Unchained - Will Bitcoin's Price Go Up Again? Yes, According to On-Chain Analytics - Ep.244

Episode Date: June 8, 2021

Willy Woo, on-chain Bitcoin analyst and writer of the Bitcoin Forecast, a market intelligence newsletter, and Rafael Schultze-Kraft, co-founder and CTO of Glassnode, discuss Bitcoin and what the on-chain metrics tell us about the price. Here to discuss is. Episode highlights: what factors pushed the price of BTC down in May why Elon’s Twitter account hold so much sway over the market why Willy believes Bitcoin is good for renewable energy who sold during the last month which type of BTC investors stopped purchasing in Feb/March what trends Willy and Rafael have noticed from coins moving to/from exchanges their thoughts on exchange-traded products, like GBTC and Canadian ETFs how derivatives trading has played a role in Bitcoin’s price why stablecoins were trading above their peg in the months leading up to the Coinbase direct listing how Willy values Bitcoin (specifically using NVT ratio) whether the trend of corporate treasuries investing in Bitcoin will continue how they expect Ethereum's adoption of a deflationary monetary policy to impact the price of Bitcoin when the market could turn bullish once again and predictions for the rest of the year   Thank you to our sponsors! E&Y: https://ey.com/globalblockchainsummit  Crypto.com: https://crypto.onelink.me/J9Lg/unchainedcardearnfeb2  Tezos: https://tezos.com/discover?utm_source=laura-shin&utm_medium=podcast-sponsorship-unconfirmed&utm_campaign=tezos-campaign&utm_content=hero    Episode Links   Willy Woo Twitter: https://twitter.com/woonomic Substack: https://willywoo.substack.com/ Charts: http://charts.woobull.com/    Rafael Schultze-Kraft Twitter: https://twitter.com/n3ocortex  Glassnode Blog: https://insights.glassnode.com/author/rafael/ Medium (no posts in 2021): https://medium.com/@neocortex    Glassnode Website: https://glassnode.com/  Twitter: https://twitter.com/glassnode  Crunchbase: https://www.crunchbase.com/organization/glassnode    Willy on BTC trends: NVT 2021 re-hash: https://twitter.com/woonomic/status/1399644889596370950  User growth on BTC network: https://twitter.com/woonomic/status/1396716391940575232  Exchange flows are bullish: https://twitter.com/woonomic/status/1395350421187690500  The movement to strong holders is unprecedented: https://twitter.com/woonomic/status/1391209800252358658  BTC undervaluation: https://twitter.com/woonomic/status/1389145220432859144    Rafael on BTC trends: Investors becoming fearful: https://twitter.com/n3ocortex/status/1394922200923312132 Bear market?: https://twitter.com/n3ocortex/status/1394312942678679559 Why on-chain exchange metrics are difficult to analyze: https://insights.glassnode.com/exchange-metrics/  BTC ownership is not highly concentrated: https://insights.glassnode.com/bitcoin-supply-distribution/  BTC illiquidity: https://insights.glassnode.com/bitcoin-liquid-supply/    Glassnode on BTC trends: May 31 recap: https://insights.glassnode.com/the-week-on-chain-week-22-2021/  May 24 recap: https://insights.glassnode.com/the-week-on-chain-week-21-2021/  December buyers approaching cost basis: https://twitter.com/glassnode/status/1399757635512066052  Battle of Bulls vs. Bears: https://twitter.com/glassnode/status/1399231089764360192  Grayscale discount: https://twitter.com/glassnode/status/1397059742019686400 Deleveraging futures market: https://twitter.com/glassnode/status/1395771367958581251 Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone. Welcome to Unchained, your no hype resource for all things Crypto. I'm your host, Laura Shin, a journalist with over two decades of experience. I started Kevin Crypto six years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the June 8th, 2021 episode of Unchained. Next week is the five-year anniversary of Unchained. If you want to send in a question or comment for a next week's show, which will be a mini-a-a-machained, The deadline to get your submissions in is Thursday, June 10th at 5 p.m. Eastern or 2 p.m. Pacific. Send it via email to hello at unchainedpodcast.com and write anniversary in the subject line. And also, let me know how to pronounce your name.

Thanks for listening to Unchained all these years. I never imagined it would change my life as it has, and I'm so grateful to all of you. Today's episode is sponsored by EY Blockchain. Ernst & Young is committed to supporting integration of the world's business ecosystems on the public Ethereum blockchain. The Crypto.com app lets you buy, earn, and spend crypto, all in one place. Earn up to 8.5% interest on your Bitcoin and 14% interest on your stable coins, paid weekly. Download the Crypto.com app and get $25 with the code Laura.

The link is in the description. Tasos is smart money. That's redefining what it means to hold an exchange value in a digitally connected world. Discover how people are reimagined. the world around you on Tezos. Today's topic is Bitcoin and what the on-chain metrics tell us about the price. Here to discuss are Willie Wu, an on-chain Bitcoin analyst and writer of the Bitcoin forecast, a market intelligence newsletter, and Raphael Schultz Kraft, co-founder and

CTO of GlassNode. Welcome, Willie and Raphael. Hey, Laura. Great to be back. Hi, Laura. Thanks for having me. Five years of the podcast I didn't know, Congress. Thank you. The market has. has been in the doldrums recently with Bitcoin as of the time of this recording, which is Thursday morning Eastern, the day before the official start of the BTC Miami conference, trading in the high 30,000 range as opposed to the $64,000 that it was at in April. And Bitcoin recently saw a big sell-off on May 19th, which featured the largest daily candle in Bitcoin history,

which showed an intraday price range of $11,500. It was a very big sell-off. It was a big sell-off on May 19,000, which featured the largest daily candle in Bitcoin It was also the date in which an all-time high of $4.53 billion in losses was hit. And that's the all-time high by quite a hefty margin. So for Raphael and Willie, what do you two think is the reason for this drop? You want to go first? Yeah, Willie. Willie? How about you go first?

