, my friend. I appreciate it very much. And next Friday, you'll be back. Absolutely. All right. Later. You guys enjoy that Miami weather. I'm missing it,

Starting point is 00:25:29 man. You're moving here eventually. Bye. 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 - #929 Will Clemente On Bitcoin Investors Refusing To Sell Their Bitcoin

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