Well, you know, obviously, you know, a lot of people have seen from the news that Elon Musk tweeted out that they were no longer taking payments for their Tesla sales and they cited reasons that Bitcoin was very very fossil fuel heavy in its network and so in that view

there's this finally there was someone who was relatively respected amongst technology actually validating a lot of one of these fud points that the mainstream media have been throwing at Bitcoin, which I don't think is actually valid, but nevertheless,

it sent a shockwave affair through the market. The price started plummeting within seconds, two minutes of that tweet. And the market set up at that point was already quite soft. It was making a light recovery. It was tentative, and it was starting to move upwards. And that's also from a fundamental lens

when you look at what was happening on the investment activity on the blockchain. And then when that tweet came out, it instigated severe amounts of selling not only on derivative markets and spot markets. We actually saw like significant sell-off as coins started to flow into exchanges. So real coins got.

moved and they they were moving from wallets that were quite young. The coins held between one to six months of age. So relatively new, come as to Bitcoin is what I can tell. And I think a lot of them saw a lot of, you know, really nice rises in Bitcoin from the 20,000 up to the 60, in the 50 to 60 range and they probably took the opportunity to take profit. And so, you know, we saw this huge, huge, I just call it tidal waves of coins moving into the exchanges and ultimately the whole derivatives market started to unwind. Anyone who has long got liquidated. So that added further selling pressure.

And so just we had this cascade of complete unwinding and selling. off. And I think it went down to 30 or 29,000 when the final dust had cleared and it bounced up and then it was recovering. And then China announced that they were banning Bitcoin miners and reiterated their stance on no trading for their national. And that's a big thing because you know, miners are heavily located in China. So that set another wave of fear and price sold down. So we're now in this situation where Bitcoin's heavily discounted below fundamentals and the markets, you know, attempting a recovery.

It's going sideways upish now. Rafael, what do you think? Yeah, I second most of what. said, I think there is, from my perspective to major driving forces here, I think I've, I don't remember the last time when I saw the market react so much to news, to actual FUD or, you know, to tweets. I think this was, I saw this much more happening in 2017. So, you know, with Elon Musk, with the news from China, mine shutting down, China, you know, banning, you know, banning mining and so on and so forth.

On the one hand, that, and what we saw on chain is that, you know, most of those reactions were, you know, like more new market entrance, right, very short-term holders that sold, you know, at losses or actually, yeah, panic sold eventually. And the second thing I think is that the market was just highly over leveraged, right? And I think that what Willie mentioned, this cascade of, you know, margin calls and liquidations, investors, you know, aiming to buy the dip when, in fact, you know, the sell-up wasn't over yet. And so sort of like cascade cascaded down. and we saw that huge drop of over 50% down to 29K. So that combination, I think, is what really made all this price action happen.

I totally get that the market is not rational. And yet for the Tesla news, I mean, it's not like a huge percentage of Bitcoin transactions were being used to buy Teslas. and Tesla kept all the Bitcoin on its balance sheet other than what it had sold previously to Tesla liquidity in the market, which I think was just them trying to do fancy accounting tricks. But anyway, so in that sense,

the reaction to sell based on the news doesn't make sense. And is it just that that's what it is? These are newbies and what they're doing doesn't make sense? Is that why that tweet had such an effect? Yeah, I think it's very much that case. Like we've got some new entrants. They've only been holding for less than six months. And then you've enjoyed a lot of price gains.

And then something comes along and it validates, you know, so-called Mr. You know, the Ironman guy that has space rockets. And Tesla cars says, no, no, this is solid. it's like this is like you know it's a big going to be a big contributor to the World Carbon emission so

you know it's just the guy saying it is very well respected and for sure like that that will I think well it obviously did change the views of people that came in recently saying oh maybe this is

something that's not going to work in the long run and they emptied their bags and sold off. Yeah, I think the simple reach of, you know, of a personality like Elon Musk just, you know, is something that we hadn't seen before, right? And I can very well imagine that it wasn't, you know, just the inability of many investors to, you know, see the nuances of, you know, those messages, such as a, We're not accepting these anymore because of X and Y reasons, but actually we haven't sold and we don't plan to sell any of those. And other investors that I bet, you know, we're betting probably on, we're betting probably on, you know, an irrational market reacting to this and saw the opportunity and started selling that.

Well, so here's one area where I actually disagree with you, Willie, you know, where you're, you know, where you. said you don't think the environmental issue is such a problem for Bitcoin, or not even just Bitcoin, but proof of work chains in general. Like, I mean, granted, I used to cover the environment as a reporter. So maybe I'm kind of tuned into that segment of the world a little bit more than the average person. And perhaps in that regard, give them more weight than they have. But I feel like their concern is only just growing because, you know, obviously the more time we let lapse without doing anything about it, the worse, the problem will be in the heart it will be to fix. So in that regard, I actually feel like that could be quite a concern

for Bitcoin going forward, but you seem to really not think it is merited. Yeah. Look, my training is a mechanical engineer. We studied renewables. And, you know, the thing is the cost economics of renewables is still in its role out stage, it's very marginal. And so what Bitcoin does is it makes something that's marginal cost competitive. And so in some regards, you might see an old coal-powered station that's going to be shut down, but along comes a Bitcoin miners says we can mop up that energy and make it hang on for longer. But there's, you know, there's so many places in the world where renewable energies is deploying.

and a mining set up can make that marginal deployment come about much sooner as the cost of renewables start to drop. And we're on this arc where renewables are becoming cheaper and cheaper. So eventually this whole infrastructure of energy that the planet's on will eventually move to renewables, like the age of fossil fuels is coming to an end. And so what I see is that, like, you've got this tool here that's making things that are marginal, mainly renewables, and it's going to accelerate that. So that's the argument. And people see these smokestacks and go, oh, that's bad, but they don't see this increase in acceleration of renewables that's facilitated by these new economics. and not to mention that the efficiency of the Bitcoin network gets better as it gets bigger per capita.

Yeah. And now that China is cracking down on mining, we could see the switch to renewables for mining Bitcoin accelerate. And so that obviously would also be good. And I think what you're referencing to when you talk about renewable energy generation and combining it with Bitcoin mining, that is, are you referring to the ARC square paper that they put out talking about how the economics of that could make, you know, renewables stronger?

I haven't actually read their work. I think they talk about it as maybe like in the home or something, but I'm not sure. This is just from first principle thinking as an engineer. And seeing the, like, yeah, I've done, I used to be a renewables geek too, so I did a lot of the calculations. You and me and Chris Berniske. Yeah, yeah, Chris too. Yeah, but I have done the calculations, you know.

Okay, okay. One other thing that I wanted to ask you to about who was selling at the time was, Willie, I think you had also, it was tweeted or you wrote about this in your newsletter that you also saw some institutional selling Can you talk about that a little bit more? Yeah, that was like we saw, I wouldn't say institutional. I'd say, you know, technically they were whale selling, holders of a thousand Bitcoin. So that's either very, very large holders that are personal and private or institutional. But like their holdings dropped.

And they were dropping slightly before the crash. And so, yeah, that dropped. And unlike, you know, normally what we see is when what we have seen in past months is whenever the institutions or Wales dropped their holdings, the next tier below, which is like 102,000 bitcoins in holdings, they would gain almost a mirror image. And they were soaking up those coins. And in this case, the next tier below, what we call the dolphins and sharks, they were pretty steady. And so all of those coins that were being unloaded by the whales just were, had to be absorbed by the smaller buyers, which they couldn't maintain the price at that point. And so, yeah, despite the interesting thing was that as this whole thing started to cave and the price dropped, and, you know, crypto Twitter, the world was going, oh, Bitcoin's going into a bear market.

You know, we don't see 50% drops like this without like a bear market. That was completely different. That view was completely different on chain. we saw a whole lot of new entrance come in for the very first time to buy their bitcoins and holders of one Bitcoin or less so you know 50,000 $30,000 investment that those numbers started skyrocketing and so smaller players came in to buy that dip and so the actual use account on the network increased as this thing was selling down and it's just that the the buying power by a sea of smaller retail was not sufficient to counter at the sell-off

coming from Wales. And Rafael Glassnode recently wrote a blog post also talking about a potential slowing in institutional demand. How are you all determining that? Yeah. So what we see is, you know, one is maybe the institutional products, right, the GVTC, the ETS, that, you know, have been trading at a discount for quite a bit now, which, you know, they seem, seem to recover slowly. We'll see, we'll see how that plays out within the next couple of weeks and months. But what we saw is that going into the end of 2020 and early 21, we saw this huge unprecedented spike of number of whales in the network on chain, right? And that started cooling off, you know, in February even, in March.

So that kind of shows that, you know, distribution of potential, you know, institutional or whale buying into smaller hands. And I think ultimately, you know, this led to what will. says, although we see this huge entrance of new network participants, right, of new users coming into the network, they were simply not able to sustain the price because, you know, just just because of the buying power as compared to this institutional rise or whale rise that we saw towards the end of the year and beginning of this year. And I also, you know, you guys parse out the chain metrics in so many different ways.

And I know both of you have also seen some trends when it comes to the movement to and from exchanges. What are you seeing there and what does it say about where the market is headed? Yeah, I think so what we saw, you know, the trend that we started seeing since essentially a bit over a year since, you know, Black Thursday. was this, you know, general depletion of supply and exchanges. And so that, of course, leads to, you know, some sort of liquidity squeeze. There's not enough, essentially, to be bought up. And so this reduces substantially the selling pressure. You know, with the rise to new all-time highs and, you know, before and now, you know,

after and during this drop, we've seen some, we saw some, some increased supply on exchanges, right, that is now cooling off again. And so these coin movements really tell you story about, you know,

invests of behavior on chain and, the liquidity and potential cell pressure that you see there. It's a bit more nuanced than people usually put it, because it really depends on the exchange. And we've seen recently, you know, this sort of like this geographical difference between, you know, increasing supply on Asian exchanges, decreasing supply and on US exchanges, right?

So there might be some geographical, you know, things in play as well. But generally, you know, you can see this recent cool-off that it seems like, you know, investors are essentially done with the sell of. Well, actually, in order to kind of, you know, a broader picture, the three exchanges that you were talking about that are picking up coins are Binance, BitFenex, and Bitrex. Is Bitrex?

I thought that was an American exchange or? I don't want to get ahead of myself here. But I thought or at least that they were operating there maybe. But I don't want to get out of myself. I'm pretty sure it's American. I appreciate it's American. But it's not a very large by volume exchange. It's not.

The main, you know, the big 800 pound gorilla is Binance. And, you know, that's interesting because I'm like, I'm seeing like, you know, even in the chat analysis. and looking at the way in which the price action is analyzed. The selling comes from Binance and the buying comes from Coinbase, and there's a net shift in coins. And I don't know if it's some intricate arbitrage thing that's happening or whether or not. It is actually the Chinese selling their coins.

And like now that we've seen the banning mining, I don't know what's causing that, but it definitely looks like the West is buying and the East is divesting. So I don't remember what the exact wording was in the blog post where it talked about that. But I feel like it hinted at people essentially trying to move their coins offshore, maybe to avoid certain regulation or something. Oh, capital flight. But will you feel like it's simply that,

Asians or the Asian market is selling in that America, the Western market is buying. Yeah, I'm just guessing at theories. I have no, I have no real information. I'd probably have to, you know, figure out what's really happening in the history by talking to people, um, rather than just looking at the, the share numbers on charts. Um, but yeah. And, you know, like, you know, back to this point of the, the supply on these exchanges, um, the interesting thing for me is that we've been in an era with such strong institutional and high net worth buying that on chain has become very, become very dominant in the first half of this year because those guys move their coins off the exchanges and put it into cold storage.

But now we're in this phase where retail's really ramping up and they're coming in to buy this dip and typically the second half of these one in year bull market. it's that, you know, go crazy vertical. The tail end of it is very, very dominated by retail. And I think the picture might be a little bit harder to read, mainly, because there might be a lot of buying from retail, but they don't withdraw from exchanges as much as an institution would. They're quite happy to leave their coins on their coin-based wallet.

And so you'll see potentially the supply on these exchanges increase and increase, because they're in long-term holdings by retail. And it looks like coins are being sold in, but in actual fact, they are in long-term hold by retail, who you're just using their exchange wallet. So I think the second part of this year will be quite interesting, and I think we need to know that effect is happening. And maybe to add to this, I think, you know,

one of the major depletions that we've seen, seen is actually Coinbase, right? Which we all know, you know, they have custody service. Also for institutional. And actually, we're currently doing some research on, you know, identifying some of these, you know, larger clusters of on-chain that seem to be very, very closely related to, you know, the coin chain, the Coinbase wallets that we see, whether it's, you know, coin-based custody or something, something else, you know, hard to say, but, but at least it's

something that interacts very, very closely with them. And so, you know, as Willie says, much of that could be related to institutional buying versus, you know, retail, on the other hand, potentially more on Binance and so on, you know, just leave, come in and leave their coins on exchanges in order to keep trading. So I do want to ask you another. other question about institutional, but before we get to that, just to continue on this Binance thread, one of the GlassNode posts talked about how it could also be that people are moving coins to exchanges, not simply to sell, but also because they either want to rotate into ETH or they want to trade on chains like Binance smart chain. So do you think that that's also, you know,

influence the sell-off in the Bitcoin price? And would that also account for this movement? seeing of coins going on to finance? I think so. I mean, I don't know what the extent of really of that, how much influence it, it really has, but we've seen those rotations, right? And we often see this. I mean, this is something typical for bull markets as well,

where people start, you know, moving into different alt coins, into other assets, you know, most recently than potentially also into into Biden's smart chain, which, you know, didn't exist in 2017. And so I think that those are things that come into play as well. And something that we're observing closely in terms of, you know, how does this look like now that we've seen this immense dip, you know, as a coming back into Bitcoin, right, in order to rebalance potential portfolios again and see.

see how that, you know, what kind of effect that this has on the Bitcoin price itself as well. And so to just wrap up this institutional conversation, I did also want to ask about GBT because the story around that has shifted quite a bit in the last several months from what it really had been for years. Can you tell us what changes we've seen there and what that says about this current market? Sure. So I'm, you know, I'm, you know, I think I saw this too, and I was actually a bit surprised, to be honest, to see this, this huge flip in the last couple of months, because that narrative was a big one, right? And this was, this was, you know, the essentially the front page of, hey, institutions are here.

The holdings of, you know, GBTC were going up for, you know, for months. People were comparing it that, you know, there was scooping up more. coins, then actually coins were being mined. And so, you know, this was naturally seen as something, I mean, very, very bullish. And then that changed. And that change happened actually coincided with the introduction of the Canadian purpose, ETF, right? And so people were speculating, right, whether investors might be, you know,

reallocating and going into the ETF rather than GBTC just because of, you know, the structure of how these funds are, the trust is being set up. And so the GBTC premium dropped, you know, and flipped actually into a discount. And for me, this was actually going to be something that, you know, people must be arbitraging this, right? So it's just going to be, you know, a very short period of time and it will, you know, flip positive again very, very quickly. But, you know, this has now sustained for, what, two months or so?

I don't even know for very, very long. I think much of that has to do with, you know, the structure of the trust itself. But I'm not too deep into that. So I cannot say whether this is true and whether, you know, you know, because it seems like it's a one-way road, right? You can sort of, like, you know, put things into there, but it takes a lot of time to recover them. And so, yeah, it seems like the discount has cooled up a bit. I mean, it's still negative, right? But it's going sideways.

And so I'm super curious to see how that plays out specifically because the ETF itself is also trading at a discount currently. But maybe Willie has more insights on that as well. Yeah, I found it interesting that, you know, the arbitrage was not closed. to see buyers buying Bitcoin at, what was it, over 10% discount at one point. You don't want to buy exposure to Bitcoin. I think 20 at some point. 20, okay, 20% discount on, you can either buy Bitcoin's on Coinbase or you can buy the ETF at 20% discount.

I found it phenomenal that, sure, if no one could arbitrage it because of the structure of that fund, surely investors would see that opportunity and bring it back up. and maybe reduce their buying on standard exchanges, but it never did. And I was, I don't know. It was always this mystery to me. But I have seen in this start to,

the dive flip or change directory, and now the premium is starting to become less negative. So that's, you know, that's a positive sign. That's saying, you know, people are starting to buy, buy this, this,

this, this ETF. So there's, there's more demand coming from, that side. But I think overall, that was a warning sign in hindsight, kind of this hidden warning sign that there was market selling in the ETF. The ETF holds, I think, was, is it like 3% of all Bitcoin supply? It's something like that, not sure. And so, like, that was being sold down and it wasn't reflected into the main market. because the way that ETF is structured is that it's kind of like Hotel California.

Those bitcoins go in and they cannot leave. So like the coins weren't being emptied out of that trust to be sold onto the market to track Bitcoin. It just meant the premium drop. It was heavily discounted. So, yeah, it's an interesting one, that one. Like, Willie, you seem to have, you seem to, you seem to have very, very, very nice analogies to the music industry. I was going to say the same thing. Rick Astley. This is great. They're always on point. The classics, right? I have to agree. I was just going to comment on the same thing.

All right. So in a moment, we're going to talk about other areas of the market and what they say about the Bitcoin price. and where it's going. But first, a quick word for the sponsors who make this show possible. Today's episode is sponsored by EY blockchain. Ernst & Young is committed to supporting integration of the world's business ecosystems on the public Ethereum blockchain. Join our fifth annual blockchain summit and education series on May 18th to 21st for a deep dive into zero-knowledge privacy technologies, accounting, and tax rules, as well as the future of finance.

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So we touched on this briefly, but we could probably talk about a little bit more. What have you seen in derivatives trading and how has that played a role in the Bitcoin price as of late? Oh, it's, well, in derivatives is like, you know, it's really was an invention by Bitmex in 2017. and that got to phenomenal volumes by 2018. And so when I look at the Bitcoin price, I go, oh, look at those sheer walls of fear as derivatives get unwound. And I look at the chart going back to Tallina 2018, I see 350% drops of sheer walls of terror

and everyone, you know, screaming with blood on the streets. And that is the impact of derivatives as people, get completely liquidated on these drift of markets with their, you know, 100x leverage. I think Binance published that, you know, they do the largest volume and they published 60% do 20x or more leverage on these things. So the price volatility of Bitcoin has made market jumps upwards since drifter markets have been out in force. And yeah, I think that a lot of people are trading these things.

And I don't know, it's a little bit like crack cocaine when you're on 100x leverage and it's fun if you can make something. And then we've got now a generation of Bitcoin traders that are like experiencing this. On the one hand, they're learning, you know, how markets work, how you can, you know, push price around, you can buy things, you can liquidate other people. It's like this full-on game. And then the other side, you get this, you know, crazy kind of whipsaw in the Bitcoin price,

which deters long-term investors because the volatility is, it does some pretty crazy things, you know, and no different from what we just saw now with this, you know, almost 50% drop. and in COVID also. And to put this in perspective, I think the last metric I had, I didn't read how many people got liquidated in this last crash, but one of the unwinds from the low 60s, that was the derivatives unwind, and it happened when I think the miners tripped over the power cord in China,

and the hash rate dropped on the network. people sold off. The derivatives went into a cascade of liquidations, and it was one million traders that got liquidated. So it's not, it's, you know, there's only about 150 million holders of Bitcoin in the world, and one million of them are trading derivatives. And, well, that's like a generation that is learning how to trade markets.

at, no, I think this is a new thing. This is a new phenomenon. When we look back on the history books, this is like a generation learning how to trade. All right. Raphael, do you want to add anything? We can talk about stable coins. There's quite a lot to cover when it comes to stable coins.

Sure, sure. Let's move on stable coins. So I did see that one of the Glass Node posts also talked about how in the months leading up to the Coinbase Direct listing, demand for stable coins was so high that, tether, USDC, and die all traded above the peg for a month. So why is that? Can you explain? Yeah, I think, you know, people might have just been looking for, you know, liquidity to exit, right? I mean, in the end for, for, I feel like as we see this, right, the, the price of a stable coin,

even if it's packed to the dollar, you know, is susceptible to, you know, just market forces. And if there's huge demand for those, you know, potentially for people to, you know, because they're wanting to exit, right? And to move into those coins. We saw that, you know, the peg for, you know, for USDT, USCC and I just was, you know, for over a month just slightly above the dollar pack, right? Wait, but can you break this down from me? Because I don't know if I fully understand because obviously the Coinbase Direct listing, that's, you know, in the traditional stock market, that's, you know, in the traditional stock market, that's. like a totally separate financial system. And then you're saying like people might want to exit their cryptos.

So I just, I don't feel like I really understand the connection. Yeah. Yeah. I mean, that's, I mean, that's, that's, that's, that's, that's, that's, that's, that's, that's, it was, it was, it was, it was, it was, it was, it was, it was, it was, this is, this is, this is, you know, looking at those, at those, at those packs and how they deviate from, you know, from, from, from the, from the actual underlying value is, is something that essentially by chance we saw and we're currently looking a bit more into some more, you know, systematic analysis on, on how that really changes over time. And, you know, if that actually not means anything at all or what it does. And because it's, it, we, we just saw it, you know, across multiple. stable coins them over that period. But what would the trade be?

It's that they maybe themselves don't own coin-based stock, or is it for the people that do? Like, I didn't get who it was. Was it the people who have coin-based stock or the people who don't? I mean, I think that's speculative. Like, I couldn't say, right? I mean, it's a, it's more, it's something that is, you know, I wouldn't go as far as to bring in that into

I'm leaning more towards, you know, the sole sort of like, you know, data-driven, you know, observation of, of what that, what the pack and what the price say. So, so I wouldn't, I wouldn't want to go ahead of myself there too much, right? So that's, that's one part of, that's one part of, you know, what we've seen with, with respect to stable coins. The other thing is that it has, you know, the supply has increased quite a bit, right? And we've seen this actually accelerating during this, during the drop as well, right? So what this means is essentially that, you know, we believe that there's, there's a lot of gunpowder out there, right? That can be used essentially in these markets to, you know, buy up Bitcoin and essentially increase the price. So,

one of the metrics that we look at is the stable coin supply ratio, right, that essentially compares, it compares the supply of the stable coins to Bitcoin. And actually, really had a very nice modification of that adjusting for the downtrends over the last, you know, over the last couple of months. And that actually shows that we're, you know, historically at the, the low end of it, which, you know, could indicate that, you know, that there is, you know, that there is essentially, compared it historically as, as, you know, as looking at this oscillator, a lot of dry powder to, to, to, to, to, you know, start moving into, into Bitcoin again. So people are essentially buying a lot of stable coins, kind of waiting for a kind of

type of bottom in the market to deploy? Is that what that indicate? Yeah, because like if you're selling out of your Bitcoin and Ethereum and whatever cryptos you have, you're going to sell to US dollars and you've got a choice, right? You're going to either sell to US dollars and withdraw it to your bank. Or the other choice is to sell it to a stable coin and keep it in digital form. That is the advantage of you can just move it straight back into crypto very quickly and effectively. So what we've seen is a lot of the value go out of crypto and into stable

coins sitting there on the sidelines just ready to flow back in once the picture of price action starts to move bullish. So it's a good picture, you know. It's like if it was bearish, I would say people would want to exit their stable coins and move it to stocks or something or gold or something traditional where you wire the money out. And we're in these historic kind of all-time highs of stable coins when once you take out the skew in the picture. So I think it's very positive for the longer-term price that we're kind of in regions where we've over-extended in overselling.

That's my interpretation of the data. and like we've got a lot of upside and the downside is quite limited at this stage. Okay, yeah, let's talk about some of the metrics that show that Willie, obviously you're well known for the NVT ratio. Why don't you remind the listeners how you define that and tell us what it's currently indicating? Okay, so, you know, most people are familiar with price earnings ratio and stocks and Bitcoin doesn't really have, it's not a company, it doesn't have earnings.

What it does have is it's a pure store value network. So what it does have is volumes of Bitcoin moving between investors. So you can measure the value moving between investors as how active that network is, as an investment network. And you can run a ratio to its network value, the market cap. And that's essentially NVT ratio. It's the price earnings for Bitcoin. You can, you know, it's a fundamental equation.

You can put it down in first principles, and you can show that price earnings of Bitcoin, which is NVT, multiplied by the volume, that oscillates. It gives you a valuation for Bitcoin. Just like you might say this company has a 4x multiplier from its price earnings, this category of company. And so you can go, okay, let's see what earnings it does.

And okay, the valuation. is four times. So that is essentially what you can do with NVT. And NVT is that pure ratio, like a price earnings. You can multiply it by the volume and the longstanding volume, like the median. And you can map it back to the price domain. And so it gives you us a very nice kind of trace of where the value should be based on the investment volume going through the net. network between individual investors. And currently that sits at $55,000, even though we were not long

ago in the low 30s. It's in a historic band of undervaluation. And I notice, you know, Plan B's pretty well-known stock-to-flow ratio, another fundamental based on the scarcity dynamics of the network. That's currently at $65,000. So those two are pretty much in the higher agreement of between $55,000 and also if you look at how far the price is currently deviated from that metric. It's also in a band where it's all-time undervaluation when you look back on the history. So, yeah, I mean, something that confuses me a little is if we're at this moment where Bitcoin is, you know, quite well undervalued, um, historically. And yet at the same time,

we're at this moment where, you know, there's this huge amount sitting in stable coins, then why aren't we starting to see kind of the beginnings of a more bullish market? Or maybe we are and, um, you know, I'm just not aware that that's what you're thinking. Yeah, I actually think that we're in a post capitulation reaccumulation of coins. So so many whales

dumped out and it will take a bit of time for those coins to be reaccumulated and I think once the price action starts to tip

properly bullish so maybe a little bit of sideways and the price action starts to look good I think a lot of those stable coins will come back in

and like all these metrics are telling me is like we are very overextended in the selldown and historically when we are below these fundamentals the recovery is quite quick the only times where the recovery is slow tends to be when the price was way above fundamentals and it's taken a long time for the price to come back down and recover so I think the time to a lot of This is telling me the time to recovery is going to be faster than maybe what we saw in 2019. It took months after that 6,000 to 3,000 drop.

And I think it will be a lot like the COVID White Swan crash in 2020. We dropped below fundamentals there and we recovered in a matter of about eight weeks, I think. Yeah, this actually reminds me something I wanted to touch on at the very very. beginning because one thing that surprised me was that neither of you mentioned that the May 19th sell off was kind of like right around the time that taxes were due here in the U.S. And I did wonder, you know, because I did see other people saying that that could be a contributing factor. Do you guys both think that that could have been as well? I'm actually, I actually don't know too much about, you know, tax behavior in the U.S. I'm not a, I'm not a, I'm not a

resident there. I mean, if it is, and people often point to that, right, when spring is here, that it does have an effect. And always when we see those dips around that period, right, on a yearly basis, essentially, it's being pointed out as, you know, one potential factor for the, for the, you know, for the corrections, for the dips and for those price drops. From my perspective, though, you know, this year, you know, the Black Thursday last year and so on, they definitely go beyond that, right? And I think there's, you know, these more obvious factors that led to, you know, those more extreme corrections than they usually happen. but but but but overall it seems like you know there is you know there is some some effect due to you know taxis and in the US on the price I from my perspective I wouldn't you know over overestimated too much but but but it's probably probably plays some role yeah I'm just

realizing I asked two non-Americans this question yeah but I know you that is that thing Walk away in May, I think. Now I know it's maybe because it takes reason. But it's normally in April. It was only pushed because of the pandemic one month. Oh, okay. Yeah, because it's normally April 15th. And this year it was May 17th.

I can't remember why. I'm looking at the chart. It's something to do with COVID. And it doesn't seem to backtrace that great. You know, like a lot of times in April it's climbing quite rapidly in the Bitcoin price history. So, no, I don't know. I don't know.

Even like now, I think we're in the era where a lot of people are choosing to not sell their bitcoins to pay down taxes because that incurs even more taxes. They might just collateralize it and get a blockfire loan. So, you know, more leveragement system. But I noticed that people are doing that rather than to incur a tax event on capital gains with their bitcoins. Yeah, yeah. And I was going to say it could be a bunch of the defy yield farmers, but since there isn't a huge overlap with the Bitcoin community, it may not be the case. All right. One other of your favorite metrics, Willie, is SOPR. I actually don't know what that exactly stands for. I know how you define it. But can you give us the definition and explain what it is that that says about the market now? sure this is renato's metric who called it spent output price ratio um so profit ratio profit ratio sorry profit ratio um yeah so essentially um let's say we'll pick a day and we'll get someone to count um every coin that passes um between um let's say investors we're actually we just

look at between wallets um but let's say the ideal case is investors. Glassnote actually does it for investors. And you go, all right, those coins moved. And you can, because the blockchain tells you when those coins arrived in that wallet, you know the price that the seller sold those coins for. And now you know today, this is the price they sold it for. So you can get a profit on that. That guy sold for, you know, maybe $50,000 of profit with all those coins. And that person sold at a loss because they bought it a higher. pricing. And so you kind of do a ratio of the profit that is transacted during that day. And you can say you get this readout, you get this chart. And typically what you see is this chart,

you know, in a bull market, the price runs up higher and higher and higher. So anyone who's transacting coins is obviously moving coins that are now at vast profit. And so once the price starts to tip, you know, like the people are now like selling their coins and some of them are selling at a loss because it's now possible to sell the loss because it's coming down in price they bought earlier when it was higher. And generally what you see is, you know, as it goes down, more and more people sell because they're taking the profit that they've got on the table while it's still in hand. So this is this profit taking coming as SOPA goes down and down and down and down until

it hits the 1.0 line, which is like there's on average the coins that are moving between investors in the market are no longer carrying any profit. And so typically in a bull market, no one wants to sell a loss, so the selling stops and the price bounces up. So SOPA is this really nice kind of chart that tells us, you know, when does the profit taking And when it hits 1.0, there's a high chance the market will no longer sell at a loss if we're in a bull market. And so, yeah, super in a nutshell.

All right. So we're running out of time. So I want to touch on a few things before we wrap up. But one is obviously a huge trend in Bitcoin. The last like nine months, 10 months has been corporate treasuries buying at Bitcoin. And after this winter's Bitcoin for corporations event that micro strategy held, I kind of expected we would start to see, you know, after some time period, another steady drumbeat of corporate news about Bitcoin being added to treasuries. But it's actually kind of died down a bit. And I wondered if you're seeing any evidence on chain or even just hearing from the industry, you know, where that's going.

Is that a trend that has kind of died out, or is it just something that takes well because we're talking about corporate treasuries here? Or where do you think that is headed? So from my perspective, it's something that will continue, right? And that continues. The thing is that, you know, what you hear is obviously, you know, publicly traded companies and only those that started those processes very early on. and to get those, you know, Bitcoin on their balance sheets.

We have to remember that those are, you know, those are processes that, you know, take, take quite some time, right? It's not, it's not like, hey, no, let's let's, let's buy and then that's it. So, you know, now that the infrastructure is, is essentially there, that, you know, wasn't simply there a couple of years ago and for sure not during the last bull run, this, this is now possible for those, right? And I think what we heard so far are those that really started, you know, just setting up their Bitcoin strategies very early on. And from what we saw on chain, this might have, you know, cooled off a bit when you look at, at least when you look at, you know,

large whale entities on chain. I mean, of course, they're not always, you know, one mapped one-to-one. Many of those are not holding their coins in self-custody, but use services for that. But I think that we'll hear much, much more of those in the upcoming months. And I think so because I believe that you're probably risking a lot if you don't have a proper Bitcoin strategy nowadays. And also because, you know, what we hear out there are the publicly trade companies. But, I mean, Oslo, like, you wouldn't believe, like, what conversations were having at times, right? There is hedge funds. There's family offices.

There is big high net worth individuals. There's really, you know, a lot of, like, big private folks that are looking into this. And if those are, you can imagine how many, how many others are. So I think there's a lot of things going on behind closed doors. And it's, from my perspective, it's just a matter of time until these start popping up more and more and announcing, you know, their holdings. Willie, do you want to add anything? Yeah. I also think that there's, again, I agree it's a timing thing, you know, like,

I believe Michael Saylor said that it took micro strategy six months to get prepared to actually deploy into Bitcoin. And they were very fast, but most companies would take nine months or even longer. And so I kind of started the clock ticking from when that conference kicked off and said, well, let's go six to nine months, probably nine months. and I was like, that's going to be very, very interesting. If those guys really do deploy and it is going to be in that time frame, we're looking at a fourth quarter of this year of buying from large ticket sizes, which is typically what we kind of expect. That's the time where the bull market starts to wane.

The momentum starts to die out around there. but if those guys come in, I'm thinking that's going to make a very interesting fourth quarter because, you know, most of the models predict or are just guessing that like past cycles, we might top out near the fourth quarter. So it's an interesting timing if this money starts coming in all around then. Yeah, we'll have to see. So one other kind of wild card is that I did notice in some of the recent analyses, GlassNode has referenced holders rotating in ETH, as I mentioned before. And I'm sure you're well aware Ethereum is going to be instituting probably the biggest change to its monetary policy ever. And it's one that many people believe

will make ETH deflationary, which from this is my personal perspective, but I feel like then this is the first time where Bitcoin and Ether kind of will compete in that regard because even though there has been a narrative that they're competitive or whatever, you know, to my mind, they're kind of just different things. And if you're, if you really understand what you're doing with your money, then when you put your money in one versus the other, it's for different reasons. That's my perspective. I'm sure many people don't actually really do the research to understand on that level. But anyway, still, given this change to Eats monetary policy, how do you expect that that will impact the price of Bitcoin going forward now, that they will

compete, you know, in this kind of deflationary sense? Yeah, I think in terms of a, you know, a store of value asset, I think Ethereum has been competing for a long time now, even as early as 2017, it was very young back then, but now we've had maybe getting on six years of price action history. We've had a lot of, a lot of the kind of properties you want to see in a store of value asset develop inside the Ethereum. network. Even though it's like a smarts contracts network and we have defy running on it, I think a lot of the value that has accrued to Ethereum is really people wanting to hold it, locking that up. And I think, yeah, it certainly does impact the valuation metrics if you're

going to reduce the inflation significantly. Yeah, I think that's what I'll say is that it is developing those lindy effects. And I have seen that, you know, it is becoming a choice for corporate treasuries. It's starting to, yeah, where previously the conversation was just Bitcoin. And is that because of this change? I would not know. I would not know. I think that for me looking at this as an analyst, I go, well, actually, if you look at,

if you look at the Sharp ratio, the risk of adjusted return on this network. It's very similar to Bitcoin. And I think that the traditional world is very, very comfortable with diversifying and having baskets rather than all in one asset. Raphael, do you have an opinion? Yeah, I think, you know, I'm more on the side of, you know, those are not competing networks. I'm not quite sure if, you know, this will really grab so much.

much of of Bitcoin. I think Bitcoin is still, you know, regarding its history, regarding its simplicity or regarding, you know, this very, you know, static and monetary policy that is, you know, has been established now for 12 years. It's still something that, that, that, that, from my perspective and where I believe, you know, serious money at this stage is, is probably be more clients to deploy. Because, you know, Ethereum has just made other choices, right? And, you know, this change is experimental, right? I mean, it will have to see what, like, how much and what it actually does to it.

It goes into that direction, right? It points towards, you know, doing something similar. and making the asset, you know, deflationary. But it's still, still, still, I still view it as, as, as, as, you know, something, something, you know, on the side and not, not competing and, and, and, you know, grabbing, grabbing capital off of, of Bitcoin, at this stage, at least. and we have to observe how this actually plays out and what it does with the ecosystem. I think a lot of interest, though, comes from the fact that there's just so much development happening in this ecosystem. So many things being built on top of it and so much more things that you can actually do now holding Ethereum in those decentralized protocols, then you can, you know, in Bitcoin.

And that makes it very interesting for many investors, I believe. Yeah, yeah. When Mark Cuban came on my show, he felt like because of the number of things that one can do with Ethereum, that that might be the coin that more people end up holding, which is kind of interesting. And, you know, that for me was a fresh idea. All right. So for you, what are you looking for to determine whether, you know, you know, when we'll flip back to a ball market or do you think we already are?

And going forward, why don't we say August and then end of year, what would be your price predictions for those two moments in time? Well, I'm actually very careful with press predictions as everyone is probably. So my answers to this are usually a bit more fuzzy. I think we haven't exited a bull market at the stage from an on-chain perspective, from a structural perspective. There's little that points to that. So as of now, I still believe that, you know, this is a correction, a big one within the bull market, but we're still on track. seems to be looking a bit like the 2013 double top, if you will, if you take the 65K as the first top

and now this, you know, this correction a bit longer. I feel like I'm, I don't know if I'm as optimistic as Willie is with, you know, how fast we'll go back up. At this stage, I feel that, you know, the downside risk right now is very, very small, but I still wouldn't be very surprised if we get another burst of pain and another kind of, you know, shakeout before, you know, we start, we start, you know, properly, you know, regating the trend, the, the bull market trend essentially over the next couple weeks and months. But, yeah, structurally, I think we're on track. And it's as long as the data doesn't tell me anything else, I remain bullish.

And we'll see where we end up towards the end of the year. Willie, what about you? Yeah, very similar. The structure is not bearish. If this is a bear market, it's the weirdest, weirdest down the bear market of ever seen. And if it keeps dropping from here, like it's like, what's wrong with this

network is it broken? It's we're very, we're very oversold. There's people joining. We you know, we haven't even dropped from a high mania phase, which is very consistent for bare markets. They ended up, they end with a

bull market pop and then we have to revisit fundamentals. Yeah, we were already at fundamentals when this thing sold off. So I think that will rebound relatively well soonish and I don't think it's going to be

multi multi months longer than two months. But you know anything can happen in these markets. Yeah I think that we'll we'll climb back up with I'm pretty confident that there's nothing in the data that shows me this is this is serious.

You know the most bearish thing I can find on the network is that capital was moved out of the network in terms of realized cap, which is, you know, good metric on how much this stored there. And so that's dipped quite a bit. And I haven't seen that before in the middle of the bull market. So there was some significant sell-offs. And just remind listeners what realized cap means?

It's a sum of all the coins sitting in wallets at the price that investors paid for those coins. So that's dropped. That means that people sold higher up and now realized CAP is no longer capturing a higher value of those extra high coins. And this is one of the things that typically rises very easily and very seldom does it drop. And it has dropped at a level which is consistent of a start of a bear market. But once again, it does not agree with some much more telling metrics like the number of new entities. that we're seeing on the network. And the number of users coming on board some of the companies that I have the data on.

So, yeah, customers are coming in, new users coming in. That's a bull market. It's just a matter of when those coins will be reabsorbed and bought and held, which. And so if you were going to give your August and end of your price predictions, what would those be? Oh, August is tough. but like I'm looking at, you know, I have a model which is just a moving average of, you know, the market cap and you tweak a little. It captures all the tops in history. It probably won't catch this one because everyone's looking at it now.

But that was prior to this crash. That was starting to look like it was winding up to three, four, even $500,000 near the end of this year. now it's starting to reduce its trajectory. It looks like it'll comfortably reach 200 to 200. It might reach 300, but we have to see how that develops. So, you know, once again, it's like, I'm just naming this model. I'm just reading what it's pointing at, but it keeps changing. So I'm safe there, right?

Okay. All right. Well, we'll have to see what happens at that time. and circle back. So thank you both so much for coming on Unchained. Where can people learn more about each of you and your work? Okay, I'm on Twitter as Woonomic. You can read my tweets there.

I usually put my analysis on there. If you want a bit of a deeper view into the market, I do have a newsletter that you can subscribe to and that's linked into from my Twitter account, Wunomic. Yeah, I'm Neo-Cortex. On Twitter, the first E is a three. Otherwise, my company is Glasnow at Glassnote on Twitter and Blasnot.com for data, charts, and a newsletter as well.

Perfect. Well, thank you both so much for coming on Unchained. Thanks very much, Laura. Really enjoyed it. It was a pleasure. Thank you. Thanks so much for joining us today. To learn more about Willie and Raphael, check out the show notes for this episode.

Unchained is produced by me, Laura Shin, with help from Anthony. Anthony Yoon, Daniel Ness, and Mark Murdoch. Thanks for listening.